Effect of Equity on the Value of the Loyalty Program

Cite this

Introduction

There is a vast disparity between the number of studies on the impact of loyalty programs on businesses and what recognised value they bring to the customers. While loyalty programs are, at their base, focus on customer retainment for the firm, it is crucial to understand which benefits they offer for participants (Mimouni-Chaabane & Volle, 2011). Nowadays, most companies offer loyalty benefits to their customers, which makes this field highly competitive and lowers its profitability for companies as customers tend to switch to another brand due to more valuable memberships (Shulga & Tanford, 2017). However, this approach requires careful consideration, since its inappropriate implementation can be harmful to the company. Steinhoff and Palmatier (2016) argue that “the mere fact that some customers get more than others fosters perceptions of distributive unfairness” (p. 94). In order to avoid being misrepresented, companies need to display their loyalty programs as fair, affordable, just, and beneficial to customers.

On-Time Delivery!
Get your customized and 100% plagiarism-free paper done in as little as 3 hours
Let’s start
322 specialists online

Modern loyalty programs are focused on allowing retailers to reward consumers who spend more. This notion is magnified by their perceived social status, attitude from the staff, and explorational opportunities provided by the company (Demoulin & Zidda, n.d.). Depending on a type of customer and a market on which a company operates, the importance of each benefit may vary. The correlation between dependent and independent variables provides an insight into the structure of a successful loyalty program. It is vital to keep in mind that perceptions of each benefit depend on the individual, however, they correlate with expectations from the company. The exact effects of each type of equity on the perceived benefits from participation in loyalty programs will be discussed below.

Dependent Variables

Utilitarian Benefits

Functionality serves as a prime source of attraction for many brands worldwide. This type of rewards produces additional value for people who participate in loyalty programs and includes functional goods or services (Mimouni-Chaabane & Volle, 2011). Utilitarian benefits bear the utmost significance for a large portion of customers when choosing a preferred company based on loyalty program offers (Kyguoliene et al., 2017). Utilitarian benefits have a more significant impact on loyalty programs conducted by low-end firms (Stathopoulou & Balabanis, 2016). These rewards usually consist of “hard” bonuses, such as monetary returns, additional discounts, or free products.

Hedonic Benefits

Most hedonic benefits are”soft” reward, which includes experiences of innovative products, custom treatment, Corbishley (2017) states that they contain “non-instrumental, experiential, emotional and personally gratifying benefits” (p. 59). This type of rewards enables customers to discover new activities, to seek excitement, and offers pleasure in return for brand loyalty (Mimouni-Chaabane & Volle, 2011). This benefit is the most consistent among the three presented when comparing all outcomes between both high- and low-end stores (Stathopoulou & Balabanis, 2016). The perceived value of these benefits is stress relief, entertainment, social interactions, and ample leisure time.

Symbolic Benefits

Symbolic benefits stem from such rewards as recognition by the company or a particular community. Corbishley (2017) states that “symbolic benefits are connected with the desire for personal expression, self-esteem, and social approval” (p. 60). Through symbolic benefits provided by brands, people are able to express themselves, define and display social groups they feel they belong to (Jeon, 2017). Eventually, a brand develops a particular reputation and association, which are linked to its symbol (Jeon, 2017). Symbolic benefits bear a significant value for companies which products are considered luxurious (Stathopoulou & Balabanis, 2016). These benefits can be both “soft” and “hard”, however, they are rarely functional.

Independent Variables

Distributive Equity

Distributive equity is the balance between the reward and the input. It is vital for a customer to perceive that they receive a proportionally comparable benefit for their efforts (Lacey & Sneath, 2006). Lacey and Sneath (2006) state that “customers’ criteria for evaluating distributive equity come from observations of how other customers are treated” (p. 460). While loyalty programs by nature benefit regular customers who spend more over irregular ones, it is vital for both groups to know the processes behind reward distribution.

Interactional Equity

Interactional equity refers to the openness, politeness, and thoroughness of the communicational process between customers who participate in the loyalty program and the company. Vesel & Zabkar (2009) state that “personal interaction quality has a stronger influence on customer satisfaction than does loyalty program quality” (p. 403). Ou et al. (2017) state that “the offers provided by the loyalty program are meant to inform customers that stores understand their needs” (p. 343). Even if both procedural and distributive equities are present and evident to the customer, he or she might feel mistreated due to the improper communication with personnel (Lacey & Sneath, 2006). It is vital to keep in mind that loyalty programs can not be constructed without two-way discussion between a company and its customers.

Yes, we can!
Our experts can deliver a custom Effect of Equity on the Value of the Loyalty Program paper for only $13.00 $11/page
Learn More
322 specialists online

Procedural Equity

Procedural equity refers to the process through which a particular reward was obtained, how fair and equally achievable it is. De Wulf et al. (2003) state that “people compare the ratios of their perceived outcomes relative to inputs with the corresponding ratios of others” (p. 81). Lacey and Sneath (2006) highlight that “it is of critical importance to procedural equity that reward allocation decisions be based on accurate customer information” (p. 460). It is inadvisable to create a loyalty program that might be confusing, require complex communications, or have inconsistent rules (Lacey & Sneath, 2006). While it does not mean each customer must have similar requirements for achieving better bonuses from the loyalty program, it means that the effort required to reach the same hierarchical position must be comparable.

Hypotheses

H1a: Distributive equity have a positive effect on consumers’ perceived utilitarian benefits of the loyalty program

This component of the perceived value of the loyalty program is closely related to the monetary profits that the customer obtains. The primary reason behind this importance is the fact that customers can easily weigh the economic value they derive from this type of bonuses (Steyn et al., 2010). Moreover, Lacey and Sneath (2006) argue that these notions are deeply connected, as “customers’ perceptions of distributive equity can, in fact, be strengthened by enhanced value propositions made available through such programs” (p. 463). Therefore, the distributive equity has a positive impact on perceived utilitarian benefits of the loyalty program.

H1b: Distributive equity have a positive effect on consumers’ perceived hedonic benefits of the loyalty program

The distributive equity among this type of benefit can include both increased access to exclusive offers or special treatment for customers depending on their rank within membership programs. A prime example of the hedonic interest is the early availability of a product to higher-ranking members. While these experiences may not provide any tangible benefit for a customer, they increase customer satisfaction, loyalty, and trust in the brand (Kim et al., 2013). Binding the possibility to explore new products and services to the customer’s input has a significant impact on the customer’s reception of the loyalty program.

H1c: Distributive equity have a positive effect on consumers’ perceived symbolic benefits of the loyalty program

Products and brands Research by Stathopoulou and Balabanis (2016) on perceived value for each type of benefit shown that “symbolic benefits can positively influence customers’ satisfaction with the LP for the high-end fashion department store” (p. 5807). Moreover, low-fashion stores experienced an insignificant positive effect on brand loyalty from symbolic benefits (Stathopoulou & Balabanis, 2016). The efficiency of distributive equity on loyalty programs in regard to perceived symbolic benefits depends on the luxury of a company.

H2a: Interactional equity have a positive effect on consumers’ perceived utilitarian benefits of the loyalty program

In terms of practical benefits, this type of equity can be translated as the reliability and actuality of information about the loyalty program. Interpersonal treatment of customers from the company should take their interests into consideration and be honest to stay relevant and trustworthy (Lacey & Sneath, 2006). From this point of view, the utilitarian value in interactional justice is the efficiency of dialogue between the customer and the firm, which has a direct positive impact on the customer’s experience.

H2b: Interactional equity have a positive effect on consumers’ perceived hedonic benefits of the loyalty program

As with distributive equity, perceived hedonic benefits of interactional equity come from customer’s ability to experience gratification. The hedonic benefit from a loyalty program might come as additional responsiveness from personnel toward higher-ranked customers. Social shopping includes expectations of the personalised shopping experience (Arnold & Reynolds, 2003). Consumers who go shopping to socialise or experience new products have higher chances to return to the store where they felt that the staff was communicative (Arnold & Reynolds, 2003). A high level of commitment creates an emotional response from the customer (García Gómez et al., 2006). Therefore, the positive effect of this benefit can be achieved by increasing the quality of interaction with members of the loyalty program.

H2c: Interactional equity have a positive effect on consumers’ perceived symbolic benefits of the loyalty program

The relation between interactional equity and perceived symbolic benefits is a difference in customer service provided to higher-ranking members of the loyalty program. Bahri-Ammari and Bilgihan (2017) state that “interactional justice with a loyalty program refers to the provider’s effort to communicate and explain the contractual bonds and to treat customers with respect and courtesy without discrimination” (p. 91). Therefore, it can be shown by giving privileges to customers who participate in the loyalty program in such aspects as prioritising their requests and giving more attention to their issues (Bahri-Ammari & Bilgihan, 2017). By showing the company’s positive attitude to these members, consumers can see this sort of treatment as the potential increase of their social status.

Cut 15% OFF your first order
We’ll deliver a custom Management paper tailored to your requirements with a good discount
Use discount
322 specialists online

H3a: Procedural equity have a positive effect on consumers’ perceived utilitarian benefits of the loyalty program

The convenience of a loyalty program reflects its perceived utilitarian benefits Loyalty programs that are overly complicated and confusing to the customer can be harmful to the company’s image and have adverse effects on customer retainment (Shugan, 2005). Moreover, both bystanders and participants of a loyalty program should be notified about its set of rules, which must be accessible and clearly understandable (Steinhoff & Palmatier, 2016). Perceived unbiased availability of rewards of the loyalty program adds to the customer’s trust.

H3b: Procedural equity have a positive effect on consumers’ perceived hedonic benefits of the loyalty program

The process of achieving rewards within the loyalty program not only must not be burdensome but also be attractive to the customer. When the procedure itself leaves an emotional impression on the customer, it generates more loyalty and ensures that the customer will not avoid further participation in loyalty programs, thus increasing their trust (Pallas et al., 2014). Moreover, when the process is not trivial, and the customers must put some effort into achieving higher rewards, they show more hedonic behaviour (Kivetz & Simonson, 2002). Therefore, procedural equity, when done correctly, has a positive effect on this type of perceived benefits.

H3c: Procedural equity have a positive effect on consumers’ perceived symbolic benefits of the loyalty program

The significance of achieving higher rewards for loyal customers must be signified by the company through the recognition of their achievements. Perceived symbolic benefits from fairness in the process of attaining milestones can range from public announcements to publishing a clear set of rules and rewards which can be earned within a particular program. Showing one’s relationship with the brand, especially if it is an honestly earned luxury reward, can serve as a reflection of one’s social standing (Hoffmann, 2013). However, it is crucial to keep the rewards within reach of an average customer. The difficulty of a procedure required to obtain the compensation correlates with brand reputation and willingness of its customers to put effort into its obtainment. A proper display of status that reflects the effort required to earn it has a positive effect on this type of perceived benefit.

The exact value from each perceived benefit depends on the market and the position of the company on it. In regard to equities, Vesel and Zabkar (2009) state that they “should all be considered in order to achieve positive customer perceptions about the loyalty program” (p. 398). However, it is crucial to understand what benefit should be focused the most. Shugan (2005) concludes that “a real loyalty program should aim to create an asset rather than a liability” (p. 191). In order to achieve this result, the company must be able to create a membership program that would relate to its customer base, while also addressing all equities.

A proper combination of functional, psychological, and social benefits within a single loyalty program is the key to success (Morgan et al., 2015). While some customers are more motivated by utilitarian benefits, others lean to hedonic ones, yet all programs contain a portion of each in varied proportions (Arnold & Reynolds, 2003). It is also worth mentioning that cultural values significantly affect the perceived benefits and should be taken into consideration when creating a loyalty program (Morgan et al., 2015). Thus said, the ideal loyalty program exhibits all types of equity and balances the benefits that are perceived by customers in accordance with its market, target audience, and scope of the reach. While aiming to gain consumers’ brand trust and loyalty, companies must be concerned with how they are judged by their customers.

Reference List

Arnold, M. J., & Reynolds, K. E. (2003). Hedonic shopping motivations. Journal of Retailing, 79(2), 77–95. Web.

Bahri-Ammari, N., & Bilgihan, A. (2017). The effects of distributive, procedural, and interactional justice on customer retention: An empirical investigation in the mobile telecom industry in Tunisia. Journal of Retailing and Consumer Services, 37, 89-100. Web.

Get a custom-written paper
For only $13.00 $11/page you can get a custom-written academic paper according to your instructions
Let us help you
322 specialists online

Corbishley, K.M. (2017). Retail loyalty programmes: relationship quality and customer loyalty between the card-holder and the retailer in South Africa. Doctor’s Thesis, Durban University of Technology, Durban. Web.

De Wulf, K., Odekerken, G., Canniére, M., & Oppen, C. (2003). What drives consumer participation in loyalty programs? Journal of Relationship Marketing, 2, 69-83. Web.

Demoulin, N. T. M., & Zidda, P. (n.d.) Do customers’ perceived benefits with loyalty programs influence their store loyalty? The case of hierarchical loyalty programs. IÉSEG –School of Management. Web.

García Gómez, B., Gutiérrez Arranz, A., & Gutiérrez Cillán, J. (2006). The role of loyalty programs in behavioural and affective loyalty. Journal of Consumer Marketing, 23(7), 387–396. Web.

Hoffmann, N. (2013). Loyalty schemes in retailing: A comparison of stand-alone and multi-partner programs, Forschungsergebnisse der Wirtschaftsuniversität Wien, 61. Web.

Jeon, J.-E. (2017). The impact of the brand concept on brand equity. Asia Pacific Journal of Innovation and Entrepreneurship. 11, 233-245. Web.

Kim, H.-Y., Lee, J. Y., Choi, D., Wu, J., & Johnson, K. K. P. (2013). Perceived benefits of retail loyalty programs: Their effects on program loyalty and customer loyalty. Journal of Relationship Marketing, 12(2), 95–113. Web.

Kivetz, R., & Simonson, I. (2002). Earning the right to indulge: Effort as a determinant of customer preferences toward frequency program rewards. Journal of Marketing Research, 39(2), 155–170. Web.

Kyguoliene, A., Zikiene, K., & Grigaliunaite, V. (2017). The influence of perceived benefits on the satisfaction with the loyalty program. Engineering Economics. 28. Web.

Lacey, R., & Sneath, J.Z. (2006), Customer loyalty programs: are they fair to consumers? Journal of Consumer Marketing, 23(7), 458-464. Web.

Mimouni-Chaabane, A., & Volle, P. (2010). Perceived benefits of loyalty programs: Scale development and implications for relational strategies. Journal of Business Research, 63(1), 32-37. Web.

Morgan, R., Turner Parish, J., & Deitz, G. (2015). Handbook on research in relationship marketing. Edward Elgar Publishing.

Ou, Y., Verhoef, P.C., & Wiesel, T. (2017). The effects of customer equity drivers on loyalty across services industries and firms. Journal of the Academy of Marketing Science, 45, 336–356. Web.

Pallas, F., Groening, C., & Mittal, V. (2014). Allocation of resources to customer satisfaction and delight based on utilitarian and hedonic benefits. Journal of Research in Marketing, 2, 106-112. Web.

Shugan, S. M. (2005). Brand loyalty programs: are they shams? Marketing Science, 24(2), 185–193. Web.

Shulga, L., & Tanford, S. (2017). Measuring perceptions of fairness of loyalty program members. Journal of Hospitality Marketing & Management, 27(3), 346–365. Web.

Stathopoulou, A., & Balabanis, G. (2016). The effects of loyalty programs on customer satisfaction, trust, and loyalty toward high- and low-end fashion retailers. Journal of Business Research, 69(12), 5801–5808. Web.

Steinhoff, L., & Palmatier, R.W. (2016). Understanding loyalty program effectiveness: managing target and bystander effects. Journal of the Academy of Marketing Science. 44, 88–107. Web.

Steyn, P., Pitt, L., Strasheim, A., Boshoff, C., & Abratt, R. (2010). A cross-cultural study of the perceived benefits of a retailer loyalty scheme in Asia. Journal of Retailing and Consumer Services, 17(5), 355–373. Web.

Vesel, P., & Zabkar, V. (2009). Managing customer loyalty through the mediating role of satisfaction in the DIY retail loyalty program. Journal of Retailing and Consumer Services, 16(5), 396–406. Web.

Cite this paper

Select style

Reference

BusinessEssay. (2022, May 30). Effect of Equity on the Value of the Loyalty Program. Retrieved from https://business-essay.com/effect-of-equity-on-the-value-of-the-loyalty-program/

Reference

BusinessEssay. (2022, May 30). Effect of Equity on the Value of the Loyalty Program. https://business-essay.com/effect-of-equity-on-the-value-of-the-loyalty-program/

Work Cited

"Effect of Equity on the Value of the Loyalty Program." BusinessEssay, 30 May 2022, business-essay.com/effect-of-equity-on-the-value-of-the-loyalty-program/.

References

BusinessEssay. (2022) 'Effect of Equity on the Value of the Loyalty Program'. 30 May.

References

BusinessEssay. 2022. "Effect of Equity on the Value of the Loyalty Program." May 30, 2022. https://business-essay.com/effect-of-equity-on-the-value-of-the-loyalty-program/.

1. BusinessEssay. "Effect of Equity on the Value of the Loyalty Program." May 30, 2022. https://business-essay.com/effect-of-equity-on-the-value-of-the-loyalty-program/.


Bibliography


BusinessEssay. "Effect of Equity on the Value of the Loyalty Program." May 30, 2022. https://business-essay.com/effect-of-equity-on-the-value-of-the-loyalty-program/.