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Loyalty programs are widely used by organizations as a structured customer relationship management (CRM) tool to build and extend customer-supplier relationship. Although a large number of benefits are offered through them to both companies and consumers, loyalty programs face a set of planning and implementation pitfalls. Scholars or practitioners rarely discuss such pitfalls. Thus, this paper intends to add further values to the current literature by exploring/investigating the main loyalty scheme pitfalls, both theoretically and practically. The study explores a set of loyalty program planning problems and some of the execution’s drawbacks, including clear aim need, loyalty program design, budgeting and experienced employee involvement. In addition to loyalty programs benefits and rewards offered, loyalty programs target customer selection problems using loyalty program promotional tools. For the study, 161 managers and employees who were involved in loyalty program planning and execution were surveyed. Smart-PLS was used to test the developed model and hypotheses. The study found that all studied loyalty program elements identified affected their planning and implementation. However, some of these elements were seen important to be considered when planning loyalty schemes, such schemes’ benefits and rewards offered were still not planned properly and did not meet customer needs or even expectations and, in most cases, the loyalty programs’ aims were not clear to all their stakeholders. The paper also provides additional discussion about additional issues of loyalty schemes planning and execution problems and proposes a set of solutions and recommendations, which might highlight some of the future venues with this regard.
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* Corresponding author
E-mail address: malshurideh@sharjah.ac.ae (M. Alshurideh)
© 2020 by the authors; licensee Growing Science.
doi: 10.5267/j.uscm.2020.2.003
Uncertain Supply Chain Management 8 (2020) 599–612
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Uncertain Supply Chain Management
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Loyalty program effectiveness: Theoretical reviews and practical proofs
Muhammad Alshurideha*, Anwar Gasaymehb, Gouher Ahmedc, Haitham Alzoubic and
Barween Al Kurdd
aUniversity of Sharjah, United Arab Emirates
bApplied Science Private University, Jordan
cSkyline University College, United Arab Emirates
dAmman Arab University, Jordan
C H R O N I C L E A B S T R A C T
Article history:
Received November 28, 2019
Received in revised format
January 30, 2020
Accepted February 11 2020
Available online
Februar
y
12 2020
Loyalty programs are widely used by organizations as a structured customer relationship
management (CRM) tool to build and extend customer-supplier relationship. Although a large
number of benefits are offered through them to both companies and consumers, loyalty
programs face a set of planning and implementation pitfalls. Scholars or practitioners rarely
discuss such pitfalls. Thus, this paper intends to add further values to the current literature by
exploring/investigating the main loyalty scheme pitfalls, both theoretically and practically. The
study explores a set of loyalty program planning problems and some of the execution’s
drawbacks, including clear aim need, loyalty program design, budgeting and experienced
employee involvement. In addition to loyalty programs benefits and rewards offered, loyalty
programs target customer selection problems using loyalty program promotional tools. For the
study, 161 managers and employees who were involved in loyalty program planning and
execution were surveyed. Smart-PLS was used to test the developed model and hypotheses.
The study found that all studied loyalty program elements identified affected their planning
and implementation. However, some of these elements where seen important to be considered
when planning loyalty schemes, such schemes’ benefits and rewards offered were still not
planned properly and did not meet customer needs or even expectations and, in most cases, the
loyalty programs’ aims were not clear to all their stakeholders. The paper also provides
additional discussion about additional issues of loyalty schemes planning and execution
problems and proposes a set of solutions and recommendations, which might highlight some
of the future venues with this regard.
.2020 b
y
the authors; license Growin
g
Science, Canada©
Keywords:
Loyalty program
Benefits and rewards
Loyalty program aim
Loyalty program budget
Loyalty program employees
Target customers
Promotional tools
1. Introduction
Loyalty programs have been extensively studied and widely-used as one of the main customer
relationship marketing techniques to retain loyal customers, and to extend customer-supplier
relationships by retaining switched customers or even to activating inactive customers (Alshurideh,
2016; Alshurideh, 2017; Alshurideh, 2014). However, the effectiveness and the obstacles of applying
loyalty programs have been rarely discussed in-depth in low-to-middle economies. Loyalty programs
in the Middle East are still in the initial stages of planning and adaption as one of the main customer
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relationship marketing tools. However, in the United Kingdom (UK), Sainsbury’s loyalty program has
eight million participants and Tesco’s loyalty program has 12 million customers in their club-card
database. It has been claimed that the United States’ (US) loyalty marketing is estimated to be around
a $6 billion industry within about 2250 different loyalty programs, and about 92% of UK customers
participate in at least one loyalty program with about 78% participating in two or more loyalty programs
(Berman, 2006).
Loyalty programs have been widely-researched in different business aspects, but little research with
published results discuss the effectiveness of loyalty program, benefits, their uses or measurements
(Lewis, 2004). As a result, loyalty programs often fail before starting their applications or have some
pitfalls in their planning and implementation. It has been claimed by Rigby et al. (2003) that a five
percent increase in customer retention might increase an organization’s profits by 25% to 95%. Thus,
it has been declared that true loyalty programs should exert more investment in customers as claimed
by Shugan (2005). In addition, additional investments should be exerted on other program elements
such as employees, technologies and factors such as logistics that help to make loyalty programs
successful. For example, technologies enable managers to handle sequence consumer software to build
and strengthen relationships with the best customers (Rigby et al., 2002). Therefore, when designing
loyalty programs, companies should bear in mind how to design these programs properly especially in
their early application stages. Some scholars such as Ashley et al. (2011) found that some customers
prefer loyalty programs that are easily accessed and used. Another important issue that drives customers
to be committed to the loyalty programs is to what level that loyalty programs are easily to be accessed,
easily to be registered with, create an account, used and get benefits from the accumulated purchase or
use in a constant basis. As a result, organizations and their management should commit to programs
with the same customer commitment levels. This is because one of the main challenges that face loyalty
program success and consumer participation is that both relationship partners should be involved and
committed to the process properly (Mulhern & Duffy, 2004). As a result, both long-term and short-
term loyalty program issues need to be reviewed again.
2. Literature: Why loyalty programs fail?
After reviewing a large number of loyalty program studies, a set of theoretical and applicable pitfalls
have been recorded, which led this article to report on the reasons for loyalty program failure. These
failures have been categorized into seven factors, which are loyalty program aims, loyalty program
employee and workers, loyalty program customer target, loyalty programs’ budget, loyalty programs
planning, loyalty program, and rewards types offered and loyalty program promotional tools used. Such
factors will be explained in more detail in the following part of this paper.
2.1 Loyalty program aims influence
One of the main issues that needs to be highlighted is why a loyalty program should be designed and
prepared. Researchers differ in explaining the aim of these programs or having a clear aim that can be
translated accurately to the target market. It has been explained in different situations that the aim of
the designing a loyalty program is to make the customer more loyal (Leenheer & Bijmolt, 2008), to
push customer behavior to reach a certain level (Leenheer et al., 2007), to make loyal customers receive
a certain amount or type of information (Leenheer et al., 2003), to form a group of behaviorally-loyal
customers (Bandyopadhyay, Gupta & Dube, 2005), and to increase the number of customers who are
solely loyal buyers to a specific brand (Sharp & Sharp, 1997). Sometimes, loyalty programs are used
as a brand extension aid (Uncles, Dowling & Hammond, 2003), or to bring in more non-loyal members
(Alshurideh, 2014; Hikkerova, 2011) or to repeat business (Omar et al., 2011). Some firms use loyalty
programs to increase customer retention or even customer development (Alshurideh, 2010; Kamakura
et al., 2005), while in other circumstances, they is used to increase regular customer’s loyalty
(Alshuridehet et al., 2017; Mimouni-Chaabane & Volle, 2010). The use of loyalty programs to create
new behavior, amend or change an existing behavior is still a dilemma and more evidence is needed to
M. Alshurideh et al. /Uncertain Supply Chain Management 8 (2020)
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support these claims. To sum up, it seems that loyalty program aims are not clear for both customers
and organizations’ employees who are responsible for executing them, and, as a result, more effort
should be given when planning loyalty programs and their interrelated incentives. Based on this
explanation, the loyalty programs’ aim influence can be described as:
H1: Loyalty program aims influence its effectiveness.
2.2 Loyalty program employee influence
It is important to remember that planning loyalty rewards is not the only mission for which the
organization is usually responsible. Other responsibilities include offering the right management and
determining to what level human capabilities are required to work on planning and executing such
programs. It has been claimed in different situations that loyalty programs have failed because of the
employees or managers who prepare, plan or execute the programs. Sometimes these personnel lack
the experience, training, and patience required when dealing with loyal customers. As human
interaction behavior is important for the success of loyalty program execution, loyalty program training
and education is critical (Ardts et al., 2001). Different ideas have been suggested to enhance employee
productivity such as communication, satisfaction, caring, commitment and loyalty. Organization
leaders were also a factor in determining the success of the loyalty program (Yukl, 2008). Employees
also seem to be playing a critical role in loyalty program success, as they are needed to orient customers
well, otherwise all efforts will be lost and the loyalty program will fail (Asiah et al., 2011). In different
situations, it has been claimed that happy employees lead to loyal customers (Atkins et al., 1996), and
having good human resource management is the key of competitive advantage when executing such
programs (Noe et al., 2017). In addition, it has become known that loyal customers need better trained,
skilled, experienced and even well-equipped employees to serve them better. By another means,
organizations sometime need to enhance their internal service quality to serve loyal customers better
(ELSamen & Alshurideh, 2012; Heskett et al., 1994).
It is very important to remember that loyalty schemes are designed to reward loyal customers for
staying longer and buying more. However, such schemes should take into consideration other partners
who are involved in such scheme implications such as employees who, in turn, help in achieving the
needed customer targets from implementing such programs (Ahmad & Buttle, 2002). Based on this,
one of the main issues that play a critical role in making loyalty programs successful is to compensate
those marketers or sales forces who are responsible for executing such programs (Leventhal & Zineldin,
2006). This is because the majority of loyalty programs fail to compensate those partners who should
take care of executing and following-up such programs effectively. Based on this explanation, the
loyalty program employee’s influence can be described as:
H2: Loyalty program employees influence its effectiveness.
2.3 Loyalty program planning’ influence
One of the problems that contribute to loyalty programs’ failure is that some of the loyalty programs
have been built and planned on unrelated dimensions such as consumer demographical dimensions (for
example, income or age). However, loyalty programs should be planned according to other customers’
interrelated dimensions such the behavioral dimensions (for example, purchase frequency visits,
purchased items, customer product-high involvement and transaction size) (Evanschitzky et al., 2012).
Accordingly, studying the target customers well is an initial success stage in preparing and, in later
stages, implementing the loyalty programs. In addition, it is good to remember that the majority of
loyalty programs are mainly managed by consumers themselves starting from filling the initial
personnel information till following the way of receiving the planned loyalty program rewards. Thus,
the targeted customers play an initial role in loyalty program (LP) efficiency and success, especially
when educated and leading customers know how to use such programs and employ their previous
602
experiences in such use. These are considered main issues in LP success and customers’ needs should
be considered properly when investigating the loyalty program’s effectiveness. It seems that customer
types, education, ages and location affect loyalty program execution and its success or failure.
According to Berman (2006), loyalty programs can be used by retailers to target special customers
precisely, especially the most profitable ones. Sometimes loyalty programs are designed for a selective
target to activate or drive a desired behavior by using different types of rewards, which customers
redeem in a specific way (Bushold & Shipley, 2002). One of the good loyalty programs uses is that it
can be used to target customers or classified or segmented them then targeted them easily based on the
loyalty program objectives (Ngai et al., 2009).
Scholars such as Kumar and Shah (2004) have identified that some loyalty programs fail because they
did not encourage the potential customer to spend more money and by the end did not increase an
organization’s profitability by implementing loyalty programs. Thus, failing to consider customers’
future purchase and repeat buying smoothly is a problem that should be considered proactively
specially when loyalty programs is used to send personalized marketing messages through mobile
marketing (Wegner & Wegner, 2013). As a result, the need to target loyalty program customers can be
described as:
H3: Loyalty program planning influence its effectiveness.
2.4
Loyalty programs’
budget
influence
It has been found that in different situations, loyalty program budgets and startup costs affect
developing an effective customer loyalty plan. For example, Shell spent between 20 and 40 million
pounds on developing its smart card loyalty programs, and Tesco initial data gathering cost was
estimated about 10 million pounds (Berman, 2006). One of the main problems that organizations face
is that they plan loyalty programs as part of marketing budgets without considering a real budget for
each loyalty program separately which making the process of evaluating the financial impacts of such
programs and measure their returns is not an easy mission especially when e-loyalty programs planned
(Smith, 2000). Another issue that can be highlighted is how organizations determine a communication
budget for the planned loyalty program customers. Promoting and communicating such programs is a
major part of their success, especially for loyalty cards programs (García Gómez et al., 2006). Based
on this explanation, the loyalty programs’ budgets influence can be described as:
H4: Loyalty program costs (budgets) influence its effectiveness.
2.5 Loyalty programs’ targeted customers influence
Loyalty programs preparation is an essential stage for launching loyalty programs. One of the critical
preparation issues is studying and choosing the right target customers. Identifying the correct target
customers helps in having more details about how to implement the loyalty program properly. This is
especially important as some customers are not happy to enter into long-term relationships with
suppliers, and multiple cardholders are often less likely to stay loyal nowadays (Meyer-Waarden,
2007). Some loyalty programs have been built to sell products or services that are not wanted by
customers. Thus, these programs will not enable organizations to build relationships with customers
who place little value on such programs (Rigby et al., 2002). Preparing customer and user minds and
inspiring them to acknowledge and accept these programs and respond to them appropriately is also
important (Warrick et al., 2015). To confirm this, some studies have denoted that loyal customers can
advocate the loyalty programs themselves as well as the organizations or even the brands (Dowling &
Uncles, 1997). Additionally, some targeted customers are not expected to transfer to brand loyalty in
most loyalty schemes cases especially when there is a low-involvement situation (Yi & Jeon, 2003).
Sometimes, the time, place and tools used do not match the customers’ readiness to accept the program
itself. As a result, Rehnen (2016) explains that part of the program loyalty induction strategy is
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preparing and implementing the loyalty program correctly and choosing the proper method to inform
the target recipients through clear and direct campaigning. Therefore, the loyalty programs’ targeted
customers influence can be described as:
H5: Loyalty programs’ targeted customers influences its effectiveness.
2.6 Loyalty program and rewards offered influence
One of the main questions that organizations need to answer carefully and plan well for when designing
loyalty programs is the type of rewards and incentives their customers prefer (Jang & Mattila, 2005).
These incentives are important and need to be identified as they usually attract customer attention, and
are seen as important from the customer’s perspective. In addition, they encourage customers to enroll
in loyalty programs and sign long-term contracts with suppliers easily (Al Dmour et al., 2014;
Alshurideh, 2017; Alshurideh, 2016a). This is especially so when customers feel that the rewards are
planned according to their needs (Alshurideh, 2014). As a result, loyalty programs should be planned
and adopted to satisfy different customer need types (Alshurideh, 2019; Dowling & Uncles, 1997).
Many scholars have linked customer loyalty and customer involvement (Al-dweeri et al., 2017;
Skogland & Siguaw, 2004). Therefore, special care should be exerted when planning the reward types
that should be delivered to meet customer needs, preferences and involvement. The better-planned
loyalty programs that fit high-involvement products and services, the better customer reactions will be.
On the other hand, with low involvement products and services, customer reactions towards loyalty
programs will be negative (for example, loyalty membership clubs) (Curasi & Kennedy, 2002). This is
because the effectiveness and value of loyalty programs usually differ based on the customer’s
involvement and even the customer’s perception of the values delivered (Yi & Jeon, 2003). The same
issue applies to customer experience (Alshurideh, Nicholson & Xiao, 2012). Customer experience is
highly-important with loyalty programs, because the more customers experience the benefits that
loyalty programs offer positively, the greater will be the customer’s purchase repetition rate, as well
as customer acceptance, interaction, purchasing and repeat purchasing behavior (Alshurideh et al.,
2012; Verhoef et al., 2009).
Scholars such as Hennessy and Safran (1999) identified that loyalty programs failed because customers
experienced difficulties when redeeming loyalty program incentives, especially those that provided
incentives in different situations or the purchasing of products/services that were offered by other
organizations rather than the merchants who provided them. Therefore, the loyalty program rewards
and benefits influence can be described as:
H6: Loyalty program incentives and benefit types offered influence its effectiveness
2.7 Loyalty program and promotional tools used influence
According to Yi and Jeon (2003), loyalty programs should be treated differently and not the same as
other promotional tools such as price discount. This is because loyalty programs usually adopt a variety
of approaches to shape, maintain or change consumer behavior with a long-term perspective. Loyalty
program promotion plays a critical role in its success, especially those that are related directly to
payment transactions (Powell, 2009). As a result, it is essential that the platforms that are used to
promote loyalty programs are planned effectively (Fordyce, Patel & Shepard, 2013), especially
programs promoted through manufacturers, supply chains, distributors or merchants. However, it is not
just the type of loyalty program promotional tool that affects its performance and output, but also the
duration of the promotion within the loyalty program, the value of the promotion and the loyalty
program rules (Fordyce & Suarez, 2008). In addition, organizations should use loyalty program
promotional tools that increase customer reactions, especially if the promotion is planned to be within
a limited period of time or to sell a specific number of products (Alshurideh, 2016b; Kivetz, 2005).
Pritchard and Negro (2001) confirm this issue and claim that some loyalty programs, for example, sport
604
loyalty programs, fail because they were marketed using traditional methods and/or applied classical
approaches. The issue is not just related to the way the loyalty program was executed, but the structure
of the program is a concern. According to Dreze and Nunes (2008), some loyalty programs fail because
they have problems in their structure specially the promotional part, which result in customers failing
to perceive them correctly. For this reason, the influence of loyalty program promotional tools can be
described as:
H7: Loyalty program promotional tools influence its effectiveness.
3. Study model and hypotheses
Fig. 1 illustrates the study’s model that summarizes the main study factors.
LP Aims
LP Employees H1
LP Planning H2
H
3
LP Budget LP Effectiveness
H
4
LP Customer’s target H5
H
6
LP Benefit and reward offere
d
H
7
LP Promotional tools use
d
Fig. 1. Model of the study
4. Study data collection method
The study aimed at finding the main loyalty program planning determinants. By reviewing the
literature, a large number of loyalty program planning factors and execution platforms were determined.
Then these factors were categorized based on frequencies. The main factors were then chosen to be
tested practically using the study’s model. Seven elements were selected, namely, loyalty program
aims, budget, planning, employees, rewards offered, customers targeted and promotional tools used.
For the study, a quantitative research approach was used to collect the primary data, and 178
participants were chosen to be surveyed. The population target was all those who were involved directly
or directly in loyalty program preparing, designing, executing and evaluating. From the data collection,
161 questionnaires were analyzed. As it was very difficult to determine the population, a convenience
sampling method was employed.
5. Findings and Discussion
For testing the suitability of the study data and model, construct measurement and assessment of the
measurement model will be checked.
5.1 Construct Measurement
In the analysis of the collected data, the two-step analytical procedure was followed (Anderson &
Gerbing, 1988). First, the measurement model was examined for its reliability, convergent validity and
discriminant validity. Second, the structural model was examined for its strength and the relationship
directions within the theoretical constructs. Structural equation modelling was adopted to test the cause-
and-effect relations within the constructs in the research model, with the partial least square method
used as the analysis tool. The Smart PLS 3.0 software package, which was developed by Ringle et al.
(2005) was used to analyze the data. . The use of SmartPLS for the Partial Least Squares-Structural
Equation Modeling (PLS-SEM), a software developed by Ringle et al. (2005), was quite prevalent. In
this study, the PLS-SEM was used to assess the measurement and structural models. The association
M. Alshurideh et al. /Uncertain Supply Chain Management 8 (2020)
605
between the indicators refers to the measurement model (outer model), whereas the association between
the latent constructs refers to the structural model. To measure the proposed model, SEM-PLS was
used (Anderson & Gerbing, 1988), with the greatest probability method.
A number of measurements were conducted that consisted of factor loadings, average variance
extracted (AVE) and composite reliability (CR) to determine reliability and convergent validity. To
demonstrate the weight and correlation value of every questionnaire variable as a perceived indicator,
factor loadings were employed, whereas bigger load value could help in the representation of the
factors’ dimensionality. To measure reliability, the composite reliability (CR) measure was used. The
purpose of CR is similar as it offers a precise value by employing factor loadings in the constructed
formula. average variance extracted (AVE) refers to the average quantity of variance in the given
variable, which explains the latent construct. When the discriminate validity is greater than one factor,
AVE can be employed to analyze the convergence of every factor. As is evident from Table 1, the
experiment consequence for the questionnaire reliability and convergent validity exceeded the
condition for the reliability and convergent validity. An outline of the reliability and validity of the
questionnaire is shown in Table 1, with the analysis finding for every factor by presenting the variable
obtained from the questionnaire.
6.2 Assessment of the measurement model (outer model)
For the assessment of the measurement model, convergent validity and discriminate validity will be
checked.
6.2.1 Convergent validity
Following Hair, Black, Babin, Anderson and Tatham (1998), factor loadings, variance extracted and
reliability (consisting of Cronbach's Alpha and composite reliability) as indicators were used to
estimate the relative amount of convergent validity. The reliability coefficient and composite reliability
(CR) for all of constructs exceeded 0.7, indicating internal consistency between multiple measurements
of a construct (Hair et al., 1998). As shown in Table 1, Cronbach's alpha scores exceeded the acceptable
value of 0.7 (Gefen, Straub & Boudreau, 2000; Nunnally & Bernstein, 1978), and composite
reliabilities of constructs ranged from 0.723 to 0.875. In addition, all average variance extracted (AVE)
values, ranging from 0.569 to 0.874, satisfied the criterion of explaining at least 50% of variance
extracted among a set of items (Falk & Miller, 1992) underlying the latent construct. As a result, the
scales for evaluating the constructs were deemed to achieve convergent validity.
6.2.2 Discriminate validity
As seen in Table 1, the requirements of discriminant validity were satisfied since all AVE values were
greater than the squared correlation between the constructs in the measurement model. It is
recommended that the construct finds a minimum of 50% of the measurement variance when the AVE
value is more than 0.5. Partial Least Squares (Smart PLS 3.0) were used to evaluate the discriminate
value. Table 3 includes the loadings and cross-loadings. Based on the depth analysis of the loadings
and cross-loadings, it was demonstrated that the measurement items were all loaded broadly on their
own latent constructs instead of loading on other constructs. Table 2 includes the AVE analysis. The
bold diagonal elements in the table demonstrate the square root of the AVE scores. Conversely, the off-
load diagonal elements signified the correlations between the constructs. Table 2 clearly shows that the
square root of the AVE values lay in the range of 0.769 to 0.903, which was higher in comparison to
the suggested value of 0.5. The AVE was empirically higher compared to any correlations with the
construct. For every construct, it clearly referred to a greater variance of all constructs with their own
measures rather than other constructs in the model, which supported the discriminate validity. In
accordance with this issue, Gefen and Straub (2000) agree that the second condition of discriminant
validity could be explained properly. The loading of every item must be higher when compared to the
loading of its equivalent variable. Hence, it is evident from Table 4 that the second criterion was also
606
fulfilled. The third condition of discriminant validity is that the values of HTMT must be less than 0.85.
It is evident from Table 5 that the third criterion was also confirmed, and, as a result, discriminant
validity was established.
Table 1
Convergent validity results which assures acceptable values (Factor loading, Cronbach’s Alpha,
composite reliability 0.70 & AVE > 0.5)
Constructs Items Factor Loading Cronbach's Alpha CR AVE
LP Aims LP_AIM1 0.785
0.874 0.723 0.631
LP_AIM2 0.863
LP_AIM3 0.728
LP_AIM4 0.911
LP Benefits and rewards offered
LP_BEN1 0.778
0.724 0.746 0.574
LP_BEN2 0.866
LP_BEN3 0.819
LP_BEN4 0.779
LP Budget
LP_BUD1 0.889
0.787 0.733 0.569
LP_BUD2 0.735
LP_BUD3 0.829
LP_BUD4 0.777
LP Customer target
LP_CUS1 0.755
0.879 0.875 0.715
LP_CUS2 0.853
LP_CUS3 0.721
LP_CUS4 0.818
LP Effectiveness
LP_EFF1 0.871
0.814 0.844 0.721
LP_EFF2 0.787
LP_EFF3 0.811
LP Employees
LP_EMP1 0.930
0.799 0.800 0.874
LP_EMP2 0.867
LP_EMP3 0.745
LP_EMP4 0.747
LP Promotional tools used
LP_PRO1 0.730
0.709 0.842 0.846
LP_PRO2 0.758
LP_PRO3 0.801
LP_PRO4 0.859
LP Planning
LP_PLA1 0.755
0.771 0.798 0.689
LP_PLA2 0.760
LP_PLA3 0.763
LP_PLA4 0.818
Table 2
Fornell-Larcker Scale
LP_AIM LP_BEN LP_BUD LP_CUS LP_EFF LP_EMP LP_PRO LP_PLA
LP_AIM 0.844
LP_BEN 0.278 0.879
LP_BUD 0.268 0.602 0.795
LP_CUS 0.389 0.298 0.319 0.827
LP_EFF 0.158 0.226 0.598 0.574 0.815
LP_EMP 0.328 0.550 0.657 0.454 0.551 0.873
LP_PRO 0.287 0.627 0.399 0.589 0.320 0.625 0.903
LP_PLA 0.189 0.111 0.287 0.251 0.580 0.668 0.398 0.769
6.3 Assessment of structural model (Inner model)
For the assessment of the structural model, Coefficient of determination and Structural Model Analysis
will be used.
6.3.1 Coefficient of determination - R2
The structural model is typically inspected utilizing the coefficient of determination (R2 value) measure
(Dreheeb et al., 2016). This coefficient is formed to measure the predictive accuracy of the model and
is processed as the squared correlation between a specific endogenous construct’s actual and predicted
values (Hair et al., 2016; Senapathi & Srinivasan, 2014). The exogenous latent variables combined
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effect on an endogenous latent variable is connoted by the coefficient. The coefficient is the squared
correlation between the actual and predicted values of the variables, hereafter, it adds the additional
meaning of variance-degree in the endogenous constructs. This fact is defended by each exogenous
construct and it helps in identifying it.
Table 3
Cross-loading results
LP_AIM LP_BEN LP_BUD LP_CUS LP_EFF LP_EMP LP_PRO LP_PLA
LP_AIM1 0.785 0.123 0.571 0.171 0.470 0.279 0.276 0.272
LP_AIM2 0.863 0.525 0.343 0.433 0.353 0.265 0.255 0.286
LP_AIM3 0.728 0.368 0.181 0.184 0.288 0.223 0.358 0.417
LP_AIM4 0.911 0.687 0.422 0.382 0.326 0.282 0.398 0.424
LP_BEN1 0.252 0.778 0.239 0.228 0.399 0.288 0.366 0.523
LP_BEN2 0.394 0.866 0.138 0.228 0.332 0.274 0.386 0.511
LP_BEN3 0.436 0.819 0.461 0.122 0.125 0.277 0.381 0.466
LP_BEN4 0.321 0.779 0.178 0.433 0.522 0.267 0.378 0.400
LP_BUD1 0.275 0.112 0.889 0.644 0.408 0.273 0.379 0.404
LP_BUD2 0.423 0.433 0.735 0.242 0.120 0.227 0.376 0.491
LP_BUD3 0.431 0.444 0.829 0.399 0.433 0.233 0.245 0.221
LP_BUD4 0.427 0.346 0.777 0.222 0.183 0.288 0.230 0.245
LP_CUS1 0.346 0.394 0.417 0.755 0.212 0.118 0.230 0.245
LP_CUS2 0.214 0.557 0.522 0.853 0.296 0.201 0.233 0.249
LP_CUS3 0.289 0.245 0.312 0.721 0.226 0.293 0.246 0.263
LP_CUS4 0.377 0.286 0.272 0.818 0.428 0.421 0.119 0.177
LP_EFF1 0.159 0.325 0.209 0.289 0.871 0.467 0.220 0.266
LP_EFF2 0.289 0.289 0.268 0.411 0.787 0.433 0.330 0.337
LP_EFF3 0.396 0.274 0.356 0.329 0.811 0.340 0.215 0.267
LP_EMP1 0.375 0.417 0.387 0.406 0.545 0.930 0.225 0.207
LP_EMP2 0.252 0.170 0.284 0.433 0.200 0.867 0.186 0.194
LP_EMP3 0.255 0.187 0.234 0.436 0.397 0.745 0.265 0.336
LP
EMP4 0.379 0.266 0.234 0.309 0.361 0.747 0.311 0.284
LP_PRO1 0.145 0.257 0.188 0.205 0.279 0.284 0.730 0.288
LP
_
PRO2 0.193 0.235 0.300 0.319 0.252 0.315 0.758 0.349
LP
_
PRO3 0.246 0.362 0.219 0.225 0.263 0.296 0.801 0.296
LP
_
PRO4 0.313 0.224 0.180 0.402 0.385 0.229 0.859 0.232
LP_PLA1 0.375 0.290 0.253 0.334 0.285 0.313 0.371 0.755
LP_PLA2 0.255 0.170 0.299 0.437 0.373 0.224 0.290 0.760
LP_PLA3 0.253 0.187 0.208 0.439 0.395 0.188 0.253 0.763
LP_PLA4 0.377 0.266 0.204 0.329 0.360 0.402 0.334 0.818
Table 4
Heterotrait-Monotrait Ratio (HTMT)
LP_AIM LP_BEN LP_BUD LP_CUS LP_EFF LP_EMP LP_PRO LP_PLA
LP_AIM
LP_BEN 0.332
LP_BUD 0.419 0.605
LP_CUS 0.328 0.522 0.458
LP_EFF 0.280 0.267 0.470 0.571
LP_EMP 0.701 0.685 0.597 0.344 0.637
LP_PRO 0.607 0.587 0.489 0.362 0.227 0.334
LP_PLA 0.128 0.588 0.217 0.447 0.227 0.638 0.639
As stated by Chin (1998), whenever the value is more than 0.67, it is seen as high, and this implies that
the qualities in the scope of 0.33 to 0.67 are direct and the qualities in the scope of 0.19 to 0.33 are
weak values. Furthermore, when the estimation is lower than 0.19, it is inadmissible. In Table 5 and
Fig. 2, it can be seen that the model had a high predictive power, which supported almost 74% of the
variance in the LP Effectiveness.
608
Table 5
R2 of the endogenous latent variables
Constructs R2 Results
LP Effectiveness 0.739 High
6.3.2 Structural Model Analysis
The proposed hypotheses could be tested by using a structural model with SEM-PLS (Salloum &
Shaalan, 2018) with the highest likelihood estimation, so that the associations between the theoretical
constructs for the structural model could be examined (Salloum et al., 2018; Salloum & Shaalan, 2018).
Table 5 and Fig. 2 present an outline of the outcomes, and it can be seen that all hypotheses were
significant. Based on the data analysis hypotheses, H1, H2, H3, H4, H5, H6 and H7 were supported by
the empirical data. The results showed that LP Effectiveness (LP_EFF) significantly influenced LP
Aims (LP_AIM) (β= 0.587, P<0.001), LP Employees (LP_EMP) (β= 0.248, P<0.05), LP Planning
(LP_PLA) (β= 0.579, P<0.001), LP Budget (LP_BUD) (β= 0.439, P<0.001), LP Customer target
(LP_CUS) (β= 0.187, P<0.05), LP Benefits and rewards offered (LP_BEN) (β= 0.631, P<0.01), and
LP Promotional tools used (LP_PRO) (β= 0.259, P<0.05), which supported hypotheses H1, H2, H3,
H4, H5, H6 and H7, respectively. A summary of the hypotheses testing results is shown in Table 6.
Table 6
Results of structural Model - Research Hypotheses Significant at p**=<0.01, p* <0.05)
H Relationship Path t-value
p
-value Direction Decisio
n
1
H LP Aims LP Effectiveness 0.587 12.880 0.004 Positive Supported**
2
H LP Employees LP Effectiveness 0.248 5.205 0.022 Positive Supported*
3
H LP Planning LP Effectiveness 0.579 18.468 0.000 Positive Supported**
4
H LP Budget LP Effectiveness 0.439 17.878 0.000 Positive Supported**
5
H LP Customers target LP Effectiveness 0.187 4.418 0.029 Positive Supported*
6
H LP Benefits and rewards offered LP Effectiveness 0.631 13.489 0.005 Positive Supported**
7
H LP Promotional tools used LP Effectiveness 0.259 5.104 0.032 Positive Supported*
LP Aims
LP Employees 0.587**
0.248**
LP Planning
0.579**
LP Budget LP Effectiveness
0.439**
R
2 = 0.739
LP Customer’s target 0.187**
0.631**
LP Benefit and reward offere
d
0.259**
LP Promotional tools use
d
Fig. 2. Path coefficient results (significant at p** < = 0.01, p* < 0.05)
7. Discussion, Conclusion and Future Recommendations
This study provides answers for a set of questions that have rarely been discussed in previous studies.
This study also provides guidelines for loyalty program applications and the main defaults that
companies might face when preparing, designing, offering and controlling loyalty program execution
effectively. The study found that the main factors affecting loyalty program effectiveness was the type
and quality of loyalty program benefits and rewards offered, loyalty program planning, planned loyalty
programs with clear objectives, followed by determining of a suitable budget for loyalty program
execution. It is too important to not care about the benefits gained from a purchase or conditions that
M. Alshurideh et al. /Uncertain Supply Chain Management 8 (2020)
609
push customers to be involved in long-term relationships, especially those benefits aimed at creating
new behavior or amending an existing behavior (Al Kurdi, 2016; Alshurideh, 2010). The type and
quality of benefits offered are essential for loyalty program application, and these should be sufficient
to push customers to buy and continue buying, especially in the later application stages. This ensures
to what level that accumulated loyalty program use, within the time, will confirm the commitment of
users. Also, multi-benefit frameworks, for example, exploration, monetary saving, social benefits,
recognition and entertainment, help to ensure that customers are committed to such schemes (Mimouni-
Chaabane & Volle, 2010). This might also help organizations to create an emotionally-loyal customer
base (Kandampully et al., 2015). Based on this, the timing of benefits offered is crucial, and this was
confirmed by the study’s results, which found that loyalty program planning was the cornerstone of
successful loyal program applications. In addition, it was, especially important to have a clear objective
before application supported by a suitable source of funding to secure a good start and the continued
offering of such schemes. This is because good loyalty program planning and analytics help in
executing the schemes successfully within a set of clear steps (Berman, 2006). Planning also assists in
finding a set of processes and methodological deficiencies, which might help in better implementation
and avoidance of previous mistakes in new program launching (Banasiewicz, 2005). When considering
the main issues that cause loyalty programs to fail, it is important to explain how to avoid them, and
rather push loyal and non-loyal customers to join loyalty programs easily. As a result, a set of
techniques have been recommended from both theoretical and practical perspectives regarding loyalty
programs application problems. One of the main issues that affect loyalty program effectiveness is how
to measure the effectiveness of these incentive programs, and get benefits from their applications. This
issue is confirmed by Meyer-Waarden (2007) who consistently found that organization’s loyalty
program effects were difficult to measure. Dowling and Uncles (1997) also posed the challenging
question of whether loyalty programs created extra loyalty. Although there is evidence that loyalty
programs increase sales, customer visits, purchase volume and enhanced share-of-wallet, it needs to be
checked whether loyalty programs generate extra loyalty, which is a new research angle that needs to
be studied. Another question that might be asked is whether loyalty programs, which target customer
awareness and adoption are able to create new behavior or amend an existing behavior (Alshurideh et
al., 2018; Alshurideh et al., 2014; Ammari et al., 2017). One of the critical problems that make
customers reluctant to enroll in loyalty programs is the loyalty program themselves (Wendlandt &
Schrader, 2007). This is because loyalty program planning includes a variety of dimensions such as
economic, socio-psychological and contractual bonds. The majority of loyalty programs are planned to
deliver the economic incentives and ignore the other dimensions. Thus, it is important to study other
loyalty program factors not included in this study such as the effect of social bonds in addition to
economical bonds to attract customers, which might help in minimizing the reluctance of targeted
customers to be involved in long-term relationships with suppliers especially when using loyalty
programs as a mean of relationship.
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... Effective programs focus on consumers, setting clear goals, fostering engagement, and leveraging financial, social, and structural bonds. Originality and uniqueness in relation to competition allow for the building of an effective, long-term program (Alshurideh et al., 2020). Airline loyalty programs, or Frequent Flyer Programs (FFP), aim to increase ticket sales, enhance customer loyalty, and encourage purchases at partner points (Altexsoft, 2022). ...
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