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Types of short-term loyalty programs and their benefits from a customer

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Customer advantages of short-term loyalty program types

Types of short-term loyalty programs and their benefits from a customer perspective

By

Bert-Jan Steenbergen University of Groningen Faculty of Economics and Business

MSc Business Administration Department of Marketing Specialization Marketing Management

Master Thesis February 11th, 2011 Spieghelstraat 112 9721 JZ Groningen 06-14433671 bjsteenbergen@hotmail.com Studentnumber: 1750356

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Management summery

Previous literature describes a lot about loyalty programs and sales promotions. Their effectiveness from a firms perspective is extendedly studied. This research, in contrast, studied loyalty programs in the retail sector with a defined duration of minimum six weeks and a maximum of twenty weeks, the so called short-term loyalty program. The objective of this study was to create a typing of short-term loyalty programs and provide knowledge about which benefits consumers can derive from participating in these types of programs. A distinction is made between the benefits which are influencing the consumer attractiveness perception of short-term loyalty programs and the benefits which actually lead to program participation. Finally, groups of consumers are identified based on their benefit evaluations. After a literature study two empirical studies were performed; an interview study to typify the short-term loyalty programs and an online survey was conducted to see which benefits consumers perceive when participating in particular types of short-term loyalty programs.

A literature study concerning the dimensions which can be used to identify types of short-term loyalty programs resulted in a distinction between two categories; design dimensions, of which nine dimensions were found, and reward dimensions, on which six dimensions were found. These dimensions were used to find the underlying types of short-term loyalty programs. As result of 10 held in-depth interviews six types of short-term loyalty programs were found; collective program, points program, charity program, personal program, money back program and the interactive program.

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The perceived entertainment and exploration benefits (hedonic benefits) have the strongest influence on the attractiveness of short-term loyalty programs and the consumer participation intention for it. As described by previous studies, these benefits meet the need for curiosity of innovative and trendy consumers. Only the perceived money savings, influencing the attractiveness of a money back program, and the perceived feelings of trust, influencing the attractiveness of a collective program, are exceptions on this finding. Overall, the benefit – participation intention relations are stronger than the benefit – attractiveness relations. Apparently, consumers who perceive certain benefits have a stronger intention to participate in a short-term loyalty program than the benefits influencing the attractiveness perception of the program. For firms it is initially important to realize programs which offer benefits who actually lead to the participation of consumers.

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Preface

The conducted research report as presented here is the final step towards a hopefully successful start of my professional career. The rapport describes the short-term loyalty program study conducted for the master thesis course of the master study in Marketing Management at the University of Groningen.

The topic was very interesting and fun to read and write about. This was the former reason why the enthusiasm and motivation always remained. Without the help of some very important people the process and the final result would never have reached the level as it has. I am very grateful for the support I have received. First of all, I would like to give special thanks to my supervisors Laurens Sloot and Jacob Wiebenga for their guidance and advice throughout the whole process. Their critical view and positive feedback have really helped me. Moreover, I want to thank my girlfriend Amerins for her advice and listening during the hard times and moments I was very enthusiastic about some outcomes. She was capable in having a fresh view and providing an objective opinion. I perceived her support as very helpful. Finally, I want to thank my parents and brother for their confidence and faith during my study time. They encouraged me to keep on going and accomplish this master thesis and the master study in total. Their endless belief in my capabilities provides me the confidence which was needed to finalize my study career.

I wish you a lot of fun reading this report.

Bert-Jan Steenbergen

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1. Introduction

In the first part of this chapter the problem will be described. Subsequently, a description of the research objective, the formulation of a problem statement and the related research questions are provided. Finally, the managerial and academic relevance of the study is outlined and the structure of the report is provided.

1.1 Introduction to the problem

Many marketers and academics have studied both the short and long-term effects of loyalty programs (Bolton et al., 2000; Lewis, 2004). Leenheer and colleagues (2007) define a loyalty program as an integrated system of marketing actions that aims to make member customers more loyal. Many types of loyalty programs have been offered during the years and have resulted in high customer membership, however many of them have not been successful (Berman, 2006). A wide range of firms, including airlines, hotels, retailers and car manufacturers, have developed an almost equally large number of loyalty program types (Mimouni-Chaabane & Volle, 2010). Up to 60% of marketing budgets are currently invested into loyalty programs, irrespective of their success (Meyer-Waarden & Benavent, 2006). The U.S. loyalty marketing industry, for example, contains approximately 2250 loyalty programs, and almost 90% of the Americans participate in at least one loyalty program (Berman, 2006). A Loyalty program offers customer incentives in exchange for repeated business (Dowling & Uncles, 1997; Aaker & Mcloughin, 2007; Keh & Lee, 2006). Consequently, from a firms perspective the customer incentives have to be less costly than the extra turnover derived from the repeated business (O‟Brien & Jones, 1995). Loyalty programs are most used in retail for two reasons; first, because customers are frequently purchasing products and second, because it is hard to create a competitive advantage in the retail business (Leenheer, 2006). Offering an attractive loyalty program is one way of being different than competition.

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of lower marketing costs. However, the program itself can also be very costly because it offers rewards/benefits to the customer over a period of time (Mohs, 1999 in Reinartz & Kumar, 2000; Ferguson & Hlavinka, 2007) and ads expenses for administering the program (Yi & Jeon, 2003). Consequently, it may not always be true that the costs of serving retained customers are lower. Furthermore, loyalty programs create switching costs for customers and reduce price competition among brands (Keller, 2008; Kim et al., 2001). The above stated findings suggest that if loyalty programs are effective, positive results can be achieved.

Customers perceive loyalty programs differently and consumer interactions with loyalty programs are often not comparable. According to Reinartz and Kumar (2002) a distinction has to be made between four groups of customers based on their profitability and relationship length. Moreover, Baloglu (2002) divides customers in four groups based on behavior (repeat purchases) and attitude (commitment). Both state that managing the right customer segments is a requirement for a successful loyalty program. Bolton (1994) suggests that the perceived benefits may explain why customers take part in a loyalty program. Consequently, if customers do not perceive enough value from participating in a loyalty program, marketing investments might be inefficient (De Wulf et al., 2001). Related to this, Baloglu (2002) states that repeatedly purchasing a product or service by customers can occur for other reasons than an attitudinal commitment to the brand or firm. It is possible that customers are loyal to the program rather than to the brand. In fact, Stauss and colleagues (2005) found that customer frustrations as a result of a loyalty program can even decrease customer loyalty. This concatenation of findings argues that loyalty programs can be effective from a firms perspective; however the effectiveness of a loyalty program may be even more influenced by the perception of consumers. The above findings indicate that in general focusing on consumer perceptions in constructing a loyalty program is essential, however limited research is done on how customers specifically perceive loyalty programs and which benefits they derive and expect from them (Mimouni-Chaabane & Volle, 2010).

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can be due to the fact that customers derive different benefits from different types of loyalty programs (Mimouni-Chaabane & Volle, 2010).

1.2 Research objective

In the literature a distinction is made between short-term loyalty programs (for example, the soccer player‟s pictures program from Albert Heijn in the Netherlands) and long-term loyalty programs (for example, the frequent-flier programs). Both De Wulf and colleagues (2003) and Stauss and colleagues (2005) state that an expiring date can be tied to a loyalty program. They found that consumers have a higher intention to participate in loyalty programs with an unlimited duration in comparison to a loyalty program with a limited duration. This preference is caused by the negative perceived feelings of consumers when the loyalty program is “taken away” from them. Short-term loyalty programs and long-term programs are different in design and customer behavior effects. Liu (2007) made a distinction between short-term loyalty programs and long-term loyalty programs and found that short-term programs are partial similar to sales promotions in that they create temporary commitment to a brand or firm. They create primarily point pressure effects due to the programs novelty, clear time line and goal. These findings are in line with the results from the study of Taylor and Neslin (2005) which states that the points-pressure effect is larger than the rewarded-behavior effect. In addition, Lal and Bell (2003) found that different types of consumers are attracted by short-term loyalty programs. They identified, the so called „Cherry pickers’, which are customers who are price sensitive and search for low prices, and the more loyal customers who are more interested in non-price rewards, because they are loyal anyway. This finding suggests that customers react differently towards specific types of short-term loyalty programs. Conversely, as stated by Liu (2007), long-term loyalty programs create long-term commitment to a brand or firm through the rewarded behavior effect.

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short-term loyalty programs will help to structure the mixed results found in the loyalty program literature. Moreover, because consumers respond differently on loyalty programs it could very well be that specific groups of consumers could be identified. Reinartz and Kumar (2002) and Baloglu (2002) already state that managing the right customer segments is a requirement for a successful loyalty program. Bolton (1998) even suggests that the perceived benefits may explain why customers take part in a loyalty program. Therefore a segmentation based on consumer benefits preferences will be attached.

A study comparable with this study is the study conducted by Chandon, Wansink and Laurant (2000) who did research about the consumer benefits than can be derived from sales promotions. They found six perceived consumer benefits. Through series of measurement studies they constructed a benefit congruence framework, which showed the perceived benefits which can be derived from different types of sales promotions. They found that monetary savings cannot fully explain why and how consumers respond to sales promotions. Despite the fact that sales promotions are different from loyalty programs, the way of measuring the congruence between consumer benefits and types of sales promotions can also be applied on the perceived consumer benefits that can derived from types of short-term loyalty programs.

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1.3 Problem statement

The described research objective can be translated into a problem statement which will serve as the central question in this study. The following problem statement is formulated:

Problem statement:

‘Which types of short-term loyalty programs can be classified and which consumer benefits can be perceived from these types of short-term loyalty programs?’

1.4 Research questions

The above stated problem statement can be translated into three research questions. These three research questions will serve as the guideline for this study. By answering these questions a grounded knowledgebase is formed which will be used for answering the problem statement. The following research questions are formulated:

Research questions:

1. ‘Which types of short-term loyalty programs can be classified?’

2. ‘Which perceived and expected consumer benefits can be derived from short-term loyalty programs and is there a fit between specific categories of short-term loyalty programs and specific consumer benefits?’

3. ‘Which consumer segments can be identified based on the value consumers attach towards the presence of specific consumer benefits in short-term loyalty programs types?’

1.5 Managerial and academic relevance

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The study can also provide a unique contribution to the existing literature. Currently, academics have raised several questions on why some loyalty programs have such a success and others fail. Most studies have shown the relevance of loyalty programs, and in particular long-term loyalty programs, from a firms perspective. However, the perceived benefits from a customer perspective are underexposed and can provide valuable additional knowledge for which future studies can build their research on. Moreover, a typing of short-term loyalty programs and segmentation based on consumer benefit preferences provide a knowledge base for future research in several directions.

1.6 Structure

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2. Theoretical framework

In this chapter an overview is given regarding the dimension which can be used to distinguish loyalty programs. The outcomes provide the basis of the answer on the first research question described in the previous section. In the second part of this chapter the benefits which can be derived from loyalty programs, from a consumer point of view, will be described. This will provide the basis for the answer to the second research question. Both parts will end up with a visualized overview of the findings. The theoretical framework is based on the existing literature, mainly scientific articles. Combining the theories will result in a well analysed and supported theoretical conclusion. At the end of this chapter a theoretical framework is presented which visualizes the research area.

2.1 Literature overview of distinguished loyalty program dimensions

In the mid-nineties researchers started studying loyalty program dimensions which are crucial in the mind of consumers and how these dimensions influence consumer intentions to participate in loyalty programs (Berry, 1995 in De Wulf, 2003). Since then several researchers have studied both the structure and design characteristics of loyalty programs and their effects on consumer behavior. A literature overview of loyalty program dimensions can provide important input for categorizing existing short-term loyalty programs.

A chronological overview is provided concerning the most important loyalty program dimensions found during the years. The term „dimensions‟ are differently defined throughout the literature, however, in this study they are defined as characteristics of loyalty programs on which they can be distinguished. A chronological structure provides the ability of finding new results and creates a complete view concerning the developments loyalty programs have gone through. A distinction is made between three time blocks; before the year 2000, between the years 2000 and 2005, and between the years 2006-2010.

2.1.1 Loyalty program dimensions found before the year 2000

O‟Brien and Jones (1995) were one of the first researchers studying this specific topic and found five dimensions which determine the perceived value of a loyalty program: cash value,

choice of redemption options, aspirational value, relevance, and convenience. Concerning the

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that reward. The choice of redemption options is the variation of rewards offered by the loyalty program. The aspirational value is the psychological effect of rewards in that they are capable of changing consumer behavior. For example, a discount on a supermarket bill does not have the same aspirational impact as a free travel to the Bahamas or a great new flat screen. They state that in general a variation in redemption options is preferred by consumers because it improves the relevance of the program. Members do not want to wait forever until they can redeem their accumulated points; therefore variation in rewards in the amount of accumulated points improves the relevance of a loyalty program as well. The convenience dimension is related to the programs ease of use and the need to exert any incremental effort in the program. A loyalty card, for example, provides the ability to consolidate all spending into a single card and, as described by Sharp and Sharp (1997), is a dominant tool in many loyalty programs. This relates to an additional dimension described in the study of O‟Brien and Jones (1995). They indicate three levels of cooperation with other firm participants: alone, partnering and networks. They state that collaboration with other firms will create more flexibility in achieving the above described dimensions. For example, partnership provides the opportunity for consumers of sharing points from different firms on one loyalty card, which increases the program relevance and convenience level. The collaboration finding is supported by Sharp and Sharp (1997), which indicates that multiple participant programs can signal to customers that point‟s acquisition is easy and inevitable. Moreover, a multiple participant program, which requires a substantial point accumulation before a reward can be earned, would be expected to change the buying behaviour of consumers towards buying more from other participants in order to accumulate points within a reasonable time period. Finally, O‟Brien and Jones (1995) described programs which are self-selecting and

individually correcting. These programs target and attract valuable customers and

discouraging those customers who are less valuable. This view of identifying the most valuable customers and putting in additional effort in attracting and sustaining these customers is supported by Reichheld (1993) and Berry (1995). Differentiation based on consumer value can also be considered as a loyalty program dimension.

Dowling and Uncles (1997) support the dimensions described by O‟Brien and Jones (1995) and have added two important dimensions to this list. First, they found that the timing of

reward availability is important in attracting consumers. They made a distinction between

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found that many accumulating benefit programs try to alleviate this problem by keeping their members up-to-date about their accumulated points. The communication often includes promotional material about the aspirational value and ease of achieving various rewards, which implies that communication about the loyalty program can also be considered as a dimension. Second, Dowling and Uncles (1997) made a distinction between direct reward

types and indirect reward types. In contrast with other studies, this study defines direct

rewards as gifts that support the value proposition of the product or service and indirect rewards as other types of rewards that have no linkage with the product or service. They suggest that direct reward types better fit the goals of loyalty marketing.

In summery, the following loyalty program dimensions are found during this time block: (1) cash value: perceived value of a reward in terms of cash, (2) choice of redemption options: variation of rewards offered, (3) aspirational value: psychological value of rewards, (4) convenience: programs ease of use, (5) corporation with other firms: number of vendors participating, (6) self-selecting and individually correcting: differentiation between consumers, (7) timing of reward availability: immediate versus delayed rewards, and (8) reward types: direct versus indirect.

2.1.2 Loyalty program dimensions found between the years 2000 and 2005

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which is defined by De Wulf and colleagues as “the extent to which participation to the loyalty program is restricted to a specific group of consumers”. They made a distinction between non-exclusive versus exclusive participation. In addition, Lal and Bell (2003) and Hallberg (2004) state that firms should select the most profitable customers and target them with a loyalty program. Lal and Bell (2003) specifies this statement in that loyalty programs should offer promotions for the price sensitive „cherry picker’ and value added services for the full basket, less price sensitive shopper. Yi and Jeon (2003) go even further, they state that firms should made a distinction between profitable and non-profitable customers and only let the profitable ones participate in the loyalty program. The fourth dimension, which is supported by Kivetz and Simonson (2003), is the effort a consumer has to make. De Wulf and colleagues define effort making as the extent in which a customer has to carry and present a loyalty card, saving stamps, redemption hassles, administration and paperwork, and so on. This dimension can be related to the convenience dimension found by O‟Brien and Jones (1995) who indicate that consumers do not want to exert incremental effort. The fifth dimension concerns the provided type and timing of benefits. A distinction is made between hard benefits, defined as tangible benefits such as pricing or gift incentives, and soft benefits which are intangible benefits such as provided product information or additional information. Corresponding with the described timing dimension by Dowling and Uncles (1997) in the previous time block, both types of benefits can either be given immediately or delayed. The timing dimension is supported by the studies of Zhang and colleagues (2000), Yi and Jeon (2003) and Noble and Philips (2004). The sixth dimension is related to the findings of O‟Brien and Jones (1995) and Sharp and Sharp (1997) in that the number of vendors

participating in a loyalty program can be considered as an important loyalty program

characteristic. De Wulf and colleagues (2003) made in their study a distinction between single-vendor versus multi-vendor programs. Leenheer and colleagues (2002) found, in contrast to the findings of Sharp and Sharp (1997), that a multi-vendor structure improves customer loyalty to a larger extent than a single-vendor program. Sharp and Sharp (1997) found the opposite. They state that multi-vendor programs might be less effective, because they reward customers too easily.

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loyalty programs and non-communal loyalty programs. Communal loyalty programs are

defined as organizational sponsored loyalty programs that transfer support from organizations to members by providing them with a sense of community. They define non-communal loyalty programs as loyalty programs that transfer support from organizations to members by providing them with financial benefits, such as monetary discounts on presents or future purchases. In addition, Noble and Philips (2004) found that some programs offer “status themes” where members are exposed to preferential treatment and exclusive benefits, as well as recognized as part of an elite group of preferred consumers. This finding corresponds with the findings of Hallberg (2004), who made a distinction between pure points programs and „club‟ programmes, with no rewards other than special recognition and individual communication.

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The loyalty card as part of a loyalty program is widely adopted and can be seen as a distinctive loyalty program dimension. Noble & Philips (2004) and Noordhoff and colleagues (2004) described loyalty card programs. Noble & Philips (2004) found physical and mental disadvantages of carrying a loyalty card. This contradicts the advantage found by O‟Brien and Jones (1995) that the loyalty card provides the ability to consolidate all spending done by all program vendors into a single card. Noordhoff and colleagues (2004) described three purposes of loyalty cards. First, they serve an identification tool. Second, it serves a memory function tool. Third, customer cards are used to reward members.

The fifth dimension of De Wulf and colleagues (2003) concerning the reward type is an extensive researched dimension in this time block. A substantial number of studies have found divergent ways of typifying reward types. Wansink & Seed (2000) made a distinction between low value rewards, moderate value rewards and high value rewards. Moreover, they described the degree of reward relevance to the consumer, which corresponds with the findings of O‟Brien and Jones (1995) and Kumar and Shah (2004). Kumar and Shah state that customer specific transactional data can be used for providing customized rewards which are relevant to the customer. Furthermore, the characteristic of a reward concerning the degree in which it supports the firms value proposition is described by Wansink and Seed (2000), which is supported by the study of Yi and Jeon (2003). Both Wansink and Seed (2000) and Yi and Jeon (2003) made a distinction between direct versus indirect support. Kim and colleagues (2001) elaborates in their study on reward type and reward amount and their effect on consumer preferences and effectiveness from a firms perspective. They made a distinction, which is supported by Kopalle and Neslin (2003), between cash rewards and free gifts either from their own assortment or from external firms. Another way of distinguishing rewards is conducted by Roehm and colleagues (2002). They made a distinction between tangible and

intangible rewards. They define tangible rewards as concrete, more vivid accessible rewards

and intangible rewards as fairly abstract rewards, such as acquiring information and a sense of belonging. Kumar and Shah (2004) add a third type towards the direct and indirect rewards in the form of experiential rewards. Furthermore, Roehm and colleagues (2002) described the

cue compatibility dimension of rewards. They used the definition of Keller (1991) which

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luxury items and hedonic versus utilitarian rewards. Jang and Mattilla (2005) and Stauss and

colleagues (2005) made a distinction between monetary or non-monetary incentives, like rebates, bonuses or services. Jang and Mattilla (2005) also support the finding of Khan and colleagues (2005) in their distinction of necessary versus luxury rewards.

In summery and in addition to the found dimensions during the previous time block, the membership costs are added during this time block. This dimension consists of the first and second dimension, found by De Wulf and colleagues (2003), which are membership fees and the delivery of personal data. Moreover, the ability for consumers to participate in a communal is an additional finding. Furthermore, the function of the medium and the loyalty card are considered as important loyalty program dimensions. Finally, during this time block a large number of studies have researched reward types and related subjects. This shows that a structural distinction can be made between loyalty program dimensions and reward dimensions.

2.1.3 Loyalty program dimensions found between the years 2006 and 2010

Recently researchers have mostly continued studying on the most fundamental findings of previous studies in ways of finding a system of synergistic loyalty program dimensions. During the latest years a large number of studies have resulted in an even larger amount of not always consistent findings. Lately, researchers have tried to structure these findings. For example, McCall and Voorhees (2010) found that loyalty programs can be categorised in a set of three drivers: (1) the structure of the loyalty program, (2) the structure of the rewards, and (3) the consumer fit with the loyalty program. The structure of a loyalty program is formed by the number of program tiers, their description and the transitions between these tiers. Tiers can be used to differentiate between customers and provide customized rewards for various customer tiers. The structure of rewards is formed by the reward type, reward magnitude,

reward frequency, and reward framing. Reward type is influenced by two issues; first, the

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rewards, which corresponds with the findings of Keller (2008), Leenheer and colleagues (2007), Keh and Lee (2006) and Meyer-Waarden and Benavent (2006) in this time block. Furthermore, they state that the required effort made by a customer is influencing the consumer preferences. The third driver in their research is the discrepancy between consumers on reward magnitude and frequency. Consumers react differently in specific situations and have different preferences. Therefore it will be hard to construct a customized loyalty program; however consumers will prefer a tiered program. The findings of McCall and Voorhees (2010) correspond in many ways with the findings of studies described in previous time blocks except for that they found a useful way of structuring the findings. The structure provided by McCall and Voorhees (2010), however, did not include all relevant dimensions mentioned by previous studies. For example, the differentiation dimension which made a distinction between attractive versus non-attractive consumers is not included. Moreover, the communication dimension is not mentioned and the presence of a community as a form of social bonding is not included. Furthermore, the degree of value proposition support and the cue compatibility of the offered rewards are not added. This implies that a complete overview is not provided.

In addition to the extreme extensive researched reward type dimension Leenheer and colleagues (2007) and Keller (2008) found an effective method of combining tangible and intangible rewards. Keller (2008) state that loyalty programs should offer immediate rewards to new customers and make customers „feel special‟ when they become a member. Leenheer and colleagues (2007) state that loyalty programs should provide particularly economic (tangible) rewards and complete them with some social (intangible) rewards.

A distinctive study in this time block and with its own contribution is provided by Berman (2006), which found four types of loyalty programs with each distinctive characteristics. These four programs are: (1) members receive additional discount at register, (2) members receive one free when they purchase N units, (3) members receive rebates or points based on cumulative purchases and (4) members receive targeted offers and mailings. The fundamental dimensions leading to this typology are the type of reward, the variety of reward options,

segmentation or no segmentations and the way members are informed about the firm and the loyalty program. The communication used to inform members is also mentioned by Omar and

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Finally, the study of Mimouni-Chaabane & Volle (2010) made an overview of loyalty program design dimensions. They found five distinguished dimensions which are researched by several other researchers in this time block; (1) Ease of obtaining the rewards (Ferguson & Hlavinka, 2007), (2) Reward structure (Ivanauskiene & Auruskeviciene, 2009; McCall and Voorhees, 2010), (3) Redemption options (Smith & Sparks, 2009), (4) Reward type (Keh & Lee, 2006; Nunes & Dreze, 2006; Ferguson & Hlavinka, 2007; Leenheer et al., 2007; Smith & Sparks, 2009; Furinto et al., 2009; McCall and Voorhees, 2010) and (5) Provide

information about the value of the offered benefits (Ferguson & Hlavinka, 2007; Ivanauskiene

& Auruskeviciene, 2009). All authors have delivered a specific contribution to the existing literature; however based their studies on findings already described in the previous time blocks and did not add an additional contribution to this specific research area. Moreover, in addition to McCall and Voorhees (2010), Mimouni-Chaabane & Volle (2010) also did not provide a complete overview of all loyalty program dimensions found in literature.

Concluding, the studies in this research area have resulted in a large number of mixed results and the studies which tried to structure the relevant loyalty program dimensions did not completely succeed in their objective. Figure one provides an overview of the most important loyalty program dimensions found in literature and presented in this section. A structural distinction is made, based on the findings of McCall and Voorhees (2010), between the loyalty program design dimensions and the reward dimensions.

Figure 1: Loyalty program dimensions (* this study is limited to short-term loyalty programs)

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2.2 Consumer benefits derived from loyalty programs

Marketing is more and more operating from a customer perspective. Customers can be seen as internal stakeholders and firms should construct strategies to reinforce salience, credibility, legitimacy, and emotional ties (Mitchell et al. 2010). Customer orientation is part of a larger market orientation construct, widely accepted by practioners (Narver & Slater, 1990; Dobni & Luffman, 2003). Mitchell and colleagues (2010) state that customer orientation and the development of long-term relationships with customers are conditions for future organizational success. A loyalty program can be considered as an instrument for improving and sustaining customer relationships and are in that light part of a customer orientation. However, the construction of loyalty programs are till now not based on the expected and perceived benefits from a costumer perspective and suggested is that due this lack of construct information a large number of loyalty programs are not successful (Mimouni-Chaabane & Volle, 2010). Therefore a clear overview of which consumer benefits can be derived from loyalty programs will provide an important contribution to the current literature. As in the previous section, a chronological overview is provided concerning the most important consumer benefits that can be derived from loyalty programs studied in literature. The same time classification is used as in the previous section; before the year 2000, between the years 2000 and 2005, and between the years 2006-2010.

2.2.1 Consumer benefits found before the year 2000

Three important relevant articles are published before the millennium change. In 1993 Keller distinguished three benefits which can be derived from associations with a brand. Assuming that associations also can be formed through loyalty programs this distinction could be of substantial relevance. They made a distinction between functional benefits, experiential benefits and symbolic benefits. Functional benefits can be classified as intrinsic advantages as price decreases and relates to value expression. Experiential benefits provide exploration and entertainment benefits which satisfy needs such as sensory pleasure, variety, and cognitive stimulation. Symbolic benefits are more extrinsic advantages. They meet underlying needs of social approval or personal expression.

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provide three consumer benefits; first, the financial benefit, which are pricing incentives, second, the social benefits, which includes the feeling of being recognized and treated as a valuable customer and third, the structural benefits which relates to the convenience benefit of saving time and money. Moreover, they found that a relationship with a firm may result in risk reduction, which can possibly be related to the convenience benefit. Gwinner and colleagues (1998) based their research on the discussed consumer benefits of Berry (1995). In contrast with Berry (1995), Gwinner and colleagues (1998) tried to systematically and empirically identify consumer benefits that can be derived from having a long-term relationship with a firm in two studies. They started with performing depth interviews which are used to construct an initial conceptualization for a survey. The depth interviews showed that consumers engaging in relationships with retailers experience social and economic benefits, as well as psychological and customization benefits. Social benefits include feelings of familiarity, personal recognition, friendship, rapport, and social support. Economic benefits include monetary savings and non-monetary time savings. Time savings are a result of reduced search time and reduced choices. Psychological benefits include feelings of trust or confidence in doing business with a provider. Moreover, a feeling of security in having a relationship with a provider is mentioned. Customization benefits include the preferential treatment and the extra attention or special service which is not available to other customers. The conducted survey resulted in a slightly different outcome in that it showed three types of consumer benefits as a result of a rotated factor analysis. These three types of benefits are the

confidence benefits, social benefits, and special treatment benefits. The psychological

benefits are included in the confidence benefits. The customization and economic benefits found in the depth interviews are combined and presented in the special treatment benefits.

The three studies resulted in generally similar findings in that loyalty programs deliver functional/financial benefits, exploration/entertainment benefits and social/symbolic benefits. The studies overlap in their findings; however they define their founded benefits slightly different.

2.2.2 Consumer benefits found between the years 2000 and 2005

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as primarily instrumental, functional and cognitive. Hedonic benefits are defined as non-instrumental, experiential and affective. Utilitarian benefits consist of monetary savings as a result of sales promotions, the ability to upgrade to higher quality products for the same price, and the increase in perceived convenience as a result of a reduction in search and decision costs. Hedonic benefits provide a feeling of being a smart or good shopper and provide the ability of reaffirm personal values which are both placed under the value expression benefit. The provided stimulation and the need for information and exploration are also part of the hedonic benefits. Finally, the entertainment benefit is an important hedonic benefit because consumers can perceive sales promotions as enjoyable. In this time block, Baloglu (2002) confirmed at least two benefits found by Chandon and his colleagues from a loyalty program perspective, which are already be found during the previous time block, in that consumers can derive convenience and monetary savings from loyalty programs. In addition, Noble and Philips (2004) found already described findings from other studies in their research, in that loyalty programs offer functional benefits which can also be related to the utilitarian benefits found by Chandon and colleagues (2000), as for example: price decreases, special offers, personalized attention, reduced search efforts and customized products. Moreover, they found that consumers perceive social benefits as result of being a member of a loyalty program. These social benefits occur when a consumer enjoys the feeling of recognition or friendship, which can be related to the social benefits described by Gwinner and colleagues (1998).

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emotional connections such as history, common places, time together and similar experiences. This study provides a deeper understanding regarding the psychological effects of communal loyalty programs.

Jang and Mattilla (2005) did research towards customer preferences on loyalty programs in the restaurant industry and confirmed some previous findings. They found that money savings was the most sought-after benefit, followed by intangible benefits such as quality and convenience. These benefits correspond with the utilitarian benefits found by Chandon and colleagues (2000). Moreover, Jang and Mattilla found that casual dining customers, in particular, are highly valuing the exploration and entertainment benefits. Again Chandon and colleagues (2000) already found these two types of benefits in their study in the form of hedonic benefits.

Hsee and colleagues (2003) added a new contribution to the existing literature. They studied the effects of a loyalty program as a medium in a way that they serve as an intermediary reimburse that influences the relation between behavior and desired outcomes. They found that a medium may give the more effortful action an illusion of advantage. Moreover, they found that a medium may give uncertain options an illusion of certainty and therefore increase their attractiveness. The feeling of certainty can be related to the confidence benefit found by Gwinner and colleagues (1998). For some reason, a medium is perceived as a psychological tool for (unconsciously) creating certain feelings. This could possibly explain partial the entertainment benefit perceived by consumers and described by several studies (e.g. Keller, 1993; Chandon et al., 2000; Jang & Mattilla, 2005).

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2.2.3 Consumer benefits found between the years 2006 and 2010

During this time block researchers mainly tried to structure the expected and perceived benefits of loyalty programs described by existing literature. The same was noticeable for the latest time block in the previous section about the loyalty program dimensions.

Leenheer and colleagues (2007), for example, made a distinction between perceived economic

benefits and perceived non-economic benefits. For non-economic benefits a distinction can be

made between psychological and sociological benefits. Economic benefits are provided value benefits in the form of discounts and saving rewards. Moreover, switching costs occur when consumers left a loyalty program and therefore value can be lost. This aspect is also a facet of economic benefits. Psychological benefits occur when people experience feelings of being recognized as a preferred special customer. This finding is supported by McCall and Voorhees (2010) in that they state that loyalty programs can provide feelings of status. Moreover, customers can create smart shopping feelings as a result of loyalty program membership (Chandon et al., 2000; Kivetz & Simonson, 2002). Furthermore, consumers tend to maximize the value offered by the medium in a greater extend than maximizing the value of the final rewards (Hsee et al., 2003). Other non-economic benefits are sociological benefits, which imply the need of belonging to a specific group (e.g. Wansink & Seed, 2000; Noordhoff et al., 2004; Rosenbaum et al., 2005). The findings of McCall and Voorhees (2010) correspond to this in that belongingness with a specific group results in opportunities to interact and enjoy privileges.

Liu (2007) described several benefits in two chronological time frames. In the first time frame, which is the point collection stage of a loyalty program, consumers value the interaction with the program. This implies that the point collection stage is of important psychological meaning to consumers (Hsee et al. 2003). In the second time frame, which is the redemption stage, Liu (2007) made a distinction between economic and psychological benefits. The economic benefits are the rewards received after point redemption which are perceived as a positive reinforcement for purchase behavior. The psychological benefits are the firms appreciation and the perceived personal recognition of its customers (e.g. Berry, 1995; Gwinner et al., 1998; Chandon et al., 2000).

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promotions. They argue that the type of benefits is related to the type of rewards provided. They state that monetary rewards are related to utilitarian benefits. They offer functional, instrumental and practical benefits, which trigger feelings of confidence and security in customer‟s minds. Special treatment rewards are related to hedonic benefits. These rewards result in feelings of reduced anxiety, increased trust and confidence in the firm. They offer aesthetic, experiential and entertainment benefits.

Recently, Mimouni-Chaabane and Volle (2010) found six perceived benefits based on existing literature, which they initially divided in three dimensions. They found that monetary savings and convenience benefits can be combined as utilitarian benefits, because they are primarily instrumental, functional and cognitive. Utilitarian benefits are created by financial value advantages which result in money savings and reduce consumer search and decision costs. Exploration and entertainment benefits deliver non-instrumental, experiential, emotional, and personally gratifying benefits and can be related to hedonic benefits. Hedonic benefits meet the needs for curiosity towards innovative products, the need for information about new trends and the desire for enjoying unique experiences. Feelings of recognition and the social longing of belonging to a specific group are symbolic benefits, because these are extrinsic advantages which are related to the need for personal expression, self-esteem, and social approval. The recognition benefit is strongly related to the feelings of being a special consumer and the received status benefit as result of loyalty program membership found in previous studies. Subsequently, these six dimensions are empirically tested through depth interviews and two surveys. A conducted exploratory factor analysis did not support the convenience benefit and was therefore removed from the study, leading to a set of five benefits divided over three dimensions.

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this benefit for loyalty programs. On the other hand, Mimouni-Chaabane and Volle (2010) found symbolic benefits for loyalty programs, which were not found for sales promotions. The feelings of belonging to a specific group can be perceived as a result of being a member of a loyalty program. This finding is not supported by studies researching sales promotions. The main difference between loyalty programs and sales promotions is the importance of price. Consumers buying sales promotions are searching for cheap offerings, where this is in general not true for loyalty programs. This can imply why some different results are found. Consequently, the feelings of belonging seem to have very limited influence on the attractiveness of short-term loyalty programs. Sales promotions and short-term loyalty programs are relative similar on the duration dimension and consumers do not derive feelings of belonging from sales promotion. Moreover, Rosenbaum and colleagues (2005) found that the feelings of belonging and feelings of having status (recognition) are related. Therefore, the feelings of belonging benefit will not be included in the study for short-term loyalty programs.

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Figure 2: Consumer benefits

The consumer benefits presented in figure two have to be included in the upcoming empirical studies to find out if consumers also derive these structures of benefits from short-term loyalty programs or that differences can be found. Moreover, the types of short-term loyalty programs have to be confronted with the consumer benefits to find out if specific consumer benefits can be derived from specific types of short-term loyalty programs. Two empirical studies will be conducted to provide an answer on this research area.

2.3 Theoretical framework

The theoretical framework presented in figure 3 starts with the outlined loyalty program dimensions, described in section 2.1. These dimensions can be used to distinguish and identify types of short-term loyalty programs. Interview studies will be performed to find out which types of short-term loyalty programs can be distinguished based on their dominant program dimensions. When these types of short-term loyalty programs are classified a study will be conducted to find out which consumer benefits (section 2.2) can be derived from each of the types of short-term loyalty programs. Subsequently, groups of consumers are formed based on the way they link up the types of short-term loyalty programs with the consumer benefits. These groups can be described based on their program participation intentions, program preferences, shopping behaviour and the socio and psycho-demographic characteristics of the group members.

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Figure 3 – Theoretical framework Consumer characteristics Psychographic characteristics Shopping behavior Socio-demographic characteristics Types of short-term LP‟s Consumer benefits of short-term LP‟s LP dimensions Consumer preferences of short-term LP types and related consumer benefits

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3. Research design

Now that the theoretical framework is outlined, this chapter will provide a detailed description of the research methodology that was used to provide an answer to the in the introductory chapter formulated problem statement and research questions. After describing the research method and procedure, a description is provided of how the data is analyzed.

3.1 Research method

Two studies were constructed to develop a multi-benefit framework of types of short-term loyalty programs and their related consumer benefits.

Study 1

To typify the extensive number of short-term loyalty programs, a qualitative research method was used in the form of ten individual in-depth interviews (Chandon et al., 2000). Ten interviews were justified as Chandon and colleagues (2000) did the same for their research. The typing of short-term loyalty programs was done by confronting the participants with thirty different short-term loyalty programs and asked them to sort the programs into categories. This method is called the Q-sort method, which is a comparative scaling technique that uses a rank order procedure to sort similar objects (Malhotra, 2007). The selection of thirty different short-term loyalty programs was based on the distinctive dimensions. Selecting as many different short-term loyalty programs increases the inclusion of all possible types of short-term loyalty programs. Including thirty programs resulted in a variety of dimensions, which made the selection representative. Subsequently, the number of programs was also workable for the participants. A card was provided for each of the thirty short-term loyalty programs, describing the most important information (name, store(s) offering, reward(s) and number of points) and was printed in a way that the information could be quickly scanned (appendix I). After the participants had formed groups of the short-term loyalty programs, they were asked why they formed these particular groups and how they would describe each of them. The cards were provided in Dutch and the outcomes were afterwards translated into English.

Study 2

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Table 1

Consumer benefits resulting from short-term loyalty programs

Benefit Existing support Survey measures Money savings Loyalty programs can provide perceptions of monetary savings 1. I save money.

by providing consumers the ability to save codes or stamps 2. I can make a good deal. which can be swapped to discounts, free products or presents. 3. I really spend less.

(Chandon et al., 2002)

Convenience Loyalty programs can reduce search and decision costs which results in 1. Shopping becomes easier a more efficient shopping experience. Consumers are being remembered 2. It simplifies product choices to the products that play a role in the loyalty program mainly by the 3. Product choices take less difficulty advertising inside the store. Moreover, the relationship with a firm/store (Cronbach‟s alpha 0.88)

may result in less risk, because consumers know how the store looks like and is structured.

Exploration Loyalty programs can satisfy the variety seeking consumer need, provide 1. I discover new products

information about new products and trends. Moreover, it provides 2. I discover products I never have discovered otherwise

new ideas to consumers. 3. I try new products more fast

(Mimouni-Chaabane and Volle, 2010)

Entertainment Maybe the most important benefit is the entertainment benefits derived 1. Shopping becomes more fun from loyalty programs. Collect figures and soccer player pictures is very 2. Shopping become more entertaining enjoyable especially for kids. Moreover, gaining a good deal by save for 3. Shopping becomes more enjoyable

something can provide a feeling of fun. (Chandon et al., 2002)

Confidence Loyalty programs can provide feelings of trust or confidence in doing 1. I know I can trust the provider business with a provider. Moreover, the certainty and advantage when 2. I get more trust in the provider

putting incremental effort in a program are of important meaning to consumers. 3. I belief there is less risk something will go wrong (Gwinner et al., 1998)

Feelings of recognition As a result of taking part in a loyalty program members can perceive social 1. I feel they take better care of me as a consumer feelings of personal approval because of a personal approach which 2. I will be treated better than other consumers

makes them feel special and valuable. 3. I feel special treated

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Table 1 Continued

Benefit Existing support Survey measures

Self-competency Taking part in loyalty programs may result in smart shopping feelings. 1. I feel like I am a smart shopper Save for discounts or useful presents result in the feeling of being a smart 2. I feel good about myself

shopper. 3. I can be proud of my purchase

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Table 2

Psychographic variables

Variable Definition Survey measures

Attitude towards risk An individual‟s degree of a negative or positive attitude toward 1. I do not feel comfortable about taking chances risk arising from outcome uncertainty outcomes (Mandrik & Bao, 2005) 2. I prefer situations that have foreseeable outcomes

3. I avoid situations that have uncertain outcomes (Mandrik & Bao, 2005)

Shopping enjoyment Shopping enjoyment has been referred to as a fun, pleasurable activity 1. I enjoy grocery shopping

that leads to feelings of „joy‟ (Jin and Sternquist, 2004) 2. I look forward to my trips to the grocery store

3. I do not mind spending a lot of time shopping for groceries (Taylor, 2005)

Consumer A personality trait reflecting a willingness to change (Hurt et al., 1977). 1. I like to try new and different things

Innovativeness 2. I am often among the first people to try a new product

3. When I see a product somewhat different form the usual, I check it out

(Martínez & Montaner, 2006)

Store loyalty The tendency to repeat purchase at the same store (for similar or 1. Usually, I care a lot about which particular grocery store I shop at other products) (Osman, 1993) 2. I am willing to make an effort to shop at my favourite grocery

store

3. I do not suddenly change from supermarket (Martínez & Montaner, 2006)

Price consciousness The degree to which the consumer focuses exclusively on paying a low 1.Most of the time, I check the prices of items I buy at the grocery

price (Lichtenstein et al., 1993) store

2. I believe a person can save a lot of money by shopping around for bargains

3. I usually look at in-store sale circulars when I‟m shopping (Taylor, 2005)

Quality consciousness Awareness of and desire for high quality products and the need to 1. I always buy the best products

make the best or perfect choice versus buying the first product or 2. It is important for me to buy high-quality products brand available (Sproles & Kendall, 1986) 3. I will not give up high quality for a lower price

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3.2 Data collection

People with different ages were preferred in the interview study, because this would result in a more random selection of participants. Participants who were familiar with loyalty programs were asked to join the interview study. The URL of the online survey was send by mail to a variety of people to ensure that a random group of respondents were participating. To ensure that the sample of respondents was representative for the population the focus was on household members who do the household shopping. Moreover, seven questionnaires were linked to the URL with each a different ordering of programmes. This prevented the sequence effect to occur, because questionnaires were randomly divided over the respondents.

3.3 Plan of analysis

The data gathered with the two studies was analyzed to come to interpretable results. Below the methods used to arrive at these results are outlined.

Study 1

The results of the Q-sort sessions were analyzed by using literature concerning the dimensions of loyalty programs to identify specific categories (Cross, 2005). The types of short-term loyalty programs were then described accurately.

Study 2

The data from the online survey was placed in a SPPS file. The data was analyzed using a number of methods. First, correlation matrices were conducted to observe if the three pre-selected indicators for each consumer benefit and psychographic variables correlated. Second,

factor analyses were conducted to gain insight in the underlying structure of the data. A Total

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testing the relationships between one dependent criterion variable (participating intention and attractiveness short-term loyalty program type) and multiple independent predictable variables (consumer benefit preferences) (Malhotra, 2007). Fifth, a cluster analysis was conducted to indicate if consumer segments could be identified. The objective of a cluster analysis is to classify the respondents into relative homogenous groups based on their answers (Malhotra, 2007). Two kinds of variables were included in the cluster analysis, active variables and passive variables. The active variables were the consumer benefits of all six types of short-term loyalty programs. These were used for clustering and were of interval measurement level. The passive variables were the supermarket switching intention, the program rating, the shopping variables, the general benefit preferences and the socio- and psycho-demographic variables. These were used for group identification and consist of variables of nominal, ordinal and interval measurement level. The active variables were standardized by rescaling the variables to z-scores. The rescaled data was analyzed by using a

hierarchical variance method and specifically the ward’s procedure. The Squared Euclidean distance was used to measure the distance or similarity between the variables, which is the

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4. Types of short-term loyalty programs

In this chapter the found types of short-term loyalty programs are identified and outlined as results of the ten held interviews in study one.

4.1 Data description

A set of thirty short-term loyalty programs was used for the Q-sort interviews (appendix I). The group participants existed of four male and six female. Table 3 shows some interesting characteristics of the participants.

Interview participants characteristics

6 female (60%) 4 male (40%)

- 3 were working and had children living at home

- 2 were working and had children living at home

- 3 were student - 1 was student

- 1 was working and had no children

Table 3 – Participants characteristics

Based on the insights of the ten participants seven types of short-term loyalty programs are identified; event programs, collective programs, points programs, charity programs, personal

programs, money back programs and interactive programs. The Q-sort interview results are

presented in appendix II. Four participants identified multi-vendor programs as a type of short-term loyalty program; however, this type was not included in this study as one of the found term loyalty program types as multiple vendors can offer several types of short-term loyalty programs based on design differences. A multi-vendor program cannot be distinguished based on design or reward dimensions.

4.2 Event program

The event programs are held during large sport events, like the World cup soccer and the European cup soccer. Seven out of ten participants identified this type of short-term loyalty program. This type of short-term loyalty program responds to the intense emotions playing a role during such events. The emotions of nationalism are used to attract consumers. A large number of retail firms have used this type of short-term loyalty programs. An example of this type of short-term loyalty program are the by Albert Heijn introduced Wuppies. Considering the dimensions described in section two, the reward dimensions reward type and timing of

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given, which is related to the immediate timing of the reward. The timing of the event program is fundamental, because it responses to an external situation, which makes it so successful. This dimension is not described in previous studies, which indicate that a new dimension is identified.

4.3 Collective program

Probably the most used short-term loyalty program type is the collective program. Ten out of ten respondents identified it as a type of short-term loyalty program. This type of program makes use of a specific number of items which can be collected during the action period. The concept is similar to the event programs in that they both provide items which can be collected, however the event programs offer event related items which are most of the time not part of a large collection. A large number of retailers offer collective programs to their consumers. For example, the Hema offered the „Bonkies‟ program. Consumers could collect fifteen „Bonky‟ marbles which were provided with every €5,- spend.

4.4 Points program

The third identified short-term loyalty program is the points program. This is an often used program and mentioned as a type of short-term loyalty program by all ten interview respondents. A large number of differentiating point programs are developed and used. However, they have one thing in common; they all use points which could be exchanged for rewards. A specific number of points have to be collected to receive a reward. Points

programs provide a very diverse set of gifts, which could be related or unrelated to the

products offered by the firm/brand. For example, the towel program from supermarket Spar, where one point was offered for every €10,- spend and with 26 points a set of towels was given. The point accumulation system (medium) is the dominant dimension in this program type. This short-term loyalty program type is similar to one of the long-term loyalty program types identified by Berman (2006) and described in section two; members receive rebates or points based on cumulative purchases (3).

4.5 Charity program

Short-term loyalty programs can also support charity. A charity program is a cooperation between a commercial firm and charity. Four out of ten participants identified the charity

program as a type of short-term loyalty program. When consumers take part in this type of