The influence of loyalty programs on South African Youth’s repeat purchase behaviour

Abstract

Despite the substantial interest in loyalty programs amongst marketing scholars and professionals, few studies have been conducted amongst the youth within emerging markets. The purpose of the study was to examine the mediating influence of customer satisfaction, trust, and commitment on the relationship between loyalty programs and repeat purchase behaviour of a group of South African youth. The methodology involved a self-administrated questionnaire adapted from previous similar studies. Data were collected from 263 South African young people between the ages of 18 and 24 who were retail loyalty program members. The study tested six hypotheses using Structural Equation Modeling. The software used was SPSS 22 for descriptive statistics and IBM Amos 22. The findings indicate that all hypotheses were supported. They also suggest the significance of customer satisfaction as a strong mediator of loyalty programs and repeat purchase behaviour. Moreover, the study reveals that the mediating influence of customer commitment on loyalty programs and repeat purchase behaviour was the weakest influence. The findings revealed that, by building customer satisfaction and customer trust amongst the youth, the potential for marketers to positively impact on the success of loyalty programs and repeat purchase behaviour is high. This paper makes a valuable contribution to the literature on loyalty programs amongst youth within a developing market context. Corresponding author: Siphiwe Dlamini Email address for corresponding author: Siphiwe.dlamini@uct.ac.za First submission received: 2nd October 2018 Revised submission received: 18th January 2019 Accepted: 25th January 2018 1. The introduction Loyalty programs have been found to be commonly used in retail as a customer relationship management tool to acquire and retain customers (Goel, Kamble, Banerjee and Goel, 2017; Kang, Alejandro and Groza, 2015). This body of research explains their wide adoption amongst companies across different markets (Leva and Ziliani, 2017; Söderlund and Colliander, 2015). Loyalty programs are immensely popular globally, with 90% of European and United States customers being members of at least one loyalty program (Meyer-Waarden, 2015). In the U.S alone, there are 2.1 billion loyalty program memberships growing at 16% annually (Meyer-Waarden, 2015). In South Africa, the number of loyalty program memberships has increased from 12 to 15 million registered members in 2007 (Oliver, 2007), with Pick ‘n Pay having 8.9 million members and the Edcon group having 12 million members by 2015, while Clicks and Woolworths have 5 and 3.1 million members, respectively. There are over 70 loyalty programs in South Africa, and many are found in the retail sector. The most significant value of a loyalty program has been found to be that of increasing sales and retaining valued customers (Bolton, Kannan and Bramlett, 2000; Lee, Tsang and Pan, 2015; Lima and Lee, 2015). Gomez, Arranz and Cillán (2006) suggest that companies use loyalty programs as a specific marketing strategy to secure customer loyalty. Most prior studies have investigated the effect of one or two of the three predictors of customer loyalty (Stathopoulou and Balabanis, 2016; Pandit and Vilches-Montero, 2016; Baloglu, Zhong and Tanford, 2017); but none has examined the joint effects of all three on loyalty programs and repeat Journal of Business and Retail Management Research (JBRMR), Vol. 13 Issue 3 April 2019 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 236 purchase behaviour. Our study intends to fill this gap by investigating the combined effect of customer satisfaction, trust, and commitment on loyalty programs and repeat purchase behaviour. We consider thorough knowledge about such mediating effects to be vital to the marketing strategy of products and services, since all these effects need to be considered when planning and evaluating actions to be taken to increase customer share of wallet (Magi, 2003). Notwithstanding studies showing the positive effect of loyalty program benefits on customer satisfaction (Stathopoulou and Balabanis, 2016), many retailers do not have loyalty programs in place geared towards a specific market, in this instance, the youth aged between 18 and 24. Considering that the youth represent a significant future earning potential, one would expect that retailers would target them from an early age in order to generate a long-term relationship with them, and thereby achieve customer lifetime value. Loyalty programs, benefits, and customer trust in a service provider have been clearly shown to influence consumer behaviour (Baloglu et al., 2017) and much of the literature suggests that satisfaction and trust are key determinants of loyalty (Pandit and Vilches-Montero, 2016). Thus, given these insights on loyalty programs, the research question that this paper seeks to answer is, what is the degree to which, and what is the nature of, the influence of loyalty programs on the repeat purchase behaviour of South African youth? In answering this question, the study makes a potentially valuable contribution to the loyalty program, youth and emerging market literature by providing empirical evidence to fill several research gaps. We found the first gap in the extant literature to be the narrow focus on financial benefits and their effects on loyalty programs (Henderson, Beck and Palmatier, 2011), and on the effects of customer satisfaction, while customer trust and customer commitment remain largely unexplored. Secondly, loyalty program members belong to different segments of the consumer population and should thus be given different benefit offers (Söderlund and Colliander, 2015). However, no studies have to date investigated the specific effects of loyalty programs on the youth, a crucial segment of the consumer population for many retailers. Lastly, while loyalty programs have reached saturation in most developed markets and are growing rapidly in emerging markets (Yan & Cui, 2016), there exists limited empirical findings of loyalty programs and repeat purchase behaviour in emerging markets. In addition, several existing studies have revealed that customers in emerging markets may present diverse purchasing behaviours from those of customers in developed markets (Atsmon, Kuentz and Seong, 2012). The next section discusses the key constructs of the study and related hypotheses. The methodology section follows and a discussion of results, implications, limitations of the study and future research conclude the paper. 2. Literature review 2.1. Loyalty programs Yi and Jeon (2003) define a loyalty program as a marketing program that drives customer loyalty and rewards profitable customers. Evanschitzky, Iyer, Plassmann, Niessing and Meffert (2012) see loyalty programs as a marketing to increase sales and retain customers. The value of a loyalty program is dependent upon the customer appreciation, or positive perception, of its benefits or rewards (Lee et al., 2015). Successful loyalty programs can be implemented if clear company goals are established, along with suitable systems for implementation and measurement (Lee et al., 2015). Dowling and Uncles (1997) saw loyalty programs as being beneficial for the following reasons: serving loyal customers is cost effective, such programs are less price sensitive, more profitable, and loyal to customers, and become advocates for the company. More importantly, according to Beneke, Blampied, Cumming and Parkfelt (2015), the main objective of customer loyalty programs is to cultivate customer retention, increase satisfaction and drive value for customers. Loyalty programs can offer customers benefits in exchange for repeat purchase to a company (Noble, Esmark and Noble, 2014). Undoubtedly, as many studies have shown, loyalty programs have become a strategic marketing tool to encourage behavioural customer loyalty (Evanschitzky et al., 2012; Agudo, Crespo and del Bosque 2012; Leenheer, Van Heerde, Bijmolt and Smidts, 2007). Omar and Musa (2009) assert that loyalty programs are a systematic process of recruiting, selecting, maintaining, and capitalising on customers. The intended purpose of loyalty programs is for companies to reward loyal customers and influence their purchase behaviour (Dorotic, Bijmolt and Verhoef, 2012; Omar and Musa, 2009). Journal of Business and Retail Management Research (JBRMR), Vol. 13 Issue 3 April 2019 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 237 2.2. Customer satisfaction Creating and maintaining customer satisfaction is one of the greatest modern challenges, faced by management, as well as being an urgent priority (Veloutsou, 2015; Radojevic, Stanisic and Stanic, 2015). Keropyan and Gil-Lafuente (2012) also see customer satisfaction as a major objective of marketing and the vital importance for companies to keep their customers satisfied. When the customer is at the heart of a company, the company grows more satisfied customers (Aktepe, Ersöz and Toklu, 2015). Customer satisfaction, switching cost, and trust in a company all have an impact on customer loyalty (Minarti and Segoro, 2014). Customer satisfaction, customer loyalty, internal marketing, and consumer behaviour are all interconnected and should be vital for customer retention (Roberts-Lombard, 2009). While researchers such as Barkaoui, Berger and Boukhtouta (2015) see customer satisfaction levels as relating directly to a company’s service quality, two decades ago Bowen and Shoemaker (1998) argued that satisfied customers are not automatically loyal. Instead, according to Omar, Wel, Aniza, Musa and Nazri (2010), customer satisfaction is defined as a measure of the degree to which a customer’s expectations are met. Customer satisfaction in this paper is defined broadly in terms of a company exceeding all customer expectations and fulfilling all the needs of its customers (Terblanche and