byBsc. Rignald J. F. MartisA thesis submitted in partial fulfillment of the requirements for the degree ofMaster in Business AdministrationUniversity of Groningen2006

supermarket on Aruba

by

Bsc. Rignald J. F. Martis

A thesis submitted in partial

fulfillment of the requirements for

the degree of

Master in Business

Administration

University of Groningen

2006

Approved by ________________________________________________________ Chairperson of Supervisory Committee

(RIJKSUNIVERSITEIT GRONINGEN)

ABSTRACT

Antecedents of customer loyalty at Kong Fui supermarket on Aruba

by

Bsc. Rignald J. F. Martis

Chairperson of the Supervisory Committee: Mrs. Dr. J.A. Voerman Marketing Department

A thesis presented on the antecedents of customer loyalty at Kong Fui Supermarket on Aruba, D.C.

In grocery retailing, consumers have a great variety of supermarkets to patronize. This brings forth an important issue as to what can be done by supermarket managements to let their customers feel at home so they can come back. In this regard, customer satisfaction, acculturation preference, shopper characteristics, shopping motivations, customer characteristics and loyalty program adoption have been assessed as the predictors of loyal behavior and – attitude of customers. Furthermore, the effects of idiosyncrasy, privacy concerns, customer characteristics, loyalty program design and – enjoyment on loyalty program adoption have been studied.

The potential effects were assessed through techniques to measure both linear – and non-linear dependencies. Finally, the results provide mixed support for the impact of the studied antecedents on both customer loyalty and loyalty program adoption respectively.

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TABLE OF CONTENTS

Number

Page

Table of Contents ____________________________________________ i

List of figures _______________________________________________iii

Acknowledgments ___________________________________________ iv

Summary___________________________________________________ v

Chapter 1

Introduction __________________________________ 1

1.1 Background of the study___________________________________ 1 1.2 Kong Fui Supermarket & Wholesale ________________________ 4 1.3 Problem statement and research questions __________________ 6 1.4 Methodology and limitations _______________________________ 7 1.5 Report structure __________________________________________ 7

Chapter 2 Literature review _____________________________ 8

2.1 State of the art of customer loyalty__________________________ 8 2.2 Factors affecting loyalty __________________________________ 10 -2.3 Antecedents and moderating factors of customer loyalty for food retailers____________________________________________________ 13 2.4 Factors affecting loyalty program adoption _________________ 17 -2.4 Antecedents and moderating factors of loyalty program adoption for food retailers _______________________________________________ 19 2.5 Conceptual model________________________________________ 22

Chapter 3: Research methodology ________________________ 24

-Chapter 4:

Research results ___________________________ 38

4.1 Representativity of sample________________________________ 38 4.2 General findings _________________________________________ 39 -4.2.1 Basic descriptive statistics for customer loyalty predictors_______ 39 -4.2.2 Basic descriptive statistics of loyalty program adoption predictors 53 -4.2.3 Reduction of multi-item measures_____________________________ 54 4.3 Nonlinear influence of antecedents ________________________ 57 -4.3.1 Influence of the binary customer characteristics ________________ 57 -4.3.2 Influence of non-customer characteristics ______________________ 59 -4.3.3 Influence of the customer characteristics with manifold categories 60 4.4 Linear influence of the antecedents of both layers ___________ 65 -4.4.1 Influence on word-of-mouth___________________________________ 65 -4.4.2 Influence on attitudinal loyalty________________________________ 66 -4.4.3 Influence on repeat purchases_________________________________ 67 -4.4.4 Influence on loyalty program adoption _________________________ 68 4.5 Further analysis of the influences _________________________ 70

Chapter 5: Conclusions and implications __________________ 74

5.1 Conclusions and discussion _______________________________ 74 5.2 Implications and evaluation_______________________________ 76 -5.2.1 Implications for further research and evaluation________________ 76 -5.2.2 Managerial implications______________________________________ 79

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LIST OF FIGURES

Number

Page

Figure 2.1: The fourstage loyalty model __________________________________ 9 Figure 2.2: Conceptual model ___________________________________________ 22 Figure 3.1: Overview of studied influence of customer characteristics _______ 31 Table 4.1: Sample proportions based on age category ______________________ 38 Table 4.2: Sample proportions based on gender ___________________________ 38 Table 4.3: Sample proportions based on number of household members _____ 39 Table 4.4: Descriptive statistics of shopper characteristics items____________ 40 Table 4.5: Descriptive statistics related to the shopping motivation items ___ 42 -Table 4.6: Descriptive statistics of the 5-point scale customer satisfaction measure ______________________________________________________________________ 43 Table 4.7: Descriptive statistics of the 10scale customer satisfaction items __ 43 -Table 4.8: Descriptive statistics of the measured customer satisfaction aspects - 46

-Table 4.9: Descriptive statistics of focal – and competitors’ loyalty programs adoption ______________________________________________________________ 47 Table 4.10: Descriptive statistics of the customer characteristics’ items _____ 49 Table 4.11: Descriptive results of acculturation preference items ___________ 50 Table 4.12: Descriptive results of attitude – and WoM items _______________ 51 Table 4.13: Descriptive results of repeat purchase behavior items __________ 52 -Table 4.14: Descriptive results of enjoyment items & idiosyncratic fit measure - 53

Table 4.15: Descriptive results of design items & privacy measure __________ 54 -Table 4.16: Overview of factor analysis and reliability analysis for customer satisfaction____________________________________________________________ 55 -Table 4.17: Chi-square test results; influence binary (gender) items on loyalty program adoption ______________________________________________________ 57 Table 4.18: MannWhitney U test results for behavioral loyalty ____________ 58 Table 4.19: Student t test results for head of HH _________________________ 59 -Table 4.20: Chi-square test results; influence marital status & gross income on card ownership ________________________________________________________ 61 Table 4.21: Summary of KruskalWallis tests’ results _____________________ 62 Table 4.22: Results from different analyses of variance ____________________ 64 -Table 4.23: Summary of stepwise multiple linear regression analysis for WoM and attitude _______________________________________________________________ 66 -Table 4.24: Summary of stepwise logistic multiple regression analysis for

-ACKNOWLEDGMENTS

This report is the result of a research project performed to complete my Marketing Management study at the faculty of Economics at the University of Groningen (RuG). Therefore, at this point, I would like to acknowledge the persons who have contributed in one way or the other in making it a success.

Thereby, I want to thank the Almighty God for the perseverance and strength given in writing this thesis. Furthermore, wishes of sincere appreciation to my supervisor Dr. J.A. Voerman for her assistance in the preparation of this manuscript by providing useful comments on the submitted drafts. Undoubtedly, the realization of this final product would have been impossible without her inputs.

Additionally, special thanks to my father, mother, and my sister for their moral support and help. My cousins C. J. Henriquez, A. G. Tromp and A. L. Tromp, my aunts E. M. Tromp and M. A. Krozendijk-Tromp and my lovely mom many thanks for your cooperation in the data collection process.

Furthermore, I am very thankful to Mr. Errol Henriquez (Kong Fui supermarket) and Ms. M. Vigelandzoon (CBS Aruba) for her great support and patience during these last months of research.

Additionally, I would like to use this opportunity to thank both Mrs. P. Paula-Croes and Mr. R. Sharp for their great work and dedication regarding the translation and back-translation of the questionnaire. I would also like to use this opportunity to thank all the customers of Kong Fui supermarket who have filled in the questionnaire on which this investigation is based. Last but not least, I am very thankful to all the other persons who in one way or the other were there with their support and words giving me extra strength to march on with this research project.

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SUMMARY

Retailing is an always interesting field, since we get in touch with it in our daily lives. However, the existence of too many retailers in today’s marketplace makes the playing field of grocery retailers in general ever more competitive. Consequently, this high level of competition makes it necessary for managers to look for ways to encourage relationship building with customers. This may look like an easy task, but without knowing what is valued by ones’ customers and what their preferences are, nothing can be done to satisfy them and try to bind them to ones store.

It was this lack of knowledge about customer wishes of the management combined with the churn of customers at Kong Fui Supermarket on Aruba that lead to the following management question:

What can be done to increase the purchases of their current customers?

In order to answer this question it was chosen to search for predictors of repeat purchase behavior. Thereby, existing literature shows that repeat purchase behavior is a measure of customer loyalty. However, several writings suggest that customer loyalty has two dimensions and (i.e. Reinartz and Kumar (2002) – point out that it would be useful to complement purely purchase behavior measures of customer loyalty with attitudinal measures. Therefore, and in order to get a broader view as to the antecedents of customer loyalty in general the following closely related research question was formulated:

Which are the shopping motivators affecting customer loyalty?

constructed with a double layer. In this the predictors for the adoption of loyalty cards was also assessed. Furthermore, the aspects presumed to affect customer loyalty were also added to the questionnaire.

With the help of a survey under the customers of Kong Fui it was tried to come up with answers to the hypotheses which were broadly based on prior research. Consequently, the ultimate goal of the survey was to provide an answer to the research question.

In this regard, the findings showed support for the existence of an effect of customer satisfaction, card ownership, shopping motivation, shopper characteristics, acculturation preference and customer characteristics on customer loyalty. However, it should be noted that not all these predictors of customer loyalty have the same type of effect on customer loyalty; some have linear influences, whereas others have non-linear relationships towards customer loyalty. Furthermore, some appear to have independent effects on customer loyalty, whereas others seem to have significant effects only when assessed communally. It is also remarkable that the effects differ per measure and/or dimension of customer loyalty.

CHAPTER 1

INTRODUCTION

1 . 1 B a c k g r o u n d o f t h e s t u d y

Retail patronage issues have engaged academic minds ever since the dawn of marketing as a scientific discipline (Bhatnagar and Ratchford 2004). Every day we get in touch with retailing. Retailing is the set of business activities that adds value to the products and services sold to consumers for their personal or family use (Levy and Weitz, 2004). Another possible definition for retailing is the following: ‘Retailing consists of those business activities involved in the sales of goods and services to consumers for their personal, family or household use. It is the final stage in the distribution process’ Berman and Evans (1992: 3). Therefore, whether doing our daily grocery purchases, buying plane tickets or such diverse transactions, we are dealing with the retail world. Retailing is such a part of our everyday lives that it is often taken for granted (Levy and Weitz, 2004).

There are too many retailers in today’s marketplace. Since the playing field of grocery retailers in general is becoming ever more competitive, it is necessary to look for ways to encourage relationship building with customers. It is necessary to build, evaluate and retain the loyalty of customers (Sawmong and Omar, 2004). By building relationships with customers it is presumed that retailers could enhance the likelihood of customer repurchase, maximize the value of future purchases of these customers and even reduce customer churn rates (Rust, Lemon and Narayandas, 2005). Furthermore, customer loyalty can result in the following advantages, namely more natural interactions, complaints being expressed earlier, more knowledge of customer wishes, referrals, lower price sensitivity, and larger profits and last but not least customer loyalty represents value (Reichheld 2003; Reinartz and Kumar 2002). However, it is not that simple to build lasting relationships with customers. Still, due to the various advantages brought by loyal customers it should be tried to build these relationships. In this regard, Duffy (1998) lists – after an extensive literature review – various economic- and competitive advantages that are brought by loyal customers, including1_:

1_{Note that Duffy (1998) comprised a longer list, however these extra advantages were at the brand level and} this study focuses on the retail store level

 Greater sales: loyal customer buy more; they increase sales by purchasing a wider variety of products, making more frequent purchases and buying more

expensive goods;

 Higher prices: due to their lesser price sensitivity loyal customers provide the ability to set premium prices;

 Word-of-mouth: loyal customers provide the best available advertising a company can get by spreading word-of-mouth;

 Entry barrier: the existence of a loyal customer base is seen as a substantial entry barrier to competitors;

 Energy devotion: a loyal customer base allows a company to devote its energy to other matters like quality improvement;

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-For the purpose of this study, the category of food retailing stores was chosen. Since this study deals with a supermarket, the definition of supermarkets as used in this study follows. McClelland (1962) cited the trade journal Self Service and Supermarket for the following definition of supermarkets “stores of not less than 2,000 sq. ft. sales area, with three or more checkouts and operated mainly on self-service, whose range of merchandise comprises all food groups, including fresh meat and fresh fruit and vegetables, plus basic household requisites (i.e. soaps and cleaning materials)”. It should be mentioned that this definition was adopted from secondary sources and is generally accepted in Britain. However, there appear to be three sorts of difficulties when defining supermarkets, namely those relating to the minimum size requirements, to the characteristics and extent of self-service, and to the stock assortment (McClelland, 1962).

This paper focuses on the food retailing industry on Aruba. Aruba is an island in the Caribbean where almost no products are produced domestically. On the island almost every product category lacks a domestic product. In this regard, the study could be related to the study of Nijssen and Douglas (2004), who studied the impact of the availability of both domestic and foreign brands, on consumers’ attitudes towards the purchase of foreign products in a country with a high level of foreign trade. That research was performed in the Netherlands, where quite a few product categories are well represented by domestic products.

Furthermore, according to Jamal et al (2006) there is a paucity of research examining shopper profiling in non-Western contexts. They referred to literature stating that the need for such a research is highlighted through the fact that the aggressive, geographic market expansion of successful retail organizations, the internationalization of retail practices and the development of a global consumer market has led many to call for investigating consumer behaviors in specific cultural contexts. However, there appeared to be another stream of authors arguing that the management of retail firms in other cultures requires an understanding of, and responding to, the local consumers’ motives, value, lifestyles, perceptions, attitudes and needs.

Food retailing on Aruba

Food retailers on Aruba can be grouped into three types of outlets; large supermarkets, mini-markets, and small shops. On the island, the large or chain supermarkets are used to have stores with areas over 30,000 sq. ft., selling both food and non-food items2_{. The layout}

of these stores are similar to US supermarkets, with separate deli, bakery, meat, frozen, seafood and produce sections, as well as scanners and electronic inventory control systems. These supermarkets have well over three registers- as stipulated in the definition to be classified as supermarket- and over 10 aisles, ample parking space and a trained management staff. Competition among supermarkets is fierce with promotion and advertisement playing a key role in marketing strategies. However, an interview with the general manager of Kong Fui revealed that the focus in this battle field for customer purchases is on price, assortment and cleanliness of the store.

Although the company has adopted a loyalty program, the company has recently seen a drop in its visitors and customers’ purchases. This fact can be counter balanced either by focusing on the current customers or by looking for ways to attract new customers and/or bring back the ones who have crunched. However, it is widely known that it is much more

expensive to attract customers than to keep the existing ones (e.g. Liebermann 1999). The costs of attracting new customers may even be as big as five times that incurred for retaining an old customer (e.g. Reichheld, 2003). Therefore, this investigation will focus on a strategy whereby the company focuses on the existing customers. By focusing on these customers the company should look for ways to enhance the spending of these customers. This research tries to give them an insight into what could be possible actions to undertake to make that possible.

According to Sharp and Sharp (1997) the usage of loyalty programs is a defensive strategy, because they aim to keep the current customers in the face of future competitive offers, rather than to gain market share. For that reason, it is assumed that a better fit of the loyalty program design and customers’ preferences concerning loyalty programs could enhance this defense. Furthermore, due to the existence of multi-store loyalty in grocery retailing both on the island and in general, reacting on competitors’ loyalty programs is presumed to be helpful. This is extremely important, since the provision of loyalty incentives and rewards through loyalty programs of competitors may loose the competitive advantage of a company. This would not be an exception on Aruba.

Contribution of this study

This study contributes to the literature by investigating the determinants of customer loyalty in a grocery context for a small economy, namely Aruba. Thereby, it investigates the effects of customer satisfaction, loyalty card ownership, acculturation preference, shopper characteristics, shopping motivation and some consumer characteristics including some moderating factors on loyalty in the retail food market on Aruba. These effects are particularly studied for Kong Fui and both card-holders and non-card-holders are surveyed.

Furthermore, according to Jamal et al. (2006) food and grocery shopping is an effective context to study consumers and their shopping motivations, values and decision making styles for a number of reasons. After an extensive literature review Jamal et al. (2006) list the following reasons:

Each of these three motivations is expected to hold in this situation as well, however, it will be left to the results of this study to prove it. Before continuing, some information about the focal company in this research will be presented in the following section.

 The ability to contrast their findings against previous research, due to the existence of previous research that examined shopping motivations in a

grocery context;

 grocery shopping is an ongoing and essential activity whereby consumer decision-making within the grocery environment can be highly involving; and  while grocery shopping in a Western context is often perceived as task

oriented, routine, and non-recreational in nature, their preliminary discussions with some of the local shoppers revealed that the grocery shopping

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-1 . 2 K o n g F u i S u p e r m a r k e t & W h o l e s a l e

This study investigates particularly consumers of Kong Fui Supermarket & Wholesale on Aruba (hereafter abbreviated to Kong Fui). Kong Fui is a supermarket with its core business being the sales of both food and non-food merchandise. The company is a wholly owned organization of a Chinese businessman, as most of the supermarkets on Aruba. The company has been operating on the Aruban market since 1992. During those years of its existence the company has coped with stable growth in both sales and customers visiting the supermarket. During the years it has been transformed from a mainly food retailer into a supermarket selling both food and non-food items. It currently has a department for ready-to-eat food take-away, a cosmetics department, and a department with fresh meat, another with fresh fruits, a department with household products and the department of canned food.

The company operates both as a retailer and as a wholesaler. According to the general manager the margins on retail sales on Aruba are far lower than those in big countries. In an effort to balance these small margins they started directly importing some of the products they sell. By importing themselves they can buy the products against lower prices which would ultimately translate into higher margins. He continued pointing out that to do this you would need wholesale operations as well. The implementation of wholesale operations would increase the logistical speed and bring continuity in the arrival of imported goods. Besides that, they can buy in on larger scales, which they sell to other smaller players on the market on Aruba.

Membership card of Kong Fui

The membership card of Kong Fui supermarket is for both clients of the supermarkets as well as wholesale members. The clients of the supermarket become class-A members after completing the registration, while the wholesale members are categorized as class-B members. In order to sign up for the membership card, which is free of charge, one should provide one’s ID number, address, home telephone number and those types of general information.

The program functions as follows: each month the purchases of each member will be aggregated and after reaching the amount of a particular amount in Aruban guilders in purchases for that month, the corresponding member will start getting 2% discount on each purchase during that month. This purchase amount aggregation method starts back at the beginning of every month. At the end of the year, the total purchases for that year are calculated and the member will get baskets with a particular value of merchandise based on its yearly purchases. Thus, in short this program awards points for purchases that entitle to additional discounts when reaching a certain level.

for their membership, members of this program get discounts on the prices of the whole assortment of the retailer. The other five programs can be described briefly as follows:

In this regard, it is assumed that especially PriceSmart’s program is especially attractive to households with large purchase volumes. Consequently, it would be important for Kong Fui to react on this program to prevent further customer defection; thereby playing defense. In this it should not be forgotten that it is easier and less costly to keep customers than to get them back or even attract new ones.

Having and, more importantly, retaining loyal customers is extremely important for the continuity and growth of any company and Kong Fui is no exception. Satisfying their loyal customers has a twofold importance. Besides providing Kong Fui with the advantages listed above, satisfying loyal shoppers is extremely important in the market in which Kong Fui operates. It is a fact that Aruba is an island of no more than 69.5 square miles. On this small area, there are over 250 food retailers offering a general assortment to the roughly 100,000 inhabitant of the island (in 2004 there were 98,829 inhabitants on the island3_{). All}

these food retailers and other retailers offering food- and/or non-food items are competing to get a share of the purchases made by these 100,000 inhabitants. Thus, it is an intensive competition. This fierce competition is intensified by the ever growing number of players in the market. Just in the first four months of 2006 there were six entrants to the market of food retailing offering a general assortment, which registered at the Chamber of Commerce on Aruba4_{. In this regard, the distance from home to the food retailer is}

becoming continuously less; putting more stress on the size of the supermarket’s selling area. Therefore, having a loyal customer base would be a very valuable asset for Kong Fui.

3_{Source: www.arubaeconomicaffairs.aw} 4_{Source: www.arubachamber.com}

 Hong Kong supermarket: There are no registration fees and no discounts on purchases or merchandise, but the customers get gifts at the end of the year.  Super Food: The membership registration is free and each week there is a

new set of merchandise available with discounts on them. Customers are eligible to get gift certificates of AFL. 25, 50, 75 or 100 and at years end they can get one of these gift certificates or a basket with merchandise depending

on the points they have accumulated during the year.

 Kong Hing Super Center: The membership registration is free of charge. At years end customers are eligible to get a gift certificate as a present.  Morning Supermarket: Also has a free membership fee. Customers

accumulate points and get baskets filled with gifts at years end.  Mundo Nobo Supermarket: There are no registration fees either. At years

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-1 . 3 P r o b l e m s t a t e m e n t a n d r e s e a r c h q u e s t i o n s Hence, the management at Kong Fui is dealing with the question:

If some families are more loyal than others, a retailer might be able to secure a larger share of these more profitable customers or perhaps the loyalty of present customers could be upgraded, according to Cunningham (1961). Either possibility is presumed to help improve market position. However, the usual competitive efforts to build volume through higher traffic may merely be able to support the patronage of different stores by low-loyalty customers (Cunningham, 1961).

Accordingly, the purpose of this study is assessing the effect of some shopping motivators on customer loyalty. Furthermore, this study evaluates whether there is a difference in loyalty towards Kong Fui between its members and non-members; thereby assessing whether membership affects customer loyalty. Consequently, the problem statement is:

In order to facilitate the research process the research problem will be broken down into some sub-problems, namely:

In solving the main problem, the sub-problems will be used as guidelines. Furthermore, it will be determined whether the hypotheses are true or false5_.

5_{These hypotheses are based on literature and are therefore presented in the next chapter.}

1. Which are the factors and the moderating factors affecting

customer loyalty according to theory?

2. Which is a good set of factors and moderating factors influencing

customer loyalty for a food retailer?

3. Which are the factors and the moderating factors affecting

loyalty program adoption according to theory?

4. Which is a good set of factors influencing loyalty program

adoption for a food retailer?

5. What is the effect of each of the factors in the above stated set on

customer loyalty for the customers of Kong Fui?

6. What is the effect of each of the factors in the above stated set on

loyalty program adoption for the customers of Kong Fui?

What can be done to increase the purchases of their

current customers?

1 . 4 M e t h o d o l o g y a n d l i m i t a t i o n s

This study covers the investigation of factors affecting customer loyalty and of the antecedents of the adoption of loyalty programs by customers; thereby having a double layer structure. In order to come up with these potential factors – of both layers of the study – a literature review will be done. This literature review would lead to a conceptual model. There after an empirical research will follow, whereby a survey will be used. Respondents will be asked to fill in a questionnaire covering all the constructs of the conceptual model. In gathering respondents no limitations will be held concerning membership. Both card-holders and non-card-holders are approached to participate. However, the survey would limit itself to adults, since children are not presumed to have disposable incomes and are therefore not part of the population as such. As stated earlier, the aim is to study the customers of Kong Fui; therefore the data collection limits itself to these customers. For further details concerning the methodology please refer to chapter 3.

Restrictions

This study will be subject to the following restrictions:

1 . 5 R e p o r t s t r u c t u r e The report will be set up as follows:

Chapter two –2– addresses the general background theory. Before coming up with a conceptual model literature related to customer loyalty in general and the adoption of loyalty programs, and specifically related to factors directly and moderately affecting them would be assessed. This chapter therefore deals with sub-problems one through four. Chapter three –3– covers the research methodology explicitly. This chapter covers topics such as sample, data collection method, the questionnaire and the method of analysis. Chapter four –4– presents a general overview of the results of the survey and the results related to the different relationships as illustrated in the conceptual model presented in chapter two. Subsequently, chapter five –5– considers all prior chapters in order to draw conclusions6 _{and make suggestions in the form of both research implications and}

managerial implications.

6_{Concerning the acceptance and rejection of each the tested hypotheses, among others}  The study will be limited to Kong Fui only.

 The respondents will be limited to current customers. However, in the data collection no distinction will be made between members and non-members. Only for the analysis this difference will be assessed; whenever it is considered appropriate to do so.

 The study focuses on assessing the effects between the studied constructs. No efforts will be made to validate measures for these constructs. It is therefore, that it is tried to use as much existing measures as possible.

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-CHAPTER 2

LITERATURE REVIEW

This chapter covers the results of secondary research to point out the factors influencing customer loyalty. It starts by providing a definition for loyalty in paragraph 2.1. Thereafter, the developments regarding research about the antecedents of loyalty is presented as the state of the art of customer loyalty. In assessing the developments in literature dealing with this topic, the available factors influencing loyalty will be gathered. It should be noted here, that since most of these constructs are well established in prior research, we include them in our model without explicit further discussion. Finally, the paragraph ends with the coverage of the second sub-question. The subsequent paragraph deals with the six factors presumed to have a direct effect on customer loyalty. In these sections the theory will be both analyzed and evaluated. Paragraph 2.3 will present the developments regarding studies covering the antecedents of the adoption of loyalty programs. The next paragraph covers the factors presumed to influence the adoption of loyalty programs. Thereafter, paragraph 2.5 presents the conceptual model and the corresponding explanations. But, the state of the art on loyalty follows.

2 . 1 S t a t e o f t h e a r t o f c u s t o m e r l o y a l t y

The studies in customer loyalty over the last five decades can be categorized into three types of studies. First, the period 1960-1990 had studies with a focus on the definition and operationalization of customer loyalty (i.e. Jacoby and Chestnut 1978). Jacoby and Chestnut (1978) have explored the psychological meaning of customer loyalty in an effort to distinguish it from behavioral (i.e. repeat purchase) definitions. Their analysis concludes that consistent purchasing as an indicator of customer loyalty could be invalid because of happenstance buying or a preference for convenience and that inconsistent purchasing could mask customer loyalty if consumers were multi-brand loyal. Due to these possibilities the authors concluded that it would be unwise to infer loyalty or disloyalty solely from repetitive purchase patterns without further analysis. Oliver (1999) builds on this suggestion by pointing out that all three decision making phases must point to a focal brand preference if true brand loyalty exists. Hereby, he refers to beliefs, attitude and conation.

Secondly, there were the studies pertaining to the period 1980-2000. In this period the focus was on the antecedents of self-reported customer loyalty (i.e. Anderson and Sullivan, 1993). Anderson and Sullivan (1993) developed a model to link explicitly the antecedents and consequences of satisfaction in a utility-oriented framework. The data were obtained by a computer-aided telephone survey, whereby the customers were required to provide their satisfaction, repurchase intentions, expectations, perceived quality, degree of disconfirmation/confirmation (the extent to which perceived quality fails to match pre-purchase expectations), and ease of evaluating quality, all on a 10-point scale. Consequently, the respondents directly answer their repurchase intentions.

they used the actual measures since these are statistically related to satisfaction measures according to Bolton and Lemon (1999; cited Collopy 1996). In this it is assumed that light users tend to over-report their usage, whereas heavy users tend to under-report their usage.

Two dimensions of loyalty

However, although the concept of customer loyalty has been extensively discussed in traditional marketing literature, there is no universally accepted definition for loyalty. There are people, who claim that it should be measured by customers’ share of wallet while others say it should be based on the customer retention rate. There are still others proclaiming frequency as the best measure, while others claim it's the customers' attitude towards the company that best describes loyalty (Woolf, 2002). Still, the main emphasis has been on two different dimensions of the concept, namely behavioral- and attitudinal loyalty.

Before the 1970s, the majority of researchers measured loyalty as a pattern of repeat purchasing behavior. The attitudinal perspective on customer loyalty appeared after that period. A highly relevant model for the measurement of grocery store loyalty in this respect is the one proposed by Oliver (1997). In this work the four-stage loyalty model was proposed, as illustrated in figure 2.1.

Figure 2.1: The four-stage loyalty model

Source: Oliver (1997)

Keller (2003) applies behavioral loyalty as a dimension of brand resonance; however, defining behavioral loyalty at the brand level. At the store level behavioral loyalty would mean repeat purchases and the amount or share of category volume attributed to the store. Hereby, it encompasses both how often customers visit a store (and make their purchases there) and how much they purchase at that store.

Conversely, Reichheld (2003) defines customer loyalty from a ‘relationship’ perspective. In this respect, he defines customer loyalty as “the willingness of someone – a customer, an employee, a friend – to make an investment or personal sacrifice in order to strengthen a relationship”. For a customer, this can mean sticking with a supplier who treats him well and gives him good value in the long term even if the supplier does not offer the best price in a particular transaction. Building on this definition, he argues that customer loyalty is much more than repeat purchases. Inertia, indifference or exit barriers may exist.

According to Noordhoff, Pauwels and Odekerken-Schröder (2004) behavioral store loyalty is expressed by the actual revisiting of the store and the total budget ratio spent at a single

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-store; the so-called share-of-wallet. As a central dependent construct, behavioral store loyalty is still popular even though authors as Reinartz and Kumar (2002) – to name a few – expressed fundamental criticism. In fact, purchase behavior does not always provide the accurate loyalty measure, given that other moderating variables such as social norms and situational influence, both studied by Huddleston et al. (2004), manipulate a decision to patronize a store. Therefore, some authors – i.e. Reinartz and Kumar (2002) – point out that it would be useful to complement purely purchase behavior measures of customer loyalty with attitudinal measures. Attitudinal loyalty refers to “the consumer’s predisposition towards a store as a function of psychological processes, [which] includes attitudinal preference and commitment towards the store” (Jacoby and Chestnut, 1978). The addition of attitudinal measures could help in making a clear distinction between inertia and convenience against pure behavioral loyalty. Jacoby and Chestnut (1978) investigated both behavioral- and attitudinal loyalty thereby finding out that the effects of loyalty are much lower in case of only behavioral loyalty. They suggest that for companies “to identify the real apostles, they need to judge customers by more than just their actions”. The ambassadorship of customers showed quite a big increase when customers were both behaviorally- and attitudinally loyal.

Measures for attitudinal loyalty are trust, commitment, satisfaction, attractiveness and switching costs among others. Conversely, the measures for behavioral loyalty can be divided into transactions and non-transactions. In the category of transactional measures there are items such as retention, cross-buying, usage/repeat purchase, upgrading and customer share/share of wallet. Furthermore, Rowley (2005) suggests relationship continuance, increased scale or scope of relationship, and recommendations to be loyalty behaviors as well. Regarding the non-transactional measures there are customer referrals/word-of-mouth and supportive behavior/complaints.

This study builds on the second type out of the three mentioned in the beginning of this paragraph. This study tries to assess the antecedents of self-reported customer loyalty. Hereby the data will be collected by gathering answers directly from respondents. Leenheer (2004) points out – based on literature review – that the marketing literature provides a wide range of customer loyalty measures. The usefulness of these measures appears to be dependent on the specific market and study objective. Leenheer (2004) continues citing that in grocery retailing, purchase behavior is characterized by high buying frequency and variation in basket sizes. Additionally, consumers are often polygamous loyal. Based on these characteristics, share-of-wallet is the most suitable measure for behavioral loyalty (Mägi, 2003). However, due to the strong subjectivity of this measure it is not used in this study.

2 . 2 F a c t o r s a f f e c t i n g l o y a l t y

1994). Examples of studies based on the four-stage loyalty model of Oliver (1997) include Huddleston et al. (2004) and Sawmong and Omar (2004).

Secondly, there is the stream of researches which study the items, affecting both dimensions of customer loyalty, separately. Examples of this stream are Huddleston et al. (2004) where focus group interviews revealed promotions, price, convenience, location, product, atmosphere and service to be the factors that respondents liked about their retailer and Bellizi and Bristol (2004) which study revealed check-out, variety of fresh produce, location, fresh meat department, fresh bakery, deli counter and low prices as the most important loyalty influencing factors.

Finally, there is the category of studies using multi-attribute constructs. Although most of these item constructs have been studied in the grocery retail industry, the multi-item constructs perceived trust, perceived value, overall satisfaction and future Internet Service Provider expectancy have been studied for an Internet service provider (Chiou, 2004) not in a grocery retail context as far as this review goes. Additionally, the service quality performance, value and customer satisfaction multi-attribute constructs have been studied for six service industries (Cronin Jr., Brady and Hult, 2000). So, customer satisfaction is a construct that has been studied both in grocery retailing and in non-grocery retailing studies.

Cortiñas, Elorz and Villanueva (2004) also used multi-attribute constructs. However, these were investigated as antecedents of satisfaction, which was further studied as an antecedent of customer loyalty. The added-value of that study is that it investigated the relations both in the grocery industry and at petrol stations. Majumdar (2005) also takes a new dimension in this type of studies by studying stores in a shopping mall. Based on the setting of the study, the loyalty of shoppers towards the shopping mall was also taken into account as an antecedent of store loyalty intention. Besides shopping mall loyalty, value perception, sales promotion and overall impression of the store have also been incorporated in that particular study as antecedents of store loyalty intention. Still, a strange part of the data collection was that only garment store shoppers were intercepted, although a shopping mall generally has a wide variety of stores in it.

relational 12 relational

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-and marketplace characteristics. The customer characteristics studied included both involvement and household income, whereas the relational characteristics were relationship age and program participation and the marketplace characteristics were competitive intensity and convenience offering.

Retail/food multi-attribute antecedents

These multi-attribute constructs presumed to influence loyalty include customer satisfaction, customer-card possession, service quality and value (Sawmong and Omar, 2004; Noordhoff, Pauwels and Odekerken-Schröder, 2004; Chiou, 2004). Besides these presumed antecedents of loyalty, an extensive literature review by Landsverk, Hughes and Fearne (2003) revealed that there are seven key elements in the retail brand. These seven elements are said to be physical store, service products, fresh food concepts/products, own label products, communication, price positioning and quality standards in different product areas, and access attributes (Landsverk, Hughes and Fearne, 2003). Piron (2001) studied the predictability of location, store image, merchandise price, merchandise assortment, merchandise quality, service and advertisement and promotion for store loyalty in the grocery retail industry under Singaporean shoppers. In addition, Sirohi, McLaughlin and Wittink (1998) studied three important links based on their model, namely the effects of extrinsic cues on merchandise quality perceptions, the antecedents of perceived value and the determinants of the store loyalty intentions. Thereby they used eight constructs to measure respondents’ perceptions. These measures were store operations perception, store appearance perception, personnel service perception, sales promotion perception, merchandise quality perception, perceived relative price, perceived value and perceived value of competitor. The effects of all but three constructs on store loyalty intentions were separately assessed. In this regard, they have combined store operations perception, personnel service perception and store appearance perception into a single item and assessed its effect on store loyalty intentions.

Yet another category

2 . 3 A n t e c e d e n t s a n d m o d e r a t i n g f a c t o r s o f c u s t o m e r l o y a l t y f o r f o o d r e t a i l e r s

In short, the antecedents of both attitudinal- and behavioral loyalty can be divided into the following general categories (adapted from Verhoef, 2003):

From these antecedents – presented above – this study assesses customer satisfaction (perceptions of relationship), loyalty programs adoption (marketing instruments), customer characteristics, shopper characteristics and shopping motivation as antecedents of customer loyalty towards their grocery store; particularly towards Kong Fui. So, the aim was to include items covering each of the six general categories affecting both attitudinal-and behavioral loyalty. However, past behavior was not assessed. Although frequency of purchase – in the past – was indirectly assessed it was studied as a measure of behavioral loyalty, not as a potential predictor.

Consequently, potential antecedents – as discussed in the previous paragraph – which are assumed to be irrelevant due to some reason have been left out of this analysis. These potential antecedents include location and communication. Location is irrelevant, since the supermarket is already settled there for years and at the moment the only way to change it is to open the store somewhere else. The marketing activities of the supermarkets on Aruba are minimal, so it is presumed as irrelevant to incorporate communication as an antecedent in the study. The availability of own label products is also irrelevant in this study, since Kong Fui does not carry private label brands/products. Finally, both merchandise assortment and -quality are considered as irrelevant due to the competitive pressure that in some degree dictates them. However, to have a better insight into the aspects of customer satisfaction at Kong Fui, these items are incorporated into the study as well, but as single-items. However, these items are not illustrated in the conceptual model of figure 2.2, since their influence on customer satisfaction and/or customer loyalty is beyond the scope of this study.

Shopper characteristics

According to Mägi (2003), a number of studies on grocery shopping behavior have related customer share in the primary store to a range of consumer characteristics. She points out that although her research conveys a somewhat fragmented picture of consumer-level

 Perceptions of relationship or offerings of suppliers. In this category items such as commitment, satisfaction, and trust are represented.

 Marketing instruments. Here it can be thought of instruments like direct marketing, loyalty programs and advertising.

 Past behavior. Items belonging to this category are relationship age, number of products sold and RFM (recency, frequency and monetary value) among others.  Customer characteristics. This category encompasses items such as age, income,

education and household size among others.

 Shopper characteristics. The three shopping motivations of Mägi (2003) belong to this category.

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-correlates with customer share, some results stand out as fairly consistent across studies. She used three shopper motivations, which are shopper types identified by other researchers as well. Therefore, it is presumed that they represent some of the core motivational drivers of grocery shopping behavior.

Jamal et al. (2006)’s literature review revealed a stream of authors arguing that the management of retail firms in other cultures requires an understanding of, and responding to, the local consumers’ motives, value, lifestyles, perceptions, attitudes and needs. This need is assumed to be especially important for the personalizing shopping oriented shoppers. With this in mind this section covers shopper characteristics, whereby a distinction will be made between economic-, personalizing- and apathetic shopping orientation. According to Mägi (2003) these characteristics represent some of the core motivational drivers of grocery shopping behavior.

Mägi (1999) points out that the consumers who appreciate the social dimension of shopping tend to concentrate their purchases at a specific store, since that would make it easier to build and maintain relationship with store personnel. Therefore, it is expected that the personalizing shopping orientation has a positive effect on both behavioral- and attitudinal loyalty. That expectation leads to:

Furthermore, Mägi (1999) points out that the negative effect of being a price-oriented consumer on customer share in the primary store is intuitive. Consumers who perceive benefits from comparing prices across stores would be more likely to spread their purchases evenly across stores in their pursuit of good deals than consumers who do not find across-store price comparisons worthwhile. Therefore,

Similarly, the degree of apathetic shopping or un-interest in shopping has some effect on behavioral loyalty. According to Williams et al. (1978) the more apathetic the consumer, the likelier that he/she would concentrate purchases to one store to minimize the energy spent on grocery shopping. This concentration of purchases can be seen as a form of behavioral loyalty. Additionally, it is expected here, that this same un-interest in shopping would influence the attitude of consumers towards shopping negatively. Therefore,

Shopping motivation

Existing literature has sought to develop typologies of shoppers based either on shopping motives (Arnold and Reynolds, 2003) or on decision-making styles (Lysonski et al., 1996) among others. Arnold and Reynolds (2003) came up with a six-factor hedonic shopping motivation profile classification. However, due to the magnitude of this investigation the

H

1.3a: Apathetic shopping orientation has a positive effect on behavioral loyalty.

H

1.3b: Apathetic shopping orientation has a negative effect on attitudinal loyalty.

H

1.2: Economic shopping orientation has a negative effect on behavioral loyalty.

H

1.1a: Personalizing shopping orientation has a positive effect on behavioral loyalty.

shopping motives will be restricted to a general classification of hedonic and utilitarian motivations. Additionally, the aim of this investigation is to come up with consumer profiles based on a combination of factors instead of really going into details for each of these factors. Therefore, it was assumed unnecessary to use that six-factor hedonic shopping motivation profile instead of only dividing shopping motivation into hedonic shopping and utilitarian shopping.

Since hedonic shopping motives deal with the basic premise that shoppers are motivated by non-product related attributes, it is assumed in this study that hedonic shoppers would be more willing to become loyal to a firm. Consequently, it is expected that the following hypotheses hold:

Customer satisfaction

Customer satisfaction is widely assumed to be an antecedent of behavioral loyalty. In Oliver (1997) satisfaction is defined as pleasurable fulfillment. That is, the consumer senses that consumption fulfills some need, desire, goal or so forth and that this fulfillment is pleasurable. It is presumed that the higher the degree of satisfaction of a customer the stronger his/her behavioral loyalty. Anderson and Sullivan (1993) found that the elasticity of repurchase intentions with respect to satisfaction is lower for firms that provide high satisfaction. According to them this implies a long-run reputation effect insulating firms which consistently provide high satisfaction. This implies that there is a relationship between customer satisfaction and behavioral loyalty. Even stronger their findings support the implication that there is a positive relation between satisfaction and behavioral loyalty.

However, Mägi (2003) found only a moderate effect of customer satisfaction on share of wallet. Consequently, that study did not get significant evidence for a strong relation between customer satisfaction and behavioral loyalty. Furthermore, it was found that this effect is influenced negatively by both the economic orientation and personalizing shopping behavior of customers. However, aggregate purchase volume seemed to have a positive influence on that effect. Therefore, the following hypotheses are expected to hold:

H

3.1a:Customer satisfaction has a positive effect on behavioral loyalty.

H

3.1b:Customer satisfaction has a positive effect on attitudinal loyalty.

H

3.2a

:

The effects of customer satisfaction on behavioral loyalty are moderated by shopper characteristics.

H

3.2b

:

The effects of customer satisfaction on attitudinal loyalty are moderated by shopper characteristics.

H

2.1a: Hedonic shopping motivation has a positive effect on behavioral loyalty.

H

2.1b: Hedonic shopping motivation has a positive effect on attitudinal loyalty.

H

2.2a: Utilitarian shopping motivation has a negative effect on behavioral loyalty.

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-Loyalty program adoption

There are different actions which firms can take to enhance relationship equity. Rust, Lemon and Narayandas (2005) defined relationship equity at the brand level. At the store level, it would be defined as the tendency of the customer to stick with the store, above and beyond the customer’s objective and subjective assessments of the store. Research in relationship equity revealed loyalty programs, affinity programs, community building programs and knowledge building programs as the key drivers of relationship equity. Loyalty programs are the set of actions taken by firms to reward their customers for specific behaviors (Rust, Lemon and Narayandas 2005). These rewards may be both tangible- and intangible benefits. Altogether, these drivers may help firms to maximize the likelihood of customer repurchase, maximize the value of a customer’s future purchases or even reduce customer churn. Therefore, loyalty programs are thought to have a positive effect on behavioral loyalty. It is assumed that due to the benefits that someone gets by participating in a loyalty program, people are eager to become loyal to firms with these programs.

Mägi (2003) provided evidence that the presumed positive relationship between loyalty program and behavioral loyalty can not be supported. This lack of support was however only found at the store level. At the chain level however, a positive effect was found for members holding only the focal chain’s card. Thus, although loyalty card ownership does not seem to affect share of wallet at the store level, there was enough evidence for it to be influential at the chain level. Therefore, it is not surprising that Leenheer (2004) also found evidence supporting the influence of loyalty programs on share of wallet. Consequently, it is assumed here that there is a relationship between loyalty program adoption and behavioral loyalty. This assumed relationship translates into the following hypotheses:

Customer characteristics

Last but not least, it is assumed intuitively that customer characteristics, being gender, age, education level, income and household size would influence store loyalty under customers. Therefore, the following set of hypotheses is expected to hold.

H

5.1a:Customers’ gender influences behavioral loyalty.

H

5.1b:Customers’ gender influences attitudinal loyalty.

H

5.2a:Customers’ age influences behavioral loyalty.

H

5.2b:Customers’ age influences attitudinal loyalty.

H

5.3a:Customers’ educational level influences behavioral loyalty.

H

5.3b:Customers’ educational level influences attitudinal loyalty.

H

5.4a:Customers’ income level influences behavioral loyalty.

H

5.4b:Customers’ income level influences attitudinal loyalty.

*** Note: the last four of the set are shown on the next page ***

H

4a:Loyalty program adoption has a moderate effect on behavioral loyalty.

Acculturation preference

Another attribute of customers to be studied here is the one presented by Swaidan et al (2006). They investigated the role of acculturation in shaping consumers’ views of ethics. Specifically, their study examined the relationships between the desire to keep one’s original culture, the desire to adopt the host culture, and the four dimensions of consumer ethics scale of Muncy and Vitell (1992). In this study instead of assessing the role of acculturation, consumers’ preference towards acculturation of the food retail staff will be investigated. The aspect is incorporated in the study, since e.g. by adopting the host culture the language barrier could be bridged whereby it would be easier for the consumer to build and maintain a relation with store personnel.

Furthermore, most of the supermarkets on Aruba are owned and operated by Chinese. Consequently, it is assumed that the preference of consumers towards the adoption of the host culture by these Chinese could have some influence on customer loyalty. Hereby it can be thought of the communication barrier that would exist when there is direct contact between the consumers and (one of) these Chinese and when the latter can not understand the host language. Consequently, it is expected that both behavioral- and attitudinal loyalty are influenced to consumers’ acculturation preference. This assumption translates into the hypotheses:

2 . 4 F a c t o r s a f f e c t i n g l o y a l t y p r o g r a m a d o p t i o n

For a better insight into loyalty program (LP) adoption, the reasons for people to adopt loyalty programs are incorporated in this study as proposed by Mägi (2003). The primary aim of loyalty programs is to stimulate customers to patronize the same retail store in a structural way (Leenheer, 2004). Its ultimate goal is to improve both attitudinal- and behavioral loyalty. Sharp and Sharp (1997) defined a loyalty program as a supplier’s structural effort to increase customers’ attitudinal- and behavioral commitment to the supplier’s market offering. Consumers perceive this loyalty program as an organized marketing activity which offers (some of) the customers additional rewards or benefits (DeWulf et al., 2003 in Noordhoff, Pauwels and Odekerken-Schröder, 2004). However, the extant literature does not show agreement on the minimal characteristics of a loyalty program (Noordhoff, Pauwels and Odekerken-Schröder, 2004).

When deciding whether to participate in a company’s loyalty program, a customer generally compares the expected benefits and cost (Leenheer, 2004). In this regard, Graeff and Harmon (2002) implied that loss of privacy, loss of control over personal information, cumulative amount of money spent and possible subscription fees are the main obstacles

H

5.5a:Customers’ household size influences behavioral loyalty.

H

5.5b:Customers’ household size influences attitudinal loyalty.

H

5.6a:Customers’ income inflow frequency influences behavioral loyalty.

H

5.6b:Customers’ income inflow frequency influences attitudinal loyalty.

H

6a:Acculturation preference influences behavioral loyalty.

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-for a customer to adopt a loyalty program. There-fore, it can be presumed that there are more aspects taken into consideration when taking this decision than only the cost-benefit ratio. Nevertheless, customers should be given some sort of compensation for disregarding these obstacles. The most obvious compensation in this regard is the rewards which customers are given for their participation in the scheme. But, are these enough to compensate the customers for their participation albeit these barriers. There are at least five other elements which are supposed to help companies compensate this action of their customers. In this regard, O’Brien and Jones (1995) identified cash value, choice of redemption options (the range of rewards offered); aspirational value (how much the customer wants the reward); relevance (the extent to which rewards are achievable); and convenience (ease of participation in the scheme) as elements that contribute to the value of a loyalty scheme. Consequently, it can be mentioned that Kivetz and Simonson (2002 and 2003) assess the relevance-element of O’Brien and Jones (1995) by their examination of the effect of the level of effort required to obtain an LP reward on consumers’ perception of the LP’s attractiveness.

Consumers are often promised a delayed reward, contingent on the performance of future effort. According to Soman (1998), in such situations, at the time of brand choice, the future effort is underweighted, relative to the future savings. Consequently, the time interval between the times of brand choice – in this regard, time of store choice – and of redemption could make an attractive incentive seem unattractive or vis-à-vis.

Additionally, Leenheer (2004) studied the effect of instrumental variables, store characteristics, loyalty program design and initial share of wallet on loyalty program adoption by customers. The instrumental variables investigated were loyalty program enjoyment and privacy concerns, whereas the store characteristics were distribution density and price level. Regarding the design of the loyalty program, she studied the effect of the promotion- and saving rewards. Furthermore, the moderating effect of household characteristics on the link between store characteristics and loyalty program adoption was assessed. Regarding loyalty program design, Leenheer and Bijmolt (2003) examined the effect of household size on the type of loyalty program adopted. Thereby a distinction was made between loyalty programs giving price discounts, those where points are earned and those giving special service.

Related to the adoption of loyalty programs, Graeff and Harmon (2002), examined the extent to which consumers are concerned with how their personal information is collected and used, their awareness and knowledge of data collection practices using loyalty cards and the relationship between demographics and privacy concerns. They measured the familiarity with loyalty programs and the level of knowledge about how these cards are used. Regarding the assessment of the familiarity, they asked consumers whether they use grocery loyalty cards or not. Moreover, the privacy concerns of customers have been investigated. Privacy concerns were assessed both regarding the information and the comfort using credit cards.

purchases was household purchase timing decisions and in particular purchase acceleration due to promotions.

Although an extensive set of factors affecting loyalty program adoption have been outlined in the lines above, this study would focus on the effect of loyalty program enjoyment, idiosyncratic fit, loyalty program design, household characteristics and privacy concerns on loyalty program adoption at Kong Fui. This set of factors has been chosen, since it is assumed that these are the factors relevant in the retail food context. Note, however, that as was the case with the antecedents of customer loyalty, the expectations related to these factors will be adopted as much as possible from prior research.

2 . 4 A n t e c e d e n t s a n d m o d e r a t i n g f a c t o r s o f l o y a l t y p r o g r a m a d o p t i o n f o r f o o d r e t a i l e r s

Loyalty program enjoyment

Loyalty program enjoyment stimulates participation in loyalty programs, according to Leenheer (2004). Thereby it has been shown that some customers derive benefits, which are beyond purely economic benefits, from a loyalty program. Therefore, it is proposed here that:

Idiosyncratic fit

The logic of idiosyncratic fit is that the consumer’s perception of the LP’s attractiveness will have a positive effect on the shopping motive of the consumer. Kivetz and Simonson (2003) propose that in certain conditions, increasing program requirements can enhance consumers’ likelihood of joining the program, thus leading consumers to prefer a dominated option. In their study they obtained evidence for their hypothesis that “consumers often evaluate LPs on the basis of their individual effort to obtain the reward relative to the relevant reference effort (e.g. the effort of typical other consumers)”. Furthermore, “when consumers believe they have an effort advantage over typical others (i.e. an idiosyncratic fit with the LP), higher program requirements magnify this perception of advantage and can therefore increase the overall perceived value of the program”.

Therefore, this consumers’ idiosyncratic fit heuristic will be assessed in the study for presumably having some positive influence on the loyalty card ownership. This translates into the following hypothesis:

H

A2:Consumer perception of idiosyncratic fit influences the participation in loyalty programs positively.

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Loyalty program design

Furthermore, Leenheer and Bijmolt (2003) propose that large households tend to adopt loyalty programs giving price discounts over those where points are earned and those giving special service, which translates into the following hypothesis:

Customer characteristics

Soman (1998) demonstrates empirically that face value, level of effort and temporal delays have effects on choice, redemption and profits. Results of that study show that temporal delay between choice and redemption causes a systematic underweighting of future effort, which mediates the increased attractiveness of alternatives with delayed incentives.

Cunningham (1961) illustrates that there are no significant correlation between total food expenditures and loyalty. Store loyalty appears to be independent of the total amount spent for food purchases by a particular family. Vakratsas (1998) suggests that all the three demographic variables, she used in her study, have a significant effect on purchase acceleration. The study categorizes these three demographic variables as household characteristics and based on these results assesses their effect on loyalty programs adoption.

Households of larger size have higher consumption rates. Since these big household buy more, they would get more rewards by participating in loyalty programs. Their ability to get more rewards would then be presumed to influence their adoption of loyalty programs, which leads to the following hypothesis:

However, Leenheer and Bijmolt (2003) propose that households with higher incomes value the economic benefits of loyalty programs less than households with lower incomes. Therefore, a higher income household is expected to be more inclined to adopt a loyalty program, which leads to:

Similarly, Blattberg et al. (1978) point out that higher income households have access to more information and generally have more resources. This reasoning is in line with the empirical results of their study where upper income households (without controlling for other demographics) were shown to be more deal-prone than low income households. However, generally speaking, high income households are less price sensitive than low income households (Blattberg et al., 1978). Furthermore, high income households are expected to have higher opportunity costs of time with income being considered a time constraint variable. Assuming that these opposite expected effects of income can be offsetting, both high and low income households would have low deal-proneness, whereas only the middle incomes would have high deal-proneness. It is presumed that the effect of household income is also related to the degree of participation in loyalty programs. Since the relation between deal-proneness and household income has been supported by

H

A4.2a:Household income influences loyalty program adoption.