African Journal of Business Management Vol. 6(11), pp.

4295-4309, 21 March, 2012

Available online at http://www.academicjournals.org/AJBM
DOI: 10.5897/AJBM11.2813
ISSN 1993-8233 ©2012 Academic Journals

Full Length Research Paper

The effects of loyalty programs on customer loyalty:

The mediating role of customer value and the
moderating role of relationship benefits
Tang Saili*, Zhang Mingli and Cheng Zhichao
School of Economics and Management, Beihang University, P. O. Box 100191, Beijing, China.
Accepted 20 December, 2011

Since the prevalence of loyalty programs worldwide, one of the urgent issues in retailing is whether
loyalty programs really enhance customer loyalty. This paper proposes a conceptual framework that
utilizes the construct of customer value to explain the link between loyalty programs and customer
loyalty in retail context. Based on 450 respondents from members of several large department stores,
the results posit that loyalty programs have indirect positive impact on behavioral loyalty, affective
loyalty via utilitarian value, hedonic value. This mediating progress is moderated by relationship
benefits derived from the long-term relationship between retailers and their customers. The results also
show that the role of utilitarian value playing in promoting customer loyalty is more significant, which
has certain reference for retailers to design effective loyalty programs.

Key words: Loyalty programs, customer value, relationship benefits, customer loyalty.

INTRODUCTION

In the modern customer-centric marketing, loyalty their expected customer loyalty. Actually, retailers in
program is viewed as a strategic weapon in developing United Kingdom, such as Safeway, gave up loyalty
valuable customer relationships and promoting customer programs because doing so could save company $75
loyalty. It has increasingly attracted interests in both million per year. Simultaneously, other retailers such as
marketing academics and practitioners (Sharp and E. Leclerc in France still invest tens of millions of dollars
Sharp, 1997; Yi and Jeon, 2003; Leenheer et al., 2007). per year to implement loyalty programs.
Up to 2006, the total loyalty programs enrollments rose to Furthermore, there is still an academic debate about
1.5 billion in the United States, which increased 35.5% the effect of retailer loyalty programs on customer loyalty.
compared with 2000 (Ferguson and Hlavinka, 2007). With Some of extant empirical study have proposed loyalty
the rapid expansion of the economy over the last ten programs in retailing had positive impact on customer
years, the development speed of loyalty programs in purchasing behavior (Mägi, 2003; Lewis, 2004; Taylor
developing countries is twice faster than that in and Neslin, 2005; Meyer-Waarden, 2007; Ho et al., 2009;
developed countries. Although, loyalty programs are Omar et al., 2011b). Whereas, others found that loyalty
widely used in retail all over the world, and retailers have programs in retailing did not generate any impact (Sharp
indeed invested a lot of money into loyalty programs, and Sharp, 1997; Benavent et al., 2000; DeWulf et al.,
many loyalty programs do not bring corporate managers 2001; Meyer-Waarden, 2006; Leenheer and Bijmolt,
2008). These two opposite conclusions hinder the proper
evaluation of loyalty programs effects and suggest a need
to understand these programs better.
*Corresponding author. E-mail: tangsaili@126.com. Tel: +86- Customer loyalty is a key factor for retailers to achieve
010-82338102. long-lasting success and sustainable operation. Currently,
4296 Afr. J. Bus. Manage.

researchers have generally recognized customer loyalty with the presentation of the research findings, managerial
including behavioral dimension and affective dimension. implications and future research directions.
However, most studies in retailing have analyzed the
effects of loyalty programs on customer loyalty only from
behavioral dimension, especially viewing SOW as the LITERATURE REVIEW
unique indicator (Berger et al., 2002; Mägi, 2003;
Leenheer et al., 2007), and thus ignored the emotional Loyalty programs
dimension of loyalty. Due to this lack of study, another
target of the paper is to explore the effect of loyalty As a marketing strategy, a loyalty program offers
programs both on behavioral loyalty and affective loyalty. incentives and reward to its members with the objective
Previous studies on customer loyalty have empirically of securing customers more loyal to company (Lacey,
confirmed that customer value was a precursor to loyalty 2003; Yi and Jeon, 2003; Leenheer et al., 2007; Omar et
in service sector (Woodall, 2003). From a customer point al., 2011a). It could tie up customers with a company or
of view, the prerequisite for them to participate in loyalty brand, and exert a positive impact in the relationships
programs is that their expected benefits are superior to between customers and firms or brands by various
their expected costs (Mauri, 2003). Hence, retailers incentives.
aiming at improving customer loyalty via loyalty programs Loyalty programs rooted in the department industry
should ensure that these programs could create and have begun with the introduction of S and H Green
deliver superior customer value to their customers Stamps mark since a hundred years ago. In the past
(Bolton et al., 2000). Due to the limited resource of firm decade, loyalty programs have been implemented almost
and the high costs of creating customer value, it is crucial beyond national boundaries (Uncles and Laurent, 1997).
for firms to investigate the effects of each dimension of Prior empirical studies on retailing loyalty program have
customer value on loyalty and allocate resource focused on analyzing the impact of loyalty programs on
accordingly. the behavior of local customers from a company point of
In addition, although, some related research has view. For example, through an investigation of the
examined the positive relationship between perceived Swedish customers in department industry, Mägi (2003)
value of loyalty programs and customer loyalty (Yi and found loyalty programs only had partial impact on
Jeon, 2003; Li et al., 2003), these studies have neglected customer expenditure. In American retailing, some
what elements exert an important role in the effect of researchers have found loyalty programs had positive
customer value on loyalty. Chen and Hu (2010) posited impact on share of purchase, purchase amount, revenue
that relationship benefits as relationship marketing and orders of customers (Lewis, 2004; Taylor and Neslin,
approaches to customer loyalty could enhance customer 2005). However, other scholars argued loyalty programs
value and finally win customer loyalty. Whereas, it is did not have any impact on market share, repeat
imperative for firms aiming at a sharpened understanding purchase rate (Sharp and Sharp, 1997; Meyer-Waarden,
of consumer behavior and carrying out distinctive 2006), purchase volume, total purchase expenditure
marketing strategies to investigate how relationship (Benavent et al., 2000), and purchase timing (Meyer-
benefits affect the mediating role of customer value Waarden, 2006). This debate of empirical studies
between loyalty programs and customer loyalty. demands a thorough solution for the validity of loyalty
Based on the academic questions aforementioned and programs, that is, conforming whether loyalty programs
the background of Chinese retailing, this manuscript aims could really engender and maintain customer loyalty.
to examine the mediating role of customer value between Superior perceived effectiveness of loyalty programs is
loyalty programs and customer loyalty, analyze the necessary for firms to develop customer loyalty. An
importance degree of each dimension of customer value effective loyalty program should be viewed valuable by
in loyalty programs, and explore the moderating role of customers. Garbarino and Johnson (1999) have
relationship benefits on the mediating process in depth. proposed that perceived effectiveness of loyalty programs
The remainder of the article is structured as follows: depended on procurability and forms of rewards, and the
firstly, this article develops a conceptual framework on the relativity between rewards and products/services.
relationship between loyalty programs, relationship Additionally, desire for return and probability of getting
benefits, customer value and customer loyalty. return were both examined by Kivetz and Simonson
Furthermore, it proposes the hypotheses regarding the (2002). Yi and Jeon (2003) enriched their study by
mediating role of customer value and the moderating role measuring perceived effectiveness of loyalty programs
of relationship benefits playing between loyalty programs through three dimensions: cash value of rewards,
and customer loyalty. Secondly, we present three rival probability of getting rewards and desire for rewards.
models of mediating effects and a moderated mediating Based on Yi and Jeon (2003), this paper uses perceived
model. Then, we explain the methodology in details, effectiveness of loyalty programs to measure
compare three rival models and reveal how relationship effectiveness of loyalty programs comprehensively.
benefits control the mediating process. This paper ends Perceived effectiveness of loyalty programs refers to
 Saili et al. 4297

tradeoff between interests that customers obtain from In the theory framework of bounded rationality,
loyalty programs and costs that customers pay for according to Holbrook (1994), this paper proposes that
participating loyalty programs. customers participate in loyalty programs for two kinds of
objectives: functional goal and spontaneous goal. The
former refers that some consuming behavior are means
Customer value to achieving the target of next activity; for example,
customers joining in a loyalty program may want to get
Currently, marketing researchers understand customer price discount or faster service. However, the latter refers
value from two main paradigms: goods-dominant logic that other activities view active procedure as ultimate
and service-dominant logic. From a goods-dominant view goal; for instance, customers feel enjoyment and joyful
which highlights tangible output and transaction-oriented, during redeeming accumulated points for a reward, such
customer value is determined by manufacturers and is as a free product. Thus, in light of Addis and Holbrook
stemmed from calculable resources. On the other hand, (2001), the paper measures customer value through
from service-dominant logic which focuses on intangibility utilitarian dimension and hedonic dimension. Utilitarian
and relationship-oriented, customer value depends upon value refers to functional results and objectives of using
perception of customer on the basis of the use value and product or service directly, which is on the basis of
is stemmed from beneficial applications or delivery functionality and practical experience and relevant to
getting from calculable resources (Vargo and Lusch, attributes of product/service. Hedonic value is result of
2004). According to service-dominant logic, customer more subjective and personal spontaneous reaction, such
value is defined as an overall evaluation of products or as entertainment, exploring and self-expression driven by
services based on perceived benefits and sacrifice emotion.
(Holbrook, 2006; Noble and Griffith, 2005). This means
that customers, as seekers after value maximization, are
concerned about trade-off between what they receive Customer loyalty
(such as service quality and benefits) and what they
sacrifice (such as time, price, psychological and other Although, many scholars have defined customer loyalty
costs). This definition has been universally recognized with different concept, most of them explored and
and widely used in academic world. However, due to the measured customer loyalty from two aspects: loyal
complexity of the concept, scholars have put forward behavior and loyal attitude (Reynolds and Arnold, 2000).
various measurement approaches in accordance with Researchers focusing on behavior pay attention to
different research purposes and perspectives. From measure loyalty from the actual purchasing behavior of
traditional perspectives, researchers simply divide customers (Oliver, 1999). However, others who
customer value into quality and price on the basis of emphasize attitude mainly measure loyalty on the basis
economic person hypothesis (Ponsonby and Boyle, of customer preference to specific product or service of
2004). In light of this view, Kolter (1997) claimed that providers (Morgan and Hunt, 1994).
customer value included product value, service value, Purchase behavior, especially the repeat purchase, is
employee value and image value. Sheth et al. (1991) the main component of loyalty (Kandampully, 1998) which
holding customer-oriented view argued five-dimension reflects the possibility of transacting with the same
framework of customer value: functional value, social provider again (Jones et al., 2003). Prior studies about
value, emotional value, epistemic value and conditional customer loyalty have measured loyalty from a view of
value. In terms of Sheth et al. (1991), Sweeney and purchase behavior through SOW (Berger et al., 2002;
Soutar (2001) developed PERVAL model and suggested Mägi, 2003; Leenheer et al., 2007; Morrisson and
customer value consist of emotional value, social value, Huppertz, 2010), proportion of purchase (ratio of
quality and price. Smith and Colgate (2007) extended purchase) (Baloglu, 2002), frequency of purchase (Sharp
prior studies and indicated that functional value, and Sharp, 1997; Ho et al., 2009), past activities of
experience value, symbolic value and cost value consumer (Olsen, 2002; Too et al., 2001) and so on. In
composed the conceptual framework of customer value. retailing, the characteristics of purchase behavior are
Hirschman and Holbrook (1982) considered that buying frequently (Drèze and Hoch, 1998) and making
customers judge value from both utility and experience. transactions varying in basket sizes (Kahn and
They indicated that besides utility, customers also paid Schmittlein 1992). Moreover, most consumers often
attention to symbolic, joyful and aesthetic experience. purchase products/services from different retailers (Kahn
Conform to them, Babin and Darden (1994) understood and McAlister, 1997), a phenomenon viewed as
purchase motivation through utilitarian benefits and polygamous loyalty (Dowling and Uncles, 1997). Other
hedonic benefits. Many researchers have empirical researchers also posited that repeat purchase is spurious
analysis customer value using these two dimensions in loyalty while the following occurs: consumer does not
different context (Gursoy et al., 2006; Overby and Lee, have another provider to choose, consumer participation
2006). lever is low and consumer has to buy from the same
4298 Afr. J. Bus. Manage.

provider because of perceiving no differentiation between From a customer view, Berry (1995) and Bitner (1995)
providers (Zeithaml et al., 1996; Dick and Basu, 1994). have first explored the dimensions of relationship benefits
Kandampully (1998) suggested that true loyalty between through theoretical analysis in consumer service context.
company and its customers is built on the basis of long- Berry suggested that relationship benefits should be
term link and emotional connection between them. This composed of customized service benefits, risk reduction
emotional bond could evoke customers establishing benefits and social benefits; whereas, Bitner recognized
psychological attachment to provider, and make that besides social benefits, relationship benefits should
customers more willing to maintain continuous include the benefits which could simplify personal life and
relationships with company. Further, customers will form save switching cost for customers. Beatty et al. (1996)
a stronger emotional attachment to retailers if their emphasized that the relationship between customers and
shopping experience meet their expectation and satisfy individual sales could bring convenience and better
their fundamental need. True loyalty based on emotional purchase decisions to customers. However, these studies
connection is hard to imitate and could form a competitive analyzed only from the level of theory, until Gwinner et al.
advantage of company (Palmer et al., 2000). Due to the (1998) put forward the three dimensions of relationship
importance of behavioral loyalty and affective loyalty to benefits by empirical studies: confidence benefits, social
customer loyalty, many scholars stressed that customer benefits and special treatment benefits. Some other
loyalty was a complex of the two aspects (Dick and Omar, scholars also have examined this conclusion in service
1994; Davis, 2006; Gómez et al., 2006). They believed context with empirical research (Patterson and Smith,
that both actual purchase behavior and preference 2001; Hennig-Thurau et al., 2002; Park and Kim, 2003).
degree to specific provider of customers could reflect Confidence benefits refer to a series of psychological
customer loyalty. factors, which are related to reduction of customer
Based on Dick and Omar (1994), this paper measures perceived anxiety and risk after transaction. This type of
customer loyalty through behavioral loyalty and affective benefits could not only make customers trust the service
loyalty in retailing. Behavioral loyalty refers to repeat provider but also make providers maintain their
purchase from a certain retailer, and affective loyalty commitment to customers (Grönroos, 2007; Bitner, 1995).
refers to emotional connection of customers with certain Therefore, it has been viewed as a key factor of
retailer on the basis of shopping experience and their successful relationship (Morgan and Hunt, 1994). Social
attitude towards the retailer. benefits including sense of belonging, empathy,
understanding, familiar, personal knowledge, social
support and even friendship (Berry, 1995), are derived
Relationship benefits from long-term relationship between employees and
customers, and associated with interpersonal links
Presently, there are plenty of studies on the relationship between them. Special treatment benefits consist of eco-
between firms and customers; however, most of these nomic interest customers obtaining from the relationships
studies are investigated from the enterprises perspective with firms and the benefits of customized service,
(Zhu and Kraemer, 2002). The marketing literature over because saving money is the main motive of customer to
the past decade has begun to focus on the motivation make relationship transaction (Peterson, 1995; Sheth and
and desire of establishing and maintaining long-lasting Parvatiyar, 1995).
relationship between customers and service providers
(Hennig-Thurau et al., 2000). Customers should perceive
the relationship valuable to stay in a long-term CONCEPTUAL FRAMEWORK AND HYPOTHESES
relationship. Besides core benefits, such as product and
service quality, firms should offer additional benefits to In line with psychology theories, human behavior is
their customers, including social, psychological, economic evoked by extrinsic motivation and intrinsic motivation. As
and other benefits (Berry, 1995; Binter, 1995; Zeithaml, far as consuming behavior is concerned, extrinsic
1996). Many scholars have called these benefits motivation is rational (functional)-oriented, yet intrinsic
“relationship benefits” and defined this concept as motivation is hedonic-oriented (Lofman, 1991). Gursoy et
interests customer perceived from long-term relationship al. (2006) revealed that many consuming behavior was
with service provider (Gwinner et al., 1998; Reynolds and the result of both utilitarian motivation and hedonic
Beatty, 1999; Patterson and Smith, 2001; Hennig-Thurau motivation. So that customers join in loyalty programs to
et al., 2002; Yen and Gwinner, 2003; Marzo-Navarro et seek utilitarian benefits and hedonic benefits, that is,
al., 2004; Vázquez-Carrasco and Foxall, 2006). In this utilitarian value and hedonic value. The utilitarian value
way, benefits customer gaining from relationship with derives in part from financial benefits, such as cash-back
company has been separated from core service of firms. offers and coupons that members accumulate while
It stresses the differentiation between interests provided frequently buying from the same retailer (Bolton et al.,
by company and effectiveness perceived by customer 2004). Retailers also offer value-added services like
which was of great importance to enterprises (Crawford, exclusive reservations or priority for their members to
1985; Friedmann and Lessig, 1987). decrease their cost. Meanwhile, participants can also
 Saili et al. 4299

enjoy hedonic value from various loyalty programs. For quality-loyalty relationships (Chang and Wildt, 1994;
instance, participants could satisfy their curiosity by Grisaffe and Kumar, 1998). Customer value could not
seeking information to keep pace with the latest trends only influence purchase behavior of customers but also
(Arnold and Reynolds, 2003). They can also feel joyful urge customer to make more attitudinal and emotional
during collecting and redeeming accumulated points. commitment to retailers. Therefore, we believe that
Therefore, we proposed: customer value is a mediator between loyalty programs
and customer loyalty.
H1a: Perceived effectiveness of loyalty programs has Effective loyalty programs could make customers feel
positive impact on utilitarian value. more perceived value of products and service through the
H1b: Perceived effectiveness of loyalty programs has followings: offer more economic direct reward and value-
positive impact on hedonic value. added service for participants than non-participants, bring
them experiential, emotional and recreational interest,
Previous empirical research in retailing has identified that and help them express their preference. Additionally,
customer value had a positive impact on customer loyalty these programs could reduce customer costs by pro-
in following settings: restaurant industry (Kwun and Oh, viding convenience, saving time value, and cutting down
2004; Tam, 2004), airline service (Sirdeshmukh et al., search and decision costs. After enjoying customer value
2002; Atalik, 2009), retailing services (Sirdeshmukh et al., above, customers would increase purchase volume and
2002; Tsai et al., 2010) and so on. Zeithaml et al. (1996) frequency and engender positive attitude and emotional
discussed the positive relationship between customer attachment towards retailers. As the direct impact of
value and their future purchase/repurchase intentions. loyalty programs on customer loyalty is still in doubt, we
Utilitarian value like convenience, price and availability propose that when customers obtain more customer
could affect behavioral intentions of customers (Cronin value from loyalty programs, the behavior and affection of
and Taylor, 1992). Rational customers would stay in the customers would become more loyal to retailers. That is,
relationship with providers to receive more economic, customer value could act as a mediator to understand the
time and other value. In addition, many studies claimed impact of loyalty programs on customer loyalty in depth.
hedonic value such as exploration, entertainment and As is stated earlier, we propose:
expression could increase behavioral loyalty (Arnold and
Reynolds, 2003; Babin and Attaway, 2000; Jones et al., H3a: Utilitarian value plays a mediating role between
2006). Researchers have also shown that increasing perceived effectiveness of loyalty programs and
superior customer value could bring companies emotional behavioral loyalty.
links with customers (Butz and Goodstein, 1996). H3b: Hedonic value plays a mediating role between
Through empirical analysis, Sweeney and Soutar (2001) perceived effectiveness of loyalty programs and affective
proposed that customer value was positively related to loyalty.
behavioral and attitudinal intentions in retailing context.
As a consequence, we proposed: Relationship benefits as a core conception of relationship
marketing, has been empirically confirmed positively
H2a: Utilitarian value has a positive impact on behavioral related to customer value (Chen and Hu, 2010) and
loyalty. customer loyalty (Gwinner et al., 1998; Hennig-Thurau et
H2b: Utilitarian value has a positive impact on affective al. 2002; Reynolds and Beatty, 1999; Bieger et al., 2010;
loyalty. Dagger et al., 2011). DeWulf et al. (2001) has proposed a
H2c: Hedonic value has a positive impact on behavioral principle of reciprocity about the investment in relation-
loyalty. ship between customers and companies: customers
H2d: Hedonic value has a positive impact on affective would feel responsible for the company offering good
loyalty. service and benefits to themselves. In terms of this
principle, relationship benefits may explain and guide
According to goal and action identification theories, the customers to stay in relationship with retailers. From the
value plays a mediating role in relational exchanges perspective of relationship marketing, when customers
(Carver and Scheier, 1990). Within the realm of perceives value, they would not only be concerned about
marketing, customer value is the primary basis for all products and services, but also will be concerned about
marketing activity (Holbrook, 1994). As a result, the main the overall relationship with providers; thus, the
objective of customers to maintain relationship with firms relationship would influence the total perceived value
is to achieve their interests and satisfactions from the (Grönroos, 2007). According to these views, under high
relational exchanges. Retailers design and implement relationship benefits, customers would establish strong
loyalty program through offering customer value to emotional connection with providers and perceive higher
customer in order to develop long-term relationship with total value even perceived effectiveness of loyalty
customers and win customer loyalty. Prior research has programs is low. Meanwhile, by the impact of reciprocity,
texted the mediating role of customer value in service there is less chance for customers to switch retailers. In
4300 Afr. J. Bus. Manage.

Figure 1. Conceptual framework.

this case, higher relationship benefits would enhance more than 50% of the respondents go shopping in this store at least
customer value and win customer loyalty, no matter 4 times a month, indicating that respondents have a rich shopping
experience and the sample has representativeness of retailing
whether perceived effectiveness of loyalty programs is customers. The number of VIP members was 136, about 42.6% of
high or low. Thus, this leads to the following hypothesis: total samples; more than half of the respondents for the sample
were female (54.9%); 178 respondents ranged in age from 31 to 40
H4: Relationship benefits moderate the relationship (55.8%).
between loyalty programs and customer loyalty via
customer value (H4 is valid with either H4a or H4b is
supported). Measurement
H4a: The relationship between customer value and their
All measures were adopted from previous research, and minor
perceived effectiveness of loyalty programs is controlled
modified to suit the study context. New scales were developed for
by relationship benefits. six key variables in accordance with conventional procedures
H4b: The relationship between customer value and (Churchill, 1979). The article used three questions from Leenheer et
customer loyalty is control by relationship benefits. al. (2007) and Gable et al., (2008) to measure perceived
effectiveness of loyalty programs proposed earlier. Customer value
On the basis of literature, this paper proposes a consisted of two dimensions: utilitarian value and hedonic value.
Scales used for these two dimensions of customer value were
conceptual model, as shown in Figure 1. This model adapted from Rintamaki et al. (2006). Customer loyalty was
reflects the mediating role of customer value and the measured through behavioral and affective loyalty, using scales
moderating role of relationship benefits in relationship modified from Yi and Jeon (2003). Relationship benefits scale
between perceived effectiveness of loyalty programs and consists of five items: two items representing confident benefits
customer loyalty. adapted from McKnight et al. (1998); two items revealing social
benefits adjusted from Gwinner et al. (1998); one item showing
identity-related benefits using scales from Patterson and Smith
(2001). Pre-investigation observed 10 postgraduates, 10 doctoral
RESEARCH METHODOLOGY students and 10 students of MBA from the same university in
Beijing. Each respondent at least has a membership card of
Sample and data collection department stores or supermarkets. According to the feedback from
the pre-survey, final scales were composed of 24 items and all
Due to the widely use of loyalty programs in retailing, this paper responses were assessed on 7-point Likert scales ranging from 1
uses survey methods and selects this industry. Members of loyalty (“strongly disagree”) to 7 (“strongly agree”).
programs from a large department store in a medium-sized Chinese
city formed the sample for the investigation. As the liquidity of
customers, we intercepted customers who were members of the ANALYSIS AND RESULTS
store to fill in the questionnaire. A total of 450 questionnaires were
issued, and 369 valid questionnaires were returned. After the invalid
questionnaires removed, 319 valid questionnaires remained Reliability and validity analysis
(effective response rate was 71%, meeting the requirement of large
sample in SEM (at least 100 samples). Most members have The statistical analysis adopted SPSS 17.0, and all the
participated in the loyalty program more than one year (85%), and item-total-correlation were higher than 0.4 (Table 1). To
 Saili et al. 4301

Table 1. Measurement model results.

Factor Mean Loadings T-value Item-total correlation

Perceived effectiveness of loyalty programs (LP) Cronbach’s α = 0.794 CR = 0.798
LP1: I feel stronger connected to the store of which I hold a loyalty card. 5.00 0.74 13.81 0.639
LP2: Loyalty and saving programs of the store offer attractive benefits. 4.98 0.79 15.02 0.670
LP3: I enjoy the benefits of memberships. 4.91 0.73 13.55 0.607

Utilitarian value (UV) Cronbach’s α=0.786 CR= 0.788

UV1: I was able to make my purchases conveniently. 5.03 0.71 13.26 0.581
UV2: I was able to shop without disruptive queuing or other delays. 5.07 0.72 13.44 0.622
UV3: I saved money when I shopped here. 5.02 0.80 15.27 0.674

Hedonic value (HV) Cronbach’s α = 0.863 CR = 0.864

HV1: In my opinion, shopping around was a pleasant way to spend leisure time. 5.16 0.77 15.46 0.698
HV2: I felt adventurous and wanted to visit different departments in order to find interesting products. 5.23 0.76 15.35 0.696
HV3: I was looking for insights and new ideas to buy. 5.09 0.78 15.73 0.701
HV4: I enjoyed this shopping trip itself, not just because I was able to get my purchases done. 5.22 0.82 17.12 0.750

Behavioral loyalty (BL) Cronbach’s α = 0.80 CR = 0.788

BL1: I am willing to increase expenditure in this store. 4.73 0.77 15.11 0.686
BL2: I am willing to purchase more products and services from this store. 4.76 0.71 13.70 0.604
BL3: Loyalty and saving programs of the store make me consider extending purchase time. 4.83 0.66 12.44 0.575
BL4: I will not switch to other stores, if this store raise price. 4.82 0.70 13.23 0.588

Affective loyalty (AL) Cronbach’s α = 0.873 CR = 0.874

AL1: I like the product and service offered by the store. 5.30 0.83 17.86 0.763
AL2: I will recommend this store to others. 5.27 0.76 15.34 0.705
AL3: If the store’s product or service makes a mistake, I could forgive its error. 5.11 0.71 13.74 0.658
AL4: I will praise this store to others. 5.11 0.74 14.75 0.679
AL5: I prefer this store. 5.17 0.77 15.65 0.702

Relationship benefits (RB) Cronbach’s α = 0.847 CR = 0.846

RB1: I believe that the store is capable to meet customer needs. 5.00 0.71 13.87 0.660
RB2: I believe this store would service customers sincerely and never deceive customers. 5.07 0.72 13.99 0.665
RB3: I am familiar with the store’s employees. 5.13 0.72 14.12 0.674
RB4: I enjoy this interpersonal relationship with the store’s employees. 4.98 0.74 14.60 0.657
RB5: I get special offers and deals that most customers do not get. 4.96 0.73 14.28 0.622
2 2 k
 k   k 
CR =  ∑ λ   ∑ λ + ∑ ε
   
Note:  n =1   n =1  n =1 , where λ is the standardized factor loading coefficient, and ε is the measurement error.
4302 Afr. J. Bus. Manage.

Table 2. Discriminant validity tests.

Latent variable LP UV HV AL BL RB
LP 0.754 - - - - -
UV 0.42 0.744 - - - -
HV 0.51 0.49 0.783 - - -
AL 0.41 0.53 0.60 0.763 - -
BL 0.53 0.68 0.69 0.61 0.711 -
RB 0.48 0.42 0.59 0.72 0.59 0.724
AVE 0.57 0.55 0.61 0.58 0.51 0.52
Figures on the diagonal are square root of the AVE, and figures below the diagonal are correlation coefficient of
the latent variables.

Table 3. Hypotheses testing results.

Hypothesis Path β T-value Results

H1a LP→UV 0.54*** 8.26 Supported
H1b LP→HV 0.46*** 6.66 Supported
H2a UV→BL 0.46*** 6.36 Supported
H2b UV→AL 0.45*** 6.35 Supported
H2c HV→BL 0.32*** 4.72 Supported
H2d HV→AL 0.45*** 6.26 Supported
β is standardized path coefficient: *p<0.05, **p<0.01, ***p<0.001.

examine construct validity of each scale, we computed an was higher than its impact on hedonic value (β = 0.46, p
exploratory factor analysis on the basis of a principal < 0.001). Thus, H1a and b were supported. Moreover,
components analysis with a varimax rotation. Bartlett’s higher utilitarian value would enhance behavioral loyalty
2
test of sphericity (χ = 3813.639, p = 0.000) was signi- (β = 0.46, p < 0.001) and affective loyalty (β = 0.45, p <
ficant. Moreover, the Kaiser-Meyer-Olkin (KMO) value 0.001) of the customers, so that H2a and b are supported.
was 0.924, and accumulated variance contribution rate Hedonic value was also significantly related to behavioral
was 68.2%, which presented factoring was appropriate. loyalty (β = 0.32, p < 0.001) and affective loyalty (β =
The Cronbach’s alpha coefficient of total scale is 0.927, 0.45, p < 0.001), which supported H2c and d.
and the six Cronbach’s α for each factor were basically Following the measurement procedure of Kelloway
more than 0.7 (Table 1). Composite reliability (CR) of (1998), this paper analyzed the mediating role of
each latent variable was acceptable (Table 1). As shown customer value through SEM. According to basic model
in Table 2, the factor loadings ranged from 0.66 to 0.83, in Figure 2, we constructed two rival models (Figure 3). In
which were significant in t-test, and average variances partly intermediate effect model M1, loyalty programs not
extracted (AVE) were acceptable; thus, the model had only have direct influence on behavioral loyalty and
adequate convergent validity. Furthermore, each square affective loyalty of customers, but also have indirect
root of AVE was greater than correlation coefficients impact on customer loyalty through customer value. In
between factors, which confirmed the model had fully intermediate effect model M2, loyalty programs only
adequate discriminant validity. have indirect impact on customer loyalty through
customer value. On the contrary, in direct-effect-only
model M3, loyalty programs only have direct impact on
Hypotheses testing customer loyalty. The structural model fit of each model
were shown in Table 4. According to the suggestion of
This article used Lisrel 8.70 to conduct hypothesis Morgan and Hunt (1994), the paper compared the
testing. The fit statistics (χ = 251.44, d.f. = 144, χ / d.f. = significance of differentiation between χ of each model
2 2 2

(△χ ) and took principle of parsimonious into account.

2
1.75, NFI = 0.97, NNFI = 0.98, IFI = 0.98, CFI = 0.98, GFI
= 0.92, AGFI = 0.90, RMSEA = 0.048) indicated evidence The result of comparison indicated that the
of a good model fit. As revealed by Table 3 and Figure 2, differentiation between M1 and M2 is not significant
(△χ df=2 = 12.58, p > 0.05), thus M1 was better than M2;
2
perceived effectiveness of loyalty programs had
2
significant impact on the two dimensions of customer similarly, M2 was better than M3 (△χ df=2 = 37.08, p >
value. Its impact on utilitarian value (β = 0.54, p < 0.001) 0.05). In addition, PNFI of M2 was less than the other two
 Saili et al. 4303

0.05

Utilitarian B ehavioral
0.46***
value loyalty
0.54***
Pe rc eived 0.45***
effec tivene ss of
loyalty progra ms
0.46*** 0.32***

He donic Affec tive

0.45***
value loyalty

0.12

Figure 2. The model for the baseline model.

Customer
value

Perceived
Customer
effectiveness of
loyalty
loyalty programs

Model M1:Partially intermediate effect model

Perceived
Customer Customer
effectiveness of
value loyalty
loyalty programs

Model M2：Fully intermediate effect model

Customer
value

Perceived
Customer
effectiveness of
loyalty
loyalty programs

Model M3: Direct-effect-only model

Figure 3. Models for testing mediating role of customer value.

models, so that M2 was the best model among the three In order to examine whether relationship benefits would
models. That is, customer value played fully intermediate produce the impact on the mediating progress, we define
effect between perceived effectiveness of loyalty perceived effectiveness of loyalty programs as
programs and customer loyalty, which supported H3a and independent variable, X; utilitarian value and hedonic
b. value as mediating variable, Me; relationship benefits as
4304 Afr. J. Bus. Manage.

Table 4. Results of rival models.

χ
2
Model d.f. RMSEA CFI NFI NNFI IFI GFI AGFI PNFI
M1 251.44 144 0.048 0.98 0.97 0.98 0.98 0.92 0.90 0.81
M2 254.63 146 0.048 0.98 0.96 0.98 0.98 0.92 0.90 0.71
M3 425.60 148 0.077 0.97 0.95 0.96 0.97 0.88 0.84 0.82
△χ
2

M1 - M2 3.19＜5.991 (0.05, 2), M2 is accepted, M2 > M1.

M3 - M1 174.16>5.991 (0.05, 2), M1 is accepted, M1 > M3.

Table 5. Least squares regression results for moderated mediation.

Equation 1 Equation 2 Equation 3

Model Predictor
b T b T b T
MI (Criterion BL) R = 0.619 (Criterion V) R = 0.572 (Criterion BL) R = 0.659
LP X: LP 0.21 (b11) 2.60* 0.39 (b21) 5.47*** 0.09 (b31) 1.05
↓ Mo: RB 0.50 (b12) 11.61*** 0.30 (b22) 8.05*** 0.40 (b32) 8.81***
UV XMo: LP × RB 0.01 (b13) 1.09 0.03 (b23) 2.43* 0.01 (b33) 0.51
↓ Me: UV 0.33 (b34) 5.27***
BL MeMo: UV × RB -0.01 (b35) -0.43

MII (Criterion BL) R=0.619 (Criterion HV) R=0.529 (Criterion BL) R=0.659
LP X: LP 0.21 (b11) 2.60* 0.22 (b21) 4.29*** 0.11 (b31) 1.40
↓ Mo: RB 0.50 (b12) 11.64*** 0.13 (b22) 4.76*** 0.44 (b32) 10.18***
HV XMo: LP × RB 0.01 (b13) 1.09 0.02 (b23) 2.95** 0.01 (b33) 0.32
↓ Me: HV 0.45 (b34) 5.19***
BL MeMo: HV × RB -0.01 (b35) -0.33

MIII (Criterion AL) R = 0.589 (Criterion UV) R=0.572 (Criterion AL) R=0.661
LP X: LP 0.34 (b11) 5.85*** 0.39 (b21) 5.47*** 0.23 (b31) 4.04***
↓ Mo: RB 0.25 (b12) 8.15*** 0.30 (b22) 8.05*** 0.16 (b32) 5.15***
UV XMo: LP × RB 0.03 (b13) 1.86 0.03 (b23) 2.43* 0.03 (b33) 3.37***
↓ Me: UV 0.29 (b34) 6.78***
AL MeMo: UV × RB -0.01 (b35) -1.17

MIV (Criterion AL) R = 0.589 (Criterion HV) R=0.529 (Criterion AL) R=0.672
LP X: LP 0.34 (b11) 5.85*** 0.22 (b21) 4.29*** 0.24 (b31) 4.27***
↓ Mo: RB 0.25 (b12) 8.15*** 0.13 (b22) 4.76*** 0.19 (b32) 6.31***
HV XMo: LP × RB 0.03 (b13) 1.86 0.02 (b23) 2.95** 0.02 (b33) 2.59*
↓ Me: HV 0.45 (b34) 7.67***
AL MeMo: HV × RB -0.01 (b35) 0.83
*p < 0.05, **p < 0.01, ***p < 0.001.

moderating variable, Mo; behavioral loyalty and affective Y = β10 + β11X + β12Mo + β13XMo + ε1 (1)
loyalty as outcome variable, Y. Thus, XMo is computed as
the product of independent variable and moderating Me = β20 + β21X + β22Mo + β23XMo + ε2 (2)
variable. If XMo impacts on Me and Me impacts on Y,
XMo would (at least partially) influence Y through Me, Y = β30 + β31X + β32Mo + β33XMo + β34Me + β35MeMo + ε3
therefore, Mo is an mediated moderator (Baron and (3)
Kenny, 1986). According to Muller and Judd (2005), to
demonstrate moderated mediation, one should estimate In all three equations, we are making the same assump-
three fundamental models: tions about all variables we did earlier. In Equation 1, β11
 Saili et al. 4305

Rela tionship R elationship

benefits benefits

H 4a H4b H4a H4b

Perceived Perceived
effectiveness Utilita rian B ehavioral effectiveness U tilitarian Affe ctive
of loyalty value loyalty of loyalty value loya lty
programs programs

M oderated media te d model Ⅰ Moderated mediated model Ⅱ

Rela tionship R elationship

benefits benefits

H 4a H4b H4a H4b

Perceived Perceived
effectiveness Hedonic B ehavioral effectiveness Hedonic Affe ctive
of loyalty value loyalty of loyalty value loya lty
programs programs

M oderated media te d model Ⅲ Moderated mediated model Ⅳ

Figure 4. Models for testing moderating role of relationship benefits.

should be significantly while β13 should be not. In For the purpose of understanding the indirect effect in
Equations 2 and 3, either (or both) of the two modes these data in depth, it is imperative to calculate the
should exist: both β23 and β14 are significant or both β21 simple effects of loyalty programs on the mediator
and β35 are significant. (customer value) at different levels of moderator
The paper used regression analysis test models. Table (relationship benefits).
5 estimated Equations 1 through 3 with these variables Since perceived effectiveness of loyalty programs and
and presented unstandardized coefficients (b) and their relationship benefits are measured by a 7-point scale, we
associated T statistics. In these equations, interactions use cluster analysis to divide these two conceptions into
are included in predictors (LP × RB; UV × RB; HV × RB). high and low groups. After that, we get four alignments: 1)
For moderated mediated model (Figure 4), b11 (b11 = 0.21, low relationship benefits – low perceived effectiveness of
p < 0.05) is significant, while b13 is not (b23 = 0.01, p > 0.1) loyalty programs (n = 25); 2) low relationship benefits –
in Equation 1. Both b23 (b23 = 0.03, p < 0.05) and b34(b34 = high perceived effectiveness of loyalty programs (n = 85);
0.33, p < 0.001) are significant in Equations 2 and 3. 3) high relationship benefits – low perceived effectiveness
However, b21 is significant but b35 is not. Here, there is a of loyalty programs (n=118); 4) high relationship benefits
significant effect of loyalty programs and a significant LP – high perceived effectiveness of loyalty programs (n =
× RB interaction. 91) (Table 6).
It means the magnitude of the indirect effect of loyalty Table 6 indicates the results of the ANOVA analysis and
programs, via the utilitarian value, varies in magnitude as post- hoc test, and the F value and p value are significant
a function of relationship benefits, which indicates (F = 32.461, p < 0.001). Moreover, Scheffe and Duncan
moderated mediation. Thus, in model, H4a is supported post-hoc test prove that the four groups are obviously
whereas H4b is not. Similarly, Table 5 also shows three different and customer value of the forth group is highest
other valid interactions LP × RB→HV→BL, followed by the third group and the second group.
LP×RB→UV→AL and LP×RB→HV→AL. That is, H4a is As Figure 5 indicates, when customers perceive higher
supported in other three models, yet H4b is not relationship benefits, even if their perceived effectiveness
supported. As a result, relationship benefits as a of loyalty programs is lower, they would feel more
moderator indirectly affect customer loyalty through customer value than participants who perceive higher
influencing the relationship between perceived effectiveness from loyalty programs but have low rela-
effectiveness of loyalty programs and customer value tionship benefits. These results as a whole clearly show
(supporting H4). that the indirect effect, via the mediator, is much higher
 4306 Afr. J. Bus. Manage.

Table 6. ANOVA analysis.

Low relationship benefits High relationship benefits

Scheffe
Low perceived High perceived Low perceived High perceived Duncan
post-hoc
effectiveness of LP effectiveness of LP effectiveness of LP effectiveness of LP
Customer (1, 2, 3, 3>2>1
4.440 4.879 5.03 5.633
value 4) >4
F 32.461
P 0.000***
***: p < 0.001. Duncan (1, 2, 3, 4) reveals the 4 groups are significantly different from each other.

Figure 5. The moderating effect of relationship benefits.

when RB is high rather than low, which confirms H4 again expands existing knowledge of customer value.
in our study. That is, customer value has a notable Meanwhile, relative research frequently based on general
moderating effect on the relationship between perceived service industry, but little of them discussed the influence
effectiveness of loyalty programs and customer value. of customer value on behavioral and affective loyalty in
the context of retailing. The findings proposed both
utilitarian value and hedonic value played notable positive
DISCUSSION AND IMPLICTIONS role in affective loyalty in retailing, and the effects of
these two dimensions were equivalent. Furthermore, both
Based on analysis and conclusion of previous literature, dimensions of value were positively related to behavioral
this paper proposes a moderated mediated model to loyalty, and the influence of utilitarian value was higher
explore relationship among loyalty programs and than that of hedonic value. Hence, perceived value of
customer loyalty. It also confirms the mediating impact of customers could not only promote their repeat purchase
customer value and moderating impact of relationship behavior, but also enhance their commitment to retailers
benefits. at emotional level.
In the context of Chinese retailing, through actual Secondly, due to the current debate of loyalty programs
research on members of a certain large department store, effectiveness, the paper explored the mediating impact of
research findings are summarized as follows: firstly, this customer value on the relationship between perceived
article, as expected, approves that customer value has effectiveness of loyalty programs and customer loyalty.
positive impact on customer loyalty (Sirdeshmukh et al., The study paid attention to integrated relationship among
2002; Atalik, 2009). Additionally, the paper adopts perceived effectiveness of loyalty program, customer
multi-dimensional approach beyond the price, location value and customer loyalty, and explained how loyalty
and time of utilitarian value. It proposed that hedonic programs promoted customer loyalty. Although, existing
value is the other antecedent of customer loyalty, which studies have suggested loyalty programs could provide
 Saili et al. 4307

more utilitarian value, there is still lack of empirical study this kind of loyalty program is easy to imitate, which lead
to confirm whether loyalty programs could increase to overuse of loyalty programs — plenty of investment
perception of hedonic value. The results of this paper with little return. The empirical outcome proposed the
proposed perceived effectiveness of loyalty programs moderating role of relationship benefits and suggested
exerted positive role in both dimensions of customer that firms should provide more relationship benefits and
value, and its influence on utilitarian value was larger customer value to gain higher customer loyalty. Thus,
than hedonic value. After comparing three rival mediating retailers should not only offer customer economic award
models, the paper concluded that the direct impact of and promote customer perception of special treatment
loyalty programs on customer loyalty was not significant. benefits, but also make customer feel other relationship
Whereas, loyalty programs could promote customer benefits and develop close emotional attachment to them.
value and enhance affective loyalty and behavioral loyalty As a result of the difficulty to imitate the loyalty program, it
via customer value. As a result, as long as customers could form a competitive advantage of retailers and
could feel the enhancement of customer value after ultimately win customer loyalty.
participating in loyalty programs, they would increase Furthermore, retailers should design loyalty programs
behavioral and affective loyalty to retailers. This elaborately using customer value to manage customer
conclusion added new path from loyalty programs to relationship. As extensive use of information storage and
customer loyalty and enriched theoretical study of loyalty network technology, retailers can collect valuable
programs and customer loyalty. information of customers through loyalty programs and
Thirdly, current paper proposed a moderated mediated find out different value desired by different customers; so
model, which proved the moderating role of relationship that they can adjust loyalty program to meet the customer
benefits on the relationship between loyalty programs and need and enhance customer loyalty.
customer loyalty via the mediating (customer value). In
both the business and relationship marketing, relationship
benefits are viewed as the key approach to develop and LIMITATIONS AND FUTURE RESEARCH DIRECTIONS
maintain long-term relationship between customer and
company. Researchers have argued relational benefits First of all, this paper only collected member data of
play an important role in enhancing customer value department store; thus, whether the results of the paper
(Chen and Hu, 2010). This article initially investigated apply to other forms of retailing and other industries still
how relationship benefits controlled customer value after need to be further verified. Secondly, the data used in this
customers participating in loyalty programs in depth. An study is cross-sectional data on the same point in time. In
interesting discovery presents that the indirect impact of the future, we could analyze the same consumers at
relationship benefits via customer value is much higher different developing stages of loyalty programs and find
when relationship benefits is high rather than low. That is, out differentiation of customer perception of customer
even customers perceive lower effectiveness of loyalty value. Finally, the paper focuses on the mediating role of
programs, if retailers provide more relationship benefits to customer value between loyalty programs and customer
members, they would feel more customer value and loyalty. Hence, future research could bring satisfaction,
become more loyal to retailers. commitment and other concepts, and further explore the
This paper has several practical implications for firms effects of customer value on loyalty programs and
that want to retain customers through effective loyalty customer loyalty.
programs. By implementing loyalty programs, retailers
could offer more customer value to customers in order to
gain more behavioral loyalty and affective loyalty. Only ACKNOWLEDGEMENT
when customers obtain more customer value from loyalty
programs, can they keep on maintaining the long-term Project 70972002 supported by National Natural Science
relationships with retailers and then become more loyal to Foundation of China; Project GX2011-1003(Y) supported
retailers. Therefore, customer value is key factor of by Generalized Virtual Economic Special Study Funded.
implementing effective loyalty program, and is of vital
importance to promote customer loyalty. While designing
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