Loyalty Programs Effectiveness and Customer-Company Identification

Abstract

In the current competitive market, specialists and experts have underscored the importance of close connections with clients for an effective business. Organizations are being differentiated to pull in potential clients and hold existing ones. It is acknowledged that loyal customers generate prominent incomes and benefit and maybe somewhat, expanded market share. Hence, it is a profitable idea to have an association towards client loyalty. Literature review revealed that introduction of loyalty programs is a prevalent instrument through which firms differentiating themselves and, in that capacity, these programs have turned out to be one of the real determinants of organizations’ accomplishment. Customer loyalty programs are characterized as defensive marketing instruments structured by organizations to change the customers personal conduct standards in long term by giving them motivators, so they stay with a particular brand or company. The results of article both empirically and conceptually sets up a deep investigation system that can help marketing managers and specialists assess and improve dedication program adequacy.

Full text

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Loyalty Programs Effectiveness and
Customer–Company Identification
Thanaporn Sriyakula, Kittisak Jermsittiparsertb,c*, Watcharin
Joemsittiprasertd, Chayongkan Pamornmaste, aFaculty of Business
Administration, Mahanakorn University of Technology, Bangkok, Thailand,
bDepartment for Management of Science and Technology Development, Ton
Duc Thang University, Ho Chi Minh City, Vietnam, cFaculty of Social
Sciences and Humanities, Ton Duc Thang University, Ho Chi Minh City,
Vietnam, dDivision of Business Administration, ASA College, New York,
USA, eFaculty of Business Administration, Mahanakorn University of
Technology, Bangkok, Thailand,
*Corresponding Author Email: b,c*kittisak.jermsittiparsert@tdtu.edu.vn,
aajbamut@gmail.com, dwatjoemsittiprasert1@a sa.edu,
echayongkanp@hotmail.com
In the current competitive market, specialists and experts have
underscored the importance of close connect ions with clients for an
effective business. Organizations are being differentiated to pull in
potential clients and hold existing ones. It is acknowledged that loyal
customers generate prominent incomes and benefit and maybe
somewhat, expanded market share. Hence, it is a profitable idea to
have an association towards client loyalty. Literature review revealed
that introduction of loyalty programs is a prevalent instrument through
which firms differentiating themselves and, in that capacity, these
programs have turned out to be one of the real determinants of
organizations’ accomplishment. Customer loyalty programs are
characterized as defensive marketing instruments structured by
organizations to change the customers personal conduct standards in
long term by giving them motivators, so they stay with a particular
brand or company. The results of article both empirically and
conceptually sets up a deep investigation system that can help
marketing managers and specialists assess and improve dedication
program adequacy.
Key words: Marketing, Loyalty Program, Customer–company identification.

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Introduction
Loyalty programs are broadly utilized in relationship advertising. The present loyalty reward
projects give particular treatment to their high-paying or frequent customers (Wetzel et al.,
2014). Customers are isolated into well-characterized levels depending on their spending
levels. Reliability programs offer extraordinary advantages to the company's best clients,
including hard advantages (e.g., rewards) delicate advantages (e.g., acknowledgment). In the
new stratified client society, those at the top of the hierarchy appreciate access to exclusive
services and remarkable degrees of individual consideration (Liu and Mattila, 2016).
In the existing econo mical trade setting, analysts and professionals have underlined the
criticalness of close customer connections to an effective business (Kang, 2016; Mullins et
al., 2015). As a significant method for customer relationship management, loyalty programs
discovered extensive usage in airlines, grocery stores, hotels and other enterprises and these
plans have pulled in impressive enthusiasm among specialists (Ivanic, 2015; Liu and Mattila,
2016; Jermsittiparsert, Sutduean, & Sriyakul, 2018).
Loyalty projects utilize numerous kinds of systems to draw in and hold faithful clients. A
portion of these techniques include: enabling clients to collect emphases, miles or other
program-explicit monetary standards for procurement of prizes, for example a concrete
rewards-based technique; providing clients better treatment or administrations that are not
accessible to other people, for example, need boarding, for example a particular treatment-
based methodology; or blessing clients with favoured status or first class enrolments, for
example an apparent status-based procedure. These techniques expect to incite desirable,
benefit producing client behaviours, for example, retention, loyalty and share of wallet (Ma et
al., 2017). Notwithstanding, Shugan (2005) contended that programs of loyalty produce
liabilities for organizations and not future incomes. We may likewise discover that
individuals of loyalty programs demand lower costs, benefits or additional contemplations
from organizations. These nonsensical practices can be comprehended as entitlement
behaviours that undermine income and profitability (Wetzel et al., 2014).
The development and extension of Loyalty Programs worldwide in enterprises from
hospitality to retail to entertainment has quickened due to the phenomenal pace of
globalization and digitalization. Reward or dependability programs (LPs) plays a
progressively significant part in retaining shoppers, invigorating utilization and creating
connections. The redemption rates of Loyalty Programs are low for the world's biggest LP
supplier, Simile.io, averaging around the globe: 13.67% (McEachern, 2018). The breakdown
demonstrates that low redemption rates are predictable crosswise over societies: 9% for
Indonesia, 17% for Singapore, 12% for Hong Kong, 14% for New Zealand, 14.8% for the

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United States, 15% for Australia, 15% for the United Kingdom and 16.8% for Canada
(Morgan et al., 2019).
Theoretical background
Loyalty of customers & Loyalty programs
The customer’s frame of mind, willingness to purchase and conduct to incline toward one
brand over all the other competitor brands due to fulfillment with the item or service is
known as “Customer Loyalty”. It is the condition which make the customers to shop more.
Since loyalty is the outcome of past positive encounters creation with the customers and
having them returning to the company again and again because of previous positive
encounters, regardless of whether they might not have the best item, cost or service
conveyance. It is being said that loyalty is added of a repetitive action. Customers can
illustrate dependability to value, brand, business and different clients. Though, satisfaction of
customers to the company influences them to shop from there due to improved services. This
expects the essential components that influences loyalty of customers: consumer loyalty,
emotional bonding, trust, decision propensity and history of company (Magatef & Tomalieh,
2015).
Consumer loyalty with the products or services is seen as an approach to organization’s
prosperity and long-term competitiveness. Therefore, the motive of organization should be to
move a fulfilled customer to faithful customer. Customer commitment is a consequence of a
positive enthusiastic experience, physical trait-based fulfillment. Loyalty programs are
organized showcasing endeavours that reward and, in this way, energize, steadfast purchasing
conduct, which is advantageous to the firm. Reward programs are presented to those
customers making purchases every now and then. Loyalty program is beneficial as it gives
customers access to new items, uncommon deals coupons or free products. Registration of
customers’ own data with the company and it becomes the reason that proves beneficial to
customers as they can do cumulative purchasing over time. Loyalty programs plays a major
part in developing customer relationship by offering the points, rebates, discounts etc.
Loyalty offers support to the customers and is a tool which can build loyal customers, by
offering company’s a chance to accumulate data about customer shopping preferences which
in future helps modify the services of company (Magatef & Tomalieh, 2015).
The point of loyalty projects is to distinguish and support those customers showing a high
customer lifetime value (CLV), we advance a view that regularly isn't observed in CLV of
existing customers. For instance, almost all customers start their connections with the firm as
observers, but if they feel firm’s behaviour as unreasonable to them, they may think that it’s
hard to later build up a firm relationship. As indicated in research, getting a reward evokes
gratitude of that target customer towards the organization (Steinhoff and Palmatier, 2016).

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Customer–company identification
Loyalty projects are utilized in organizations to remunerate and energize repeat support. The
prizes or advantages of such programs can be either monetary/financial or non-
monetary/social. CCID as distinguished by researches as a compelling sociological system
through which devotion projects can keep up relationship-based client devotion and fabricate.
This creates a need for progressively centred research for advantages of devotion programs
and fills the research gaps required in CCID. In the setting of reliability programs, a more
profound relationship and identification with the organization, specifically CCID, is
developed due to non-financial advantages provided to the customers. Identification of
customers links clients and their characters to the company’s image, representatives and
brands. CCID is subsequently a significant aspect of the client organization relationship
which keeps the clients associated and is a key pointer of relationship value (Brashear-
Alejandro et al., 2016). Great results are prompted by CCID, for example, faithfulness, share
of wallet, positive informal and eagerness to pay (Netemeyer et al., 2012).
Conceptual model
The theoretical model and study speculations found in Figure 1, pursue a loyalty formation
structure utilized in earlier study writing. Within this structure, formed of program value,
program faithfulness and company loyalty, the current study centres around the impacts of
monetary and public advantages on loyalty programs and therefore the loyalty of
organization. In loyalty programs, clients are likely to create relationship-based reliability to
the organization just if the program of loyalty offered is useful and the clients have great
frames of mind toward the program. As per this procedure, CCID is a driver of relationship-
based faithfulness and in this manner gives a potential connection among program loyalty
and loyalty towards organization. In expansion, customer loyalty can be managed
distinctively by program loyalty and company loyalty; client dependability to a program as
opposed to the organization speaks to a double-edged sword. Both positive and negative
outcomes are evaluated of client loyalties, this examinat ion incorporates both client share of
wallet and inactive monetary risks.
Hypotheses
Constructing program loyalty
Loyalty programs are formulated to encourage customers to buy more, build connection with
the company and encourage more loyal customers (Hughes, & Ahearne, 2010). Loyalty
programs, through promotion, contribute emphatically to improve buys and product
consumption. Depending on instruments; their aim is to retain customers having a high
financial worth. These benefits created the frequency of buying and the number of averages

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buys a customer makes. The more purchases made by the customer from the same company,
the increment of profit also increases. This in return creates a trust between the vender and
buyer. It is simpler, as indicated by a few specialists, attract non-purchasers and to increase
sales based on trust because, the expense of new client is multiple times higher if we compare
it with the cost of keeping a client acquired. The authors Vesel and Zabkar in 2009 affirm this
and characterize the loyalty program as a discriminative advertising instrument that prizes not
just the frequent yet furthermore the reliable clients.
Figure 1. Conceptual Model.
The customer loyalty benefits the company in long run, hence below st atement is
hypothesized:
H1. The fina nc ia l benefit a loyalty program o ffers relates positively to pro gram loyalty.
Customer loyalty enables the organization to proceed the business relationship from time to
time and to set up and create a history. Loyalty develops from a dream based on the
necessity's fulfillment to a societal vision. It is communicated by duty and trust between the
trades on-screen characters. It is a dynamic idea that is created by fortifying shared duty and
trust in accomplice. The organization points, through fulfillment, trust and responsibility, the
dedication of its most beneficial clients. As indicated by, dedication is estimated by
enthusiastic and intellectual states. They can be showed by attitudinal loyalty, protection from
resisting offers, affinity to be loyal, complaining behaviour intentions and loyalty (Bahri-
Ammari, 2013). A sense of belonging fulfils emotional belonging of the consumers and
maintains a relation with the customers hence below statement is hypothesized:

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H2. The so cial benefits a loyalty program offers relate positively t o program lo yalt y.
Constructing loyalty for company
Loyal customers tend to develop more good relationships with the company sponsoring them
for gifts and discounts. Customers can also interact directly with the company by gaining
access to the information. The perception of customers towards company influences customer
company identification and they view attributes of company more attractive (Kang et al.,
2015). The development of loyalty to store, in return lessen the negative side of the store, if
available and is augmented by the positive effects (Krithika & Ganesh, 2013).
H3. Pro gram lo ya lt y relat es positively to customer –company identification.
Customers bring out commitment towards the individuals who treat them well or offer some
incentive (DeWulf et al., 2001). In this manner loyalty projects can make full of feeling duty,
general positive respect for and connection to, the association. As such loyalty programs
purchases not only increase the buys but also gains client dedication.
Positive effect of loyalty cards has been observed in previous literature on expanding client
unwaveringness. This is once more accentuated by Gilbert who stated, "reliability cards plan
to construct additional noteworthy client unwaveringness and maintenance; longer-term
connections are be created by techniques and lead at last to expanded deals and benefits".
H4. Pro gram lo ya lt y relat es positively to company loyalty.
Results of Loyalty Programs on company loyalty
Customer–company identification states the essential psychological substrate for profound,
committed and significant connections that advertisers are progressively looking to work with
their customers. CCID prompts positive results, for example, dependability, share of wallet,
positive word of mouth and eagerness to pay. Customer identification sets the customers
linkages and their identities to the organization’s image, brands and employees. CCID is in
this way a significant aspect of the relationship between customer-company which keeps
clients associated with firm and is a key marker of relationship value (Ronald & Amelia,
2017).
Loyalty, share of wallet, positive word of mouth and willingness to pay are the promising
consequences of CCID. Rise in customer spending and capturing share of customer wallet are
the results of loyalty programs (Brashear-Alejandro et al., 2016). Having a formal connection

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(e.g loyalty cards) with the company provides a promising state for identification and to build
CCID, hence below statements are hypothesized:
H5. Customer–company identificat ion relates positively to co mpany loyalty.
H6. Program loyalty relates positively to share of wallet.
Positive Results of Loyalty Programs
Loyalty programs are characterized by the American Marketing Association as " continuity
incentive programs a retailer offers to remunerate clients and energize repeat business"
(Dorotic et al., 2012, p. 218). Accordingly, principle objective of loyalty projects is to set up
and improve client connections (Steinhoff and Palmatier, 2016) to produce an unfaltering
income stream. The present examination has inspected the loyalty programs viability in
creating faithfulness of clients (Stathopoulou and Balabanis, 2016), empowering repeated
buys (Steinhoff and Palmatier, 2016) and expanding share of wallet (Verhoef, 2003),
altogether of which conceivably lead to expanded inco me and benefit. Given that adjacent
associations with clients might upgrade organization execution, client connections can be
interpreted a loyalty program generating positive results.
H7. Program loyalty relates positively to company latent financial risk.
Negative Results of Loyalty Programs
Wetzel et al. in 2014 declares that loyalty programs offer companies to endorse close
relationships which in return increase the company’s performance. It also results in proposing
extra privileges which results in the decline of profits. Loyalty programs have negative
effects as well.
Shugan (2005) contended that loyalty plans are contradictory to marketing connections since
they extricate short-term income from clients, while creating significant future commitments
to them in return. Considering the investigation by Wetzel et al. (2014) called attention to that
prioritization methodologies prompt clients to turn out to be excessively request ing and
demanding. Their discoveries show that loyalty program individuals feel qualified for
solicitation for additional endeavours by organizations, that is, privilege behaviour. Earlier
research has talked about the negative results of client entitlement. Client entitlement
behaviours can undermine profitability of account, such as lower prices and these privilege
actions proliferates the cost of service which ultimately causes profits reduction (Wetzel et
al., 2014), adversely influence the physical and mental prosperity of laborers (Fisk and
Neville, 2011), consumer faithfulness reduction (Zboja et al., 2016) and challenge perceived

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fairness. In this exploration, we also analyze about customer qualification practices to have
an undesirable result of loyalty programs.
Taking everything into account, most existing exploration centres around the positive impacts
of loyalty programs. Yet, constrained writing investigates the negative results of these
projects, which thus constrains the capacity of scholastics and experts to completely
comprehend these projects.
H8. Company loyalt y relat es negatively to company latent financial risk.
Methodology
The information was accumulated fro m online panel members of loyalty programs in
Indonesia. Snowball sampling is used for the investigation of distinct loyalty behaviours to
recognize the online respondents. Loyalty studies use convenience tests (e.g., Liu and Yang,
2009) and give a sensible way to get to specific networks without the involvement of
resources. The authors additionally qualified the board of members by guaranteeing every
respondent interest in any one of the loyalty program and acts as a purchase leader. Total of
580 purchasers were considered, 47% of whom were ladies, the average age of them is 29
years, similar to tests in past investigations of customer loyalty (Kwon and Lennon, 2009)
and CCID (Lee et al., 2011). At start of the study, respondents are asked to keep that loyalty
program of which they are members in their mind through the survey.
Measures
This examination utilized Likert scales measures (1 = "strongly disagree," 2 = " disagree," 3
= "neutral," 4 = "agree," 5 = "strongly agree"). Appendix 1 displays measurement items,
factor loadings, psychometric properties and sources. The money related and social
advantages views of respondents earned through the loyalty program, as indicated by a few
regular loyalty program attributes.
To evaluate apparent money related advantages, rewards, prices and in general financial
value are included in survey (Palmatier et al., 2007) (α = .69). For social benefits, this
analysis estimated employees with customer acquaintance, personal recognition and
friendship development (α = .80).
The measure of program loyalty utilized a three-item scale from Yi and Jeon (2003) (α = .80)
while company loyalty depended on three items adapted from Palmatier et al. (2007) (α =
.88). Every estimated item referenced either organization or the program, to abstain from
confusing program loyalty questions with company loyalty questions.

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For the measurement of CCID, three items adapted from Homburg et al. (2009) ponder (α =
.82). Share of wallet showed the level of future purchases intended by the respondent to make
through the present loyalty program, as indicated by a proportion scale (Meyer-Waarden,
2008). The standardized estimation of ratio showed up in the estimated model account for the
different products and service categories. However, scale used in paper by Palmatier et al.,
2007 is utilized to measure latent financial risk, showing the level of a respondent's buys that
would move if a loyalty program finished.
Analysis
Considering the nature and study sample size PLS-SEM method is su itable. In PLS-SEM, R-
square values are used for model evaluations of the dependent constructs and the effect size,
significance level and t-values of the structural path coefficients. The assessments of t-values
and standard errors originated from a procedure of bootstrap resampling (Kang et al., 2015;
Anyanwu,et.al 2016).
Results
Validation
Multi-item scales constructs are connected to build construct reliability, convergent validity
and discriminant validity tests. Appendix 1 displays each latent construct psychometric
properties and Table 1 shows their intercorrelation. The outcomes show adequate reliability
and validity. In support of the reliability of the multi-item scales, Cronbach's alpha qualities
(α) and composite reliabilities (ρ) were over .69. Values of all average variance extracted
(AVE) were more noteworthy than .49, adequate convergent and discriminant validity is
being shown as the value of each construct AVE was more noteworthy than the squared
correlat ion with any other construct.
After the estimation of the structural model which uses a single, latent method variable in the
structural model analysis, an examination uncovered that the path coefficients remained
significant (see Appendix 2).
Structural model and hypothesis testing
The outcomes affirm the hypotheses. Table 2 contains the evaluated path coefficients, t-
values and R-square values estimations of every construct. Specifically, positive relation
between financial benefits, social benefits and program loyalty is affirmed by value .55 for
H1 of standardized path coefficients and .15 for H2. H3 also gets support by predicted
positive relationship between program loyalty and CCID (γ = .56, p b .01). If we talk about

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H4 and H5, program loyalty (γ = .29, p b .01) and CCID (γ = .54, p b .01) positively relates to
company loyalty, separately.
The outcomes affirm H6, a positive outcome on program loyalty is anticipated on share of
wallet of customer (γ = .20, p b .01). At last, for H7 and H8, program loyalty has a positive
impact (γ = .17, p b .01), though a negative effect applies on company loyalty (γ = −.15, p b
.01) on financial risk of the company.
We can conclude it by saying that combined impact of program loyalty on company latent
financial risk is positive but not significant (γ = .08, p b .10). The R square values for
program lo yalt y is .35, company loyalty is .44, company latent financial risk is .01, value for
share of wallet = .03 and CCID is .33 which confirms that model explanatory power is
rationally high.
Table 1: Descriptive statistics and correlations (N = 580).
Construct
Mean
SD
1
2
3
4
5
6
7
Financial benefits
4.00
.60
.72
Socia l benefits
2.25
.97
-.02
.84
Program loyalty
3.78
.70
50a
.13a
.88
Customer–company
identification
3.61
.75
.33a
.25a
.55a
.85
Company loyalty
3.72
.73
.32a
.20a
.61a
.69a
.90
Share of wallet
.60
.29
.24a
.02
.20a
.12a
.21a
-
Company latent
financial risk
.49
.32
.13a
.02
.10
.01
-.02
-.19a
-
Hypothesis Testing
Hypothesis are affirmed by the outcomes. The values of each dependent construct of
estimated path coefficients, t-values and R-square are in Table 2. Positive relation among
financial benefits, social benefits and program loyalty is shown by standardized path
coefficients values of .55 for H1 and .15 for H2. Support (γ = .56, p b .01) is also got by
positive relationship between program loyalty and CCID is anticipated (H3). In backing of
H4 and H5, company loyalty relates positively to program loyalty (γ = .29, p b .01) and CCID
(γ = .54, p b .01). The outcomes affirm H6, which anticipated a beneficial outcome on
program loyalty on customer share of wallet (γ = .20, p b .01). A negative impact applies on
company loyalty (γ = −.15, p b .01) on company latent financial risk however, a positive
impact has been seen on program loyalty (γ = .17, p b .01) in support of H7 and H8.
Altogether, the absolute impact is positive however not significant of program loyalty on

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company latent financial risk is observed (γ = .10). High explanatory power of the model
wit h R-square values for program loyalty = .35, company loyalty=. 54, CCID=.33, company
latent financial risk=.01 and share of wallet = .03 are analyzed.
Table 2: Structural model coefficients
Initial Model
Final Model
Coefficient
t-
Value
R2
Coefficient
t-
Value
R2
H1
Financial benefits →
program loyalty
.55
14.55*
.54
14.75*
H2
Social benefits → program
loyalty
.15
5.00*
.35
.15
4.58*
.35
H3
Program lo yalt y → CCID
.56
17.00*
.33
.52
15.29*
H4
Program loyalty →
company loyalty
.29
7.39*
.30
7.39*
H5
CCID → company loyalty
.54
12.9*
.44
.49
13.20*
.54
H6
Program loyalty → share of
wallet
.20
4.33*
.03
.20
4.39*
.03
H7
Program loyalty →
company latent financial
risk
.17
3.00*
.15
2.98*
H8
Company loyalty →
company latent financial
risk
-.15
-2.40
.01
-.15
-2.34*
.01
Socia l benefit s → CCID
–
–
–
.20
6.46*
.34
Notes: The t-value estimates used the bootstrap resampling procedure in SmartPLS (580
cases)
⁎ p b .01.
Mediation tests
Zhao et al. in 2010 investigated the program loyalty and CCID mediating role by looking at
nested mode ls. The F-tests of the contrasts between models shows whether the R-square of
each dependent construct demonstrates change (Cohen, Cohen, West and Aiken, 2003).
The outcomes demonstrate that program loyalty and CCID fully mediate the company loyalty
on impacts of financial and social benefits; the immediate impacts of financial benefits (F =
.13) and social advantages (F = .06) are not significant on company loyalty. Only partial
mediation of program loyalty with those of social benefits (γ = .22, p b .01; F = 19.70) and
fully mediates the impacts of financial benefits (F= 2.69) on CCID. Direct impact of program

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loyalty (F= 41.45) is significant on company lo yalt y, demo nstrating partial med iation in this
relat ionship by CCID. The direct path from social benefits to CCID is sho wn in last model in
Figure 2 below:
Figure 2. Final Model
Discussion
This investigation gives new research discoveries which plays a significant part for
relationship marketers on the role of marketing tools in managing CCID. It demonstrates that
CCID can be prompted through customer loyalty programs by investing in non-budgetary
advantages. This finding shows that loyalty projects provide extra assessment in the
formation of profound client networks. Traditional points of view on loyalty projects
empowers repeated buys through monetary prizes, also the financial trade on creating and
keeping up client connections (Ronald & Amelia, 2017).
This examination demonstrates that a relationship implanted in social needs and
collaborations can be created through CCID if non-money related incentives to loyalty
program individuals are utilized. There exist both loyalty programs outcomes i.e. positive and
negative. The strategies utilized by loyalty programs have constructive outcomes on
relationship quality. Our outcomes feature the difficulties related with creating productive
loyalty programs in administration and retail ventures, particularly those in profoundly
competitive settings, for example, airlines, hotels, banking and catering. Customer

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ident ification cannot be formed without persuading client sentiments of status even if the
rewards are delivered through a loyalty program.
Conclusion
As per the outcomes of the current study it is concluded that building and sustaining customer
loyalty programs is ver y important. It also me ans that loyalty program init iat ives can benefit
the company by retaining customers. Retailers and marketers attract customers by offering
certain sales promotion to increase their sales by providing different deals and additional
incentives. As it is also stated in the literature review retaining customers is less expensive
than to find new ones. Based on the above findings, we can say that loyalty programs play a
major role in improving consumers buying decision power. Research shows that customer
loyalty is improved through offering certain loyalty programs which impacts purchase
behaviour positively which increases profitability. The research would be beneficial in
designing tactics to stay in close contact with customers and to maintain relationship with
them by offering them rebates, discounts etc. It is important for the marketer to focus on
loyalty programs as a sales promotion tool to make it a perfect promoting strategy for
advertising of products.

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