The influence of performance and bonuses on brand loyalty

The influence of performance

and bonuses on brand loyalty

The influence of performance

and bonuses on brand loyalty

H.T.A. Hofstra

Marwixstraat 6a

9726CD GRONINGEN

hanshofstra@gmail.com

(06) 24993293

Student number: S1831119

University of Groningen

Faculty of Economics and Business

MSc Marketing Management

17-01-2014

Preface

I have written this paper for graduating my Master Marketing management at the University of Groningen. From September 2013 until February 2014 I did research on the influence of

bonuses and performance on brand loyalty. In one semester I have learned to build an interesting conceptual model about a recent subject, to make a questionnaire which was spread to more than 800 people and to do research. Where bonus culture is a hot item for the Dutch media, we do not know what the influence is on brands.

I would like to thank dr. M.C. Leliveld for being my supervisor at the University of Groningen. She helped me with feedback and comments on the paper. I would also like to thank my supervisor for the fast responses and the extra help with the results in the research. On the second place I would like to thank my second supervisor, prof. dr. K. van Ittersum, for checking my paper.

Special thanks go to friends who helped me by giving feedback, brainstorming sessions and discussions about difficult aspects to give some relevant input.

Table of contents

2.2.1 General information bonus culture 11

2.2.2 Different forms of reward systems 12

2.2.3 Development in bonus culture 12

2.2.4 High and low bonuses 13

2.3 PERFORMANCE 14

2.3.1 Different types of performance 14

2.3.2 Relation performance and brand loyalty 15

2.4 TYPE ORGANIZATIONS 16

2.4.1 Non-profit organizations 16

2.4.3 For-profit organizations 17

2.4.4 Relation type of organization and brand loyalty 17

2.6 IN SUM 19 3. RESEARCH DESIGN 20 3.1 MANIPULATIONS 20 3.2 DATA COLLECTION 21 4 RESULTS 23 4.1 DESCRIBING DATASET 23 4.2 RELIABILITY ANALYSIS 23 4.3 FACTORIAL ANOVA 24

4.3.1 Influence bonuses on brand loyalty 24

4.3.2 Influence past performance on brand loyalty 24 4.3.3 Influence of type of organization on brand loyalty 25

5. DISCUSSION 26

5.1 DISCUSSION 26

5.1.1 Brand loyalty 26

5.1.3 Performance 27 5.1.4 Interaction bonuses and performance on brand loyalty 27

M

The bonus culture in commercial organizations is integrated in the Dutch culture. Incentive payments, profit sharing and gain sharing are part of the reward system. Firms give their employees bonuses to reward individual performance. But not only commercial organizations are using bonuses to pay their executives. Non-profit organizations, such as charities, also use these systems. In this paper, answer will be given on the following problem statement. Do high

amount of bonuses and past performance have more influence on the brand loyalty than low bonuses and performance and does this differ between non-profit or for-profit organizations?

Brand equity is the combination of different aspects such as brand associations, perceived quality brand awareness and brand loyalty (Aaker, 1996). Where customer loyalty is more related to the loyalty of the customer, brand loyalty focuses on the customer to create a long-term relationship (Morgan & Hunt, 1994). Through programs they tried to create higher revenues in the future. New loyalty programs are not focusing on short-term relationship, but on trying to create trust for the customer. With creating more trust, the revenue of firms could increase (Shugan, 2005) and thus the brand loyalty increases.

Paying bonuses is one of the methods to motivate employees (Noe et al., 2008). Interestingly enough, systems such as incentive payments, profit sharing and gain sharing are used for many years, but only over the past few years the media has begun showing attention towards it. Through the media attention over the past years, participants, fans, employees and political parties are skeptical about the height of bonuses in different branches. So on the one side paying bonuses is normal, on the other side people are disappointed through high bonuses. A reason could be the social popularity. Social popularity is gaining more acceptance and benefits in a social system. Money is a possible method to create more social acceptance (Zhou et al., 2009). There are different instruments to measure the past performance. Financial metrics have included profits, market capitalization or value and market-to-book ratio. (Peterson & Jeong, 2010). This research have the focus on profits. Where non-profit organizations are dependent of donations, government pays services or commercial non-profits, for-profit organizations are focusing on increasing profits to maximize shareholder value. This research will give answer on the question, has the type of organization influence on the relationship.

To manipulate performance, a distinction was made in high and low performance. The performance is related to the received profits of the firm over the last three years. When respondents read a scenario about good performance, they see a scenario where the profits are increasing in the last three years.

The conclusion that can be drawn is that hypothesis 1 is accepted and the final judgment is that lower bonuses lead to higher brand loyalty. The most important conclusion about performance is that higher performance leads to more brand loyalty than lower performance, which means that hypothesis 2 is supported. Especially firms with low bonuses and high performances give more brand loyalty than firms with high performances and high bonuses. However, the results says that the moderator is not significant, in that sense hypotheses 3a, 3b, 3c and 3d will be rejected. Here the results found that for-profit has not a more positive effect on the

relationship between (High vs. Low) performance and (High vs. Low) bonuses than non-profit organizations on brand loyalty. The conclusion is that the type of organization does not have any influence on the relationship.

The main conclusion is that high amount of bonuses and high amount of performance affect the brand loyalty, but that type of organization does not matter because it is in significant. There is also an interaction affect between high performance and low bonus, which means that high performance and low bonus gives more brand loyalty than organizations with high performance and high bonuses.

1.

I

Over the past few years there has been a big discussion in media and in political parties about the bonus culture in the Netherlands. For example, a big issue was the bonus for ING executive Hommen, who received a bonus of 1,25 million euro in 2011. Normally, a good financial year for the Dutch bank is the reason to pay their executives a huge bonus. However, the ING executive received this bonus, while the bank was in the middle of the financial crisis. (“Bonus topman ING 1,25 miljoen euro,” 2011). Another example is the acquisition of Douwe Egberts to investing organization Joh. A. Benckiser. In this situation the organization scores well with positive financial years. Director Jan Bennink earned a bonus of €7,7 million with this transaction, because he sold his shares. This was the second time Bennink earned a large bonus. A few years ago he sold his shares of a baby food firm for €100 million. (“Douwe Egberts casht €7,7 miljoen, 2013).

The bonus culture in commercial organizations is integrated in the Dutch culture. Incentive payments, profit sharing and gain sharing are part of the reward system. Firms give their employees bonuses to reward individual performance. But not only commercial organizations are using bonuses to pay their executives. Non-profit organizations, such as charities, also use these systems. One example is the non-profit organization Alpe d’Huzes. This is a non-profit organization, because they earn money through sponsoring fees. The Dutch organization Alpe d’Huzes is a Dutch cycle event whose goal it is to earn money for doing cancer research. In 2013 there was a financial incident concerning one of the top executives. The top executives earned a bonus of 0,6 million euro in 2013 after the event, while the organization said that all the money would be invested in research (“Inspire2live”, 2013).

It is important to note that not only organizations who had a good past performance are paying bonuses to their executives. There are also organizations that are paying their executives high amounts when the organizations scores bad. Goldman Sachs (American Wallstreet Bank) needed a bill-out of €7,35 billion of the government. On the end of the year they paid all their 443 partners a bonus of €3,61 million each.

non-profit organizations (Bonussen werken averechts, 2011). In all of the examples before, there is no information firms brand loyalty are harmed through paying their executives high bonuses.

1.1

Problem statement

Increasing the brand equity gives firms a competitive advantage (Erdem, 1999). Brand equity is not only focusing on brand loyalty, also brand awareness, the perceived quality and brand associations are relevant and part of brand equity (Aaker, 1996). These different aspects can give a brand more value.

This research will examine how the bonus culture and the past performance affect the brand loyalty of the customer. Furthermore there will be an examination of how this differs between profit and non-profit organizations. Is there a difference between these two types and do they influence the separate independent variables. Based on this information, the following research question is formulated:

Do high amount of bonuses and past performance have more influence on the brand loyalty than low bonuses and performance and does this differ between non-profit or for-profit organizations?

2.

T

HEORETICAL

F

RAMEWORK

2.1

Brand equity

Where most studies focus on the perceptions of product quality, there are not many studies that are focusing on the relationship between bonus culture and performance on brand loyalty. Brand loyalty is one of the four elements of brand equity.

2.1.1 Definition brand equity

Brand equity is an importance aspect in business because firms can make a strategic advantage with it (Erdem, 1999). The brand equity can be split up into two different levels, namely

customer and financial based customer equity (Lassar et al., 1995). Brand equity is the

combination of different aspects such as brand associations, perceived quality brand awareness and brand loyalty (Aaker, 1996). With these elements a firm can develop a brand identity. A brand identity is a unique set of brand associations and how strategists want the brand to be perceived (Aaker, 2009).

2.1.2 Brand loyalty

Aaker (1996) mentioned that customer loyalty is the most valuable asset of a company. There is a difference between customer loyalty and brand loyalty. Where customer loyalty is more related to the loyalty of the customer, brand loyalty focuses on the customer to create a long-term relationship (Morgan & Hunt, 1994). Through programs they tried to create higher revenues in the future. New loyalty programs are not focusing on short-term relationship, but on trying to create trust for the customer. With creating more trust, the revenue of firms could increase (Shugan, 2005). And thus the brand loyalty increases. Brand loyalty can be split up into two levels, purchase loyalty and attitudinal loyalty. More purchase loyalty leads to more market share and attitudinal loyalty leads to higher prices for the brand (Chaudhuri & Holbrook, 2001).

In this research the brand loyalty is used as the dependent variable. This means that the

influence of the independent variables on brand loyalty will be measured. Where Aaker focuses on more aspects of brand equity, this paper focuses only on the brand loyalty, because there is no further research on the influence of bonuses and performance on brand loyalty. Increasing of brand loyalty means that also the attitudinal loyalty and purchase loyalty increase.

2.2

Bonus culture

In the introduction one of the most important definitions ‘bonus culture’ is mentioned. This is one of the main independent variables. Bonus culture is speaking topic in the Netherlands on this moment, because many critics say that bonus culture is the reason for the financial crisis. In this chapter the definition of bonus culture will be defined and also there will be explained why bonus culture is speaking topic.

2.2.1 General information bonus culture

One of the reasons why firms pay employees is to attract them (Noe et al., 2008). Paying bonuses is one of the methods to motivate employees. “Organizations have a relatively large degree of discretion in deciding how to pay” (Noe et al., 2008). Pay plans are typically used to energize, direct, or control employee behavior. The height of a bonus will be determined through comparing the salaries of their employees with that of other firms, especially those in the same job, to determine how big a bonus have to be (Noe et al., 2008).

employees of the computer manufacturer. The reason for this was that the firm has had a good financial year and he wanted to thank his own employees (Lenovo hands over his bonus, 2013).

2.2.2 Different forms of reward systems

For this research it is important to create insight in which different forms of reward systems are used. Although bankers’ bonuses and CEO pay packages attract the most attention, the parallel rise in incentive pay and earnings inequality is a much wider phenomenon. The standard

competitive model of the labor market supposes that wages are equal to marginal products and that the wage structure is determined by the equilibrium of supply and demand. But when markets are imperfect and information is costly, wages are not generally equal to the

productivity of employees. Not surprisingly, performance pay (bonuses) also accounts for most of the growth in inequality among top executives (Lemieux et al., 2009). Through these

imperfect markets firms have the possibility to pay some top executives a relatively higher bonus than other employees. For example, the CEO of JP Morgan received a bonus of €12,5 million in 2009.

There are other programs to recognize employee contributions, for example incentive pay, profit sharing and gain sharing. Individual incentives rewards individual performance based on physical output (such as number of units produced). The work has to be continuously judged and re-judged. A disadvantage of individual incentives is that it is difficult for managers to measure the output (knowledge work). Another disadvantage is that individual incentives do not fit well with a team approach. Profit sharing is another component to giving bonuses to employees. “Payments are based on a measure of organization performance (profits) and the payments do not become part of the base salary. Two potential advantages are that employees think more like owners and labor costs are automatically reduced during difficult economic times” (Lawler, 1987). The last component is gain sharing. A form of compensation based on group or plant performance (rather than organization wide profits) that does not become part of the employee’s base salary (Lawler, 1987). Where the first component individual incentives are more related to the individual employee, profit sharing and gain sharing is more based on the total performance of the organization. In the problem statement the question rises what the influence of bonuses is on brand loyalty. In this situation the focus is on the individual executives’ bonus and not on the profit- or gain sharing, where the focus lies on the total performance.

2.2.3 Development in bonus culture

bonus culture is the reason of the financial crisis. So on the one side paying bonuses is normal, on the other side people are disappointed through high bonuses.

Recent years have seen a literal explosion of paying’s, both in levels and in differentials, at the top levels of many occupations. Large bonuses and salaries are needed, it is typically said, to retain “talent” and “top performers” in finance, corporations, medicine, academia, as well as to incentivize them to perform to the best of their high abilities. Oftentimes these behaviors impose negative spillovers on the rest of society (e.g., bank bailouts), but even when not, the firms involved ultimately suffer themselves: large trading losses, declines in stock value, loss of reputation and consumer goodwill, regulatory fines and legal liabilities, or even bankruptcy (Bénabou & Tirole, 2013).

Competition for the most talented employees leads to an escalating reliance on performance pay and other high-powered incentives (Bénabou & Tirole, 2013). Paying plans will be more difficult through the upcoming social popularity and possessing money in firms. Social popularity is gaining more acceptance and benefits in a social system. Money is a possible method to create more social acceptance (Zhou et al., 2009). In 2000, ABN Amro has a new executive, his name was Groenink. A lot of critics argued that Groeninks personal goal was to increase his own capital and thus creating more social acceptance. The Dutch bank was not priority number one, increasing their own money was (Smit, 2009). This information is interesting because these developments are recent. There is no information about what this situations means for a brand.

2.2.4 High and low bonuses

In previous sections different situations are mentioned about the height of the bonuses. It is difficult to describe what is high and what is low, because there is not a clear definition for that. The height of bonuses (High vs. low) is a perception of the customer to an organization. Where JP Morgan pays an incentive reward of €12,5 million to one of their executives, Obama (current President of the United States) decided in 2009 that executives who work for governmental institutions can only receive a maximum of €367.000. In 2010 Europe is following the United States of America and decided that bankers can only receive the maximum bonus of €367.000. In 2009 the Netherlands started with a new law, the CAO 90-bonus. This law said that people can earn a bonus of maximum €2.314 without paying tax over it. In 2014 the maximum bonus is €3.100. An advantage of this system is that employees and organizations do not have to pay taxes and employees only earn the bonus when they achieve shared goals. So there is a big difference in how big bonuses are (Arbeidsreglementing, 2007).

high bonuses. The bonuses in the examples before are very broad so it is difficult to decide how big the bonuses have to be. Where big companies such as banks sometimes give more than €12,5 million, small organizations give very small incremental bonuses when following the CAO-90 law. In this research there is a distinction in low bonuses (€3.000) and high bonuses

(€800.000). Based on this information the hypothesis is as follows:

H1: Low bonuses of executives have a higher effect on the brand loyalty of the customer than high bonuses

2.3

Performance

Not only the height of bonuses can affect the brand loyalty. Also the past performance of a firm can have influence on the brand loyalty of a firm. In 1998, ABN Amro executive van Tets tried to change the bank system. He tried to change the bonuses of the executive on the base of

performances over the last three years. This system has failed, because after this

announcement about changing bonuses, some executives left the company (Smit, 2009). Organizations are active in a fast changing environment, operations and strategies have to modify many times. On that way, measuring performance would be difficult for firms (Kennerly & Neely, 2003). The definition performance is broad, so in this chapter the definition will be explained.

2.3.1 Different types of performance

There are different instruments to measure the past performance. Pahud de Mortanges and van Riel (2003) analyzed the relationship between corporate brand value. Their conclusion is that the performance of a brand may have a significant impact on the market value of a firm. So higher brand performance leads to higher market value. This is in line with Chaudhuri &

Holbrook (2001), who mentioned that higher brand performance leads to higher purchase loyalty. Marketing-related activities can enhance firm-level financial performance (Srinivasan & Hanssens, 2009). Financial metrics have included profits, market capitalization or value and market-to-book ratio. (Peterson & Jeong, 2010).

the world behind Apple (Interbrand, 2013). In 2009 Google’s share price was €220, in 2014 the share price is more than €800. Shareholders Kerin and Sethuraman (1998) studied the

contemporaneous relationship between brand values published in financial world and shareholder value. They obtained a ‘strong positive statistical relationship’ between brand value and shareholder value. Given this, when share prices or shareholder value increase, brand value also increases.

In the study about customer-centric performance measures, two definitions will be explained: customer-based relational performance and customer-based profit performance. The

customer-based relational performance consists of customer satisfaction, customer ownership and positive word of mouth. Customer-based profit performance, is related to the successful identification of profitable customers, efficiency of the acquisition and retention process and conversion of unprofitable customers to profitable ones (Ramani & Kumar, 2008). In previous research about influence of customer loyalty and performance, Ittner and Larcker (1998) found a positive relation between customer satisfaction and firm value. The product value attributes directly and differentially impact levels of customer loyalty. Furthermore, measures of explain levels of relative revenue growth and profitability (Smith & Wright, 2004). Recent research suggests that customer satisfaction measures are leading indicators of financial performance (Ittner & Larcker, 1998; Banker et al., 2000).

2.3.2 Relation performance and brand loyalty

Where there are many studies which measured the influence of performance on loyalty, there is no information if there is any interaction between bonus and performance. This study is focused on the customer-based profit performance and not focusing on other performance aspects, especially the profit of a firm. In the customer-based profit performance increasing customer satisfaction, customer ownership and positive word of mouth are central. Including more aspects of performance, could make the research more difficult. Different sorts of performances can influence each other. In this research the question is, does a positive or negative financial period have influence on the brand loyalty. In this research a positive or negative period of three years is taken. When choosing a shorter period, the performance gives not a long-term advantage. Following these researches the hypothesis is as follows:

2.4

Type organizations

Non-profits and for-profit organizations have an intrinsic difference in motivation (Rhoades-Catanach, 2000; O’Connor and Raber, 2001). Companies who are labeled as nonprofits, are to be high in warmth perceptions, whereas those who are labeled as for-profits are viewed as high in competence perceptions. Competence perceptions increase the willingness to buy, which means that consumers are more likely to buy a product from a for-profit than a non-profit (Aaker et al., 2010).

Research shows that the differences between for-profit and non-profits are typically segmented into three categories: vision, strategic constraints and financial constraints. Each one of these categories differs in the ability and willingness to take strategic actions, such as the adoption of innovation and the organizations choices of types of innovation (Hull & Lio, 2007). But not only vision, strategic constraints and financial constraints are the main difference between for-profit and non-profit organizations. Hansmann (1980) mentioned that the main difference between for-profit and non-profit is that non-profit organizations do not have stocks or other features which are related to ownership who’s focus lies on profit and control.

2.4.1 Non-profit organizations

There are many types of nonprofit organizations. Hansmann (1980) makes a difference in their source of income and the way in which they are controlled. Nonprofits that receive the most of their income in donations form, will be described as donative nonprofits. An example of

donative nonprofits organizations is the World Wide Fund for nature. The organization tried to conserve nature and reduce threats of diversity in earth. They received their incomes from donations of the government, individual contributions, foundation contributions and corporate contributions (World wide fund, 2014). Firms whose income derives from sales of goods or services will be called ‘commercial’ nonprofits. An example of commercial nonprofit organization is the foundation Child post stamps in the Netherlands. The organization sells postcards and stamps in the Netherlands. With the contribution the organizations goal is to help poor children, making their contribution to a better society. In donative nonprofits the patrons are the donors, whereas in a commercial nonprofit they are the firm’s customers. In the case of nonprofits that have both donors and customers, the term comprises both (Hansmann, 1980).

With regard to nonprofit–for-profit relationships, economists have generally suggested that nonprofit and for-profit organizations occupy different market segments within industries. Because productive and allocate efficiency are important to economists, many economic

Steinberg, 1991). In their research they find evidence that the non-profit organizations are changing from earning contributions or donations to earn revenues from fees for services.

2.4.3 For-profit organizations

Where non-profit organizations are dependent of donations, government pays services or commercial non-profits, for-profit organizations are focusing on increasing profits to maximize shareholder value. The shareholder value is based on the financial performance For-profit based companies, the focus is on the profitability of the firm (Hansmann, 1987). A good example of a for-profit organization is the Dutch Bank, ABN Amro. In 2000, when the new executive Groenink started as board member of the ABN Amro, he changed the bank radically. The first goal of the ABN Amro until 2000 was to increase the customer satisfaction. Groenink’s vision was not focusing on the customer satisfaction, but on increasing the shareholder value. His mission was to increase the profits of these shareholders, to increase the stock price, to be one of the biggest market leaders in the world (Smit, 2009). He failed, and many critics blamed him for mismanagement.

2.4.4 Relation type of organization and brand loyalty

This research uses the type of organization as moderator, to see if the relation of bonuses on brand loyalty differs if an organization is nonprofit or for-profit. In the hypothesis the type of organization (non-profit) would increase the negative impact of past performance or bonuses on brand loyalty. As mentioned earlier, customers are disappointed when their donation will be used as a bonus for one of the executives. This may result in a negative customer satisfaction, which is one perception of brand loyalty. The following hypothesis will be used:

H3a: For-profit organizations have a more positive effect on the relationship between high performance and high bonus on brand loyalty than non-profit organizations

H3b: For-profit organizations have a more positive effect on the relationship between low performance and high bonus on brand loyalty than non-profit organizations

H3c: For-profit organizations have a more positive effect on the relationship between low performance and low bonus on brand loyalty than non-profit organizations

2.5

Conceptual model

From the theoretical framework, the conceptual model can be showed. The conceptual model is shown in figure 1.

Figure 1 Conceptual model

Based on the conceptual model of figure 1 the hypotheses can be formulated. The hypotheses are given in table 1:

Table 1 Overview different hypothesis:

H1: Low bonuses of executives have a higher effect on the brand loyalty of the customer than high bonuses H2: A positive financial period of three years has a better effect on the brand loyalty of the customer than

a negative financial period of three years

H3a: For-profit organizations have a more positive effect on the relationship between high performance and high bonus on brand loyalty than non-profit organizations

H3b: For-profit organizations have a more positive effect on the relationship between low performance and high bonus on brand loyalty than non-profit organizations

H3c: For-profit organizations have a more positive effect on the relationship between low performance and low bonus on brand loyalty than non-profit organizations

H3d: For-profit organizations have a more positive effect on the relationship between high performance and low bonus on brand loyalty than non-profit organizations

2.6

In sum

To sum up, this study will investigate the relationship between bonuses and performance on brand loyalty. On the one side, firms give their employees bonuses to attract and reward them. On the other side the amount of bonus given by a firm could give a negative customer

3.

R

D

In this explorative scenario study an online survey will be used. With an explorative scenario study the causes of the development of the environment are known, but not the effects.

In order to check whether the hypotheses provide valid answers to the research question, this chapter gives insight in to how the survey is organized. To investigate the influence of the described independent variables and moderators, a 2 (bonus: high vs. low) x 2 (financial year: positive vs. negative) x 2 (organization type: profit vs. nonprofit) between subjects factorial design will be used. In this research more than one independent variable will be used. In that sense, it could be possible that there is an interaction effect between the independent variables (Janssens, 2008). An interaction means that the independent variables influence each other. The scenario that is used is being transformed, which makes it possible to implement the design manipulations. The scenarios are different from each other, because the independent variables are manipulated. The different scenarios can be found in appendix 1. The dependent variable is measured through seven questions. These questions are all related to the brand loyalty of the organization. For example the questions about brand loyalty are about brand trust,

commitment, spending more or less money, satisfaction and recommendation of organization by friends.

3.1

Manipulations

The independent variable bonus will be checked through asking questions about the manipulation (High vs. low bonus). In the survey there are two questions related to this variable. For the independent variable performance also two questions were asked. In the scenario there is a distinction between high performance (positive financial years) and low performance (negative financial years) as mentioned earlier. To manipulate bonuses, the

amount of money the director of the company received, varied. In the low bonus condition, this was an incremental bonus of €3.000. In the high bonus condition the incremental bonus is €800.000.

The last manipulation is the type of organization. In the non-profit type of organization the scenario was about a charity. In the for-profit organization the type of organization is about a bank.

To give a full example, the situation is about a big commercial bank which is active in the private and corporate market. The bank has a good profit, because in the first year the bank earns 3 million euro, the second year 25 million euro and the last year 100 million euro. Through these profits, the bank decided to give this executive an incentive bonus of 800.000 euro at the end of the year. The respondent has to imagine that he or she is an individual with a bank account at this bank.

The scenarios are short and contain little background information, because respondents have to focus only on the height of the bonus, on the profit and the type of organization. There is no more background information such as market shares and individual goals of executives. When giving more background information, the respondents can be confused. All the scenarios and the specific questions can be found in appendix 1.

3.2

Data collection

In total 255 respondents started to fill in the survey, of which 190 respondents have completed the survey successfully. Some respondents skipped questions or did not complete the survey. Especially the last question about the manipulation of the height of the bonuses was often skipped, because respondents did not understand this question. In table 2 the total population who filled in the survey and the participants who finished the survey can be found. The goal was to have 20 respondents who filled in each scenario completely. All scenarios had the minimum amount of respondents that was needed. Scenario 7 had only 20 respondents and scenario 5 and 6 had 27 respondents. The main reason for the differences between the scenarios is that some people stopped to fill in the questionnaire.

First, the respondents had to give some general demographic information. In the demographic information respondents had to tell their age, their sex and their education. With this

Participants have read a scenario about an organization which performance of the last three years was positive or negative. The test is manipulated through the positive or negative performance and the height of the bonus. Each respondent read eleven questions about the specific scenario. They had to fill in the items on a 7-point Likert-scale ranging from strongly disagree (1) to strongly agree (7).

The goal of this survey is that people have to read not much time and that they do not have to spend a lot of time to fill in the answers. When having long surveys, people stop to fill in, because they do not want to spend much time in a research. The most of the people filled in the survey between 0 and 8 minutes (90,16%), which means that the survey takes not much time. 19,23% of the respondents filled in the survey between 0 and 2 minutes.

Table 2 Respondents survey

4

R

The goal of this scenario analysis is to find an answer to the different hypotheses. With this answers the insight of what the influence is of performance and bonus culture on brand loyalty will be found. Here the different results of the manipulations (performance and bonus) on brand loyalty can be found. Also the moderating effect of type of organization will be measured.

4.1

Describing dataset

In this study, 190 respondents filled in the survey successfully. All 190 respondents received one of the eight scenarios randomly. To test the influence of the two independent variables and the moderator, a factorial ANOVA will be used.

The respondents were asked to fill in their age, sex and their degree of education. Of this population, 55,3% of all the respondents were men, where 44,7% are women (M = 1,45,

SD = 0,499). The average age of this population is 33 years (M = 3,05, SD = 1,205). Of the total

population 8,9% finished secondary school, 2,1% finished primary or secondary vocational education, 35,8% a higher professional education and 53,2% a scientific education (M = 3,33,

SD = 0,897).

4.2

Reliability analysis

First the internal consistency of the two dependent variables was checked through measuring the Cronbach’s Alpha. The dependent variable is brand loyalty and has seven different

4.3

Factorial ANOVA

A factorial ANOVA is used to measure the influence of the two manipulations (performance and bonuses) and the moderator (type of organization) on brand loyalty. The factorial ANOVA shows the influence of the independent performance, independent bonus and moderator type of organization on dependent variable brand loyalty. In this chapter the analyses of the survey will be showed. In the next chapter the conclusion will be given together with the discussion.

4.3.1 Influence bonuses on brand loyalty

In this paragraph the influence of bonuses on brand loyalty will be measured. Respondents read a situation where the height of bonus is manipulated. The situation is about a commercial bank or an organization with a goal to prevent the rights of a child. In both situations the height of the bonus is manipulated (€3.000 or €800.000). Hypothesis 1 says that low bonuses of executives have a higher effect on the brand loyalty of the customer than high bonuses. The results present that the main effect is significant (p = 0,000 ). This means that a lower bonus leads to a higher brand loyalty (M = 5.06), than high bonus (M = 3.21), F(1,149)= 6,772.

4.3.2 Influence past performance on brand loyalty

Table 3 Interaction effect performance and bonus 2,69 3,67 2,54 5,26 0 1 2 3 4 5 6

Low performance High performance

Means (M)

Low bonus High bonus

The interaction effect of performance and bonuses F(1,149) = 5,656, p < 0,05 is significant. However, for people with low score for past performance, it does not matter if they the firm pays a high or low bonus, because in both cases they have a low score (M low bonus = 2.53 and M high bonus = 2.70). There is not a big difference in the scores. Furthermore, for people with a high score on past performance, it matter if the bonus is high or low (M low bonus = 5.26 and M high bonus = 3.68). In table 3 the different means on the different variables will be given.

4.3.3 Influence of type of organization on brand loyalty

The type of organization is manipulated through showing the respondents different scenarios. Half of them have read a scenario about an organization which prevents the rights of children. In the other scenario the respondents read a scenario about a commercial bank. Through this manipulation, it is possible to check if there is a relation between the type of organization. Performance is looked at as well as the type of organization with bonuses. And if there is a relation, it is interesting to know if there is a significance, which influences bonus and performance.

The moderator is insignificant (p = 0,07 ), so there is no moderator effect, because p > 0,05. The interaction effect of past performance with the type of organization (p = 0,425) and the effect of bonus with the type of organization (p = 0,814) are both insignificant.

When accepting type of organization p > 0,05 interesting information is founded F(1,149)= 3,323. When firms have a low past performance and the bonuses are low the type of

5. D

5.1

Discussion

The aim of this paper was to show the relationship between performance and bonus culture on brand loyalty. In the introduction the problem statement is described as follows: Do high amount of bonuses and past performance affect the brand loyalty of customers more than low bonuses and performance and does this differ between non-profit or profit organizations? In the discussion the different hypothesis will be discussed. The hypotheses that are tested in the previous chapter will also be discussed here.

The described dataset has no unexpected information. There is only one remarkable difference in education. 53,2% of all the respondents did a scientific education. The survey could be influenced through this fact, because higher educated people could have more background information than for example people who only did the secondary school. Before discussing the manipulations, the dependent variable will be discussed.

5.1.1 Brand loyalty

As mentioned earlier, there is not much information about the influence of bonuses and past performance on brand equity. Aaker (1996) mentioned that brand equity has four different levels: brand loyalty, perceived quality brand awareness and brand associations. Most previous studies are focusing on the perceived quality of a brand. This paper is focusing only on the brand loyalty. This means that not the whole brand equity will be measured. This could be a complication, because the manipulations (high vs. low bonus and high vs. low performance) could have been influenced through the other aspects of the brand equity model. For example, in a given situation the bonus is high (€800.000) and the past performance is low, people are more disappointed when the performance is high. But if an extra component such as the perceived quality is given, they could give another score. If the perceived quality is high, the change that people give higher scores would be logical. So the different levels of Aaker (1996) could influence each other. So in conclusion, the manipulations give only information of the effect on brand loyalty and not brand equity. So does (high vs. low) bonuses and (high vs. low) performance harm the total brand is unknown.

5.1.2 Bonus culture

In the first part we measure how the independent variable bonuses with two levels (high vs. low) influence the brand loyalty. Through manipulation of the height of the bonus the results say that low bonuses increase the brand loyalty more than high bonuses. One of the reasons of firms to pay their people is to attract individualistic employees (Noe et al., 2008). In the results the limit how high the bonus have to be is not found. And what the opinion is of the

drawn is that H1 is accepted and the final judgment is that lower bonuses lead to higher brand loyalty.

5.1.3 Performance

Srinivasan & Hanssens (2009) mentioned that performance has a positive influence on the brand. Also Peterson & Jeong (2010) say that performance increases financial metrics such as profits. In this paper the conclusion is that when a firm scores high on their past performance and the bonuses are low, the brand loyalty is higher than when the bonuses are high. This is in line with Srinivasan & Hanssens (2009) and Peterson & Jeong (2010).

This study investigated that a positive financial period of three years has a better effect on the brand loyalty of the customer than a negative financial period of three years. The results have supported this hypothesis. The most important conclusion is that higher performance leads to more brand loyalty than lower performance, which means that H2 is supported.

5.1.4 Interaction bonuses and performance on brand loyalty

In the results a significant effect is measured in the interaction effect of bonuses and

performance. The conclusion is that the height of bonus does not have any influence on the brand loyalty when an organization has bad financial years, because the means do not differ enough. However, for people with a high score on performance, the height of bonus matters. Especially firms with low bonuses and high performances (M = 5.26) give more brand loyalty than firms with high performances and high bonuses (M = 3.67). The interesting thing here is that it does not matter for the respondents when a firms scores bad on their past performance of how high the bonus is. An interaction effect means that the combination of the independent variables may have a significant influence on the brand loyalty (Janssens, 2008).

5.1.5 Type of organization

In this research a 2 x 2 x 2 factorial design is used. In that sense, the influence of the moderator on the relationship between the independent and dependent variable have to be measured. The following hypotheses are tested:

H3a: For-profit organizations have a more positive effect on the relationship between high performance and high bonus on brand loyalty than non-profit organizations.

H3b: For-profit organizations have a more positive effect on the relationship between low performance and high bonus on brand loyalty than non-profit organizations.

H3c: For-profit organizations have a more positive effect on the relationship between low performance and low bonus on brand loyalty than non-profit organizations.

However, the results says that the moderator is not significant (p = 0,07), in that sense hypotheses 3a, 3b, 3c and 3d will be rejected. In the results is mentioned that the type of organization matters when p > 0,07. When accepting this significance, the conclusion is that peoples opinion is that firms who score low on their past performance and have low bonuses, the brand loyalty is higher at for-profit organizations than non-profit organizations. In that way H3c is supported.

It is difficult to argue why the moderator is not significant. Some articles say that the moderator is not significant when the sample size is too small. But in this situation it is not logical (190 respondents) that this is the reason why the moderator is not significant. Other sources say that a high significance means that the results are not representative enough (Malhotra, 2007). There is a lot of information founded about influence of non-profit and profit organizations on different topics, but there is no research found where type of organization is used as

moderator. This could be a reason that the type of organization is not a good moderator.

5.1.6 Conclusion

Where there is found a relation between performance and brand loyalty there is also found a relation between bonuses and brand loyalty. There is enough support to say that high

performance gives a higher brand loyalty than low performance. On the other side where firms give their executives low bonuses it gives a higher increase of brand loyalty than high bonuses. In table 4 the hypotheses which have been supported and which have been rejected are presented.

Table 4 Supported and rejected hypothesis Conclusion

H1 Low bonuses of executives have a higher effect on the brand loyalty of the customer than high bonuses

Supported

H2 A positive financial period of three years have a better effect on the brand loyalty of the customer than a negative financial period of three years

Supported

H3a For-profit organizations have a more positive effect on the relationship between high performance and high bonus on brand loyalty than non-profit organizations.

Not supported

H3b For-profit organizations have a more positive effect on the relationship between low performance and high bonus on brand loyalty than non-profit organizations.

Not supported

H3c For-profit organizations have a more positive effect on the relationship between low performance and low bonus on brand loyalty than non-profit organizations

Not supported,

only supported when p < 0,10

H3d For-profit organizations have a more positive effect on the relationship between high performance and low bonus on brand loyalty than non-profit organizations.

the introduction the problem statement is described as follows: Do high amount of bonuses and past performance affect the brand loyalty of customers more than low bonuses and low performance and does this differ between non-profit or profit organizations? The main conclusion is that high amount of bonuses and high amount of performance affect the brand loyalty, but that type of organization does not matter because it is in significant. There is also an interaction affect between high performance and low bonus, which means that high

performance and low bonus gives more brand loyalty than organizations with high performance and high bonuses.

5.2

Limitations

The survey is spread over approximately 1.000 respondents. 255 have filled in the survey and 190 of these surveys were complete and useful. 65 of the surveys were skipped because uncertainty of the last question. In this question people were asked: What is the maximum height of the bonus of the executive in this situation? In the reviews of the survey people said that they could not give answer to this question because they have to little information. They want to have more background information such as personal targets of executives, financial background of the firm over the last ten years and the market share. They did not finish the survey. On the other side, other respondents said they have enough information and did not see any problems. This makes it difficult to say if the scenarios give enough information to the respondent or not. The survey of this research has been done in the Netherlands. All

respondents are Dutch which could be an argument that the results could be influenced. Another point is that 53,3% of all the respondents have a scientific education, which is another reason that the results could be influenced.

Where in this research the focus lies on the influence on brand loyalty there was no further research to all the aspect of brand equity (perceived quality, brand awareness and brand associations). The focus lies only on brand loyalty, because taking the whole brand equity there was a possibility that the survey was to general. In this research the perception of respondents on brand loyalty is measured on the following aspects: brand trust, commitment, spending more or less money, satisfaction and recommendation of organization by friends. This is not in line with Punniyamoorthy & Prasanna Mohan Raj (2007), who measured brand loyalty on the following aspects: involvement, functional value, price worthiness, emotional value,

Most of the people filled in the survey between 0 and 8 minutes (90,16%), which means that the survey does not take a lot of time. 19,23% of the respondents filled in the survey between 0 and 2 minutes which may mean that these respondents were in a hurry. This could mean that they filled in the survey too fast, and did not read the questions careful enough. In the

introduction of the survey respondents read that the survey takes no more than 5 minutes. 63,85% of all the respondents filled in the survey between 0 and 5 minutes. Also, because the survey only took 2 to 8 minutes to fill in, the respondents might not have taken enough time to thoroughly think about their answers, which could also influence the outcome.

In the survey two independent variables are measured. Both variables had two questions. So for performance two questions will be mentioned and for bonus also two questions will be mentioned. To be more complete, the respondents should read more than two question for each variable. Now that only two questions are asked, respondents may be confused. It is not 100% clear that each variable has enough questions.

5.2.1 Validity

The external validity cannot be measured, because the research is not big enough. To check the internal validity, the instrument which has been used has to be evaluated. There are different possibilities to measure validity. A subjective method is the content validity. In this method is checked if the scale measures the domain of the construct (Likert-scale) in the right way. (Malhotra, 2007). In this research the Likert-scale has been used, where respondents have the possibility to give 7 answers with a possibility to give a neutral answer. This way the respondent has the possibility to answer all the questions and the conclusion is that the Likert-scale is a good instrument.

5.4

Further research

As mentioned earlier, the focus of this research lies on brand loyalty, which is one of the four aspects of brand equity (Aaker, 1996). Brand equity can give firms a strategic advantage

Another weaknesses of the test is that 63,85% of the respondents filled in the survey between 0 and 5 minutes. In the limitations is mentioned that one of the goals of this research is to make a short survey. To check if respondents read the survey well, a blue dot method could be useful next time. In this method respondents read one question about a blue dot. The question is: click on the blue dot below of the screen, do not click on the Likert-scale. On the upper side of the screen respondents find a Likert-scale. If respondents read the question not good, they click on the Likert-scale. On that way, it is more clear if the respondents take enough time to think and read the survey well (Oppenheimer et al., 2009).

This research has focused on brand trust, commitment, spending more or less money, satisfaction and recommendation of organization by friends. Different studies find different methods to measure brand loyalty. Further research has to focus more on the other aspects of brand loyalty which are given by Punniyamoorthy & Prasanna Mohan Raj (2007) to create a total view of the situation. They said that measuring brand loyalty is related to involvement, functional value, price worthiness, emotional value, commitment, repeated purchase, perceived value, satisfaction and brand trust. So next study have to combine the variables of Punniyamoorthy & Prasanna Mohan Raj and the results of this research.

In this research the performance is related to profit. The researcher chooses this, because adding more elements in the scenarios could lead to confusion with the respondents. It could be too specific and there is a chance that respondents want to discuss about the different elements. Further research can focus more on the influence of bonuses and performance on market share and stock prices of firms.

6. L

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