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Jindal Journal of Business Research
1–27
© 2021 O.P. Jindal Global University
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DOI: 10.1177/22786821211000182
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1 Lord Ashcroft International Business School, Anglia Ruskin University, Cambridge, United Kingdom.
2 School of Accounting & Business Management, FTMS College, Cyberjaya, Selangor, Malaysia.
Corresponding author:
Omkar Dastane, School of Accounting & Business Management, FTMS College, Cyberjaya, Selangor 63000, Malaysia.
E-mail: omkar.dastane@gmail.com
Effectiveness of Loyalty Programs
in Customer Retention: A Multiple
Mediation Analysis
Andy Chin Woon Fook1 and Omkar Dastane2
Abstract
The impact of loyalty programs on customer retention was investigated in this study. Concomitantly,
the mediating effects of brand association and customer satisfaction between loyalty programs and
customer retention were also tested in three ways, viz., in parallel, distinct, and sequential through a
series of structural models. The study focuses on the Malaysian national car sector, and empirical data
was collected from 313 Malaysian national cars users through convenience sampling. This explanatory,
quantitative research adopts a questionnaire as a survey instrument, and the collected data was first
subjected to normality and reliability assessment followed by confirmatory factor analysis, structural
equation modeling using IBM SPSS AMOS 24. Multiple mediation analysis was then conducted, and
results were confirmed through bootstrapping. Findings show that there is a significant positive impact
of loyalty programs on customer retention. The brand association has a full mediation effect between
loyalty programs and customer retention when tested in parallel with customer satisfaction; on the
contrary, customer satisfaction demonstrated an insignificant mediation effect. On the other hand,
when tested distinctly, brand association showed a partial mediating effect while there was no mediation
effect of customer satisfaction. Besides, customer satisfaction and brand association demonstrated
sequential partial mediation.
Keywords
XXX
Introduction
Increased competition and the availability of ample alternative options for customers to select their supe-
rior service or product provider is a great challenge to most of the organizations in retaining existing
customers for an extended period (Feliz & Maggi, 2019; Fritsch & Changoluisa, 2017; Winer, 2001).
This scenario of increased competition is true for many industries including automobile sector
[AQ1]
ARTICLE IN PRESS
2 Jindal Journal of Business Research
(Alshurideh, 2016; Kumar et al., 2017; Simarmata et al., 2017). Many organizations are aware of the
importance of loyalty programs for their core business strategy in today’s competitive market to retain
customers (Kim et al., 2013; Nataraj, 2010). Nevertheless, frequent interaction between the service pro-
vider and customers are necessary due to influence from internal and external factors that impacted
customers’ expectation, and behaviors differ over the time to retain the existing customer (Verhoef,
2003; Winer, 2001). Loyalty program is part of marketing strategy which concerned to maintain long-
term relationship with customers to increase profitability (see Ali & Ali, 2018; Kamau, 2017; Khalil et
al., 2018; Rahimi, 2007), and it is widely used by the small and big organization to help to predict the
future improvement activities. The loyalty program emphasizes services and products that can be easily
customized and to be effectively marketed the products according to customers’ needs and wants
(Karakostas et al., 2005; Kim, 2019; Koo et al., 2020).
The Malaysian automotive industry is the third largest in Southeast Asia, and the 25th largest in the
world, with an annual production output of over 500,000 vehicles. The automotive sector contributes 4%
or Malaysia ringgits (RM) 40 billion to Malaysia’s GDP and employs a workforce of over 700,000
throughout a regional ecosystem (NAP, 2020). The automotive industry in Malaysia primarily serves
domestic demand, and only several thousand complete built-up (CBU) vehicles are exported annually.
Exports of Malaysian made parts and components have nonetheless grown significantly in the last dec-
ade, contributing over RM11 billion to Malaysia’s GDP in 2016 (The STAR, 2016). Malaysia recently
unveiled a much-delayed automotive policy, hoping to stay ahead of Thailand and Indonesia by shifting
the focus from energy-efficient cars to next-generation vehicle production for the region. The National
Automotive Policy (NAP) 2020 also sought to redefine its national car classifications to accommodate a
third national carmaker, after China’s Geely-backed Proton and Japan’s Daihatsu-led Perodua. Malaysia’s
national cars, Perodua and Proton, collectively hold total industry volume (TIV) of 58% market share
and leave 42% market share for the non-national automotive brands to compete in the market. It saw stiff
competition among the non-national automotive segment vying for customers.
On the other hand, the level of customer satisfaction for Malaysia’s national car had dropped signifi-
cantly to the below mass market average directly impacting customer retention (Power, 2019). This
adverse impact is mainly due to customers spreading the lousy quality service they encountered in the
past (Khadka & Maharjan, 2017). The usage of social media communication channels is high to spread
unethical behavior rendered by an organization’s employee (Back & Parks, 2003). There are many ways
to formulate loyalty programs. A typical approach uses platinum, gold, and silver tiers, typically based
on purchase volumes (Ray, 2015). Fifty-seven percent of airlines and 41% of hotel chains reward con-
sumers for a range of engagement behaviors. Some other examples are offering discounts, resale assis-
tance, free services, etc.
Despite having many loyalty programs, the majority are not active. Critical reasons for that are loy-
alty programs include lack of reward relevance, rigid reward structures, and poor-quality customer ser-
vice (Hua et al., 2018; Shulga & Tanford, 2018). More than half of consumers admitted that they had
abandoned at least one loyalty program according to a survey and social media scanning. Given the facts,
it can also be noted that most of the loyalty programs have proved unutilized and ineffective in the past
(Barton & Raiborn, 2019). Many other aspects influence customer retention, and so loyalty programs
may not have a more substantial role in retaining customers. One of such primary issues is customer
satisfaction, which is an influential antecedent of customer retention or loyalty (Furaida et al., 2018;
Opusunju et al., 2017). Despite the presence of loyalty programs, if customers are not satisfied, how it
may affect customer retention is critical to understand by marketers (Lee et al., 2019). Besides, if there
is a strong brand association, there can be high customer retention (Adusei & Tweneboah-Koduah,
2019). So in such cases, the role of loyalty programs and their effectiveness is another essential aspect to
[AQ2]
[AQ3]
Fook and Dastane 3
be considered. Otherwise, drafting various loyalty programs that are not reflecting in customer retention
because of such other factors can be of high cost for the organizations (Bijmolt & Verhoef, 2017).
The market approach had transformed to customer-centric approach from product-centric approach
due to highly competitive market and varieties of services offered to customers, hence, marketing strat-
egy to prioritize to grow a sustainable business and to increase customers satisfaction (Manzoor &
Shaikh, 2016; Zhang et al., 2010). Mascareigne (2009) claimed that an organization should meet and
exceed customers’ expectations and needs, to retain the existing customers to become loyal customers.
Brand associations differentiate companies’ competitive benefit in the market and could affect consum-
ers’ attitudes, emotions, and reasons for buying the product (Poudel, 2019). To ensure automotive com-
panies be able to retain and gain new customers, marketers should continue to study the constant change
trend factors, which would influence the decision making made by customers (Boakye et al., 2017;
Terech et al., 2009). Brand association is an inseparable part of marketing strategies by a company to
build a reputable brand that could influence the decision making by consumers and creates key compe-
tencies (Ferdiawan et al., 2018; Severi & Ling, 2013). Nevertheless, automotive industry players are
unable to sustain the profitability of the business by only depending on new car sales without repairs and
servicing services provided to retain customers and increase turnover (Aboltins & Rivza, 2014; Ayed,
2019). Consumer’s purchase consideration might take a long cognitive process due to selection of repu-
table brand, which involves intrinsic and extrinsic factors extraordinarily complex products such as
vehicles (Furaida et al., 2018; Souiden et al., 2011). A brand that could reach various markets due to the
demand from customers and increase of credibility by the loyal customer which potentially increase the
customer retention rates (Agus, 2019; Chen, 2015; Sari et al., 2018).
In the past, many kinds of researches had examined the effect of a loyalty program, customer satisfac-
tion, brand association, and customer retention in the automotive industry in the world (Ayed, 2019;
Balabanis et al., 2006; Basera, 2014; Gaurav, 2016; Magatef & Tomalieh, 2015). In Malaysia, loyalty-
related research also received special attention (Furaida et al., 2018; Kassim, 2006; Manzoor & Shaikh,
2016; Omar et al., 2015; Osman & Sentosa, 2013). There were also numbers of researches conducted
related to the effectiveness of customer loyalty program (Ahmad & Buttle, 2002; Hamilton et al., 2017;
Komalasari & Budiman, 2018; Stathopoulou & Balabanis, 2016). Despite this wealth of research, scant
attention is received in the past to examine the effect of loyalty program customer retention with the
mediating effect of brand association and customer satisfaction.
Therefore, this study aims to assess the impact of loyalty programs on customer retention. It then
seeks to investigate the mediating effect of brand association and customer satisfaction in three ways,
viz., in parallel, distinct, and sequential. Corresponding research questions are what the impact of loyalty
programs on customer retention is? Do customer satisfaction and brand association have a mediation
effect between loyalty programs and customer retention?
Literature Review
Review of Key Definitions and Empirical Studies
Loyalty Programs
The loyalty programs are defined by the American Marketing Association (2016) as “continuity incen-
tive programs offered by a retailer to reward customers and encourage repeat business.” Loyalty pro-
gram is plans of offering rewards to customers who made repeat purchases from the same organization
4 Jindal Journal of Business Research
to increase customer satisfaction (Yi & Jeon, 2003). There are several types of loyalty programs includ-
ing tired, discounts, pragmatic, and experiential, and various studies have conceptualized the construct
of loyalty programs using such dimensions (see Dorotic at al., 2012; Fullerton, 2003; Mimouni-Chaabane
& Volle, 2010). Customers expect value for cash, and the best deal they can get is classified as a prob-
lematic advantage. At the same time, the significance of recognition for clients is described as a smooth
advantage (Nunes & Drèze, 2006).
Customer Retention
Zineldin (2000) recognized client retention as the ongoing choice of a client to engage with a particular
service provider or organization. Another definition in the literature is Kotzab and Bjerre (2005), which
recognized client retention as a way of defining the allegiance of a client to a service supplier or organi-
zation and their later decision to retain communication with it. Gerpott et al. (2001) provide the most
natural and most related definition as the ongoing professional and business connection between a client
and a company. Attracting fresh clients is expensive as compared to retain current clients; customer
retention happens when product/service businesses exceed the expectations and satisfaction of clients,
resulting in clients becoming evangelists and supporters of the companies (Vesel & Zabkar, 2009).
Customers preferred prioritized treatment, appreciated and made to feel important from the heart and
ensure the best customer service (Wadud, 2013). It is necessary to offer unique and useful conditions, not
only the emotions connected with the purchasing process but also the atmosphere of execution before
and after purchases (Biesok & Wyród-Wróbel, 2011). Loyal clients are the primary source of higher
revenue generation, thus enhancing the business and focusing on building a secure connection between
consumers and providers and attracting more clients to the market (Ranabhat, 2018).
Customer Satisfaction
Customers’ needs and expectations are to be met by organizations and to adapt customers’ form of atti-
tude, which leads to customer satisfaction (Hill et al., 2007). It is to define as post-consumption feedback
from customer’s experience on the product or service when the expectation exceeded the expectations
(Grigoroudis & Siskos, 2010). Satisfied customers would be able to portray loyal behavior and stay with
the organizations longer; repeat purchase and to recommend to others is what organizations are hoping
for to drive the business to next level (Sweeney & Swait, 2008). Ever since the attention on the customer-
centric company was introduced, a lot of researchers investigated the relationship effects between cus-
tomer satisfaction and customer retention (Hennig-Thurau, 2004; Murgulets et al., 2001; White &
Yanamandram, 2007). The investigation of a close link between the loyalty program and customer satis-
faction had been attempted by many researchers to create a precise model (Bansal et al., 2004; Mittal &
Kamakura, 2001). To assess the main factors that affect customer retention directly depended on the
level of customer satisfaction met and added value offered by organizations (Sim et al., 2006). It is indi-
cated that dimensions of customer satisfaction are associated with individual customer repurchase inten-
tions, which directly could impact the cost, revenue, and profitability (Dastane & Fazlin, 2017; Jallow &
Dastane, 2016).
Brand Association
A brand association can be construed as fashion statement where a brand creates for the consumers
(Aaker, 1997), and it has the positive impact on consumers’ purchase intention of that particular brand
by having a strong brand personality (Keller, 1993). As it narrowing down for the decision of the
brand of vehicle to purchase, the research found that lower-income groups tend to purchase utilitarian
brand image vehicles, rather than expressive vehicles (Manzoor & Shaikh, 2016) and different income
Fook and Dastane 5
levels, reflected by the social class that has a direct correlation with the choice of vehicle brands (Poudel,
2019). Malaysian national car tends to have the requirement for utilitarian brand association compared
to other non-national vehicle brands (Drauz et al., 2013). Brand organizations have distinguished the
competitive advantage that businesses need to differentiate in the industry and have an impact on con-
sumers’ emotions and attitudes and their reason for buying the item. It generally consists of advertising,
word of mouth, product quality, etc. Still, these are very subjective, depending on the consumer’s mind-
set. Brand association is a brand characteristic that customers will remember when they refer to specific
products (Hoe et al., 2018; Olamilekan & Dastane, 2014; Oluwafemi & Dastane, 2016).
Hypotheses Development
Effective loyalty programs can contribute to attract new customers as well as retain existing customers
to ensure increased purchases (Nitzan & Libai, 2011). Ample literature supports the significant positive
impact of loyalty programs on customer retention (Boakye et al., 2017; Hamilton et al., 2017; Song et
al., 2017). A loyalty program has varieties of rewards items to meet customers’ needs and wants (Dao,
2017). If customers perceive the quality of loyalty program positively, there is a tendency to have posi-
tive expectations when revisiting the same service provider (Susanti et al., 2019). Loyal customers could
bring compliments offered through the loyalty program and will recommend the brand reliability to new
customers as they were satisfied with the service (Kaynak & Hartley, 2008). Direct mailings and fre-
quency awards loyalty program were used by many organizations to maximize customer retention and
satisfaction metrics (Meyer-Waarden, 2008). Therefore, in the context of the Malaysian national car
sector, the following hypothesis is formulated.
H1: Loyalty program has a significant positive impact on customer retention.
The ability of a company to understand the customers’ needs and provide valuable updates on services
based on feedback from customers will ultimately increase satisfaction (Gerpott et al., 2001). Studies
have considered the quality of service dimensions as a background to customer satisfaction, which leads
to customer retention (Van Riel et al., 2004). It is further argued that loyalty program should be able to
bring value to customers and customers’ satisfaction level is taken into consideration to retain customers
and increase profitability (Bolton et al., 2000). Customer satisfaction is the well-established antecedent
of customer retention and plays a vital role in retaining customers mainly in the context of automobile
sector (Furaida et al., 2018; Manzoor & Shaikh, 2016; Opusunju et al., 2017).
Brand association is influenced by the positive experiences of customers on the product and service
satisfaction (Poudel, 2019; Vesel & Zabkar, 2009). Customer satisfaction attributed to the remembrance
by the customers on the particular brand is referred to (Homburg & Giering, 2001). The brand is said to
speak for itself when organizations can portray their professionalism in their products towards customers
(Reichheld, 2003). Excellent aftersales service with reliable products would increase customer satisfac-
tion along with the brand association (Nyadzayo & Khajehzadeh, 2016). Satisfaction and loyalty bene-
fits are said to have a direct impact on the product or service, ultimately leading to customers’ willingness
to spread the word or recommend their brand and the experience (Ranaweera & Prabhu, 2003).
Brand association and customer loyalty had been labeled as two interrelated critical dimensions of
concepts in marketing (Nyadzayo & Khajehzadeh, 2016; Sahin et al., 2011). This implies the consistent
repurchase pattern is mainly due to positive affection and biased behavioral response of brand associa-
tion (Ferdiawan et al., 2018; Ishak & Ghani, 2013). Loyalty membership subscription should be
6 Jindal Journal of Business Research
provided free to increase and attract more membership sign-ups (Chinomona & Maziriri, 2017). Loyalty
program being offered, directly impacts customer retention, expects a customer to stay loyal with the
brand with which they had positive encounters and perceived the service provided was of superior qual-
ity (Sirdeshmukh et al., 2002).
In conclusion, the brand association is posed as antecedents as well as a consequence of retention in
the existing literature. Brand association is also strongly related to customer satisfaction, which is strong
and established antecedent of customer retention. Several studies have found relation among these three
constructs in the past in various sectors including automobile sector (see Dao, 2017; Hosseini & Zainal,
2016; Phong et al., 2020; Susanti et al., 2019). Therefore, we hypothesized here that both brand associa-
tion and customer satisfaction mediate the relationship between loyalty programs and customer reten-
tion. However, based on the research aim, three following hypotheses are formulated, which need to be
tested using separate structural models to support research objective of testing mediation parallelly,
sequentially, and distinctly.
H2: Customer satisfaction plays a mediating role between the loyalty program and customer
retention.
H3: Brand association plays a mediating role between loyalty program and customer retention
H4: The relationship between loyalty programs and customer retention is sequentially mediated by
customer satisfaction and brand association.
Research Methodology
This research is based on a positivist paradigm approach, quantitative method that enabled the researcher
to compile data, suggest hypotheses based on a theoretical background to test the hypotheses results. The
data is transformed into statistical information that can be analyzed statistically to achieve a relevant and
feasible conclusion.
The questionnaires in this research were produced based on several relevant past research materials
in ensuring the accuracy and relevance of the questions are finalized. The set of questionnaires had been
separated into two sub-sections. The first sub-section concerns demographic information such as gender,
age group, salary group, and the more. The second section is about the adaptation of loyalty program,
customer satisfaction, customer loyalty, and brand association. Many general considerations had been
identified during the process of designing the questionnaire (Collis & Hussey, 2003) such as closed-
ended questions, open-ended questions, and the preferable Likert scale rating questions. Open-ended
items were used to gain respondents’ personal opinions and enabled respondents to reply from pre-
determined alternatives. Close-ended questions were used to collect factual data such as gender, age,
income, and occupation (Thornhill et al., 2009; Wolcott, 1994). The respondents were asked to fill in the
five-point Likert structural scale for their preferences and experience.
The author adopted the non-probabilities sampling method in this research to obtain the entire popula-
tion. Bryman and Bell (2011) stated that convenience sampling is often used to analyze the outcome
effectively when time and cost are restricted. The author had distributed a total of 350 questionnaires and
obtained 313 responses within 2 months. There are two national car companies in Malaysia, and collect-
ing data from any one company’s service station is not appropriate. If the researcher decides to obtain a
gatekeeper letter from both companies, then convenience sampling will not be appropriate. Therefore, an
online survey has been conducted through Google Form, and initial screening questions were included
[AQ4]
[AQ5]
Fook and Dastane 7
to identify users of national cars. Only those responses from the users of domestic cars are utilized for
the analysis.
Descriptive analysis and statistical methods were used for the development of the data collection. The
utilization of SPSS 24 was performed for the reliability and normality test. Confirmatory factor analysis
(CFA) and variance were obtained to determine the overall fit of the structural equation model (SEM),
which was developed using AMOS 22 to assess the consistency and discriminant validity.
Results and Discussion
Demographic Analysis
Demographical classifications were obtained on the 313 gathered responses, which were distributed to
Malaysian users of national cars. Data shows gender equality and balance for the 313 respondents, where
48.6% and 51.4%, respectively, for females and males. Age group from 31–40 contributed the highest
response of 45.7% throughout the survey, and data shows 36.4% of respondents were mainly married
with children. The manager and senior manager position contributed the highest respondents of 33.5%
with primarily with degree/diploma education of 49.2%. The monthly income group of RM5,001–
RM10,000 contributed 31.3%, with 72.2% was employed status. As for the primary survey of national
cars, data shows Perodua and Proton respondents were at 54% and 46%, respectively.
Table 1. Demographic Analysis
Particulars Frequency Percent Valid Percent Cumulative Percent
Gender
Female 152 48.6 48.6 48.6
Male 161 51.4 51.4 100.0
Total 313 100.0 100.0 –
Age
20–30 75 24.0 24.0 24.0
31–40 143 45.7 45.7 69.6
41–50 61 19.5 19.5 89.1
Above 50 34 10.9 10.9 100.0
Total 313 100.0 100.0 –
Marital Status
Married 89 28.4 28.4 28.4
Married with children 114 36.4 36.4 64.9
Single 110 35.1 35.1 100.0
Total 313 100.0 100.0 –
[AQ6,7]
(Table 1 continued)
8 Jindal Journal of Business Research
Particulars Frequency Percent Valid Percent Cumulative Percent
Current Position
Administrator 56 17.9 17.9 17.9
Assistant manager 65 20.8 20.8 38.7
Manager/sr manager 33.5 33.5 72.2
Officer/executives 87 27.8 27.8 100.0
Total 313 100.0 100.0 –
Education
Degree/diploma 154 49.2 49.2 49.2
Master 62 19.8 19.8 69.0
Others 22 7.0 7.0 76.0
SPM/STPM 75 24.0 24.0 100.0
Total 313 100.0 100.0 –
Monthly Income
RM10,001 and above 79 25.2 25.2 25.2
RM2,500 and below 47 15.0 15.0 40.3
RM2,501–RM5,000 89 28.4 28.4 68.7
RM5,001–RM10,000 98 31.3 31.3 100.0
Total 313 100.0 100.0 –
Employment Status
Employed 226 72.2 72.2 72.2
Self-employed 67 21.4 21.4 93.6
Student 20 6.4 6.4 100.0
Total 313 100.0 100.0
Car Brand
Perodua 169 54.0 54.0 54.0
Proton 144 46.0 46.0 100.0
Total 313 100.0 100.0 –
Source:
Reliability Analysis
Cronbach’s alpha is adopted to test the accuracy of the collected data. Rule of thumb, for alpha coeffi-
cient size of Cronbach, which indicates data below 0.7 is considered unacceptable, 0.7–0.9 are accepta-
ble, and 0.9 or above considered excellent (Hair & Lukas, 2014). Cronbach’s alpha reliability test results
for five variables ranging from 0.786 to 0.945, indicating the validity for this research, meeting the rule
of thumb of reliable data.
(Table 1 continued)
Fook and Dastane 9
Normality Analysis
Descriptive analysis is to tabulate the mean score for each of the measured variables and calculating the
standard deviation to measure the amount of dispersion from the mean, or expected value within the data
from the compiled samples on a loyalty program, customer satisfaction, customer retention, and brand
association ranged from 2.7 to 3.1 and standard deviation ranging from 0.8 to 1.2. Therefore, sample
distribution with an acceptable standard deviation range is reasonably typical. Skewness and kurtosis
indicators were used to check data normality. According to Pallant (2010), when skewness is between the
range of −1 and 1, a decent normal distribution is verified, whereas Hair et al. (2014) and Byrne (2010)
find skewness values between −2 and 2 and kurtosis between −7 and 7 is acceptable. The normality test
demonstrates that information is normally distributed, as shown in Table 3. For most constructs, skew-
ness values drop below −0.5, meaning distribution is roughly symmetrical and acceptable as moderately
skewed. All constructs are negatively skewed, meaning longer tails on the left. Kurtosis values for all the
constructs are below 3, near to a zero value that suggests ordinary or mesokurtic distribution, except
reactivity that has an adverse value, indicating a platykurtic distribution that implies very slender tails.
Confirmatory Factor Analysis (CFA)
CFA Initial Run
The fitness of this measurement model was evaluated in parameters of absolute fit, incremental fit, and
parsimonious fit. To achieve an acceptable fit, the root mean square error of approximation (RMSEA)
value should be lower than 0.080, and the goodness of fit (GFI) value should be greater than 0.90
(Bentler, 1990; Hair et al., 2009). The current measurement model had an acceptable RMSEA value of
0.077 and an unacceptable GFI value of 0.837. In terms of incremental fit, all the values of AGFI, com-
parative fit index (CFI), Tucker-Lewis index (TLI), and NFI should be greater than 0.90 (Hair et al.,
2009). The current measurement model obtained unacceptable values of CFI (0.837) and TLI (0.859),
AGFI (0.803), and NFI (0.819). Lastly, the evaluation of a parsimonious fit was based on the value of
Chisq/df, which must be less than 3.0, as recommended by Hair et al. (2009). The current measurement
model satisfied the parsimonious fit assessment as Chisq/df (2.860) was below the required threshold
value.
After checking the factor loadings of each factor corresponding to each variable, the factor loading
for LP6, LP9, CS2, CS4, and BA1 was found to be less than 0.60, which is less than the stated rule-of-
thumb (0.6 and above). The items were, therefore, deleted from the research (Chin et al., 1997). Even
[AQ8]
Table 2. Reliability Analysis
Reliability Measurement Number of Items Cronbach’s Alpha Strength of Association
All variables 25 .945 Excellent
Construct 1: Loyalty program 10 .881 Acceptable
Construct 2: Customer satisfaction 5.824 Acceptable
Construct 3: Customer retention 5.826 Acceptable
Construct 4: Brand association 5.786 Acceptable
Source:
Table 3. Normality Analysis
N Minimum Maximum Mean Std. Deviation Skewness Kurtosis
Statistic Statistic Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error
LoyaltyProg1 313 1 5 2.84 1.240 .033 .138 −1.065 .275
LoyaltyProg2 313 1 5 2.92 1.058 −.101 .138 −.612 .275
LoyaltyProg3 313 1 5 3.01 1.138 −.157 .138 −.785 .275
LoyaltyProg4 313 1 5 2.95 1.180 −.048 .138 −.816 .275
LoyaltyProg5 313 1 5 2.95 1.195 −.071 .138 −.931 .275
LoyaltyProg6 313 1 5 2.99 1.162 .031 .138 −.787 .275
LoyaltyProg7 313 1 5 2.85 1.177 −.050 .138 −.831 .275
LoyaltyProg8 313 1 5 2.96 1.162 −.011 .138 −.714 .275
LoyaltyProg9 313 1 5 2.90 1.215 .046 .138 −.995 .275
LoyaltyProg10 313 1 5 2.97 1.132 −.083 .138 −.620 .275
CS1 313 1 5 3.00 1.186 .053 .138 −.957 .275
CS2 313 1 5 3.04 1.130 −.016 .138 −.793 .275
CS3 313 1 5 2.95 1.146 −.047 .138 −.777 .275
CS4 313 1 5 3.02 1.162 .018 .138 −.768 .275
CS5 313 1 5 3.02 1.133 .049 .138 −.745 .275
CR1 313 1 5 2.80 1.204 .138 .138 −.836 .275
CR2 313 1 5 2.72 1.157 .222 .138 −.799 .275
CR3 313 1 5 2.93 1.221 .099 .138 −.931 .275
CR4 313 1 5 2.69 1.255 .286 .138 −.935 .275
CR5 313 1 5 2.93 1.188 .010 .138 −.809 .275
BA1 313 1 5 3.35 1.239 −.269 .138 −.982 .275
BA2 313 1 5 3.04 1.170 −.015 .138 −.786 .275
BA3 313 1 5 2.96 1.186 .080 .138 −.851 .275
BA4 313 1 5 2.93 1.203 .107 .138 −.858 .275
BA5 313 1 5 2.88 1.214 .049 .138 −.960 .275
LoyaltyProg 313 1.00 5.00 2.9348 .81061 −.128 .138 .469 .275
CS 313 1.00 5.00 3.0032 .88252 .030 .138 .026 .275
CR 313 1.00 5.00 2.8115 .92521 .183 .138 −.024 .275
BA 313 1.00 5.00 3.0351 .88255 .190 .138 .157 .275
Valid N (listwise) 313
Source:
Fook and Dastane 11
Figure 1. Initial Measurement Model
Source:
[AQ9]
with a good fit in the model, there could be no precision, and the modification index (MI) is high because
the structure was highly correlated. The lack of discrimination validity on the first run of the model was
reduced by freeing up any specific path that was not estimated (Shadfar & Malekmohammadi, 2013).
Apart from the above, the MI values for LP2 and LP4 are higher than 15, were redundant. Following the
suggestion by Ahmad et al., (2016), the redundancy was then removed by connecting the redundancies
of both items. This process of item deleting was done with a re-iterative process with one item deletion
at one time.
CFA Final Run
To ensure the incremental fit, factor loadings of each factor were assessed, and items with a factor load-
ing of less than 0.6 were deleted individually as recommended by Hair et al. (2009). Besides, MI was
assessed, and any two items with MI values greater than 15 were connected to remove redundancy. The
adjusted measurement (second run CFA) is presented in Figure 2. The adjusted model achieved an abso-
lute fit with RMSEA value of 0.064. The parsimonious fit was also achieved along with Chisq/df value
of 2.269. The model achieved incremental fit with CFI of 0.940, TLI of 0.928, NFI of 0.898. The AGFI
12 Jindal Journal of Business Research
value was 0.872, which is close to 0.9, will be accepted if the model achieved a parsimonious fit (Hair et
al., 2009).
Divergent Validity
As the total factor loadings were more than 0.6, and all cross-loadings were less than 0.5, the dataset
satisfied the discriminant validity of the sample.
Convergent Validity
The convergent validity for the measurement model is achieved when all values of AVE exceed 0.50.
The composite reliability is achieved when all C.R. values exceed 0.60.
Structural Equation Modeling
Structural Model I—Direct Impact
The direct impact of loyalty programs on customer retention was assessed through the structural model
omitting both mediators. The model was considered to be a good fit; it achieved an absolute fit (RMEA
= 0.067, GFI = 0.945) and incremental fir (CFI = 0.945, TLI = 0.944, NFI = 0.930).
Figure 2. Measurement Model-fit
Source:
Fook and Dastane 13
Table 4. Divergent Validity
Loyalty Program Brand Association Customer Satisfaction Customer Retention
LP2 0.656
LP3 0.656
LP4 0.627
LP5 0.624
LP7 0.769
LP8 0.684
LP10 0.676
BA2 0.724
BA3 0.798
BA4 0.731
BA5 0.656
CS1 0.733
CS3 0.654
CS5 0.772
CR1 0.639
CR2 0.717
CR3 0.781
CR4 0.693
Source:
Table 5. Convergent Validity
Construct Item Factor Loading C.R. (minimum 0.6) AVE (Minimum 0.5)
Loyalty program LP2 0.656 0.851 0.499
LP3 0.656
LP4 0.627
LP5 0.624
LP7 0.769
LP8 0.684
LP10 0.676
Brand association BA2 0.724 0.819 0.531
BA3 0.798
BA4 0.731
BA5 0.656
(Table 5 continued)
14 Jindal Journal of Business Research
Construct Item Factor Loading C.R. (minimum 0.6) AVE (Minimum 0.5)
Customer satisfaction CS1 0.733 0.764 0.520
CS3 0.654
CS5 0.772
Customer retention CR1 0.639 0.801 0.503
CR2 0.717
CR3 0.781
CR4 0.693
Source:
Figure 3. Structural Model—Direct Impact
Source:
Table 6. SEM Standardized Estimates—Direct Impact
Dependent Variable Independent Variable Estimate bpSignificance
Customer retention Loyalty program 0.855 0.000 Significant
Source:
There is a strong impact of 85.5% of loyalty programs on customer retention if tested without media-
tors. We need to further observe whether this impact reduces with inclusion on meditators as per research
objectives. This will be done by a series of the structural model for parallel, distinct, and sequential
mediation analysis.
Mediation Analysis
Structural Model II—Parallel MedIatIon analySIS
A structural model of loyalty programs and its impact on customer retention was developed by including
two meditators, namely, customer satisfaction and brand association, in parallel in the context of
[AQ10]
(Table 5 continued)
Fook and Dastane 15
consumers of Malaysian national cars. The objective was to investigate the mediating effect of customer
satisfaction between loyalty programs and customer retention. There are several ways to assess the valid-
ity of the structural model. One way is to evaluate the indices, such as chi-square, normed chi-square,
CFI, and RMSEA (Hair et al., 2009). For the above structural model, Chisq was significant (p < 0.05);
RMSEA (0.071) indicated good fit; and values of GFI (0.890), CFI (0.924), TLI (0.910), and NFI (0.883),
which are higher than or close to 0.90, indicated the acceptable level of incremental fit.
Table 7. SEM Standardized Estimates—Parallel Mediating Effect
Dependent Variable Independent Variables Estimate bpSignificance
Customer retention Loyalty program 0.223 0.212 Not significant
Customer satisfaction Loyalty program 0.868 *** Significant
Brand association Loyalty program 0.864 *** Significant
Customer retention Customer satisfaction 0.078 0.526 Not significant
Customer retention Brand association 0.693 *** Significant
Source:
Note: *p < .05 **p < .01, ***p < .001. [AQ11]
Figure 4. Structural Model—Parallel Mediation Analysis
Source:
16 Jindal Journal of Business Research
First, the assessment of the mediation effect of customer satisfaction is carried out. The result of
Indirect effect is 0.067 (loyalty programs à customer satisfaction = 0.868 multiplied by customer satis-
faction à customer retention = 0.078). While the direct effect of loyalty programs on customer retention
is 0.22. As such, mediation does not occur; besides, the relationship between customer satisfaction and
customer retention is non-significant statistically (p > 0.05). Therefore, customer satisfaction does not
mediate the relationship between the constructs. Second, the assessment of the mediation effect of the
brand association is carried out. The result of indirect effect is 0.598 (loyalty programs à customer
satisfaction = 0.864 multiplied by customer satisfaction à customer retention = 0.693). While the direct
effect of loyalty programs on customer retention is 0.22. As such, the mediation does occur; besides, the
relationship between loyalty programs and customer retention is non-significant statistically (p > 0.05).
Therefore, brand association fully mediates the relationship between the constructs.
Last, there are demands from many quarters that researchers need to re-confirm the results of their
mediation tests related to complex models using the resampling procedure called bootstrapping (for
details, see Preacher & Hayes, 2008). This is mainly for testing the indirect effect. First, the Bollen–Stine
bootstrap model is selected with results as follows:
Bollen–Stine bootstrap (default model): The model fits better in 995 bootstrap samples. It fits about
equally well in zero bootstrap samples. It fits worse or failed to fit in five bootstrap samples. Testing the
null hypothesis that the model is correct, Bollen–Stine bootstrap p = .006. Bootstrap sample distribution
is as follows:
N = 1000
Mean = 212.668
S.E. = 1.223
104.225
122.481
140.736
158.991
177.247
195.502
213.757
232.013
250.268
268.523
286.779
305.034
323.289
341.545
359.800
|--------------------
|*
|*
|****
|*********
|*************
|******************
|*******************
|******************
|**********
|******
|****
|**
|*
|*
|*
|--------------------
Second, therefore bootstrapping procedure is followed by selecting 1,000 bootstrap samples and bias-
corrected 95%. We have obtained standardized indirect effect together with its significance level and
also the standardized direct effect together with its significance level. The results are displayed as
follows.
Based on the results, the researcher can conclude that the results of bootstrapping are consistent with
the mediation test results above (without bootstrapping).
Structural Model III—MedIatIon analySIS of cuStoMer SatISfactIon
To estimate the parameters, a structural model of loyalty programs and their impact on customer associ-
ation-mediated customer retention was developed in the context of consumers of Malaysian national
Fook and Dastane 17
Table 8. Bootstrapping Standardized Estimates—Parallel Mediating Effect
Dependent Variable Independent Variables Estimate bpSignificance
Customer retention Loyalty Program 0.223 0.212 Not significant
Customer satisfaction Loyalty program 0.868 *** Significant
Brand association Loyalty program 0.864 *** Significant
Customer retention Customer satisfaction 0.078 0.526 Not significant
Customer retention Brand association 0.693 *** Significant
Source:
[AQ12]
Figure 5. Structural Model—Customer Satisfaction
Source:
Table 9. SEM Standardized Estimates—Customer Satisfaction
Dependent Variable Independent Variables Estimate bpSignificance
Customer retention Loyalty program 0.492 *** Significant
Customer satisfaction Loyalty program 0.799 *** Significant
Customer retention Customer satisfaction 0.454 *** Significant
Source:
Note: *p < .05, **p < .01, ***p < .001.
18 Jindal Journal of Business Research
cars. For the above structural model, Chisq was significant (p < 0.05); RMSEA (0.062) indicated good
fit; and values of GFI (0.932), CFI (0.952), TLI (0.945), and NFI (0.917), which are higher than or close
to 0.90, indicated the acceptable level of incremental fit.
The result of indirect effect is 0.36 (loyalty programs à customer satisfaction = 0.80 multiplied by
customer satisfaction à customer retention = 0.45). While the direct effect of loyalty programs on cus-
tomer retention is 0.49. As such, mediation does not occur, and it can be said that customer satisfaction
does not mediate the relationship between the constructs.
Structural Model IV—MedIatIon analySIS of Brand aSSocIatIon
A structural model of loyalty programs and their impact on brand association-mediated customer reten-
tion was developed in the context of consumers of Malaysian national cars. For the above structural
model, Chisq was significant (p < 0.05); RMSEA (0.067) indicated good fit; and values of GFI (0.916),
CFI (0.944), TLI (0.931), and NFI (0.909), which are higher than or close to 0.90, indicated the accept-
able level of incremental fit.
Figure 6. Structural Model—Brand Association
Source:
Table 10. SEM Standardized Estimates—Brand Association
Dependent Variable Independent Variables Estimate bpSignificance
Customer retention Loyalty program 0.259 *** Significant
Brand association Loyalty program 0.802 0.05 Significant
Customer retention Brand association 0.740 *** Significant
Source:
Note: *p < .05, **p < .01, ***p < .001.
Fook and Dastane 19
The result of indirect effect is 0.59 (loyalty programs à brand association = 0.80 multiplied by brand
association à customer retention = 0.74). While the direct effect of loyalty programs on customer reten-
tion is 0.26. As such, mediation occurs, and brand association mediates the relationship between the
constructs. As the p-value for all the relationships is significant, it can be said that there is a partial
mediation exists.
Structural Model V—SequentIal MedIatIon analySIS
A structural model of loyalty programs and its impact on customer retention was developed by including
two meditators, namely, customer satisfaction and brand association, in sequence in the context of con-
sumers of Malaysian national cars. The objective was to investigate the mediating effect of customer
satisfaction between loyalty programs and customer retention. For the above structural model, Chisq was
significant (p < 0.05); RMSEA (0.064) indicated good fit; and values of GFI (0.901), CFI (0.939), TLI
(0.928), and NFI (0.897), which are higher than or close to 0.90, indicated the acceptable level of incre-
mental fit.
All effects are significant, and so there cannot be full mediation in this case. Then it is necessary to
check for partial mediation. The indirect impact can be calculated by multiplying effects of loyalty pro-
grams on customer satisfaction (0.835), customer satisfaction on brand association (0.921) and brand
association on customer retention (0.701) which is 0.539 which is higher than a direct effect of a loyalty
program on customer retention (0.301). This shows there is a sequential partial mediation exists.
As recommended by (Cheung & Lau, 2008; Hu & Wong, 2010), bootstrapping procedure is followed
to confirm the results as below. Bollen–Stine bootstrap (default model): The model fits better in 975
bootstrap samples. It fits about equally well in 0 bootstrap samples. It fits worse or failed to fit in 25
Figure 7. Structural Model—Sequential Mediation Analysis
Source:
20 Jindal Journal of Business Research
Table 11. Bootstrapping Standardized Estimates—Sequential Mediating Effect
Dependent Variable Independent Variables Estimate bpSignificance
Customer retention Loyalty program .301 *** Not significant
Customer satisfaction Loyalty program .835 *** Significant
Brand association Customer satisfaction .921 *** Significant
Customer retention Brand association .701 *** Significant
Source:
bootstrap samples. Testing the null hypothesis that the model is correct, Bollen–Stine bootstrap p = .026.
Bootstrap sample distribution is as follows:
N = 1000
Mean = 213.976
S.E. = 1.240
102.882
121.459
140.036
158.613
177.190
195.767
214.344
232.921
251.498
270.076
288.653
307.230
325.807
344.384
362.961
|--------------------
|*
|*
|***
|*********
|************
|*******************
|*******************
|******************
|**********
|*******
|****
|**
|*
|*
|*
|--------------------
Bootstrapping procedure is followed by selecting 1,000 bootstrap samples and bias-corrected 95%. No
difference in results is observed for estimates as well as the significance level. Therefore, partial sequen-
tial mediation can be confirmed.
Hypothesis Testing and Results
This section is to summarize the decision on hypothesis acceptance. Based on the discussion in the above
sections regarding standardized estimates and significance level, it can be summarized as follows:
First, this research finds that in the Malaysian national car sector loyalty program has a strong positive
impact on customer retention. Hence, H1 is accepted. This is a novel contribution of the current study as
earlier studies were focused on different sectors. This result confirms the findings of other such studies
(see Ali & Ali, 2018; Kamau, 2017; Khalil et al., 2018). However, the extent of such impact is recorded
as quite high compared to the results of past studies (see Kim, 2019; Koo et al., 2020).
Second, with the inclusion of customer satisfaction as a mediator, there was a reduction of the impact
from 0.855 to 0.492, but such mediation is not found as significant. Customer satisfaction is a
Fook and Dastane 21
Table 12. Hypothesis Results
No. Hypotheses Decision
H1Loyalty programs has a significant positive impact on customer retention. Accepted
H2Customer satisfaction plays a mediating role between the loyalty program and
customer retention.
Rejected
H3Brand association plays a mediating role between loyalty program and customer
retention.
Accepted
H4The relationship between loyalty programs and customer retention is sequentially
mediated by customer satisfaction and brand association.
Accepted
Source:
well-established and influential antecedent of customer retention (Emaluta et al., 2019; Tandon et al.,
2017). It was also confirmed as mediators among several independent variables and customer retention
(Agus, 2019; Han et al., 2018; Sari et al., 2018). But the current study does not match with such past
findings. Third, the brand association was found as a factor of partial mediation between customer reten-
tion. Several studies have assessed brand association as a mediator in a range of business sector
(Ferdiawan et al., 2018; Nyadzayo & Khajehzadeh, 2016). Our study confirms such finding but in the
context of Malaysian national cars.
Moreover, the results of mediation analysis when tested in parallel and in the sequence are a novel
contribution to the field as to best of our knowledge such effect is not tested before in general and specifi-
cally in the context of Malaysian national cars.
Conclusion
Findings show that there is a significant positive impact of loyalty programs on customer retention. The
brand association has a full mediation effect between loyalty programs and customer retention when
tested parallel with customer satisfaction; contrary, customer satisfaction demonstrated an insignificant
mediation effect. On the other hand, when tested distinctly, brand association showed a partial mediating
effect while there was no mediation effect of customer satisfaction. Besides, customer satisfaction and
brand association demonstrated sequential partial mediation. Ample studies are discussing the impact of
loyalty programs on customer retention. However, the same has not been investigated earlier in the con-
text of Malaysian national cars. This study provides a theoretical contribution by establishing such a
relationship. Besides, studies are scant on assessing mediating impacts of customer satisfaction or brand
association between loyalty programs and customer retention. The current study offers a definite theo-
retical contribution by developing multiple mediation structural model by considering the parallel and
sequential mediation effect of customer satisfaction and brand association. Furthermore, the research
also assesses the mediation effect of customer satisfaction and brand association separately. The current
research attempts to address the inconsistent findings on the mediating role of customer satisfaction and
brand association in the relationship between loyalty programs and brand association. The study applies
advanced statistical methods for inferences about these mediated effects. This study is one of the first
attempts to test and prove by advanced methods the mediating role of customer satisfaction and brand
association sequentially and in parallel between selected variables.
In terms of managerial contribution, this study also helps national carmakers prioritize and strategize
their limited resources according to after-sales service needs and current customer demand. Formulating
22 Jindal Journal of Business Research
various loyalty programs is essential as it will have a substantial impact on customer retention. This
activity will not only increase customers’ success rate, and it will further enhance the brand image, the
company’s image and reputation are essential because it is the perceived value of customers. Marketers
can focus on developing brand association instead of just offering various loyalty programs. Also, man-
agers need to understand that customer satisfaction alone may not necessarily retain customers, and
customer satisfaction is the minimum expectation of customers these days. Despite satisfying customers,
implementing various loyalty programs is necessary to enhance customer retention.
Like any other study, this research has some limitations. First, the study does not consider various
loyalty programs and does not identify which program impacts customer retention strongly. In this way,
the research has limitations in suggesting specific loyalty programs for national carmakers to enhance
customer retention. Besides, the study considers the one-dimensional aspect of brand association for
mediation analysis, and in spite, the construct is multi-dimensional. Second, this study is limited to a
niche market of Malaysian national cars and so poses limitations in its generalizability. The automobile
market is enormous, and several other international vehicles are competing with national cars. In this
context, in the future, the study can be extended to multinational car brands. Future studies can also
explore the mediating effects by considering the multi-dimensional construct of brand association.
Declaration of Conflicting Interests
The author(s) declared the following potential conicts of interest with respect to the research, authorship, and/or
publication of this article: We hereby conrm that the manuscript has no any actual or potential conict of interest
with any parties, including any nancial, personal, or other relationships with other people or organizations. We
conrm that the article has not been published previously, it is not under consideration for publication elsewhere,
and the manuscript is not being simultaneously submitted elsewhere.
Declaration of Contribution
Both authors contributed equally to this manuscript.
Funding
The authors received no nancial support for the research, authorship and/or publication of this article.
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