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Page 1: Relationships among customer loyalty programs, service quality, relationship quality and loyalty

Relationships among customerloyalty programs, service quality,relationship quality and loyalty

An empirical study

Wei-Ming OuDepartment of Marketing Management,

Shih Chien University, Kaohsiung, Taiwan

Chia-Mei ShihDepartment of Business Administration,Kun Shan University, Tainan, Taiwan

Chin-Yuan ChenDepartment of Finance, Kun Shan University, Tainan, Taiwan, and

Kuo-Chang WangTaiwan Sugar Corporation, Tainan, Taiwan

Abstract

Purpose – The purpose of this paper is to measure the impact of customer loyalty programs onrelationship quality, relationship commitment, and loyalty.

Design/methodology/approach – A survey with 480 qualified observations from department storecustomers in Taiwan was conducted. A structural equation modeling approach was used.

Findings – Customer loyalty programs have a partially supported positive impact on relationshipquality; service quality has a positive impact on relationship quality; customers with a positiverelationship quality impact their relationship commitment; the higher the relationship commitment, thehigher the loyalty; and a customer loyalty program partially supports a positive impact on loyalty.

Originality/value – The paper shows that customer loyalty programs have positive influences onloyalty. However, short-term customer loyalty programs, namely, Minimum Purchase Gift Cards,displayed no significant influence on loyalty. The incentive of short-term customer loyalty programs isnot sufficient for loyalty.

KeywordsCustomer loyalty program, Loyalty, Relationship commitment, Relationship quality, Taiwan,Consumer behaviour, Consumer loyalty

Paper type Research paper

IntroductionThe retail business is not as simple as “Displaying goods in an open store” to satisfycustomer needs. Meeting the diverse customer demand to achieve customer loyalty is animportant issue for management today. Customer loyalty becomes possible throughthe development of long term, mutually beneficial relationships with customers

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1750-614X.htm

The authors would like to thank the Editor and the reviewers for their helpful comments onearlier drafts of this paper.

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Chinese Management StudiesVol. 5 No. 2, 2011pp. 194-206q Emerald Group Publishing Limited1750-614XDOI 10.1108/17506141111142825

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(Athanasopoulou, 2009). One of the most valuable marketing strategies that executives canexploit is a customer loyalty program, which is a promotional plan designed to increaseloyalty by providing incentives to customers through added benefits (Yi and Jeon, 2003).Customer loyalty programs are a widely used marketing tool to increase sales and maintaina stable market share. Many retailers, such as department stores and grocery stores, haveadopted customer loyalty programs as a useful strategic tool that most consumers activelyenjoy. However, most retailers launch loyalty programs simply to “follow the competitors”(O’Malley, 1998), and do not understand the value that can be provided to customers or theimpact on the organization. Therefore, this study aims to investigate whether retailers thatlaunch annual customer loyalty programs effectively increase loyalty.

This research focuses on the antecedents of relationship quality, namely, customerloyalty programs and service quality, as well as relationship quality consequences,explicitly, relationship commitment and loyalty. The purpose of this study includes:

. Examine the impact of customer loyalty programs on relationship quality.

. Examine the impact of service quality on relationship quality.

. Examine the impact of relationship quality on relationship commitment.

. Examine the impact of customer loyalty programs on loyalty.

. Provide recommended strategies for retailers in preparing customer loyaltyprograms.

Literature review and hypotheses developmentThe impact of customer loyalty programs on relationship qualityRelationship quality is the level of relationship between a business and thecustomer (Crosby et al., 1990). This level determines how well an organization meetsthe customer’s needs. The service industry contains features that allow customersto have an ambiguity toward its consumer services. These ambiguities may implyineffective services or negative effects, such that the “relationship quality” helps lowerthese ambiguities (Crosby et al., 1990).

Yi and Jeon (2003) believe a customer loyalty program is a marketing plan designed toincrease loyalty by providing incentives to customers through added benefits. Currentlymost customer loyalty programs are broadly designed into three categories:

(1) Gift cards with minimum purchase.

(2) Member rebates (including gift cards, exclusive member discounts,high-consumer benefit programs).

(3) Lottery draws.

There are five elements in the perceived value of customer loyalty programs:“Cash value”, “Choice of redemption option”, “Aspiration value”, “Relevance”, and“Convenience” (Yi and Jeon, 2003).

Shoemaker and Lewis (1999) believe that customer loyalty programs enhancecustomer satisfaction so that when a problem occurs between the relationship of thecustomer and service provider, a good customer loyalty program reduces dissatisfaction.This confirms the importance of the customer loyalty program on customer relations.Good customer loyalty programs not only improve consumer acceptance that is reflectedin increased sales, they also encourage participation through increased interaction

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between the business and customer. In addition, the customers believe that they canreceive higher economic value, diverse rewards, and an opportunity to win a prize throughthe implementation of customer loyalty programs. Therefore, when a customer provides ahigher rating to a business loyalty program, they also reflect a higher level of trust. Thisstudy proposes the following assumptions based on the above-mentioned facts:

H1. Customer loyalty programs have a significant positive impact on customersatisfaction.

H2. Customer loyalty programs have a significant positive impact on trust.

The impact of service quality on relationship qualityTo survive in this competitive market, companies should continue to improve theirservice performance (Kim et al., 2007). Service quality is known by both academics andpractitioners to contribute to customer satisfaction and market share (Cameran et al.,2010; Hu et al., 2009; Mohamad and Awang, 2009; Parasuraman et al., 1985; Zeithaml,2000). The pursuit of service quality has become an essential factor for all businessesthat are driven by the need to remain competitive (Hu et al., 2009).

Furthermore, service quality is one of the antecedents of customer satisfaction andloyalty (Herington and Weaven, 2009; Hu et al., 2009; Jamal and Anastasiadou, 2009;Mohamad and Awang, 2009). High level of service performance is believed to be aneffective way to improve customer satisfaction, trust, and loyalty (Huang and Liu, 2010;Kim et al., 2007). Moreover, the relationship quality model proposed by Crosby et al.(1990) state that the professionalism of the service provider has a positive impact onrelationship quality. The better professional service provided the higher acceptancethe customer will have toward the assurance of service quality. In other words, thecustomer’s perception of service quality assurance positively influences the relationshipquality. This study proposes the following assumptions:

H3. Service quality will positively impact the degree of customer satisfaction.

H4. Service quality will positively impact trust.

The impact of relationship quality on relationship commitmentCommitment is an emotional link between the individual and the organization (Akehurstet al., 2009). Relationship commitment is defined as an exchange partner believing that acontinuing relationship with another party is so vital as to warrant maximum endeavors atmaintaining it; in other words, the committed party accepts that the relationship is worthworking on to guarantee that it endures indefinitely (Morgan and Hunt, 1994). Relationshipcommitment is affective loyalty to maintain an ongoing relationship with their partner, andcould be intensified by trust that is the aggregate evaluation of customer’s satisfaction(Bennet and Cadogan, 2001; Moliner et al., 2007; Morgan and Hunt, 1994).

Gundlach et al. (1995) pointed out that relationship commitment is important inthe success of relationship exchange, and is a strong indicator of the relationship quality.Trust is the foundation of long-term relationships and an important factor of relationshipcommitments (Sirdeshmukh et al., 2002). Morgan and Hunt (1994) express thatrelationship commitment is willingly placed with the greatest effort, as it is an importantfactor in trust and maintaining relationships between trading partners. When oneparty perceives the relationship is important, a relationship commitment exists.

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The meaning is defined as “A persistent demand present when maintaining importantrelationships.” Hennig-Thurau et al. (2002) studied three different service industries,finding that customer satisfaction will directly affect relationship commitment.According to these two dimensions of relationship quality (satisfaction and trust) andthe facts in relationship commitment reviewed in this paper, we know that satisfaction,trust and commitment are closely related (Anderson and Srinivasan, 2003;Hennig-Thurau et al., 2002; Moliner et al., 2007; Morgan and Hunt, 1994; Wu et al.,2008). We therefore propose the following assumptions:

H5. Customer satisfaction has a positive impact on the relationship commitment.

H6. Customer trust has a positive impact on the relationship commitment.

LoyaltyCustomer loyalty is defined as a held commitment to re-buy or re-patronize a preferredproduct consistently in the future (Ganesh et al., 2000; Jamal and Anastasiadou, 2009; Kimet al., 2007; Oliver, 1999; Stank et al., 1999, 2003). Loyal customers tend to have a higherlevel of recommendation intention and repurchase intention (Bowen and Shoemaker, 1998;Chi et al., 2009; Hennig-Thurau et al., 2002; Kim et al., 2007; Singh and Sirdeshmukh, 2000;Stank et al., 1999, 2003; Yu and Dean, 2001). Loyalty increases repurchase behaviorbecause loyal customers demonstrate greater resistance to counter persuasion andnegative word of mouth. Loyal consumers might be less price sensitive, and decrease therisk of defection due to competitors’ promotional activities (Stank et al., 2003).

Oliver (1999) believes that customer loyalty is the repeat purchase intention of acustomer toward a service or product no matter the varying influencing situations ormarketing activities. Bettencourt (1997) found that relationship commitment had astrong positive effect on loyalty; the higher the customer commitment, the more willingthe customer is in providing word-of-mouth recommendations for the business.Therefore, this study proposes the following hypothesis:

H7. The higher the customer’s relationship commitment, the higher the customerloyalty.

Yi and Jeon (2003) believe a customer loyalty program is a useful marketing tool designedto increase loyalty by providing incentives to consumers through added benefits.A successful customer loyalty program further strengthens the relationship betweenexisting customers, lengthening customer life cycle, and increasing its share of customerexpenditure. The overall objectives of these programs are to enhance consumer repeatpurchase behavior and increase customer conversion costs of switching stores bystimulating product or service usage (Magi, 2003). Magi (2003) also found that retailloyalty programs had a high degree of influence on customers’ share-of-purchase andshare-of-visits. In this study, we propose the following assumptions:

H8. Customer loyalty programs have a positive impact on customer loyalty.

Research framework and methodsThis study focuses on the antecedents of relationship quality (customer loyalty programand service quality), as well as relationships consequences (relationship commitment andloyalty). This study proposes a conceptual framework, as shown in Figure 1.

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This study uses software SPSS version 12.0 and AMOS version 5.0 for statisticalanalysis. To test the hypotheses presented in this study, the following statisticalmethods were used: reliability analysis, factor analysis, and path analysis.

This research targets department store customers in Taiwan. Surveys to collect datafrom consumers as they were leaving department stores in Taiwan were conducted. Thestudy population consists of shoppers of major department stores in a Taiwan city.Potential respondents were approached and asked to participate in a short interview.They were told that the research was being conducted by universities, and the individualresults were to be kept strictly confidential. A total of 600 surveys were conducted,528 were collected for a recovery rate of 88 percent. By deducting incomplete surveys,480 qualified surveys remained for an effective collection rate of 80 percent. In thesample, a total of 141 were male (29.4 percent) and 338 female (70.4 percent). The highestconcentration of ages was between 18 and 35 years, representing 136 people(65.9 percent).

Data analysisFactor analysis and reliability analysisAfter testing, the customer loyalty programs scale (Minimum Purchase Gift Card,Membership Card Rebate, and Lottery Draw) deleted “Minimum Purchase Gift Card oneitem”, “Membership Card Rebate three items,” and “Lottery Draw two items” for a totalof six items, leaving nine items on the scale. Using the largest variance in the orthogonalrotation factor analysis to extract the three factors larger than one, the cumulativeexplained variance was 75.579 percent. Because the composition of each factor’sCronbach’s Alpha value was greater than 0.7, this indicates a good and credible scale.In addition, the dimensions of each factor are consistent with the original design of thisstudy, proving that this scale has appropriate constructive validity. The original designof the department store service quality scale was constructed with six items. Afterstatistical analysis, no item was deleted with an eigenvalue of 3.679 for a cumulative

Figure 1.Conceptual framework

Customer loyaltyprograms

Minimumpurchasegift card

Membershipcard rebate

Servicequality

Lotterydraw

Relationshipquality

H2

H3

H4

H5

H6

H7

H1

H8

Satisfaction

Trust

Relationshipcommitment

Loyalty

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explained variance of 61.309 percent. Because the composition of each factor has aCronbach’s Alpha value of 0.861, this indicates the scale is reliable.

The relationship quality scale contains customer satisfaction (five items) and trust(five items). After trial testing, three items of customer satisfaction were deleted leavinga remainder of seven questions. Using the largest variance in the orthogonal rotationfactor analysis to extract the two factors larger than one resulted in a cumulativeexplained variance of 75.579 percent. Because the composition of each factor had aCronbach’s Alpha value greater than 0.7, this shows that the scale is reliable.

Through factor analysis, the relationship commitment scale has an eigenvalue of3.705 and a cumulative explained variance of 74.101 percent. Because the factorcomposition has a Cronbach’s Alpha value of 0.912 and is consistent with the originaldesign, this proves the scale is reliable. In addition, the customer loyalty program scalehas an Eigenvalue of 6.293 and a cumulative explained variance of 69.918 percent.Because the factor composition has a Cronbach’s Alpha value of 0.946 and is consistentwith the original design, this proves that the scale is reliable.

Customer perceived value for customer loyalty programsThis study uses ANOVA analysis to find the significant perceived differences betweenthe customer loyalty programs (Minimum Purchase Gift Card, Membership CardRebate, and Lottery Draw) of three department stores in a Taiwan city. For commercialconfidentiality, A, B, and C represent the names of the three department stores.

There is a significant difference (F ¼ 9.975, p , 0.001) of the perceived value of theMinimum Purchase Gift Card for the customers of the three department stores. TheDuncan test in Table I indicates that the customers of department store A have asignificant higher perceived value of the Minimum Purchase Gift Card than those ofdepartment store C. Department store B has a significantly higher perceived value thandepartment store C.

There is a significant difference (F ¼ 3.15, p , 0.05) in the perceived value ofMembership Card Rebates for the customers of the three department stores. The Duncantest in Table I indicates that the customers of department store A have a significantlyhigher perceived value of Membership Card Rebates than department store C.Department store B has a significantly higher perceived value than department store C.

There is a significant difference (F ¼ 25.9, p , 0.001) in the perceived value ofLottery Draw for the customers of the three department stores. The Duncan test inTable I indicates that the customers of department store A have a significantly higherperceived value of the Lottery Draw than department store C. Department store B has asignificantly higher perceived value than department store C.

AveragePerceived value of customer loyalty program Store A Store B Store C F-value Duncan test

Minimum Purchase Gift Card 5.19 5.28 4.77 9.975 * * * (A C), (B C)Membership Card Rebate 5.27 5.20 4.97 3.135 * (A C), (B C)Lottery Draw 4.40 5.24 4.58 25.900 * * * (A B), (B C)

Note: Significance at: *p , 0.05, * *p , 0.01 and * * *p , 0.001

Table I.Differences of the

perceived value ofcustomer loyalty

programs

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Analysis of theoretical models and goodness of fitThis study uses the AMOS version 5.0 to verify the structural equation modeling (SEM)and uses the maximum likelihood to analyze the theoretical models for goodness of fit.The use of SEM estimates the effects simultaneously and is thus more true to thesimultaneous nature of the impact of these variables in the research model. It also allowsfor convenient estimation of the effects of individual predictors (Ou et al., 2006).

The theoretical model fit analysis achieved significant results: x 2 (3) ¼ 7.492( p ¼ 0.058), with a standardx 2-value ( ¼ 2.497) between the acceptable range of 1 and 3.In addition, GFI ¼ 0.996 is higher than the accepted standard value of 0.9; here, thecloser the value is to 1, the better indication of goodness of fit. AGFI ¼ 0.953 andCFI ¼ 0.998 is higher than the accepted standard value of 0.9; RMSEA ¼ 0.056 is lowerthan the accepted standard value range of 0.08; the mean residual square root of RMR( ¼ 0.01) is lower than the acceptable standard value 0.05. A value close to 0 suggests abetter goodness of fit. Overall, we found that the model had an acceptable goodness of fit.

Significance of hypothesesThe impact of customer loyalty programs on relationship qualityIn the impact of customer loyalty programs on satisfaction, Minimum Purchase GiftCards had a significant positive effect on satisfaction (g ¼ 0.247, p , 0.001),Membership Card Rebate had no significant effect on satisfaction (g ¼ 20.055,p . 0.1), and Lottery Draw had a significant positive effect on satisfaction (g ¼ 0.382,p , 0.001). From this, we see that H1 “customer loyalty program has a significantpositive impact on customer satisfaction” is partially supported.

In the impact of customer loyalty programs on trust, Minimum Purchase GiftCards had no significant effect on trust (g ¼ 0.061, p . 0.1), Membership Card Rebateshad a significant positive effect on trust (g ¼ 0.107, p , 0.05), and Lottery Draws had asignificant positive effect on trust (g ¼ 0.186, p , 0.001). From this, we see that H2“customer loyalty program has a significant positive impact on trust” is partiallysupported.

The impact of service quality on relationship qualityIn the impact of service quality on satisfaction, service quality had a significant positiveeffect on satisfaction (g ¼ 0.293, p , 0.001). From this, we see that H3 “service qualityhas a significant positive impact on satisfaction” is true. In the impact of service qualityon trust, service quality had a significant positive effect on trust (g ¼ 0.518, p , 0.001).From this, we see that H4 “service quality has a significant positive impact on trust” istrue. Thus, service quality has a significant positive impact on relationship quality.

The impact of relationship quality on relationship commitmentIn the impact of customer satisfaction on relationship commitment, satisfaction had asignificant positive effect on relationship commitment (b ¼ 0.642, p , 0.001). From this,we can see that H5 “Customer satisfaction has a positive impact on the relationshipcommitment” is true. Moreover, in the impact of trust on relationship commitment, trusthad a significant positive effect on relationship commitment (b ¼ 0.331, p , 0.001).From this, we can see that H6 “Customer trust has a positive impact on the relationshipcommitment” is true. Therefore, relationship quality has a significant positive impact onrelationship commitment.

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The impact of relationship commitment on customer loyaltyRelationship commitment had a significant positive impact on the loyalty (b ¼ 0.331,p , 0.001). From this, we can see that H7 “The higher the customer’s relationshipcommitment, the higher the customer loyalty” is true.

The impact of customer loyalty programs on loyaltyMembership Card Rebates in customer loyalty programs had a significant positiveimpact on loyalty (g ¼ 0.096, p , 0.01); Lottery Draws had a significant positive impacton loyalty (g ¼ 0.111, p , 0.001). However, the Minimum Purchase Gift Card had nosignificant impact on loyalty (g ¼ 0.040, p . 0.1). From this, we can see that H8“customer loyalty programs have a positive impact on customer loyalty” is partiallysupported.

Path analysis is found in Table II.

ConclusionsThe impact of customer loyalty programs on relationship qualityThe results showed that the hypothesis “customer loyalty programs had a significantpositive impact on customer satisfaction” was partially supported; the customer loyaltyprogram’s significant positive impact on trust was also partially supported.

Shoemaker and Lewis (1999) suggested a satisfactory customer loyalty programreduces customer dissatisfaction and reinforce satisfaction. However, a poorly designedcustomer loyalty program may produce adverse effects. The study results show thatMinimum Purchase Gift Cards and Lottery Draws in customer loyalty programs have apositive significant impact on customer satisfaction, while Membership Card Rebatesshowed no significant results. Therefore, “customer loyalty programs have a significantpositive impact on customer satisfaction” was only partially supported. This may be theresult of customer dissatisfaction with poorly designed Membership Card Rebates.

In addition, for Minimum Purchase Gift Cards, no significant impact ondepartment store customers’ trust was observed. This indicates trust may not be

Path Hypothesis Standardized coefficient Results

Minimum Purchase Gift Card ! satisfaction H1 0.247 * * * SupportedMembership Card Rebate ! satisfaction H1 20.055 Not supportedLottery Draw ! satisfaction H1 0.382 * * * SupportedMinimum Purchase Gift Card ! trust H2 0.061 Not supportedMembership Card Rebate ! trust H2 0.107 * SupportedLottery Draw ! trust H2 0.186 * * * SupportedService quality ! satisfaction H3 0.293 * * * SupportedService quality ! trust H4 0.518 * * * SupportedSatisfaction ! relationship commitment H5 0.642 * * * SupportedTrust ! relationship commitment H6 0.331 * * * SupportedRelationship commitment ! loyalty H7 0.648 * * * SupportedMinimum Purchase Gift Card ! loyalty H8 0.040 Not supportedMembership Card Rebate ! loyalty H8 0.096 * * SupportedLottery Draw ! loyalty H8 0.111 * * * Supported

Notes: Significance at: *p , 0.05, * *p , 0.01 and * * *p , 0.001; R 2: Trust, 0.535; satisfaction, 0.510;relationship commitment, 0.363; loyalty, 0.736

Table II.Path analysis

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formed by the design of Minimum Purchase Gift Cards. We believe the incentive ofshort-term marketing activities, such as Minimum Purchase Gift Cards, is not sufficientfor trust. Trust is the result from the customers’ faith and confidence after receivingservice from a provider (Huang and Liu, 2010; Morgan and Hunt, 1994). When thecustomer affirms the department stores’ loyalty program is fair and just, the generatedtrust toward the department store is positive. However, when customers feel distrusttoward the design of loyalty programs, their consumption behavior reflects this.

The impact of service quality on the relationship qualityStudy results show a significant positive impact of service quality oncustomer satisfaction; hence, there is a significant relationship between servicequality and satisfaction (Anderson and Narus, 1990; Cameran et al., 2010; Crosby et al.,1990; Herington and Weaven, 2009; Hu et al., 2009; Jamal and Anastasiadou, 2009;Parasuraman et al., 1988). Service quality has a significant positive impact on trust,which is aligned with the view of Nicholson et al. (2001) that the customers’ perception ofservice quality affects the level of trust given a service provider.

The impact of relationship quality on relationship commitmentThis study found that both the impact of customer satisfaction and trust positively andsignificantly impact the relationship commitment. This aligns with previous findingsof customer satisfaction and trust having a significant positive impact on relationshipcommitment (Bennet and Cadogan, 2001; Hennig-Thurau et al., 2002; Moliner et al.,2007; Morgan and Hunt, 1994).

The impact of relationship commitment on customer loyaltyResults show that the higher the relationship commitment, the higher the loyalty. Thisconfirms previous findings that relationship commitment has a significant positive impacton loyalty (Bennet and Cadogan, 2001; Bettencourt, 1997; Evanschitzky et al., 2006).

The relationship between customer loyalty programs and customer loyaltySuccessful loyalty programs further strengthen the relationship between existingcustomers, increase customer life cycles, increase the share of customer expenditure, andthereby strengthen customer loyalty. Magi’s (2003) study pointed out that retail loyaltyprograms have a large influence on customers’ share-of-purchase and share-of-visits.To verify the impact of department store customer loyalty programs on loyalty,we found that the design of Membership Card Rebate and Lottery Draw had a significantpositive impact on customer loyalty. However, only Minimum Purchase Gift Cardsdisplayed no significant influence. We believe the incentive of short-term customerloyalty programs, such as Minimum Purchase Gift Cards, is not sufficient for customerloyalty. If customer loyalty programs are not designed to meet customer demands, theywill not be recognized by customers, let alone build their loyalty.

Managerial implicationsRetailers’ sales come from long-term customers. Therefore, organizations need a loyalcustomer base for profits and sustainable growth. Based on the results of this study,we propose the following management recommendations.

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First, we found that Membership Card Rebate and Lottery Draw of customerloyalty programs had a significant positive impact on loyalty. However, only MinimumPurchase Gift Cards displayed no significant influence on loyalty. In the design ofMinimum Purchase Gift Card, customers may question the sincerity of the departmentstores’ rebate and impact their level of trust. For example, vouchers provided onlyfor high minimum expenditure or restrictions on the purchase of items are sources ofgaining customers’ distrust. We recommend that the minimum purchase amount forvouchers should be lowered so that consumers are motivated to purchase again. Costscan be shared with suppliers based on a suitable ratio so that both parties achievedesired results.

Second, consumers usually show high expectations and dependency on therebate gifts of customer loyalty programs provided by the retailers. Therefore, the giftschosen should try to meet consumer expectations as closely as possible. Consumers maycriticize these gifts as useless and trivial from the consumers’ self-interest perspectives;therefore, organizations should listen to the advice of customers and salesrepresentatives in choosing suitable gifts to win consumer satisfaction and trust.

Third, relationship commitment significantly impacts customer loyalty; hence,the higher the commitment, the more willing the customer is to spread word of mouth andprovide recommendations. This study suggests that retailers should provide appropriateresponses to customer feedback, as well as frequent non-commercial activities to enhancecustomer interaction and corporate reputation. Examples include: public welfareactivities, social group management, and society activities. A fruitful, long-termrelationship can be enhanced through the interaction between the customer and business.

Finally, marketing activities must be designed to meet customer spending habitsand consumption levels, especially for customer loyalty programs. For retailers toestablish good customer loyalty, not only is service quality, relationship quality, andgood customer relationship management important, but the design of customer loyaltyprograms must also be able to provide differentiation. Retailers are recommended togather customers’ data, such as share of wallet, travel time to the store, lifetime duration,or even customer loyalty card portfolios, and then make use of these data to segment.With the information, retailers can embark on tailored incentives and promotionalstrategies to attract distinctive segments and restore their patronage (Meyer-Waarden,2007). For instance, based on the information from customer loyalty programs,providing priority parking permits to premium customers or customers of long traveltime to the store is recommended. The travel time to a store is assumed to measure theeffort, both physical and psychological, to reach a retailer (Darley and Lim, 1999; Ou andAbratt, 2006). Travel time has negative effects on the utility. However, the negativeimpact of travel time could be partly compensated by ease of parking. It is appropriatefor restaurants, department stores, and grocery stores. Another example would besending different direct mails to different targeted audiences based on their annualconsumption in Membership Card Rebate activities. This allows these premiumcustomers to receive preferential treatment when shopping at the store in comparison toregular members. Moreover, the rebate gifts to premium customers should be differentfrom regular members and the gifts to different age levels should be different so thatcustomers can experience the thoughtfulness and importance that the retailer placeson these activities. These loyal customers will decide to shop at these retailers first,which allows a long-term relationship to grow between consumer and business.

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Research limitationsIn this study, all variables were measured at one point in time in this research, thusessentially from a static perspective (Bloemer and de Ruyter, 1998; Ou and Abratt,2006). Given the emphasis on the practical application of data collection, dynamicrelationship quality over time was not surveyed here. It is recommended that furtherinterpretation of the findings for other circumstances should be made with caution.

Recommendations for future researchFirst, because most existing relationship quality studies are quantitative, it requiresmore qualitative studies to obtain more detailed insights into the variables that impactrelationship quality. The complex constructs involved in relationship quality, itsinherent dimensions, its antecedents, and its consequences call for significantly morequalitative enquiries to make richer theory available (Athanasopoulou, 2009). Second,future study may investigate whether the relationships between customer loyaltyprograms and consumer behavior vary across different retailers (for example,convenience stores, discount outlets, bookstores, and grocery stores), and differentindustries (for example, restaurants, airlines and electronic commerce). Especially, forelectronic commerce, trust of online retailers is more difficult to build thanbricks-and-mortar stores, because the lack of human interaction and physical facilitiesmake online retailers less certain to customers than bricks-and-mortar stores. Customerloyalty programs could play a part in easing customers’ uncertainly toward virtualretailers and developing trust between shoppers and online retailers. Virtual retailerscould issue co-brand loyalty cards with prestige financial institutes to promote trust andreputation. Analyzing the relationships between customer loyalty programs, trust,corporate reputation, and inter-purchase time for online retailers is highly recommended.

Given the diversity of service industries, researchers may assess how the model worksin varying service industry contexts (Hu et al., 2009; Ou et al., 2006). The possible linksbetween customer loyalty programs and consumer behavior could be examined in futureresearch for better understanding of relationship marketing. The nature of relationshipquality in various contexts remains a vital issue for future marketing studies.

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Corresponding authorWei-Ming Ou can be contacted at: [email protected]

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