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Group Written Assignment

Customer Loyalty: The Influence of Customer Engagement through Customer Loyalty Program.

Prepared for Dr. Noor Akma Binti Mohd Salleh

Prepared by

Suraya Natrah Malek CGA 130148Logeswari MurugesanCGA 120150Suriati HussainCGA 130129

Contents

1.0BACKGROUND12.0PROBLEM STATEMENT13.0RESEARCH QUESTIONS34.0RESEARCH OBJECTIVES35.0LITERATURE REVIEW36.0THEORETICAL FRAMEWORK47.0HYPOTHESES58.0METHODOLOGY68.1MEASURES69.0DATA ANALYSIS AND FINDINGS69.1DEMOGRAPHIC69.2NORMALITY ASSESMENT79.3RELIABILITY79.4FACTOR ANALYSIS79.5CORRELATION ANALYSIS99.6REGRESSION ANALYSIS910.0RECOMMENDATION1111.0 LIMITATION1212.0 CONCLUSION12APPENDIX 1 - QUESTIONNAIRE15APPENDIX 2 - DEMOGRAPHIC18

1.0BACKGROUND

In a service oriented industry like the telecommunication industry, loyalty is of the greatest importance. Several studies have been conducted on the correlation between increased levels of customer retention to increased revenue and profits. Cultivating customer loyalty is one of the key goals of relationship marketing (Palmer, Dant, Grewal, & Evans, 2006). Various strategies and programs are implemented by service providers to ensure their customers stay loyal and to reduce the number of customers who switch their services to other service providers.

One of the many strategies adopted by telecommunication service providers to improve customer loyalty is to implement customer loyalty programs. The goal of these programs is to establish a higher level of customer retention especially in the high values customer segments by providing increased satisfaction to these customers (Bolton, Kannan, Bramlett). Having a customer loyalty program does not automatically guarantee customer loyalty, but it does help an organization to get close to its customers through its customer engagement activities. This study is to investigate how an organization can increase customers emotional engagement through its loyalty program and how this emotional attachment affects customer loyalty. The study uses Telekom Malaysia TM Rewards program as a case study.

In 2010, Telekom Malaysia (TM) has launched a point based customer loyalty program called TM Rewards. The key objectives of the program are to have a closer engagement with customers and to develop a long lasting emotional attachment between customers and Telekom Malaysia.

A customer who enrols in the program can accumulate points every time they pay their bills promptly. These points can be used for bill rebates or to redeem various redemption merchandises. The following are the program basic characteristics:

Memberships are offered only to Telekom Malaysia customers. Point rewards are given to members who pay their bills promptly. Members can use their points for bill rebate or for merchandise redemption. Rewards points expire after 3 years Members receive additional benefits in the form of discount vouchers from program participating partners, special promotion for members on Telekoms other products and services and other benefits.

2.0PROBLEM STATEMENT

Interviews were conducted with TM Rewards management and operational personnel to get detailed first-hand information on loyalty program from management perspective. There are a few area of concerns highlighted by the management which include:

Low members participation in the loyalty program. Currently, there are 15 percent active members in TM Rewards. This study defines an active member as a member who has at least made one contact with the program through its various touch points within one year. Since the main objective of the loyalty program is to have closer engagement with customers, low members participation indicates the program does not meet its original objective.

Reasons why customer do not become active in the programThere is a need to conduct a study on why program members remain active in a loyalty program. The findings of this study could be used to formulate a strategy to improve members participation in the program.

Customers complaintsCustomers usually complaint about the negative experience they encounter such as difficulties in using the self-service customer portal, delay in getting redemption merchandise, incorrect point statement, and others. Since one of the goals of customer loyalty program is to enhance customer experience which can contribute to the overall effort of customer retention, customer complaints need to be addressed promptly and effectively.

Program effectiveness Program effectiveness could be measured based on how member perceive the program. High value perception indicates the effectiveness of the program. Organization should not measure program effectiveness solely from monetary benefits it bring to the organization but also from customers perspective. For example, TM Reward measure the effectiveness of the program is based on the following measurement criteria:

Comparison on the behavior of customers who are TM Rewards members against the behavior of overall customers of Telekom Malaysia in term of average revenue per user (ARPU) and in term of payment behavior.

Comparison on the percentage of program active members against the industry standard. TM Rewards defines an active member as a member who has at least made one contact with the program through its various touch points within one year.

Having a customer loyalty program does not translate to customer loyalty. In the telecommunication industry in Malaysia, most if not all of the players have implemented customer loyalty programs in one form or another. An understanding on the variables influencing customer perceived value of customer loyalty program could help an organization to continuously engage its customers with the goal of creating greater customer experience which may lead to customer loyalty. Boltan et al. (2000) suggested that customer motives for loyalty program participation and perceived value of a specific customer loyalty program are linked to each other.

Many organizations found that a lot of members do not continuously engage with the loyalty program. The problem occurs when the loyalty programs fail to treat their members as their core element. The first step to achieve the effectiveness of customer loyalty program is by looking at it from members point of view. The entire structure of the program needs to be based on both of the organization as well as the customer objectives and perspectives.

3.0RESEARCH QUESTIONS

In this research, we will analyse the effectiveness of a customer loyalty program from the customer perspectives and the following research questions are defined:

1. What are the factors that influence consumers to have a commitment in a loyalty program?2. How does customer commitment affect customer loyalty?

The findings could be used by the organization to develop a strategy to increase participation of non-active members.

4.0RESEARCH OBJECTIVES

The research objectives of the study are:

1. To examine the relationship between customer motives (utilitarian motives and hedonic motives) to customer commitment in a loyalty program.2. To determine the relationship between commitment and customer loyalty.

5.0LITERATURE REVIEW

In order to get detailed insights on how customer loyalty program affects customer loyalty, various literature on the subjects are used as references. The keywords used when searching for these literature are loyalty program, loyalty program perceived value, loyalty program effectiveness, telecommunication industry loyalty program and benefits of loyalty program to customers.

A few literatures suggest that the main factor customers join a loyalty program and how it strengthens the relationship with the organization is due to the perceived benefits of the program (Bolton, lemon and Verhoef, 2004). Previous research has classified these benefits into the following categories - utilitarian benefits and hedonic benefits.

According to Mimouni-Chaabane and Volle (2010), utilitarian benefits are benefits which are primarily instrumental, functional, and cognitive, provide consumer value by offering a means to some end. Hirschman and Holbrook (1982) describes hedonic values are values that come from non-instrumental, experiential, emotional, and personally gratifying benefits.

Utilitarian values financial values to loyalty program members such as product discounts, appreciation reward points, free airtime for mobile phone users and special offerings to loyalty members.

Hedonic values come from intangible benefits in the form of emotional and physiological satisfaction such as gratification from redeeming merchandizes. Johnson (1999) argues that loyalty programs attract consumers because of the pleasure associated with collecting and redeeming points.

Organization should be aware on how customers feel towards loyalty programs because these could gauge the customers attachment to the organization. Kreis and Mafael (2014) argue that customers value perception towards a loyalty program can be derived from whether the program fulfils customers needs.

6.0THEORETICAL FRAMEWORK

The research theoretical framework is shown in the following diagram whereby the main dependent variable is customer loyalty. The independent variable is utilitarian motive financial advantages and hedonic motives excitement and experience. Emotional engagement is the mediating variable. The mediating variable is further classified into commitment.

Figure 1: Direct relationship between independent and dependent variables

Figure 2: Mediating variable between independent and dependent variables

7.0HYPOTHESES

The following hypothesis will be tested in order to assist in meeting the research objectives:

8.0METHODOLOGY

8.1MEASURESThe research data was collected through questionnaires (Appendix 1) that were randomly distributed to TM (Telekom Malaysia) clients at the TM Point Menara TM outlet. Permission was obtained with the help of TM Rewards personnel that was interviewed at the beginning of this report. The questionnaire starts with introductory statement that described the purpose of the survey and asked respondents to administer their own responses, and assuring them of confidentiality etc.

The questionnaire content was divided into 2 sections-demographic information and questionnaires related to the research model. In the survey we used seven-point Likert scales with 1=strongly disagree, to 7=strongly agree.

Out of 43 questionnaires that were distributed, only 39 respondents were members of TM Rewards program.

9.0DATA ANALYSIS AND FINDINGS

During data analysis, we tried to transform and model the data with the objective of highlighting useful information suggesting possible recommendations, limitations and conclusions regarding customer loyalty in the TM Rewards Program. SPSS was used for the analysis of data.

9.1DEMOGRAPHICBased on Appendix 2, most of the participants are female (60.5%), between the ages of 31 to 40 (32.6%), income level between RM 4,001 to RM 5,000 (39.5%) and most have been a member of TM Rewards between 1 to 5 years period (32.6%). This is probably due to the aggressive promotion and advertisement to new customers since it was launched in 2009. From the table, we can also see that most of the members have logged into TM Rewards Portal once in more than two months (39.5%); and 28 out of 39 respondents that have given back a complete questionnaire are not a member of other telco loyalty program.

9.2NORMALITY ASSESMENTThe normality test was assessed with the four construct in this study which are Benefit, Excitement, Commitment and Loyalty. The result is shown as per the table below:

NormalityShapiro-Wilk (S-W) (p-value)SkewnessKurtosisMeanTrimmed Mean

Commitment.184-.273.7014.724.74

Benefit.013-.6381.8475.085.12

Excitement.761.254-.0294.474.46

Loyalty.001-1.2832.2484.935.03

Table 1: Normality Assessment ResultFor a data to be normal, p-value needs to be more than 0.05. From the S-W test, we can say that Commitment and Excitement data are normal whereas Benefit and Loyalty are not normal. However, looking at the skewness level which is 1.50, we consider the data as being normal. But the kurtosis indicates that there is a high peakedness for both. As for the mean, it indicates that on average the respondent has answered slightly agree for all the dimensions.

9.3RELIABILITYThe reliability of the four scales (Benefit, Excitement, Commitment and Loyalty) is analysed using Cronbach alpha coefficient. The Cronbach alpha coefficient measures the scales internal consistency in which the ideal value should be above 0.7. Cronbachs alpha with value more than 0.7 is considered high reliability and lower than that value is referred as low reliability. The Cronbachs value for this study ranged from 0.778 to 0.930, thus showing that the scales were reliable and the items used for each scales hung together as a set and had positive correlation. Benefit showed a good Cronbachs alpha (0.821). While for the Excitement and Loyalty, each of them showed a high level of internal consistency with the Cronbach alpha of 0.927 and 0.930 respectively. Commitment had an acceptable Cronbachs alpha (0.778). The high values of Cronbachs alpha (greater than 0.7) for all the variables illustrate that the questionnaire used in this study is reliable.

9.4FACTOR ANALYSISThe factorability of the 15 items was examined with principal components analysis (PCA) using SPSS. The suitability of data for further analysis was assessed before performing the PCA. From the correlation matrix, it was revealed that there are many coefficients of 0.3 and above. The KMO measure of sampling adequacy was 0.802, exceeding the recommended value of 0.6, and the Bartletts test of Sphericity was significant (p