The impact of loyalty programs service quality and store reputation on customer satisfaction and loyalty

UNIVERSITY OF ECONOMICS HO CHI MINH CITYInternational School of Business ---Dang Bich Phuong THE IMPACT OF LOYALTY PROGRAM’S SERVICE QUALITY AND STORE REPUTATION ON CUSTOMER SATISFACTIO

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-Dang Bich Phuong

THE IMPACT OF LOYALTY PROGRAM’S

SERVICE QUALITY AND STORE

REPUTATION ON CUSTOMER

SATISFACTION AND LOYALTY

MASTER OF BUSINESS (Honours)

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-Dang Bich Phuong

THE IMPACT OF LOYALTY PROGRAM’S SERVICE QUALITY AND STORE REPUTATION

ON CUSTOMER SATISFACTION AND

LOYALTY

I D: 22130056

MASTER OF BUSINESS (Honours) SUPERVISOR: Dr.PHAM NGOC THUY

The completion of this thesis is a remarkable achieve in my life It has beenseveral months and required a great effort for the research I would like to express mygratitude to all ISB staffs that supported necessary materials and helped summit mypapers I also wish to express my deeply thank you for the support, patience andencouragement from my family, my colleagues and my classmates helped me tocompleting this thesis

Especially, I would like to give my special thanks to Doctor Pham Ngoc Thuy forsupporting and guiding me with this research

STATEMENT OF AUTHENTICATION

(Candidate Certificate)

I certify that the work in the thesis entitled “The impact of loyalty program’sservice quality and store reputation on customer satisfaction and customer loyalty” is theresult of my own research and has not been submitted for a higher degree to anyuniversity or institution other than International School of Business (ISB)

I also certify that the thesis has been written by me Any help and assistance that Ihave received in my thesis have been appropriately acknowledged

Ho Chi Minh City, 20 December 2015

Dang Bich Phuong

TABLE OF CONTENTS

ACKNOWLEDGEMENT i

STATEMENT OF AUTHENTICATION ii

TABLE OF CONTENTS iii

LIST OF FIGURES v

LIST OF TABLES vi

ABSTRACT vii

Chapter 1: Introduction 1

1.1 Research background 1

1.2 Research problems 2

1.3 Research objectives 4

1.4 Research methodology and scopes 4

1.5 Significance of the study 5

1.6 The structure of the study 5

Chapter 2: Literature review and hypotheses 7

2.1 Customer Loyalty Program 7

2.2 Customer Loyalty Programs of big retailers in Ho Chi Minh City 8

2.3 Conceptualization of Loyalty program service quality 10

2.4 Store reputation 15

2.5 Customer Satisfaction 17

2.6 Customer Loyalty 18

2.7 The conceptual model 19

Chapter 3: Research methodology 23

3.2 Measures of the constructs 24

3.3 Research process 26

3.4 Data analysis method 28

Chapter 4: Data analysis and findings 31

4.1 Sample characteristics 31

4.2 The Cronbach’s alpha test 32

4.3 Exploratory factor analysis (EFA) 35

4.4 Multiple regression analysis 37

4.5 Revised conceptual model 40

4.6 Explanation for the findings results of the hypotheses 42

Chapter 5: Conclusions, inplications and limitations 46

5.1 Conclusions 46

5.2 Managerial implication 47

5.3 Limitations and future research 59

References 51

Apendix 58

Appendix A: Guideline for quanlitative in-depth interview 58

Appendix B: Quentionnaire in English 62

Appendix C: Questionnaire in Vietnamese 66

Appendix D: Histogram, Normal Regression & Scatter plot of Dependent 71

LIST OF TABLES

Table 2.1: The comparison between the Customer Loyalty Program of three main brand

names of supermarket in Ho Chi Minh City: Co.opmart, Big C and Lotte Mart 9

Table 2.2: Hypotheses of the research 21

Table 3.1: Measurement Scales from previous research basements 24

Table 3.2: Measurement Scales for customer satisfaction 25

Table 3.3: Measurement of the variables of customer satisfaction and customer loyalty 25

Table 3.4: Measurement of the variables of store reputation 25

Table 4.1 : Descriptive Statistics for the Sample (N = 209) 31

Table 4.2: The results of Cronbach’ alpha test 33

Table 4.3: KMO and Bartlett's Test for all variables 35

Table 4.4 : Total Variance Explained for all variables 36

Table 4.5: Rotated Component Matrix for all variables 37

Table 4.6: Correlations or all variables 38

Table 4.7: Model Summary 38

Table 4.8: ANOVA alpha 39

Table 4.9: Coefficients alpha 39

Table 4.10: Finalized hypotheses of the research 41

Table 4.11: Summary of hypotheses testing results 42

Table 4.12: Statistics of frequency of factors that affect customer choosing to shop at a supermarket 44

Table 4.13: The number of supermarket brand that customers participate in the customer loyalty program 45

LIST OF FIGURES

Figure 2.1: The proposed conceptual model for the thesis 21Figure 3.1: The process of thesis research 23Figure 4.1: The revised and finalized research model 40

This study empirically examines the impact of loyalty program’ service qualityand store reputation on customer satisfaction and customer loyalty, which is carried on atsome biggest chains of supermarket at Ho Chi Minh city such as Big C, Co.opmart, LotteMart, Metro, Vinmart, The research also explores some of the factors that influence themost towards customer satisfaction in retail industry In the situation that the facilitiesand the prices of all supermarket brand names are similar, the loyalty program’s servicequality and how good of this program plays an important role in attract and retaincustomers Structural equation modeling is used to test these impacts, utilizing a sample

of 250 supermarket customers in Ho Chi Minh City All the customers who areinterviewed must have the member card of one or more supermarket that they usuallyshop at

The results indicate that the three elements of loyalty program’s service qualitywhich are Regulation (included Rewards and Policy), Serving (included Staff andCommunication) and Personalization play significant role in increasing the customersatisfaction as well as customer loyalty In addition, the findings of this research alsoprovide evidence of the similarity between customer satisfaction and customer loyalty inthe mindset of supermarket retailer customer Particularly, the effect of store reputation isnegligible and the customers do not pay attention to this element in judging theirsatisfaction as well as their loyalty for a supermarket brand name

The customers are persuaded by the Regulation, Serving and Personalization ofthe loyalty program of one specific supermarket compared to other supermarkets Theresearch findings also engage with some limitations in the strength of measurement scale,the sampling method as well as the fitness between the research model and data It results

in the valuable directions for further researches in future

CHAPTER 1 INTRODUCTION

This chapter introduces the background of the Vietnamese supermarketindustry as well as the status of customer satisfaction and customer loyalty Theresearch questions and objective are proposed to explore the influence of loyaltyprogram’s service quality and store reputation towards customer satisfaction andcustomer loyalty Based on this, the proposed delimitation of research and thesisstructure is presented

1.1 Research background

After nearly nine years of joining the World Trade Organization (WTO), andmore than six years commitment for the establishment of retail businesses with 100%foreign capital (from the date 01/01/2009), Vietnam has made a drastic change in thedistribution and retail sector by the opening of hundreds of stores and supermarkets.Vietnam's retail market has always been rated as promising, attractive for business,investors in and out of Vietnam territory Many international retailers have operated inVietnam besides the local companies, and there are still many other internationalgroups interested in entering the market And under report of A.T.Keraney (2014),Vietnam retail market is in the top 30 world best new retail markets in the period from

2007 to 2011 Moreover, basing on the 2014 report of Deloitte Southeast Asia Ltd,Vietnam’s retail market is also characterized as being one of the most dynamicmarkets in the region with high annual growth rates Hanoi and Ho Chi Minh Cityhave been ranked among the top 10 Asian cities for retail expansion in 2014 Over thelast few years, Vietnam’s retail sector has also witnessed healthy growth rates, withretail sales growing by 60% from 2009-2013, and forecasted to reach US$109 billion

in 2017 The retail market in the country today is not only competition betweendomestic enterprises but also with large foreign retailers Huge system such asCo.opmart supermarket chain is leading the market but the big retail groups of foreigncountries include Big C, Lotte, Metro Cash & Carry, also occupied a considerable

Vietnam - EU (EVFTA) For these negotiations, it will be great for Vietnam’seconomy and for its people, and may also provide investors with attractiveopportunities Should Vietnam participate, competition between domestic and foreignretailers will likely take place on a more equal footing In addition, Vietnam isexpected to experience an influx of retailers from Japan, South Korea and Thailand.Large developers, such as AEON Mall, Central Group, and CJ Group, have expressedgreat interest, gradually expanding their presence and announcing long-term plans forthe market For example, Japan-based biggest retail group, AEON, is planning tobuild at least seven shopping centers in Vietnam Other international group have long-term plans to build up massive number of supermarket locations in Vietnam,especially in Ho Chi Minh City.

In this context, in order to survive and develop, retail enterprises must have thespecific strategy in order to enhance their competitiveness In particular, developingand maintaining a loyal customer base and raising the store reputation as backgroundbasis for the development of enterprises is a crucial requirement

satisfaction on loyalty customer success is proven by studies of Zeithaml et al (2002).Besides the considerable investment on customer loyalty program’s service quality,retailer nowadays pay more attention on the store reputation since previous researchesshow that customers are affected by the store attributes and consider them to assessperceived benefits and attitudes (Wang, 2009).

Thus, there is very little research has been done in Vietnam to verify theeffectiveness of loyalty program’s service quality in the retail sector This leads to thecontroversy about the contribution of these programs in the development process Inaddition, the elements that contribute to the loyalty program’s service quality ofVietnam retailers have not been explored yet This requires that we should have astudy to learn more about the factors affecting the loyalty program’s service quality aswell as the effect that the program offers During the past decades, both marketingacademics and practitioners have been intrigued by the relationship betweensatisfaction and loyalty (Dick and Basu, 1994; Oliver, 1996) Most of these studies,however, have concentrated on products (brands) and to a somewhat lesser extent onservices or channel intermediaries Surprisingly, research on the relationship betweenstore satisfaction and store loyalty has remained limited, both in actual number as well

as in scope Yet, in the present environment of increased competition with rapidmarket entry of new store concepts and formats, the managerial challenge ofincreasing store loyalty also presents the research challenge of a more in-depthunderstanding and an empirical estimation of this important type of consumerbehavior There is some evidence that store loyalty may be (positively) related to storereputation However, it has remained unclear what the exact relationship betweensatisfaction, store reputation and loyalty in a retail setting is For instance, onequestion that has been left unanswered concerns the issue whether there is a directrelationship between store reputation and store loyalty or whether there is an indirectrelationship via store satisfaction In this article we attempt to answer this question

To help clarify the issues outlined above, the author decided topic: "The impact

of loyalty program’s service quality and store reputation on customer satisfaction and

loyalty" Research will bring a deeper understanding of the factors that contribute tothe loyalty program’s service quality in the retail area, the elements affects storereputation, the relationship between this service quality, store reputation and thesatisfaction as well as customer loyalty Since then, the author will makerecommendations that the retailer managers who are in charge of the store reputationand customer loyalty program of retail enterprises can use to adjust to gain greaterefficiency Research will be done based on survey of members of loyalty of the threebiggest chains of supermarket in Ho Chi Minh City: Co.opmart, Big C, Lotte Mart.The three brands of supermarket target to the same main customer who are womenfrom 20-50 years old with the main product is daily consumption products.

1.3 Research objectives

The primary aim of this study is to investigate the relationship between loyaltyprogram’s service quality with the satisfaction and loyalty of customers Specifically,

it can be stated as followed:

 Identify and measure the influence level of the impact of loyalty program’s service quality and store reputation on customer satisfaction

 Measure the influence of customer satisfaction on customer loyalty

1.4 Research methodology and scopes

The research was conducted on members who buy goods and join in the loyaltyprogram’s service quality of Co.opmart, Big C and Lotte Mart in the area of Ho ChiMinh City which is a big city in Vietnam The author approach and interview directlythe customers when they go to the bike park to find their moto bike after shopping atthe supermarket

The author applied data analysis tool (Microsoft Excel and SPSS) to handle thecollected data and to perform the research And then, using SPSS to test the scalereliability (Cronbach’ s Alpha), Factor analysis to determine which of a fairly large set

of items were answered most similarly by the respondents, using Multiple

Regression to check the relationship between independent variables and dependentvariables.

1.5 Significance of the study

The results of this study is hopefully enable retailer owners to develop thesuitable strategies for the loyalty program service quality as well as raising the storereputation to attract more customers and gain more closed relationship with theirclients Moreover, it will raise the competitive edge of retailers

1.6 The structure of the study

This thesis is organized into five chapters:

Chapter 1: Introduction

This chapter presents the research background of the study, researchstatements/ research problems, research objectives, research scopes and methodology,the significance of the study, and the research structure

Chapter 2: Literature review and hypotheses

In this chapter, the author presents the fundamental theories and definition ofeach mentioned concept and theoretical modeling with the proposed hypotheses Inthis chapter, the conceptual model of the study is also presented

Chapter 3: Research Methodology

This chapter mentions about the research design, research methodology andillustrate the process of conducting the research

Chapter 4: Data analysis and data results

For this chapter, the author summaries the characteristics of collected samplesand presents the result of the research after analyzing collected data From that result,the author draws the conclusions for the research hypotheses proposed in Chapter 2

Chapter 5: Conclusions, implications and limitations

The final chapter addresses the main results of the research, the contribution ofthe study in management theory and practice Summary of the study, limitations andsuggestions for future researches are also made

CHAPTER 2 LITERATURE REVIEW AND HYPOTHESES

This chapter is an overview of customer loyalty program, customer loyalty program’sservice quality, store reputation, customer satisfaction as well as customer loyalty andtheir antecedents which have been conducted by previous researchers Based on thesestudies, a conceptual model is proposed

2.1 Customer Loyalty Program

Customer loyalty programs are widely defined as combined system ofmarketing behaviors that aim to make customers more loyal by building uppersonalized relationship with them (Meyer Waarden, 2008) These programs can beutilized as value-sharing tools to help increasing customer’s perception of the retailers(Bolton et al, 2000; Yi and Jeon, 2003) The very first loyalty program was made byTexas International Airline in 1979 through the rewarding to the passengers based onthe length of their journey Despite the rapidly growing trend of these programs, manyresearchers question whether loyalty program actually create customer loyalty orwhether loyalty arises from some other factor (Hoffman and Lowitt, 2008)

In the first step, the customer will have to accumulate points when shopping.Although this is no real value until it is sufficient to exchange the reward, recentstudies have shown that the accumulation of points that have very importantimplications in terms of psychology (Yi and Jeon, 2003) Psychological benefits willincrease customer satisfaction when making transactions and thereby also increasingthe value perceived by customers when they purchase goods of the business Because

of accumulated points can be converted into rewards in the future it will also createcustomers expect a nice event for the future The point to gift exchange system willhelp increase the ability to maintain customer relationships and business

The second step is the conversion step from accumulate points into gifts In thisstep, the customer receives the value of psychological and physical value from loyaltyprograms The reward that customers receive after conversion charge will have the

function of increasing customers shopping behavior (Hoffman and Lowitt, 2008) Therespectful feelings will help increase satisfaction of customers and deepen theirrelationships with enterprises All the psychological benefits and material benefits aretransformed into attraction for customers, or in other words to increase customerloyalty In addition, loyalty program also targets many other goals as: to collect andtrack data related to customers who are shopping for products and services ofenterprises, support the public relations

In most loyalty program, benefits play the most compelling role to attractcustomers; however, the most significant parts of loyalty program are the design orstructure and customer service Although there are many researches related to thistopic, there is no tested scale for the retailers using to measure loyalty program servicequality as well as appraising the success level of the program’s factors Zeithaml et al.(2002, p 370) state that “knowledge about customer expectations is the key in thedeveloping of quality services” However, there is often a gap between customers’expectations of loyalty program and the retailer’s estimation of those expectations.Consequently, the service quality of most loyalty program includes unimportantelements or neglects important ones (Vesel and Zabkar, 2009) In addition, someloyalty programs of retailers that are running have the similarity that brings a lack ofdistinctiveness for the customer to choose among many programs As the program’srewards are then no longer appealing or different, consumers will move from oneprogram to another in response to specific promotional campaigns (Mauri, 2003)

2.2 Customer Loyalty Programs of big retailers in Ho Chi Minh City

Retail loyalty programs have grown significantly in Viet Nam in recent yearsboth in terms of availability and popularity, and these programs are now playing astrong role in influencing consumers’ choice of store Below are the three mostpowerful and famous customer loyalty program of Co.opmart, Big C and Lotte Martconducted in the area of Ho Chi Minh city The author collects information from thewebsite of each supermarket, then goes shopping in reality to have the real picture ofloyalty programs of retailers The most similarity characteristics among these loyalty

programs are the allowing retailers to gather data on customer behavior in order to decipher trends, appropriately reward loyalty, and influence shopping behavior.

Table 2.1: The comparison between the Customer Loyalty Program of three main brand names of supermarket in Ho Chi Minh City: Co.opmart, Big C and Lotte Mart

Program - Entrance, way to the - Posters, billboards - Information board at Identity shopping area outside the store the service area

System - Information board in - Cash area - Posters, billboards

the car park, service - Service area outside the store area, cash area, - Via the sound of Big - Along the corridor in

- Banner, billboard in - Using shelftalker to the store remark the products

- Via the sound of that saving Big Coin Co.opmart Radio

Registration - Register directly at the - Register directly at - Register directly at the

- Register via website Registration - Present Identity Card - Present Identity Card - Present Identity Card procedures - Fill in the register - Fill in the register - Fill in the register

- Receive The main - Receive The main - Receive The main member card and the member card and the member card and the keychain card keychain card keychain card

- Open new member - Open new member - Open new member card with no fee card with no fee card with no fee

Member Card - Standard/ Gold/ - No devided level - No devided level

level and Premium

requiring to - Standard + 600 marks

upgrade => Gold

- Gold + 1600 marks =>

VIP Regulation of - 10,000 VND = 1 mark - 200 VND=1 Big - 100 VND = 1 Mark accmulating - The accumulating Coin - After sa zving up to marks/buying marks are saving - Saving more Big 50,000 Marks, revenue within each year and Coin when buying customer can used

used to considered the special products that this accumulating level of member card Big C cooperate to marks as cash.

and benefits in that pruduce - At the end of the

accumualting process customer saves can be rewarded based on will start again in the be used as cash (ex: the buying rvenue: new year 2000 Big Coins = + Less than 30 million

- Relating to the remain 2000 VND) VND : 1%

accumulating marks - After 30 June every + From 30 to less than which have not been year, all remaining 40 million VND : 2% transfered into Big Coin in the card + From 40 to less than

voucher, the program will be erase 50 million VND : 3%

Benefits - Standard member: 150 - Refund the parking - Participate in special

Marks = Voucher fee, bus ticket fee promotion for Lotte

- Gold and Premium account for each bill products with special Member : 500 marks = that more than price,…

Voucher 100,000 100,000 VND

- Gold and premium when using service member will receive of cooperate partners more accumulating : Phở 24 Highland points in the Coffee,…

promotion - Participate in special

- Birthday gift: Voucher promotion for Big C discount 10% member only.

(Standard) and 15%

(Gold & Premium)

- Special Tet gift

- Participate in special promotion for Gold and Premium member

Card reissue - Main card : 20,000 - 10,000 VND for the - 15,000 VND each

- Keychain : 10,000 VND

Card locking - 2 years without buying - No locking - No Locking

regulation revenue

2.3 Conceptualization of Loyalty program’s service quality

It is true that customer loyalty programs are attracting more and more attentionfrom customers since these programs bring up lots of extra values for customersshopping at supermarkets To have a look at the impact of this program to customersatisfaction and customer loyalty, the author chose the level of quality of loyaltyprogram for researching Loyalty program service quality as an emerging issue inrelationship marketing will remain underdeveloped until its key dimensions have beenidentified and operationalized The definition of service quality was further developed

as “the overall evaluation of a specific service firm that results from comparing that

firm’s performance with the customer’s general expectations of how firms in thatindustry should perform (Parasuraman et al., 1988) In a loyalty program setting,service quality refers to the overall experience of customers in applying, renewing,updating, accumulating, redeeming and using the program The loyalty programservice quality depends on other factors that are important to customers, such as theability of the customer to learn the complex rules of the program (Frisou and Yildiz,2011), the structure of the program (Liu, 2007), the idiosyncratic fit of the programand information and communication availability (Nobel and Phillips, 2004) Someretailers have attempted to achieve loyalty by giving personalized service and specialtreatment to customers.

A considerable number of studies have suggested that the customer's value, orderived benefit, plays a significant role in determining his or her long-termrelationship with, or loyalty to, the firm A customer loyalty program is a marketingtactic employed by retailers to entice consumers, through rewards, into loyal buyingbehavior and the provision of their purchasing preferences in order to increase profits.The collection and analysis of this information, by assigning a unique identifier, such

as a numerical ID or membership card to each program member Research reveals thatcustomers are less likely to switch firms if they can understand the actual economics,time and energy-saving value of staying in a relationship (Gwinner et al., 1998) Infact, Gwinner et al (1998) highlighted that if the consumer does not perceive value inbuilding relationships within a firm, then they might only engage in a relationshipbecause a better option is not available elsewhere From above discussion, we have thehypothesis

H1: There is a positive impact of loyalty program service quality on the customer satisfaction.

Among general instruments, the most popular model used for evaluation ofservice quality is SERVQUAL, a well-known scale developed by Parasuraman et al.(1985, 1988) The attributes of (Parasuraman et al., 1985), were: tangibles, reliability,

responsiveness, competency, courtesy, assurance, credibility, security, access, andunderstanding Although there has been criticism from some other researchers toSERVQUAL instrument, yet SERVQUAL is the instrument most utilized for itsconfirmatory factor analyses in most cases Thus, up to date, SERVQUAL has proven

to be a parsimonious model that has been used in various service organizations andindustries to measure service quality

Base on the review of previous literature pertaining to service quality andloyalty program suggests that reward, service personnel, program policy, tangibility,communication and personalization are most important to customers; each of thesedimensions of loyalty program service quality will be discussed in detail below

2.3.1 Reward

The similarity of all loyalty program service is bringing benefits as well asrewards or gifts to customers, depending on the amount of money they spend on ofbuying products or service In reality, big retailers such as Co.opmart, Big C and LotteMart offer the rewards included vouchers, discount tickets, Tet gift sets, helmets, raincoats,… for their customers Researchers have been paying attention to the importantrole of rewards (Dowling and Uncles, 1997) Moreover, Stauss et al.(2005) find outthat if customers do not receive the worthy reward, it can cause annoyance Bridson et

al (2008) find that an appropriate mix of program attributes including hard attributes(discounts, vouchers and coupons) and soft attributes (better service, special attentionand recognition) can affect store satisfaction From above discussion, we have the firsthypothesis

H1a: There is a positive impact of rewards on the customer satisfaction.

2.3.2 Service personnel

The behaviors of orienting, guiding or explaining, solving problems related tothe program of retailer’s employee will impact on the customer’s perception of theprogram quality (Brady and Cronin, 2001) Previous research indicate that when the

employee using their communication skills such as orientation, listening with highattention, customers will consider the service better and will be likely to return(Gremler and Gwinner, 2000).

Academic research investigate interaction quality (Vesel and Zabkar, 2009),personal interaction and personnel service (Sirohi et al., 1998) are three main feel thatthe employee should play good role in Moreover, the more disparity that the membercustomer can be offer through the feeling, the closer relationship of customer andretailers can be maintain (Rosenbaum et al., 2005), in other words, it can increase thecustomer satisfaction through good service personnel offering From abovediscussion, we have the second hypothesis:

H1b: There is a positive impact of staff on the customer satisfaction

2.3.3 Program policy

In a loyalty program, the importance of clearly and detail program design can

be seen as essential factor contribute to its effectiveness (Roehm et al., 2002) Fowler(2003) assumes that customers tend to register in a loyalty program that communicate

or providing information more clearly with specific regulations or rewards Recently,some researchers have indicated that the effectiveness of loyalty programs depends onthe program’s policy (Liu, 2007), whose results can have good effect on customersatisfaction From above discussion, we have the third hypothesis:

H1c: There is a positive impact of policy on the customer satisfaction

2.3.4 Tangibility

Tangibility refers to the physical characteristics associated with the serviceencounter It has been widely accepted as a key component of the perceived servicequality (Parasuraman et al., 1988) According to Dabholkar et al (1996) physicalaspects comprise more than the physical facilities; it covers the convenience offeredthe customer by the layout of the physical facilities In a retail loyalty program

context, this consists of the loyalty program service counters being easy to find withwide enough space to move around Generally, from a customer's perspective,anything which makes receiving the service more difficult is likely to impingenegatively on his or her perception of the service quality Moreover, good tangibilitycan help increase the pleasant feeling about the service, and have good impact on thesatisfaction of customer (Rosenbaum et al., 2005) From above discussion, we havethe forth hypothesis:

H1d: There is a positive impact of tangibility on the customer satisfaction

2.3.5 Communication

Communication is generally explained as “the formal as well as informalsharing of meaningful and timely information” (Anderson and Narus, 1990, p 44).The aspect of communication often plays an extremely important role for the success

of maintaining the close relationship of customers and retailers Customers whoregister to be members of loyalty group are likely to be more well-informed in casethere are any changes in policy or promotion information of retailers Bridson et al.(2008) finds that communication plays an extremely important role of the pleasant ofcustomers who use the service at retailers From above discussion, we have the fifthhypothesis:

H1e: There is a positive impact of communication on the customer satisfaction

2.3.6 Personalization

Personalization is essential in helping to save customers time and increaseperceptions of service quality (Srinivasan et al., 2002) Companies can select andbuild special program as rewards for their main privileged clients to help increase thepersonalization as well as the value perceived in the program Moreover, just a lack ofpersonal attention may lead to the bad result that the customers realize the differenceservice among suppliers and can cause the changing decision in the shopping storesJavalgi and Moberg (1997) Companies can selectively build loyalty for their most

valuable segments through personalized and privileged service In the case ofpersonalization, a study of the Portuguese retail banking (Ball et al., 2006) postulatedand proved that personalization impacts positively on both satisfaction and loyalty.From above discussion, we have the sixth hypothesis:

H1f: There is a positive impact of personalization on the customer satisfaction.

2.3.7 Information

Information quality is defined as the cardholders' perception that the programprovides relevant and accurate information such as reminding the cardholder aboutexpiring date of the points and informing the participating outlets that are involved inthe loyalty program Results of several studies suggested that the exchange ofinformation is important in both traditional industrial selling as well as in relationshipmarketing (Anderson and Narus, 1990) According to Salaün and Flores (2001),information is what forms or transforms a representation in the relation which links asystem to its environment, where good-quality information is information that satisfiesthe criteria of appreciation specified by the user, together with a certain standard ofrequirement Information in this thesis can be understood as news and informs fromthe retailer’s official website Customer can search, find information about new goods,kind of stock, price, discount, promotions… on the website From above discussion,

we have the sixth hypothesis:

H1g: There is a positive impact of information on the customer satisfaction.

2.4 Store reputation

The reputation of a business is essential to its survival The reputation of a storemay be interpreted by its actions and communication It can also be defined as theoverall evaluation of a retail corporation by consumers (e.g., responsibility), which isprimarily determined by the firm’s corporate communications (Weiss et al, 1999).Weiss et al (1999) also asserts that a generalized view of attribute importance mayoffer little insight into how consumers may react to a specific competitive situation If

consumers perceive few differences between the stores on the attributes that areusually the most salient, they would probably discriminate between the stores onattributes that would usually be given only low markings While an intangibleconcept, having a good reputation can benefit a business in a multitude of waysincluding: consumer preference; support for an organization in times of crisis orcontroversy; and the future value of an organization in the marketplace.

If a retailer has a good reputation in the marketplace, consumers may have apreference for that place even if there are similar businesses offering the sameproducts or services for different prices The reputation of a retailer can enable acompany to differentiate its product in highly competitive markets, allow it to havepremium pricing, and can become the ultimate factor in whether a customer decides topatronize one business over another

Weigelt and Camerer (1988, p.1) suggest that, “a corporate reputation is a set

of attributes ascribed to a firm inferred from a firm’s past actions” These behaviorsare built up over a period of time and differ from image, which, according to Balmer(1998), is composed of the latest beliefs about an organization Word of mouth, on theother hand, may be related to store reputation (Balmer, 1998) Rogerson (1983)described firms with excellent reputations as having more customers, enjoyingpositive word-of-mouth from those customers, resulting in higher volumes of newcustomer acquisition and reduced churn

According to Rogerson (1983), one tactic for ensuring a favorable retail storereputation is a merchandise mix composed of a relatively high number of brandspossessing high brand awareness, and one or more brands with a strong brandreputation, they together build the reliability from the customer For the authors, brandreputation and retail reputation are inextricably linked to one another, since favorablereputation of brands positively influence patronage decisions and purchase behaviors,while unfavorable reputation adversely influence such decisions and behaviors Itmeans that the reputation associated with the brands a store carries influence a store

reputation, which in turn, influences consumers' decision-making processes andbehaviors Store choice is influenced by customers' store reputation which, in turn, isbased on perceived store attributes (Newman and Cullen, 2001).

Newman and Cullen (2001) also developed structural equation modelconfirming a statistically significant direct link between store reputation and customerloyalty Sivadas and Baker-Prewitt (2000) found that the consumer perception of storereputation is linked to store loyalty Bloemer et al (1998) contend that the relationshipbetween perceptions of the store and store loyalty is mediated by store satisfaction.Store choice is influenced by customers' store reputation which, in turn, is based onperceived store attributes (Newman and Cullen 2001) From above discussion, wehave the seventh hypothesis

H2: Higher the store reputation, higher will be the customer loyalty.

2.5 Customer Satisfaction

The concept of customer satisfaction had its roots from many decades ago Astudy by Reid and Bojanic (2006) defined customer satisfaction as “an evaluationrendered that the product experience was at least as good as it was supposed to be”.Reid and Bojanic (2006) also pointed out that customer satisfaction occurred when afirm’s service, as perceived by customers, met or exceeded expectations It existed asthe ultimate goal for a firm because it led to brand loyalty and repeat purchases.Researches also suggested that customer satisfaction involved cognitive and affectivejudgement during consumption For example, Oliver (1996) viewed customersatisfaction as “the consumer’s fulfilment response, the degree to which the level offulfilment is pleasant or unpleasant” and the reflection of the customer’s emotionalstate (cited in Ha and Jang 2010, p 4)

Customer satisfaction can be defined as the perception of pleasurablefulfillment of a service (Oliver, 1996) which can be assessed as the sum of thesatisfactions with various attributes of a product or service (Churchill and Surprenant,

1982) A number of studies have identified determinants of customer satisfaction.These include ease of obtaining information (Oliva et al 1992), attribute levelperformance (Oliva et al 1992), prior experience and search time in choosing theservice (Bolton and Drew 1991).

Customer satisfaction could be studied in the context of shopping experience in

a retail store Giese and Cote's (2000) looks at customer satisfaction as post-purchase/post-consumption response to a previous purchase/consumption experience.Individual customers have different motivations for shopping like daily routine,learning about new products, or enjoyment of bargaining These differences mean thatthey will derive satisfaction from diverse aspects of the shopping experience (Clottey

et al 2008) There is no consensus concerning the measurement of the construct ofsatisfaction in retail context but different approaches are popular Research hashistorically shown that store attributes, such as quality, price, and variety affectcustomer satisfaction (Clottey et al 2008) Anderson et al (1994) indicate that theliterature is not very clear about the distinction between quality and satisfaction.Satisfaction is a post-consumption experience which compares perceived quality withexpected quality (Anderson et al 1994; Parasuraman et al 1985) The literaturemainly looks at quality as one of the antecedents to satisfaction (Bolton and Drew1994; Anderson et al 1994) This research used the Clottey et al (2008) researchresult of customer satisfaction with respect to retail stores in terms of four antecedentstore attributes: price, product assortment, product quality, and store service.Satisfaction has been shown to influence repurchase, and work-of-mouthcommunication; to be a good predictor of future purchase behavior; to influence profitand, in the long run, to lead to customer loyalty (Oliver, 1997)

From above discussion, we have the last hypothesis

H3: There is a positive impact of customer satisfaction on the customer loyalty.

2.6 Customer Loyalty

Concept of loyalty is formed and developed throughout a period of time Kotler

et al (1999) confirms that the cost for attracting a new customer approximately fivetimes compared with the cost for keeping and maintaining an existing customer Thecustomer loyalty is manifested in different ways including a commitment to rebuy orpatronize a preferred product or service (Oliver 1997; Dick and Basu 1994) Zeithaml

et al.(2002) states customer loyalty may be viewed as being either behavioral orattitudinal The behavioral approach is that customers are loyal as long as theycontinue to buy and use a good or service (Parasuraman et al 1988; Zeithaml et al.2002) Bloemer and Kasper (1995) argue that mere repurchase may be indicative ofinertia and not loyalty Reichheld (1990) states that behavioral loyalty is bestmanifested in willingness to recommend and refer a friend or colleague to a particulargood and/ or service The attitudinal approach is that customers feel a sense ofbelonging or commitment to the good or service Dick and Basu (1994) suggest thatloyalty is evidenced both by a more favorable attitude toward a brand (as compared toother alternatives) and repeat patronage

Moreover, Gremler & Brown (1996) provides a definition of customer loyalty related

to the purpose in this study: the repeat density of purchasing behavior from a retailer,the expression for a positive attitude towards retailer, and only consider buying at thissupermarket when the need to buy goods exists According Bloemers & Kasper(1995), loyalty is interpreted as true loyalty rather than repeat purchase behavior, it isactually purchased at a specific brand of supermarket, regardless of the undertaking.Zeithaml et al (1996) convinces that loyalty is a multidimensional structure andincluded the positive response and negative However, a loyal customer may notnecessarily be a satisfied customer Gremler & Brown (1996) also noted that it is notalways the case that customer defection is against loyalty, Zeithaml et al (1996) says,

"even if a problem is not solved, about half of the customers will stay with the brand"This could be due to switching costs, a lack of awareness of the different alternatives,

limited choice on location, time or money constraints, habit or inertia that is notrelated to loyalty.

2.7 The conceptual model

As mentioned above, Omar and Musa (2011) propose the research modelrelated to seven elements of customer loyalty program service quality as well as thecustomer satisfaction and customer loyalty in the retailer area

In the research, Omar and Musa (2011) listed seven dimensions of customer loyaltyprogram service quality including program policy, tangibility, rewards, information,courteous, personalization and communication These factors have the positive impact

on program satisfaction and the customer loyalty also

Moreover, Thomas (2013) mentioned the relationships between the threefactors that are customer satisfaction, customer loyalty and store reputation.According to this research, customer satisfaction has a strong impact on how loyal acustomer is, and they are mediated by the element of store reputation

Realizing that all the elements of customer loyalty program as well as storereputation have strong impact on the customer satisfaction and play an important role

in closing up the relationship between customer and retailer, the author combine thetwo conceptual model above in a new research model Basing on the review of theprevious literature and hypotheses presented, the following conceptual model isproposed:

Figure 2.1: The proposed conceptual model for the thesis

Table 2.2: Hypotheses of the research

H1(a,b,c,d,e,f,g) There is a positive impact of customer loyalty program service quality on the

customer satisfaction.

H1a There is a positive impact of rewards on the customer satisfaction.

H1b There is a positive impact of staff on the customer satisfaction

H1c There is a positive impact of policy on the customer satisfaction

H1d There is a positive impact of tangibility on the customer satisfaction

H1e There is a positive impact of communication on the customer satisfaction H1f There is a positive impact of personalization on the customer satisfaction H1g There is a positive impact of information on the customer satisfaction H2 Higher the store reputation, higher will be the customer loyalty.

H3 There is a positive impact of customer satisfaction on the customer loyalty.

This chapter gives an overview of the customer loyalty programs of some big and famouschains of supermarkets in Ho Chi Minh City Then it provides information of customerloyalty program’s service quality, store reputation, customer satisfaction as well ascustomer loyalty and their antecedents which have been conducted by previousresearchers A conceptual model is also proposed by the author in this chapter Nextchapter is all about the research methodology that the author uses in the thesis.

CHAPTER 3 RESEARCH METHODOLOGY

This chapter mentions about the ways to find the answer for research questions,including: research design, research process, research scale, sample size, datacollection procedure and the last part introduces the methods to analyze data

3.1 Research design

This research used primary data that collected from consumers who hasmember cards and buying goods at three chains of supermarkets in Ho Chi Minh City:Co.opmart, Big C, Lotte Mart Thus, a questionnaire survey design was used as thedata collecting method

Figure 3.1: The process of thesis research

Official measurements

Quantitative research (n=250)

Cronbach’s alpha analysis

EFA Exploratory Factor Analysis

Standard Multiple Regressions

3.2 Measures of the constructs

Based on the literature, the researcher set up the survey instrument, using scalesthat were already validated in previous studies:

Table 3.1: Measurement Scales from previous research basements

Rewards

Staff

ST2 The staff cares about receiving feedback Service Quality, Omar ST3 The staff often have cardholders’ best interests at heart and Musa (2011) ST4 The staff listens to cardholders’ suggestions

TG3 Service counter has space to move around and Musa (2011)

Communication

CM4 Web site is easy to access

CM5 Web site updated regularly

CM6 Prompt feedback through the web site

CM7 Web site is attractive

Personalization

PL3 Acts in cardholders’ best interest and Musa (2011)

Information

IM2 Informs about participating outlets Service Quality, Omar IM3 Reminds about expiry date of vouchers and Musa (2011)

Base on the research of Omar (2011), the elements of customer satisfaction can

Table 3.3: Measurement of the variables of customer satisfaction and customer loyalty

1 I would recommend this retail store to others 1.I feel comfortable when shopping at the 2 I visit this store more frequently than other

retail stores supermarket

3 In the near future, I am likely to purchase from 2.I am pleased that the supermarket meets my

this retail store again requirements

4 I would continue to purchase from this retail 3.I am glad that have chosen to shop

store even if there was a slight increase in price supermarket

5 I consider the store to be my first choice of retail store

In order to measure the customer perceived value of store reputation, the authoruse below measurement of the variables for validity test base on the research ofChiang (2010) to measure:

Table 3.4: Measurement of the variables of store reputation

25

SR3 Word of mouth

3.3 Research process

The research consisted of two phases, a pilot study and a main survey The pilot studywas conducted using qualitative methods and an investigation by the quantitativemethod This method involved the use of standardized measures so that the varyingperspectives and experiences of consumers can be fit into a limited number ofpredetermined response categories to which numbers are assigned (Patton 2001, cited

in Golafshani 2003, p 598)

 Qualitative research

Based on literature from previous research about the impact of loyalty programquality and store reputation on customer satisfaction and loyalty, the author proposedthree hypotheses which were proposed in Chapter 2 After that, the author adjusted themodel and selected the preliminary the scale for questionnaire of the study

After completing the preliminary questionnaire, the researcher conducted thein-depth interviews with 10 people in Ho Chi Minh City to get the right position in thecontext of Vietnamese consumers, check the content and meaning of words used inthe original scale and change them accordingly and more understanding Althoughmost of the structural measures referred to in the previous study, this step is necessary

to make them appropriate and understandable in the context of research In interviews,the author has received some significant feedback and suggestions from theinterviewees to implement improvements to the official questions (See Appendix A)

 Quantitative research

After qualitative research, the authors have adjusted the question again to fitbetter with Vietnam market and easier to understand As the authors suggest that thequestions were designed to match, the main survey was conducted extensively using aconvenient form which collects from consumers in Ho Chi Minh City The process ofquantitative research are the following:

- Step 1: The authors include questions for the study:

The questionnaire was designed in English, then translated into Vietnamese to given to the respondents (See Appendix B & C).

- Step 2: The author defined the sample size of the research:

Findings of Bollen (1989) pointed out that the minimum sample size is 5 samples forthe parameters needed estimates Also be deducted from the above documents,Hoelter (1983) suggested that the size samples must be at least 200 In addition,according to Gorsuch (1983), researchers use Exploratory Factor Analysis (EFA)method needs at least 200 samples

Ongoing studies will have 39 observed variables Thus, if this research bases on thestandard of Bollen (1989), the minimum sample size was N= 5 x 39 = 195 But up toGorsuch (1983), the sample size should have at least 200 acres Therefore, in this study,the author estimates the sample size is 200 Additionally, Tabachnick and Fidell (2007)mention the rules regarding the sample size of regression analysis, the sampleN>=52+8*k, k is the number of independent variables In the paper, N> = 52 + 8*3 =

76 Therefore, questionnaires were sent to 250 private customers who are shopping at

3 biggest chains of supermarket in Ho Chi Minh city that are Big C, Co.opmart, Lottemart as well as some others place such as Satra Mart, Vinmart, ,with member card inorder to ensure the sample size 200, which met the requirements of N> 76

- Step 3: The author issued the questionnaire to the interviewees

In the main study, the data was collected from the outlets of three biggest supermarketchains in Vietnam – Big C, Co.opmart, Lotte mart As metropolitan areas had bigimpact on supermarket shopping demand, supermarkets in the business districts of HoChi Minh City were chosen as the survey sites Unlike the convenience samplingemployed in the pilot test, a probability sampling was used in this stage, so that eachunit in the population has a known chance of selection Probability samples had anadvantage of keeping sampling error low and usually can be generalized to thepopulation Accordingly, the questionnaires were randomly distributed in eachsupermarket to customers who were shopping or resting after shopping To ensure theadequate perception level to this study, the minimum cut-off age of customers was 18

years old Customers were asked to help fill out the survey questionnaire on avoluntary basis (Liu, 2007) After 6 days of surveying, a total of 250 questionnaireswere collected and 209 were used for analysis after eliminating the incompleteresponses.

Step 4: The author received the questionnaire and checked again for suitableresults

After 6 days of surveying, a total of 250 questionnaires were collected and 209 wereused for analysis after eliminating the incomplete responses or answered with valuenumber “3” for more than fifty percent of the number of questions in the questionnairefrom the list of response As a result, the usable data or this study was 209observations It is suitable with the requirement of minimum sample size: 76observations

3.4 Data analysis method

The SPSS (Statistical Package for Social Science) software version 16.0 wasused in this study to analyze the data collected Moreover, for statistical sample,compare the results, other main tools of SPSS version 16.0 and Microsoft Excel wereused to describe the sample For the next steps, the reliability and validity ofmeasurement scales were evaluated by using Cronbach’s alpha and exploratory factoranalysis (EFA) Then the author uses Multiple Regression to examine the relationshipbetween independent variables and the dependent variable as the proposed hypothesis

3.4.1 Cronbach’s alpha.

In the next step, a reliability test with Cronbach’s alpha was performed bySPSS to assess the internal consistency of the result measurements According toSekaran (1992), this coefficient alpha value is the most popular measure of reliabilityfor a multi-item scale (cited in Ryu et al 2008, p 464)

As Leech et al (2005), the value of alpha Cronbach acceptable for reliability isabove 0.7 However, it can be reduced to a range from 0.60 to 0.69, especially if only

a small number of items in the scale When Cronbach alpha was very high (greater

than 0.90), it can mean that items are repeated or there are items in the scale than isreally necessary for a reliable measure of the concept (Leech et al., 2005).

Besides assessing the value of Cronbach alpha, Item Repair - Total correlation

is also very important to consider By (Leech et al., 2005), if this correlation is fairlyhigh or high (equivalent to 0.40 or higher), the item is probably correlated with mostother items and make a good composition this summated scales of assessment If theitem - total correlation is negative or too low (below 0.30), it is necessary to considerthe problem of vocabulary as well as wording matters and conceptual fit by modifying

or deleting such items

3.4.2 Exploratory factor analysis (EFA)

(Leech et al., 2005) states that " EFA is based upon a testable model and can

be evaluated in terms of its fit to the hypothesized population model; it indices can begenerated to help with model interpretation " On the other hand, EFA method is used

to determine a large set of items go together as a group, or a similar reply as mostrespondents (Leech et al., 2005)

3.4.3 Multiple regression analysis

The multivariate regression analysis was used to test hypotheses and predict anoutcome from a number of independent variables (Leech et al., 2005) According toLeech et al (2005), multiple regression analysis requires a lot of assumptions, but it isbetter to focus on the major ones checked easily with SPSS These assumptionsinclude:

1 The independence of residuals (errors)

2 A linear relationship between each predictor variables and the dependentvariable

3 Excess or errors are normally distributed

4 No multicollinearity

The author addresses research design, the process and the scale of the research

in this chapter After that, the sample size, the way to collect and analyzing data ispresented In the next chapter, the author concentrates on the descriptive of collecteddata