Research into whether the drivers of becoming a member of a customer loyalty program are also drivers for SMEs to become member of a B2B loyalty program.

Drivers of Customer Loyalty Program Membership Tested Within the SME Loyalty Market; a Drive to Success?

Research into whether the drivers of becoming a member of a customer loyalty program are also drivers for SMEs to become member of a B2B loyalty program.

November, 2008

Master Thesis

MSc Business Administration Marketing Management

Faculty of Economics and Business

University of Groningen, the Netherlands

Student: Maaike Leoniek Kamman 56 Lancaster Road London N4 4PT (UK) Tel. 0044 75 25 169 166 Kamman_ML@hotmail.com Student nr.: S1622153 University supervisors: Prof. dr. Peter C. Verhoef

Prof. dr. Janny C. Hoekstra Company Supervisor: Charlie Humphreys

Company: Loyalty Management UK Ltd.

80 Strand

London WC2R 0NN (UK)

Management Summary

In the business-to-consumer (B2C) literature many drivers to join loyalty programs have been recognised from economic, psychological as well as sociological perspectives, however there was no single academic research that had focused on the drivers of small and medium sized enterprises (SMEs) to join in business-to-business (B2B) loyalty programs. Therefore, the purposes of this research were aimed at establishing a theoretical basis for determining the drivers of SMEs to participate in B2B loyalty programs and testing this theoretical basis empirically.

An extensive literature study has revealed a list of 10 drivers that could make customers to enrol in an LP. Each driver was assigned to a newly designed classification: psychological attitudes, sociological attitudes, B2C loyalty program characteristics and B2B loyalty program characteristics.

In August 2008 the data was obtained by means of an online questionnaire. Members (n = 114) and non-members (n = 204) of the UK based Nectar Business loyalty program were targeted for the data collection. Nectar Business is a coalition loyalty program and therefore has a diverse customer base that covers multiple industries and company sizes.

After having performed a factor analysis as well as a logistic regression analysis it appeared that in this research SMEs are solely influenced by the drivers of the B2C loyalty program characteristics category: economic value, the ability to collect points for luxury items and the availability of third party offers of other partners in the loyalty program. Important aspects in achieving economic value are a good return on business spending, good value rewards, many promotional offers, high quality offers and exclusive products and services. Since the drivers in this category were the only drivers that influence B2B loyalty program membership, this means that in this research businesses are not influenced by psychological and sociological attitudes or by the possibility to collect points for rewarding employees or for team building activities.

Besides testing B2C drivers in a B2B context, another objective was to determine if the likelihood to join a B2B loyalty program would be different based on a business’ level of engagement, since my literature research suggested that customers can differ in their activity and participation in a loyalty program. It appeared that the likelihood to become a member of a B2B LP is the highest for businesses in the Trade segment with a medium engagement, followed by businesses in the G eneral segment with high/super engagement and with medium engagement.

Secondary objectives of this study were to uncover if firm size affects the likelihood of

becoming a B2B loyalty program member, whether the type of industry influences participation in

B2B loyalty programs and if the level of decision making of the loyalty card holder influences the

decision to become member of a B2B loyalty program. This research has shown that industry and

firm size do not influence B2B loyalty program membership; however, being the owner, partner or

director of a company does influence becoming a member of a B2B loyalty program.

Having insight in why businesses join a B2B loyalty program can be very beneficial from a manager’s point of view. When building brand loyalty it is important that the loyalty program emphasises the economic value it provides for its members, but also the ability to collect points for luxury rewards and where applicable, to emphasise the presence of other partners in the program.

This could help loyalty program members to accumulate points faster and to spend their points on a wider range of rewards. Finally, this research has proved that the level of engagement can make a difference in the likelihood of becoming a member of a B2B loyalty program. This indicates that it is important to have a measure in place that calculates the engagement level of each member and use this data to target new businesses with the same characteristics, but also to stimulate the spend level of and to cross-sell other partners’ products to existing businesses.

A final note is that the numbers of small and medium sized enterprises and their contribution to

the total GDP is substantial, which makes it a very interesting area for creating loyalty in order to

take advantage of their total business expenditure .

Preface

“Life is what happens to you while you’re busy making other plans” – John Lennon

This quote describes pretty well my situation of the last 2.5 years. After having graduated from Hotel Management School I decided to continue studying and started with a Master’s degree in marketing. I moved to Groningen and the pre -master as well as the courses of the Master flew by! Soon I found out that my heart lay with brand management and customer loyalty.

During Hotel Management School I already lived in Ireland for 6 months and now I had set myself the goal to search and find a company in the UK where I could perform my final research and write my master thesis. I found out that in the UK it was not as common as in the Netherlands to write your master thesis for a company in combination with a part-time job. Although I had started my search for a suitable company well in advance, it didn’t work out as I planned. Then early December 2007 during a guest lecture of Peter Verhoef he coincidentally found out I wanted to do my master thesis abroad. Via his contact with Airmiles in the Netherlands I came into contact with two Dutch directors at LMG in the UK. After having had two interviews time went by, but in April I could finally start working 3 days as a Relationship Executive with Nectar Business, the loyalty program for small and medium sized enterprises. The other 2 working days were dedicated to writing my master thesis, which is the report you have in front of you now.

The past 6 months have been very valuable to me and I have learned a lot. Although it took some effort to combine both a job and writing a master thesis I’m very happy with the end result.

But I couldn’t have done it without the support of the people around me. First of all I would like to thank Jan -Pieter Lips for having the confidence in me working part-time and writing my master thesis at the same time, as it is not common within LMG to work part-time. Second a big than ks to my supervisor Charlie Humphreys, Head of Nectar Business. I have learned a lot from his experience and feedback. Another person I would like to thank is the Research Manager of LMG, Emma Howlett, for her support when designing my questionnaire. And of course I would like to thank Peter Verhoef who has brought me into contact with LMG but besides that he has been a terrific supervisor with his quick responses and valuable feedback. One person I should not forget is my 2 ^nd supervisor Janny Hoekstra. Her feedback has brought my master thesis to the next level.

Last but not least I would like to thank my family and friends for their support and interest during the last 6 months. A big thanks to Judith for her honest opinion and Marijke for the amazing cooperation during all our courses and support during my master thesis. And finally a special thanks to my boyfriend Niels who has been a great support and my ‘steun en toeverlaat’ during my entire study.

Maaike Kamman

London, November 12 ^th 2008

Index

1. INTRODUCTION... 7

2. THEORETICAL FRAMEWORK ... 9

2.1 L OYALTY P ROGRAMS ... 9

2.1.1 Popularity and Adoption of Loyalty Programs...10

2.1.2 Types of Loyalty Programs...10

2.1.3 Types of Rewards ...12

2.1.4 Drivers to Participate in Loyalty Programs...12

2.1.5 The Effectiveness of Loyalty Programs...14

2.2 B2B C ONTEXT ...15

2.2.1 B2B Loyalty...16

2.2.2 Research on B2B Loyalty...17

3. CONCEPTUAL FRAMEWORK AND HYPOTHESES ...19

3.1 P ROBLEM S TATEMENT AND R ESEARCH O BJECTIVES ...19

3.2 C ONCEPTUAL F RAMEWORK AND H YPOTHESIS D EVELOPMENT ...20

3.2.1 Definitions of Drivers, Industry Type, Firm Size, Level of Decision Making and B2B Loyalty Program Membership ...20

3.2.2 The Relationship between Psychological Attitudes and B2B Loyalty Program Membership...22

3.2.3 The Relationship between Sociological Attitudes and B2B Loyalty Program Membership ...24

3.2.4 The Relationship between B2C LP Characteristics and B2B Loyalty Program Membership...24

3.2.5 The Relationship between B2B LP Characteristics and B2B Loyalty Program Membership ...25

3.2.6 Moderators...26

3.2.7 Company Profiling (Firmographics)...27

4. METHODOLOGY ...28

4.1 T HE INDUSTRY AND C OMPANY ...28

4.2 M EASUREMENT ...28

4.2.1 Smart Shopper Feelings ...29

4.2.2 Pride...29

4.2.3 Prestige and Recognition...30

4.2.4 The Need to Belong to a Group...30

4.2.5 Shared Values...30

4.2.6 Economic Value...30

4.2.7 Luxury Experiences...31

4.2.8 Third Party offers ...31

4.2.9 Reward Employees and Team Building...31

4.3 D ATA C OLLECTION ...31

4.4 S AMPLE ...32

4.5 R ELIABILITY AND V ALIDITY ...33

4.6 F ACTOR A NALYSIS ...34

4.7 R EDEFINITION OF H YPOTHESES ...36

4.8 P LAN OF A NALYSIS ...36

5. ANALYSIS AND RESULTS...37

5.1 S AMPLE C HARACTERISTICS ...37

5.2 D ESCRIPTIVES ...38

5.3 R EGRESSION A NALYSIS ...40

5.4 D IFFERENCES BASED ON L EVEL OF E NGAGEMENT ...41

5.5 M ODERATORS ...41

5.6 S HARED V ALUES ...41

6. DISCUSSION, CONCLUSION AND MANAGERIAL IMPLICATIONS...43

6.1 D ISCUSSION AND C ONCLUSIONS ...43

6.1.1 Psychological and Sociological Attitudes...44

6.1.2 Economic Value...44

6.1.3 Own Business Values...45

6.1.4 Third -party Offers...45

6.1.5 Luxury Rewards...45

6.1.6 Level of Engagement...46

6.1.7 Secondary Objectives...46

6.1.8 Drivers of Customer Loyalty Programs Tested Within the SME Loyalty Market; a Drive to Success? ...47

6.2 M ANAGERIAL I MPLICATIONS ...47

6.3 L IMITATIONS ...48

6.4 D IRECTIONS FOR F UTURE R ESEARCH ...48

REFERENCES...50

EXHIBIT 1 RELATIONSHIP HINDRANCE...56

EXHIBIT 2 B2B LOYALTY PROGRAM STRUCTURES ...57

EXHIBIT 3 NECTAR BUSINESS ENGA GEMENT SCORE...58

EXHIBIT 4 MEASUREMENT ITEM DESCRIPTION...59

EXHIBIT 5 QUESTIONNAIRE...61

EXHIBIT 6 INVITATION EMAIL...66

EXHIBIT 7 SEGMENTATION ...68

EXHIBIT 8 CORRELATIONS...69

EXHIBIT 9 FACTOR ANALYSIS ...70

EXHIBIT 10 RESPONSE STATISTICS ...73

EXHIBIT 11 INDEPENDENT SAMPLES T TEST...75

EXHIBIT 12 LOGISTIC REGRESSION ANALYSIS...77

1. Introduction

Relationship marketing has gained a lot of attention over the years as industries recognise that nowadays a base of loyal customers is one of the most valuable assets a company can possess (Berger et al., 2002; Rust, Lemon & Zeithaml, 2004) as the cost of recruiting a new customer is said to be five times more than the cost of retaining an existing customer (Reichheld, & Sasser, 1990).

The economic benefits of high customer loyalty are considerable and, in many industries, explain the differences in profitability among competitors (Reichheld, 1993). Parvatiyar and Sheth (2000, in Noble & Philips, 2004) described relationship marketing as “the ongoing process of engaging cooperative and collaborative activities and programs with immediate and end-user customers to create or enhance mutual economic value at reduced cost” (p. 289). The fundamental principles upon which relationship marketing is based are mutual value creation, trust and commitment to achieve high levels of customer satisfaction through collaboration of the parties involved (Payne, Christopher, Clark & Peck, 1995). The greater the level of customer satisfaction with the relationship – not just the product or service – the greater the likelihood that the customer will be loyal to the company providing that product or service .

One popular initiative designed to improve customer commitment to a company are loyalty programs (Davies, 1998; O’Brien & Jones, 1995; Cigliano, Georgadis, Pleasance & Whalley, 2000; Uncles, Dowling & Hammond, 2003). This tactic in customer relationship management (CRM) aims to increase customer loyalty by rewarding customers for doing business with the firm. Through these programs, firms can potentially gain more repeat business and, at the same time, obtain rich consumer data that aid future CRM efforts (Liu, 2007).

Loyalty programs (LPs) do not just gain extensive academic attention (e.g. Kim, Shi &

Srinivasan, 2001; Kivetz & Simonson, 2002a, 2003; Kumar & Shah, 2004; Mägi, 2003), also in practice LPs are very popular. The average U.S. household belongs to 12 LPs, of which on average 4.7 programs yield active participation (Todé, 2007). In the United Kingdom, around 80 percent of all households participates in at least one customer loyalty scheme and on average customers participate in three schemes (Stone, Bearman, Butscher, Gilbert, Crick & Moffett, 2004).

Also in Canadian LPs are immensely popular as more than 70% of all households participate in at least one LP (Capizzi & Ferguson, 2005).

Where the market for business-to-consumer (B2C) LPs is mature, this is not the case with business-to-business (B2B) LPs: 45% of all US and Canadian small business owners belongs to an LP sponsored by one of their suppliers. Of these, 60% belong to more than one program, with the average participation exceeding 2.3 programs (Capizzi & Ferguson, 2005).

Although B2B customer loyalty already has been recognised in the 1970’s (Dowling & Uncles,

1997) and LPs among B2B companies are becoming increasingly popular (Barlow, 1999;

Blattberg & Deighton, 1996; Levey, 2007; Kearney, 1990), the area of B2B LPs remains relatively undefined and unexplored. Examples of issues in the B2B context that need more attention in research are ‘customer service’, ‘relationship quality’ (Woo & Ennew, 2004) and

‘effective value propositions in a B2B environment’ (Ferguson & Havlinka, 2008). Another aspect that lacks re search in the B2B literature are the drivers of small- and medium-sized enterprises (SMEs) to participate in LPs. In the B2C literature many drivers to join in and use LPs have been recognised from economical, psychological as well as sociological perspectives (Leenheer, van Heerde, Bijmolt & Smidts, 2007; Stone et al., 2004). Of particular interest is whether the literature on the drivers of B2C LPs will be applicable in a B2B context. According to John Warrilow, president of Warrilow & Co. (in Eardly, 2002 p. 3): “The very small business will likely respond to consumer-oriented rewards, as they’re much more consumer-like in their buying. They don’t differentiate their personal and their business finances, so consumer-like programs tend to work with those companies”.

But although the owners of small businesses tend to respond to rewards like consumers do, will the drivers to join and use a B2B LP be the same as the ones that make a customer join a B2C LP?

And will the likelihood to join differ based on a business’ level of engagement?

The answers to these questions can be very beneficial from a managerial point of view. When deciding whether to participate in a company’s LP, a customer may compare the expected benefits and costs (Bell & Lal, 2003; Noble & Philips, 2004). These benefits and costs can either be economic (rewards) and non -economic (psychological and sociological) (Leenheer et al., 2007).

Insights in how SMEs perceive these benefits and costs are of great value to the management of B2B LPs, because the higher the perceived benefits, the higher the likelihood to enrol in any program. Furthermore, insights in the B2B drivers can uncover unseen markets within existing markets (Driggs, 2007), which can be beneficial from a managerial point of view. The purpo ses of this study are therefore (1) to establish a theoretical basis for determining the drivers of SMEs to participate in B2B loyalty programs; and (2) to test this theoretical basis empirically.

The remainder of this study is structured as follows. Section 2 begins with a brief review of

relevant prior work on B2C LPs, their different types, the various types of rewards, the drivers to

participate in LPs, the effectiveness of LPs and the utilisation of data generated by LPs. The second

part of this section provides an overview of the relevant B2B LP literature to date. In section 3 this

discussion leads to hypotheses and a conceptual framework on the drivers of SMEs to participate

in B2B LPs. Section 4 discusses the methodology, containing of the research method, data collection

and plan of analysis. Section 5 describes the analysis and empirical results whereas the final

section provides a discussion, conclusions, managerial implications, limitations and directions for

future research.

2. Theoretical Framework

2.1 Loyalty Programs

As the name ‘loyalty’ program already suggests and in line with prior research, a loyalty program is defined as an integrated system of marketing actions that aims to make member customers more loyal (Sharp & Sharp, 1997). Loyalty programs, which are also often called reward programs (Yi & Jeon, 2003), have two main goals. The first one is to establish a higher level of customer retention in profitable segments (Mauri, 2003; Verhoef, 2003) by providing more satisfactio n and value to certain customers (Bolton, Kannan & Bramlett, 2000; Leenheer &

Bijmolt, 2003) and by managing customer perceptions of switching costs (Jones, Mothersbaugh &

Beatty, 2002). The second main goal is to increase sales revenues by raising purchase/usage levels, and/or increasing the range of products bought from the supplier (Uncles et al., 2003).

Besides these two main goals, LPs can also have peripheral goals such as furthering cross-selling, creating databases, aiding trade relations, assisting brand PR, establishing alliances (Uncles et al., 2003), managing customer development (Knox, 1998) and creating brand commitment instead of inertia (Huang & Yu, 1999).

LPs are very popular because loyal customers are often more profitable, and a loyal cu stomer base is a valuable asset to a retail company (Knox, 1998; Srivastava, Shervani & Fahey, 2000).

However, there is no universally agreed definition of customer loyalty (Jacoby & Chestnut, 1978;

Dick & Basu, 1994; Oliver, 1999) and there exist different definitions of loyalty, as is shown in Table 2.1.

Definition Description Affective or

Attitudinal Loyalty A deeply held commitment to re-buy or re-patronise a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing despite situational influences and marketing efforts having the potential to cause switching behaviour (Oliver, 1997 p. 392).

Behavioural Loyalty The observed action customers have demonstrated towards a particular product or service (Kumar & Reinartz, 2006 p. 163).

Dedication-based

Loyalty Loyalty based on consumers’ sincere interest to stay with the organisation, diminishing their interest in competitive offerings (Dick & Basu, 1994; Jacoby &

Chestnut, 1978).

False or Spurious

Loyalty Habitual or convenience buying as well as purchases induced primarily by promotional incentives (Dowling & Uncles, 1997).

Polygamous Loyalty People tend to be loyal to a portfolio of brands in a product category. From this perspective, loyalty is defined as an ongoing propensity to buy the brand, usually as one of several (Ehrenberg & Scriven, 1999). In stationary markets, customer loyalty is divided among a number of brands, as if there were long-run

propensities to buy brands A, B and C, say some 70 percent, 20 percent and 10 percent of the time, which is also called ‘divided loyalty’ by Ehrenberg (1988).

Synthetic Loyalty Loyal behaviour without a loyal attitude (McMillan, Costley & Akoorie, 2007) .

Table 2.1 Definitions of Loyalty

Attitudinal loyalty is extremely important, as customers who are not attitudinally loyal are likely to cease the relationship at the earliest available opportunity (Kumar & Reinartz, 2006).

Attitudinal loyalty can be divided into three different phases: cognitive loyalty, affective loyalty and conative loyalty. Oliver (1997) argues that behavioural loyalty can be created if customers have become loyal at each of the prior three loyalty stages and subsequently intentions are converted into actions. The role of attitude in customer loyalty is vital, since it requires a previous positive attitude to consider a repetitive behaviour as true loyalty (Day, 1969; Jacoby & Chestnut, 1978; Huang & Yu, 1999; García Gomez, Gutiérrez Arranz & Gutiérrez Cillán, 2006).

Paradoxically, behavioural loyalty is much better supported by data with reference to the pattern of past purchases with only secondary consumer motivations or commitment to the brand (Ehrenberg, 1988; Fader & Hardie, 1996; Uncles, Dowling & Hammond, 2003).

2.1.1 Popularity and Adoption of Loyalty Programs

As a CRM tool, many academics have acknowledged that LPs have become an increasingly popular tool for managers to build customer loyalty (Cigliano et al., 2000; O’Brien & Jones, 1995;

Uncles et al., 2003). Several factors have recently contributed to the rise and use of CRM in the marketplace: 1) a shift in focus in many organisations towards increasing the share of requirements among their current customers rather th an fighting for new customers, 2) an explosion in data acquired about customers, 3) computing power is increasing exponentially and 4) software tools are being developed to exploit these data and computers, bringing the analytical tools to the decision maker, rather than restricting their access to analysts (Kamakura et al., 2005). Byrom, Hernandez, Bennison and Hooper (2001) suggest that there are over 150 such schemes in the United Kingdom, resulting in the circulation of more than 40 million cards. Since 2001 many more LPs have been introduced (i.e. the Nectar program) which means that this number of cards has dramatically increased.

LPs are also increasingly popular among B2B companies (e.g. Barlow, 1999; Blattberg &

Deighton, 1996; Kearney, 1990). Growth has been seen on the B2B side as credit card issuers and other financial service companies have targeted small office, home office and small business customers for programs, and Colloquy predicts this trend will continue (Levey, 2007).

2.1.2 Types of Loyalty Programs

LPs come in many different forms and each program is unique. As expressed by Koslowsky

(1999): “While none of these programs results in a perfect world, each can generate that little

extra that can provide the retail marketer with potential tactical weapons” (p. 40). Because the

uniqueness of each program and the fact that many are undergoing evolution, any categorisation

is likely to be imperfect (Rowley, 2004). Despite this, Rowley (2004) has provided some

descriptors to group loyalty schemes, as is shown in Table 2.2. Rosenbaum, Ostrom and Kuntze (2005) added communal loyalty programs to this list, which are defined as organisational sponsored loyalty programs that transfer support from organisations to members by providing them with a sense of community. Communal LPs are often offered by luxury and higher involvement brands such as automobiles and specialty retailers. Another way of categorising LPs is provided by Stone et al. (2004): no LP, solus LP, shared LP or consortium LP.

Type Description Examples (UK)

Retailer Loyalty Schemes

Operated by or on behalf of single retailers. The simplest of these schemes are operated by an individual retailer.

Typically points are rewarded each time that a customer makes a purchase, sometimes with the possibility of additional points for special promotion purchases. Once the customer has accumulated a number of points they may be issued with vouchers or other mechanisms will operate that allow them to claim discounts in-store.

WH Smiths Clubcard, Boots Advantage Card, Co-op Dividend Card, Homebase Spend & Save and Tesco Clubcard (can also be described as a single operator multi - partner programme).

Coalition Schemes

The program management is independent of any of the partners. The partners have contracts with the operators of the program in relation to data ownership and data analysis. Often these programs are multi-sector.

Nectar and Airmiles.

Financial Services Loyalty Schemes

Typically associated with store- or credit- or debit cards.

Some of these are based on credit or debit cards, whilst others are co-branded cards that are the result of a partnership between an issuing back and a co -branding partner, which could be any commercial organisation.

Lloyds TSB Airmiles Duo, MBNA Points, American Express Membership Rewards and Marks &

Spencer & More.

Affinity Loyalty Schemes

Affinity cards are a type of co-branded card as described with the financial services loyalty schemes, except in this case the partner is a non-profit organisation such as a club, association, charity or professional body.

Amnesty International Visa Card.

Online Reward Schemes

These schemes seek to cultivate loyalty amongst online customers. Besides online-only programs, there are also other loyalty programs that have a web presence through which customers can manage their account, and several retailers’ sites allow customers to earn points both online and in-store. Since 2004 these affiliate schemes have been very popular and today this is still an emerging market.

Accucard credit card, MutualPoints, ipoints and Greasy Palm.

Frequent Flyer or Travel Rewards Programs

These schemes focus on rewarding frequent travellers with discounts, or enhanced service.

BA Executive Club, BMI Diamond Club, Hilton HHonors, Buy and Fly!, Frequent Virgin Club, AAdvantage Program, Marriott Rewards and Hyatt Gold Passport.

Geographically based Loyalty Schemes

These programs are based on frequency of re -visit to retail or other outlets at a location, such as a shopping centre or an airport. Worthington & Hallsworth (1999) also identified local UK loyalty programs for high streets, neighbourhoods, edges of town or out of town.

Freedom (Nottingham East Midlands Airport) and BAA WorldPoints card (BAA Airports in the UK) (Byrom, 2001)

Table 2.2 Loyalty Scheme Classification (Rowley, 2004)

2.1.3 Types of Rewards

Consumers perceive LPs as an organised marketing activity which offers (some of) the customers additional rewards or benefits (De Wulf, Odekerken-Schröder, de Canniere & van Oppen, 2003). Findings from series of experiments conducted by Roehm, Bolman Pullins and Roehm jr. (2002) indicate that the incentive that is offered in an LP is important to whether the program succeeds or fails at building brand loyalty. From a customer’s perspective, five elements determine a program’s value: cash value, choice of redemption options, aspirational value, relevance and convenience (O’Brien & Jones, 1995). The relative amount of customer value and distribution coverage drives market share and the number of loyal customers that brand will acquire. The rewards that many LPs offer are designed to alter this relationship (Dowling & Uncles, 1997). They are the key mechanism for incentivising customers to participate in an LP and the design reward may be dependent on the nature of the transaction between the customer and the business (Rowley, 2007).

Yi and Jeon (2003) make distinctions between direct and indirect rewards, and between immediate and delayed rewards. Direct rewards are rewards that directly support the value proposition of a given product, whereas indirect rewards refer to incentives that are not relevant to a given product. Immediate rewards are given for every visit where in contrast delayed rewards are given after a number of visits. Examples of the former are price packs, direct mail coupons or peel-off coupons and are also called front-loaded incentives. Examples of the latter are products with in-pack coupons or products affiliated with LPs and are also defined as rear- loaded incentives (Zhang, Krishna & Dhar, 2000). The reward framework of Yi and Jeon (2003) is illustrated in Figure 2.1.

Timing of Reward Type of Reward

Repeated & Immediate Delayed

Direct Instant Scratches, Membership Program

(Product-Related Reward)

Airline Frequent-Flyer Clubs, Coupon & Token

(AAdvantage Program) Indirect Instant Scratches, Membership

Program

(Non-Product-Related Reward)

Multi-product Frequent-Buyer Clubs

(Fly Buys, Nectar)

Figure 2.1 A Framework of Reward Schemes (Yi & Jeon, 2003)

2.1.4 Drivers to Participate in Loyalty Programs

Many researchers have researched the drivers of customers to participate in LPs. A general

distinction can be made between drivers 1) to actually join in an LP and drivers, 2) to actively use

and participate in the LP and 3) to stay member of the LP. The first can be split up in economical, psychological and sociological drivers (Leenheer et al., 2007) and are summarised in Table 2.3.

There are several reasons to actively participate in an LP. First of all, existing research has shown that a reason to keep on using an LP is that customers overvalue the rewards they obtain, as they tend to maximise the value offered by the medium, rather than the final outcome (Hsee, Yu, Zhang & Zhang, 2003). Second, customers evoke obligation towards those who treat them well or provide value (de Wulf, Odekerken-Schröder & Iacobucci, 2001). Fourth , LPs can create affective commitment, a generalised sense of positive regard for, and attachment to, the organisation (Edvardsson, Johnson, Gustafsson & Strandvik, 2000). Finally, research on human behaviour has demonstrated that people posses a strong drive to engage in efforts directed at achieving future rewards (Atkinson, 1957).

The most important reason to continue being a me mber of an LP is switching costs, because LP members lose value if they stop purchasing from the company. Switching costs can be defined as time, money and effort associated with changing service providers (Burnham, Frels & Mahajan, 2003; Wirtz & Mattila, 2003). Because of switching costs an LP creates a certain degree of calculative commitment or stickiness in customers’ relation with the company (Johnson, Gustafsson, Andreassen, Lervik & Cha, 2001).

The importance of the drivers might be dependent on the LP type (Bolton et al., 2000). In a coalition scheme for example, points can easier be accumulated and the range of benefits is wider (Stone et al., 2004).

Driver Examples

Economica l • Value in the form of rewards (Leenheer et al., 2007).

• Benefit from buying power of scheme organiser to get third-party offers which they could not otherwise afford (Stone et al., 2004).

Psychological • Customers appreciate rewards – not only in an absolute sense, but also relative to other customers (Feinberg, Krishna & Zhang, 2002).

• LP’s can induce smart shopper feelings (Kivetz & Simonson, 2002b).

• LP’s can create pride about being economical (Chandon, Wansink & Laurent, 2000).

• Some LP’s have the ability to increase hedonic, luxury experiences without the high psychological cost of such consumption (Kivetz & Simonson, 2002a).

• The general attitude customers have towards LP’s can partly explain their memberships of specific programs (Chandon, Wansink & Laurent, 2000).

• The idiosyncratic fit of an individual with an LP can influence his or her likelihood of joining the program (Kivetz & Simonson, 2002a)

• Prestige or recognition and/or access to an exclusive treatment or service (Yi & Jeon, 2003).

Sociological • The need to belong to a group (Baumeister & Leary, 1995).

• Identification with commercial organisations is intensifying due to the growing centrality of consumption and materialistic desires in society (Fournier, 1998; Muniz &

O’Guinn, 2001).

Other • The more LP’s a customer has enrolled in, the more likely it is that this customer signs up for a particular program in a different industry (Leenheer et al., 2007)

Table 2.3 Drivers to Join a Loyalty Program

Not all customers want to engage in LPs. Noble and Philips (2004) categorised an extensive list of reasons why customers would not want a relationship with retailers. There were four general categories of themes, either perceived losses or perceived efforts, that hindered customers’

relationship formation: upkeep themes, time themes, benefit themes and personal loss themes (Figure 2.2, Exhibit 1). Besides this study, the most common mentioned barriers for a customer to join an LP are loss of privacy, loss of control over personal information, cumulative amount of money spent and possible subscription fees (Graeff & Harmon, 2002).

2.1.5 The Effectiveness of Loyalty Programs

The most successful loyalty initiatives enable organisations to answer the hard questions. Who are my best customers? How do they feel about my brand? Am I contributing to their overall positive experience? Can I retain their business over the long term? (Pearson, 2006). For relational marketing strategies to achieve any measure of success, customers must feel that they are somehow rewarded for their participation in such programs (Hennig-Thurau, Gwinner & Gre mler, 2002) and it must leverage the brand’s value propositions in the eyes of the customers (Dowling &

Uncles, 1997). The actual efficacy of LPs is impacted by the following aspects: the timing of rewards (Dowling & Uncles, 1997; Taylor & Neslin, 2005; Yi & Jeon, 2003), the ease of use (Cigliano et al., 2000), the amount of effort required for program reward redemption (Kivetz &

Simonson, 2002a), the ability of the sponsoring organisation to effectively process program data (Palmer, McMahon-Beattie & Beggs, 2000), the compatibility of the reward with the brand image (Roehm et al., 2002) and/or the ability of members to perceive value in the program’s rewards (O’Brien & Jones, 1995). A key factor that contributes to the success or failure at the individual level is idiosyncratic fit, namely the perceived relative advantage that a program provides to an individual customer (Kivetz & Simonson, 2003).

Despite the popularity of LPs over the past decades, outcomes of existing studies on the

effectiveness of these programs are contrasting. Several researchers have found positive empirical

evidence of the effectiveness of LPs (Bell & Lal, 2003; Bolton et al., 2000; Lewis, 2004; Verhoef,

2003; Wirtz, Mattila & Lwin, 2007), whereas others provide evidence of LPs that do not generate

any effects (de Wulf et al., 2001; Sharp & Sharp, 1997). Furthermore, Dowling and Uncles (1997

p. 71) have called LPs “surprisingly ineffective” and many academics have asserted that LPs have

failed (Divett, Crittenden & Henderson, 2003; Rowley, 2004). Although Kumar & Reinartz (2006)

argued that attitudinal loyalty is extremely important, many authors have found that LPs tend to

provoke behavioural loyalty or calculative commitment, rather than the important attitudinal

loyalty (Bolton et al., 2000; Dowling & Uncles, 1997; McIlroy & Barnett, 2000). Some researchers

state that most LPs are in fact saving programs in disguise that do not contribute to the attitudinal

components of loyalty, and thus do not create sustained loyalty (Bennett & Rundle-Thiele, 2002;

McGoldrick & Andre, 1997). Besides having no effect, LPs may also cause negative emotional and/or cognitive effects. If these effects occur, it is possible that the LPs are not only falling short of their goal of increasing customer rete ntion, but may even be leading to a reduction in loyalty (Stauss, Schmidt & Schoeler, 2005).

Maintaining the all important effectiveness is vital to an LP’s viability and can be influenced by membership information, intensity of data analysis, saving features, promotion features, direct mailings and customer knowledge (Leenheer & Bijmolt, 2003). Especially the intensity of data analysis is of great importance, as companies that drive their marketing and business strategies through the gathering, dissemination, and application of deep customer insights obtain powerful, profitable sustainable competitive advantages for their brands (Schieffer & Leininger, 2008).

In the UK, store loyalty schemes that focus just on financial measures of loyalty – up-sell, cross- sell, frequency of visit and customer retention – tend to fall into disfavour and get replaced. Those focusing on customer retention and improving customer management, tend to work better and live longer (Stone et al., 2004). Yet, LPs are ingenious marketing tools when they are designed and executed well. In a wide variety of industry settings, they have proved their ability to reduce churn, increase sales and profitability, and yield the kind of insight that allows a company to provide more valued services to its customers (Nunes & Drèze, 2006).

2.2 B2B Context

The literature is virtually silent on loyalty in business contexts and there is almost no research on loyalty from a small business perspective, which is surprising given the economic contribution of small businesses to the national economy (Russell-Bennett, McColl-Kennedy & Coote, 2007). There were 4.5 million business enterprises in the UK at the start of 2006. SMEs made up over 99% of these and together accounted for

more than half of the employment (58.9%) and turnover (51.9%).

Figure 2.2 gives an overview of the distribution of business enterprises in the UK (National Statistics, 2007).

For the purposes of this paper, small enterprises employ between 0 and 49 people and medium enterprises employ between 50 and 249 people.

Figure 2.3 Statistics on SMEs in the UK (National Statistics, 2007)

99.3%

47.1%

37.2%

0.6%

11.7%14.8%

0.1%

41.1%

48.1%

Small Medium Large

Enterprises

Employment

Turnover

2.2.1 B2B Loyalty

In B2B markets, loyal customers have traditionally been treated better than those who buy on the spot market (Dowling & Uncles, 1997). A study of the Corporate Executive Board’s Marketing Leadership Council and the Marketing Leadership Roundtable (theWisemarketer.com, 2008) identified three factors involved in operating a B2B LP from a supplier’s point of view: 1) customer data should be shared across the enterprise to reveal customer end goals, as opposed to only their immediate needs; 2) the customer data should be used to add value for customers; and 3) customer advocates should be empowered with the right knowledge and tools. These factors are very important as the study revealed that the cost of switching suppliers is usually higher and more complex in a B2B environment and that therefore attitudes rather than behaviour best identify loyal customers.

B2B LPs can be used to encourage one business to continue doing business with another. Knox (1998) pointed out that most businesses buy on portfolio basis and therefore an LP could be an appropriate means to maximise the share of wallet of that particular business. Besides, from a client’s point of view it is easier to work with a known quantity than it is to hire someone new for every project. Not only is the client’s cost of acquisition lower, but the cost of achieving anticipated benefits can also be lower with an incumbent service pro vider (Clark & Clark, 2008). The main benefits for sponsors to participate in a B2B coalition LP are richer customer data, more customer value, more effective marketing at a lower cost, increased sales, a sustainable competitive advantage and the ability to improve the pricing structure (Nectar Business, 2008a).

According to Clark and Clark (2008) there are four typical situations in which a B2B LP would be used: 1) the two-link chain; 2) the three-link chain; 3) the four-link chain and finally 4) targeting the owner/manager (Figure 2.4 – 2.6, Appendix 2). The two-link chain is similar to the standard model of a B2C LP, although there are some important differences such as who gets the reward. In the three-link chain a third actor is added. In this case firm A supplies its goods to firm B, which in turn supplies goods to the customer. The third situation adds another actor to the chain: the distributor. A good example of a sector where this type of B2B LP would apply is the building industry. In the final situation of owner-managed SMEs, LPs can reward the owner/ manager for his employees’ (and his own) loyal purchasing behaviour. This classification makes clear that it is industry and firm size specific which B2B LP would apply best in a specific situation. Thus, in case of a coalition B2B LP there is a high possibility that the different partners participating in the LP will apply different models of LPs depending on their size and industry.

The purposes of B2B loyalty are very similar to those of B2C LPs (Clark & Clark, 2008). The

main purposes are to identify individuals in the key link of the chain, to forge a relationship with

those at the key link of the chain, to stimulate the dialogue and communication throughout the chain,

to gather information, to help forming a marketing strategy, to detect loss of interest and to be

able to counter competitive brands. These goals can be achieved by offering unique benefits, providing education or advice, using loyalty data in new product development, improving logistics and service, and by not giving straight discounts.

2.2.2 Research on B2B Loyalty

Where literature on B2B LPs at the time of this research was virtually non-existent (there will be a publication later this year by Daams, Gelderman & Schijns, 2008), literature on B2B loyalty in general is scarce. Rauyruen and Miller (2007) performed research into whether relationship quality can influence customer loyalty in the B2B context. They found that trust, commitment, satisfaction and service quality have an impact on attitudinal loyalty, and that of these four dimensions only the latter two have an impact on behavioural loyalty. Furthermore, they found that only the organisational level of relationship quality influences customer loyalty.

Possible reasons for the neglect of research into B2B LPs might be that the diversity of the small business sector has made it difficult to quantify its contribution and has fed misperceptions of its relative unimportance (Cunningham, 2000) or it might be due to the comple xity of decision- making processes by organizational buyers (Lam & Burton, 2005). Especially for larger businesses, business purchases can involve greater levels of decision-making input, where with small companies the owner usually is the decision maker. Given the limited resources of small businesses and the nature of small business buying and selling roles, strategies that reduce risk and smooth revenues are worth pursuing (Russell-Bennett et al., 2007). Brand loyalty is one of these strategies (Gordon, Calantone & di Benedetto, 1993) and in these organizational buyer-seller relationships, loyal buyers are more likely to focus on long-term benefits and engage in cooperative actions beneficial to both partners in a relationship (Morgan & Hunt, 1994).

In general, business transactions tend to be higher in value than customer transactions, which

increase the level of involvement. Involvement is also likely to be higher for small business

purchases because of their limited availability of resources (Russell-Bennett et al., 2007). The same

authors found that attitudinal loyalty precedes behavioural loyalty, which is in line with

psychological models of individual behaviour (Ajzen & Fishbein, 1991). In contrast, McMillan and

colleagues (2007) found that the best way to create loyalty is to work on behaviour and use that

to build true loyalty. In order to create this true loyalty the customer first should be satisfied. Once

satisfaction has been established, business partners need to establish shared values to hold the

relationship together and the stronger the sense of shared values, the stronger the business

relationship. Subsequently, synthetic loyalty should be developed: loyal behaviour without a loyal

attitude. The final ingredient to create true loyalty is trust. Although the issue of attitudinal and

behavioural loyalty in a B2B context is of great importance, it is beyond the scope of this research

to further investigate this issue.

The next chapter describes the main objectives and the problem statement of this research.

Once these are clear, a conceptual framework will be designed and accompanying hypotheses to

test the model will be formulated.

3. Conceptual Framework and Hypotheses

3.1 Problem Statement and Research Objectives

In order for firms to develop effective loyalty or customer retention strategies, they must understand the specific drivers of customer loyalty (Lam & Burton, 2005). In the B2C literature many drivers to join in and use loyalty programs have been recognised from economic, psychological as well as sociological perspectives (Leenheer et al., 2007; Stone et al., 2004).

However, according to my literature research there is no single academic research that has focused on the drivers of SMEs to join in B2B loyalty programs. In general the research that has been done on SMEs in the past was from the perspective of a business producer or seller and not from the perspective of a business as a buyer (Gilmore, Carson & O’Donnell, 2004).

The main objective of this study is to create insigh t in why SMEs join B2B LPs. Another objective is to find out if there are differences in their level of engagement, since my literature research suggested that customers can differ in their activity and participation in an LP. LP members can have different levels of engagement and therefore a distinction will be made between LP members and their level of engagement. By analysing the behaviour and attitudes of members, different loyalty segments emerge, each with its own distinct drivers. Companies that recognise these nascent segments can improve their market focus and position by identifying previously unseen markets within markets (Driggs, 2007). This approach can help companies better understand what their customers are thinking and what motivates their decisions to become a member of an LP and can help retain the most profitable customers. Taken this further, the following problem statement emerges:

Which drivers influence small and medium sized enterprises in becoming a member of a B2B loyalty program, and does the likelihood differ based on the members’ level of engagement?

The data for this study is obtained from Nectar Business, a coalition loyalty program in the

United Kingdom for SMEs. Within this organisation there is not a specific definition of small and

medium sized enterprises as all partners use different definitions themselves. However, typically a

small enterprise employs between 0 and 49 people and a medium enterprise employs between

50 and 249 people (National Statistics, 2007). A ‘partner’ can be defined as a company that is

part of the Nectar Business program where members of the loyalty program can collect points

from. At the time of this research, Nectar Business has 10 different partners in her program

(Nectar Business, 2008b). The level of engagement can be decided upon using the Nectar Business

Engagement Score (NBES), a measure that NB has designed to indicate a member’s engagement

with the NB programme. The distribution of the NBES can be found in Figure 3.1 (Exhibit 3). This measure can only be calculated for existing NB members since it is based on their activity within the program. Since my conceptual model makes a distinction between members and non-members, the level of engagement will not be part of the model since it cannot calculate the NBES for non- members.

Although generations of researchers in marketing have talked about a more or less clear dividing line between B2C marketing and B2B marketing, inconvenient facts often throw doubt on this demarcation (Co va & Salle, 2008). Therefore it is of particular interest whether the literature on the drivers of B2C LPs will be applicable in a B2B context. Small businesses will likely respond to consumer-oriented rewards, as they are much more consumer-like in their buying, but will it also be possible to apply the literature on B2C LP drivers on the ones of B2B LPs?

Secondary objectives of this study are 1) to uncover if firm size affects the likelihood of becoming a B2B LP member, 2) whether the type of industry – Trade, Catering and General (e.g.

office, retail and services) – influences participation in LPs, and 3) if the level of decision making of the loyalty card holder influences the decision to become member of a B2B LP. Uncovering insight in these aspects could provide valuable information for Nectar Business to uncover unseen markets within markets.

3.2 Conceptual Framework and Hypothesis Development

Since there is no academic literature about motivations of small and medium sized enterprises in joining a B2B LP, there is a need to create insight in this area of B 2B loyalty. Discovering why SMEs join an LP can help targeting SMEs of the right sizes in the right industry, using messages that are tailored to their wants and needs.

In developing my conceptual framework (shown in Figure 3.2), I have used the literature review from chapter 2. On the basis of this review, I will define the key constructs of my framework and describe the theoretical grounds and existing evidence supporting the relationships contained in this framework, which will result in a number of hypotheses that will be tested in this research.

3.2.1 Definitions of Drivers, Industry Type, Firm Size, Level of Decision Making and B2B Loyalty Program Membership

Drivers can be conceptualised as the reasons or motivations of an SME to join a B2B loyalty

program. They can be split into several sub-categories and Leenheer and colleagues (2007) used

the classification of economical, psychological and sociological drivers. All drivers that were

discovered in the literature study (Figure 2.3) were assigned to one of these categories, however

some of these drivers include LP characteristics and others could be better classified as attitudes.

Taking both classifications together, I propose to use four categories: psychological attitudes, sociological attitudes, B2C LP characteristics and B2B LP characteristics. Figure 3.2 shows how each driver falls into the new categories. I expect all these drivers to have an effect on the likelihood of an SME in becoming a member of a B2B LP.

Figure 3.2 Conceptual Framework

Within Nectar Business a business can be assigned to three broad industry types: Catering, Trade and General. These three categories can be further divided into agriculture, business services, financial services, health & social, hotels, pubs & restaurants, manufacturing, property services, retails, social & personal activities, trade & construction, transport, storage &

communication, wholesale and other.

Small and medium sized enterprises can be conceptualised as follows: a small enterprise employs between 0 and 49 people and a medium enterprise employs between 50 and 249 people (National Statistics, 2007). As there still could be differences within these categories, I will use the following labels: 0, 1, 2-5, 6-10, 11-20, 21-50, 51-100, 101-250, 250+.

Nectar Business uses the following classification of roles of the decision maker:

owner/partner/director, general manager, finance manager, fleet manager, office manager, chef/cate ring manager, other managerial, other non-managerial.

The general definition of a loyalty program as pointed out by Sharp and Sharp (1997) is an integrated system of marketing actions that aims to make member customers more loyal. This definition can also be applied in a B2B environment, but in this context the member customers will be SMEs.

Psychological Attitudes Smart shopper feelings (H1 ) Pride (H2 )

Prestige/recognition (H3) Sociological Attitudes

Need to belong to a group (H4) Shared values (H5)

B2C LP Characteristics Economic value (H6) Luxury Experiences (H7) Third-party offers (H8) B2B LP Characteristics Reward employees (H9) Team building (H10)

B2B Loyalty Program Membership

Industry Type

• Trade

• Catering

• General

Firm Size

• Small

• Medium

Drivers Moderators

Level of

Decision

Making

3.2.2 The Relationship between Psychological Attitudes and B2B Loyalty Program Membership

Feinberg, Krishna and Zhang (2002) argue that consumers appreciate rewards – not only in an absolute sense, but also relative to other customers. Since rewards that are earned by a business can be of benefit for the whole business, business unit or for the owner of the company , this driver would not be suitable in a B2B context. However, if one would see it from a team or a business unit perspective instead of a consumer perspective, there would be a possibility to apply this driver in a B2B environment. Another possibility of how this driver might be applicable in a B2B context is that in smaller businesses the decisions are usually made by the owner or by one other person. In larger business es this can be a bit more complex though, as the decision-making process is a lot more complex and it could involve multiple levels in the business to make a decision.

Although in these ways it could be a possible driver for SMEs to join in a B2B LP, there is not enough evidence in the literature to be certain there will be an effect. Therefore no hypothesis will be stated for this driver.

Kivetz and Simonson (2002b) state in their article that LPs can induce smart shopper feelings.

The effects of discounts, cents-off coupons and other price promotions are often understood as deriving from the economic value of the money, however these promotions are also capable of generating an extraordinary level of consumer enthusiasm to the consumer beyond the economic value of the money saved (Schindler, 1989 & 1998). This enthusiasm of consumers could also be applicable in a B2B context, especially for smaller companies where the owner is the decision maker. For this reason I propose the following hypothesis:

Hypothesis 1: Smart shopper feelings can positively influence the likelihood of an SME in joining a B2B loyalty program.

LP membership can also create pride about being economical (Chandon et al., 2000). Pride is too broad a concept to be considered a single, unified construct and is better viewed as two or more distinct emotions (Lewis, 2000). Two facets of pride can be distinguished by subsequent attributions. Tangney (1990) identified feelings of pride in the entire self, which is called alpha pride , and feelings of pride stemming from evaluation of the specific behaviour, which is termed beta pride. Tracy and Robins (2007) have labelled the latte r as authentic pride to emphasise that it is typically based on specific accomplishments and is likely accompanied by genuine feelings of self-worth.

As small companies tend to respond to LPs like customers do, it would be a plausible reasoning

to say that the person who does all purchases for the business will also feel proud about being

economical when being a member of an LP. For bigger companies it could be possible that the

purchaser of supplies does not care a lot about the expenses as it is not their own money they use.

However, the purchaser is still a human being so it is reasonable to say that they could feel the same fe elings of pride as customers. Based on this reasoning I propose the following hypothesis:

Hypothesis 2: Feeling proud about bein g economical can positively influence the likelihood of an SME in joining a B2B loyalty program.

The final psychological driver was identified by Yi and Jeon (2003). They found that prestige, recognition and/or access to an exclusive treatment or service positively influence the likelihood of becoming a member of a customer LP. Prestige means ‘a standing or estimation in the eyes of the people; commanding position in people’s minds’ and is related to exclusivity, but at the same time prestige is something in the eye of the beholder; what one may experience as a high level of prestige, may not be experienced the same by someone else (Sevier, 2003). Furthermore, the relationship between prestige and reputation make the concept of prestige even more complicated. Fombrun (1996) introduced the concept of reputational capital: a form of intangible organizational wealth – also referred to as goodwill. Both reputation and prestige can be built, but a reputation generally takes less time and money to establish. Besides, a reputation can be either good or bad, whereas prestige is always good. Brewer, Gates and Goldman (2001) argued that prestige is a zero-sum game: prestige gained by one organisation must be lost by another.

Although small businesses tend to behave like customers regarding rewards, I believe that this driver could also be applicable to bigger businesses. Especially in case of businesses with multiple departments it would be possible that the purchaser or the people in a department that receive a reward via an LP can experience the prestige or recognition. Therefore the following hypothesis emerges:

Hypothesis 3: The experience of prestige or recognition can positively influence the likelihood of an SME in joining a B2B loyalty program.

There are two other psychological drivers identified in the academic literature which are too complicated to assess in this research. Chandon and colleagues (2000) found that the general attitude customers have towards LPs can partly explain their memberships of specific programs.

This research only uses data from one specific LP which would make it impossible to make

comparisons between members of different LPs. Kivetz and Simonson (2002a) found that the

idiosyncratic fit of an individual with an LP can influence his or her likelihood of joining the

program. It would need a substantial amount of research to apply these drivers in a B2B context,

which is beyond the scope of this paper. Therefore these drivers will not be tested in this research.

3.2.3 The Relationship between Sociological Attitudes and B2B Loyalty Program Membership The first sociological driver of becoming a member of a customer LP is the need to belong to a group (Baumeister & Leary, 1995). The motivation to conform is an aspect of self-expression and can be defined as the degree to which customers are motivated by the need for approval from people around them in shopping decisions (Chandon et al., 2000).

In a B2B context, this driver could be applicable to smaller businesses as they tend to show the same behaviour as customers. However, when asking questions in the questionnaire I will rephrase it to being part of the industry in which a business operates instead of belonging to a group. This would make it far more applicable in a B2B context and there fore this leads to the following hypothesis:

Hypothesis 4: The need to belong to a group can positively influence the likelihood of an SME in joining a B2B loyalty program.

Fournier (1998) and Muniz and O’Guinn (2001) found that identification with commercial organisations is intensifying and is a driver to become a member of an LP. This can well be the case for SMEs as McMillan and colleagues (2007) argue that it might be a possibility that businesses sign up for LPs because they have shared values. From this viewpoint, SMEs would identify themselves with other commercial organisations and therefore sign up with the LP or LPs they think they have the best connection with. Therefore I propose:

Hypothesis 5: Identification with the commercial organisation that operates the B2B loyalty program can positively influence the likelihood of an SME in joining a B2B loyalty program.

3.2.4 The Relationship between B2C LP Characteristics and B2B Loyalty Program Membership Leenheer and colleagues (2007) argue that consumers join an LP because they receive value in the form of rewards. Whether it are financial rewards (e.g. discounts or cash-back), products or tickets for some kind of entertainment, most consumers are keen on receiving them.

Since small businesses tend to behave like consumers in their buying-behaviour, they will likely respond to consumer-oriented rewards (Eardly, 2002). They don’t differentiate their personal and their business finances and for that reason consumer-like programs tend to work with these businesses. If this is the case, then probably small businesses will join LPs for the same reasons as consumers and therefore I propose the following:

Hypothesis 6: Receiving economic value in the form of rewards can positively influence the likelihood of an SME in joining a B2B loyalty program.

Some LPs have the ability to increase hedonic, luxury experiences without the high

psychological cost of such consumption (Kivetz & Simonson, 2002a). They define ‘luxury’ as “non-

essential items or services that contribute to luxurious living; an indulgence or convenience beyond the indispensable minimum” (p. 156). Companies are usually careful with their expenses and especially smaller companies only purchase that what is necessary. Becoming a member of a B2B LP gives companies the opportunity to collect points and to spend them on luxury items. Thus, membership gives a business access to items they could otherwise never afford or were willing to spend money on. This logical reasoning leads to the following hypo thesis:

Hypothesis 7: The ability to collect points for luxury products can positively influence the likelihood of an SME in joining a B2B loyalty program.

According to Stone and colleagues (2004), consumers become members of an LP because in this way they can benefit from the buying power of the scheme organiser in order to get third-party offers which they could not otherwise afford. This is specifically the case in coalition LPs, where a member of one particular partner automatically becomes a member of the other partners that participate in the coalition LP, which also enables this member to receive offers from these other partners.

This driver could also be applicable in a B2B context, especially in the case of small businesses.

Many small businesses suffer from a lack of resources, which leads to an increased business failure and higher bankruptcy rates than the broader economy (Russell-Bennett et al., 2007). Therefore in order to survive as a small business, becoming a member of a B2B LP can contribute in creating cost savings and affording rewards for the business it could otherwise not afford. This reasoning leads to the following hypothesis:

Hypothesis 8: Receiving third-party offers can positively influence the likelihood of an SME in joining a B2B loyalty program.

3.2.5 The Relationship between B2B LP Characteristics and B2B Loyalty Program Membership Besides the drivers that were uncovered in the B2C literature, I expect two other drivers to influence the likelihood of becoming a member of a B2B LP. B2B LP’s offer the ability to reward employees and they could be beneficial from a teambuilding perspective as well.

Employees can be rewarded in many different ways, for example through corporate incentive

schemes and corporate gift cards (DSN Retailing Today, 2005). But as pointed out by Jimmy

Beyer, national sales manager with Sony Electronics: “Receiving a tangible reward for

achievement occupies a special place in the human psyche, but one of the biggest advantages to

giving merchandise is that you can choose the hottest, latest and greatest products on the market

(in McCue, 2008 p. 24). Where incentive schemes are usually more common in large businesses,

SMEs have fewer resources to run such a scheme. Becoming a member of a B2B LP would give

them the opportunity to reward its employees with rewards and treats without having the

additional cost of running a corporate incentive scheme. Although this is not applicable in a B2C context, I do believe that this would be a reason for SMEs to join an LP. Therefore I put forward the following hypothesis:

Hypothesis 9: The ability to reward employees can positively influence the likelihood of an SME in joining a B2B loyalty program.

Teambuilding exercises can be beneficial to employees and companies. In particular, such exercises help managers and employees to develop interactive skills and learn how to collaborate and communicate effectively, according to Stephen Carney (in Hatch-Woodward, 2006). They can be very costly however, so becoming a member of a B2B LP would give companies the opportunity to collect points and spend them on teambuilding activities. This reasoning leads to the next hypothesis:

Hypothesis 10: The ability to collect points for teambuilding activities can positively influence the likelihood of an SME in joining a B2B loyalty program.

Besides the psychological and sociological attitudes and the B2C and B2B LP characteristics, the B2C literature discovered one other driver for customers to join in an LP. According to Leenheer and colleagues (2007) it is likely that the more LPs a customer has enrolled in, the more likely it is that this customer signs up for a particular program in a different industry. Although figures on B2B LP memberships in the UK are unknown, there is research that claims that SMEs in the US participate in about 2.3 programs (Capizzi et al., 2005). Assuming that these figures will not differ that much in the UK, and based on the fact that data will be gathered from a coalition B2B LP and therefore businesses are LP members of a range of companies with just one loyalty card, I assume that this B2C driver will not be applicable in a B2B context. For this reason, this driver will not be tested in this research.

3.2.6 Moderators

The classification of Clark and Clark (2008) made clear that it is industry and firm size specific which B2B LP would apply best in a specific situation. Specifically, smaller businesses tend to behave like customers do (Eardly, 2002), thus I also expect that reasons to join a B2B LP differ based on the size of the business and on in which industry the business participates.

Furthermore, I also expect that the level of decision making of the loyalty account holder can

moderate the likelihood of becoming a member of a B2B LP. In smaller businesses usually the

owner is the loyalty account holder but in larger businesses this could be a different person. There

is a possibility that owners of a business have different reasons to join and participate in a B2B LP

in comparison to people with other roles in the organization (e.g. general manager, office

manager, finance manager).

However, the moderators in this model will be of exploratory nature, since there is no strong evidence in current academic literature that the moderators in this conceptual framework will actually moderate the likelihood of becoming a member of a B2B LP. I do expect them to be moderators, but since they will be exploratory in nature I will state no hypotheses.

3.2.7 Company Profiling (Firmographics)

Where type of industry, firm size and level of decision making of the loyalty account holder

are expected to moderate the likelihood of becoming a member of a B2B LP, I will also collect

data on other firmographics that are not expected to moderate this likelihood such as gender and

whether the business is run from home.