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
program is viewed as a strategic weapon in developing
valuable customer relationships and promoting customer
loyalty. It has increasingly attracted interests in both
marketing academics and practitioners (Sharp and
Sharp, 1997; Yi and Jeon, 2003; Leenheer et al., 2007).
Up to 2006, the total loyalty programs enrollments rose to
1.5 billion in the United States, which increased 35.5%
compared with 2000 (Ferguson and Hlavinka, 2007). With
the rapid expansion of the economy over the last ten
years, the development speed of loyalty programs in
developing countries is twice faster than that in
developed countries. Although, loyalty programs are
widely used in retail all over the world, and retailers have
indeed invested a lot of money into loyalty programs,
many loyalty programs do not bring corporate managers

*Corresponding author. E-mail: tangsaili@126.com. Tel: +86010-82338102.

their expected customer loyalty. Actually, retailers in

United Kingdom, such as Safeway, gave up loyalty
programs because doing so could save company $75
million per year. Simultaneously, other retailers such as
E. Leclerc in France still invest tens of millions of dollars
per year to implement loyalty programs.
Furthermore, there is still an academic debate about
the effect of retailer loyalty programs on customer loyalty.
Some of extant empirical study have proposed loyalty
programs in retailing had positive impact on customer
purchasing behavior (Mgi, 2003; Lewis, 2004; Taylor
and Neslin, 2005; Meyer-Waarden, 2007; Ho et al., 2009;
Omar et al., 2011b). Whereas, others found that loyalty
programs in retailing did not generate any impact (Sharp
and Sharp, 1997; Benavent et al., 2000; DeWulf et al.,
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.
Customer loyalty is a key factor for retailers to achieve
long-lasting success and sustainable operation. Currently,

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Afr. J. Bus. Manage.

researchers have generally recognized customer loyalty

including behavioral dimension and affective dimension.
However, most studies in retailing have analyzed the
effects of loyalty programs on customer loyalty only from
behavioral dimension, especially viewing SOW as the
unique indicator (Berger et al., 2002; Mgi, 2003;
Leenheer et al., 2007), and thus ignored the emotional
dimension of loyalty. Due to this lack of study, another
target of the paper is to explore the effect of loyalty
programs both on behavioral loyalty and affective loyalty.
Previous studies on customer loyalty have empirically
confirmed that customer value was a precursor to loyalty
in service sector (Woodall, 2003). From a customer point
of view, the prerequisite for them to participate in loyalty
programs is that their expected benefits are superior to
their expected costs (Mauri, 2003). Hence, retailers
aiming at improving customer loyalty via loyalty programs
should ensure that these programs could create and
deliver superior customer value to their customers
(Bolton et al., 2000). Due to the limited resource of firm
and the high costs of creating customer value, it is crucial
for firms to investigate the effects of each dimension of
customer value on loyalty and allocate resource
accordingly.
In addition, although, some related research has
examined the positive relationship between perceived
value of loyalty programs and customer loyalty (Yi and
Jeon, 2003; Li et al., 2003), these studies have neglected
what elements exert an important role in the effect of
customer value on loyalty. Chen and Hu (2010) posited
that relationship benefits as relationship marketing
approaches to customer loyalty could enhance customer
value and finally win customer loyalty. Whereas, it is
imperative for firms aiming at a sharpened understanding
of consumer behavior and carrying out distinctive
marketing strategies to investigate how relationship
benefits affect the mediating role of customer value
between loyalty programs and customer loyalty.
Based on the academic questions aforementioned and
the background of Chinese retailing, this manuscript aims
to examine the mediating role of customer value between
loyalty programs and customer loyalty, analyze the
importance degree of each dimension of customer value
in loyalty programs, and explore the moderating role of
relationship benefits on the mediating process in depth.
The remainder of the article is structured as follows:
firstly, this article develops a conceptual framework on the
relationship between loyalty programs, relationship
benefits, customer value and customer loyalty.
Furthermore, it proposes the hypotheses regarding the
mediating role of customer value and the moderating role
of relationship benefits playing between loyalty programs
and customer loyalty. Secondly, we present three rival
models of mediating effects and a moderated mediating
model. Then, we explain the methodology in details,
compare three rival models and reveal how relationship
benefits control the mediating process. This paper ends

with the presentation of the research findings, managerial

implications and future research directions.

LITERATURE REVIEW
Loyalty programs
As a marketing strategy, a loyalty program offers
incentives and reward to its members with the objective
of securing customers more loyal to company (Lacey,
2003; Yi and Jeon, 2003; Leenheer et al., 2007; Omar et
al., 2011a). It could tie up customers with a company or
brand, and exert a positive impact in the relationships
between customers and firms or brands by various
incentives.
Loyalty programs rooted in the department industry
have begun with the introduction of S and H Green
Stamps mark since a hundred years ago. In the past
decade, loyalty programs have been implemented almost
beyond national boundaries (Uncles and Laurent, 1997).
Prior empirical studies on retailing loyalty program have
focused on analyzing the impact of loyalty programs on
the behavior of local customers from a company point of
view. For example, through an investigation of the
Swedish customers in department industry, Mgi (2003)
found loyalty programs only had partial impact on
customer expenditure. In American retailing, some
researchers have found loyalty programs had positive
impact on share of purchase, purchase amount, revenue
and orders of customers (Lewis, 2004; Taylor and Neslin,
2005). However, other scholars argued loyalty programs
did not have any impact on market share, repeat
purchase rate (Sharp and Sharp, 1997; Meyer-Waarden,
2006), purchase volume, total purchase expenditure
(Benavent et al., 2000), and purchase timing (MeyerWaarden, 2006). This debate of empirical studies
demands a thorough solution for the validity of loyalty
programs, that is, conforming whether loyalty programs
could really engender and maintain customer loyalty.
Superior perceived effectiveness of loyalty programs is
necessary for firms to develop customer loyalty. An
effective loyalty program should be viewed valuable by
customers. Garbarino and Johnson (1999) have
proposed that perceived effectiveness of loyalty programs
depended on procurability and forms of rewards, and the
relativity between rewards and products/services.
Additionally, desire for return and probability of getting
return were both examined by Kivetz and Simonson
(2002). Yi and Jeon (2003) enriched their study by
measuring perceived effectiveness of loyalty programs
through three dimensions: cash value of rewards,
probability of getting rewards and desire for rewards.
Based on Yi and Jeon (2003), this paper uses perceived
effectiveness of loyalty programs to measure
effectiveness of loyalty programs comprehensively.
Perceived effectiveness of loyalty programs refers to

Saili et al.

tradeoff between interests that customers obtain from

loyalty programs and costs that customers pay for
participating loyalty programs.

Customer value
Currently, marketing researchers understand customer
value from two main paradigms: goods-dominant logic
and service-dominant logic. From a goods-dominant view
which highlights tangible output and transaction-oriented,
customer value is determined by manufacturers and is
stemmed from calculable resources. On the other hand,
from service-dominant logic which focuses on intangibility
and relationship-oriented, customer value depends upon
perception of customer on the basis of the use value and
is stemmed from beneficial applications or delivery
getting from calculable resources (Vargo and Lusch,
2004). According to service-dominant logic, customer
value is defined as an overall evaluation of products or
services based on perceived benefits and sacrifice
(Holbrook, 2006; Noble and Griffith, 2005). This means
that customers, as seekers after value maximization, are
concerned about trade-off between what they receive
(such as service quality and benefits) and what they
sacrifice (such as time, price, psychological and other
costs). This definition has been universally recognized
and widely used in academic world. However, due to the
complexity of the concept, scholars have put forward
various measurement approaches in accordance with
different research purposes and perspectives. From
traditional perspectives, researchers simply divide
customer value into quality and price on the basis of
economic person hypothesis (Ponsonby and Boyle,
2004). In light of this view, Kolter (1997) claimed that
customer value included product value, service value,
employee value and image value. Sheth et al. (1991)
holding customer-oriented view argued five-dimension
framework of customer value: functional value, social
value, emotional value, epistemic value and conditional
value. In terms of Sheth et al. (1991), Sweeney and
Soutar (2001) developed PERVAL model and suggested
customer value consist of emotional value, social value,
quality and price. Smith and Colgate (2007) extended
prior studies and indicated that functional value,
experience value, symbolic value and cost value
composed the conceptual framework of customer value.
Hirschman and Holbrook (1982) considered that
customers judge value from both utility and experience.
They indicated that besides utility, customers also paid
attention to symbolic, joyful and aesthetic experience.
Conform to them, Babin and Darden (1994) understood
purchase motivation through utilitarian benefits and
hedonic benefits. Many researchers have empirical
analysis customer value using these two dimensions in
different context (Gursoy et al., 2006; Overby and Lee,
2006).

4297

In the theory framework of bounded rationality,

according to Holbrook (1994), this paper proposes that
customers participate in loyalty programs for two kinds of
objectives: functional goal and spontaneous goal. The
former refers that some consuming behavior are means
to achieving the target of next activity; for example,
customers joining in a loyalty program may want to get
price discount or faster service. However, the latter refers
that other activities view active procedure as ultimate
goal; for instance, customers feel enjoyment and joyful
during redeeming accumulated points for a reward, such
as a free product. Thus, in light of Addis and Holbrook
(2001), the paper measures customer value through
utilitarian dimension and hedonic dimension. Utilitarian
value refers to functional results and objectives of using
product or service directly, which is on the basis of
functionality and practical experience and relevant to
attributes of product/service. Hedonic value is result of
more subjective and personal spontaneous reaction, such
as entertainment, exploring and self-expression driven by
emotion.

Customer loyalty
Although, many scholars have defined customer loyalty
with different concept, most of them explored and
measured customer loyalty from two aspects: loyal
behavior and loyal attitude (Reynolds and Arnold, 2000).
Researchers focusing on behavior pay attention to
measure loyalty from the actual purchasing behavior of
customers (Oliver, 1999). However, others who
emphasize attitude mainly measure loyalty on the basis
of customer preference to specific product or service of
providers (Morgan and Hunt, 1994).
Purchase behavior, especially the repeat purchase, is
the main component of loyalty (Kandampully, 1998) which
reflects the possibility of transacting with the same
provider again (Jones et al., 2003). Prior studies about
customer loyalty have measured loyalty from a view of
purchase behavior through SOW (Berger et al., 2002;
Mgi, 2003; Leenheer et al., 2007; Morrisson and
Huppertz, 2010), proportion of purchase (ratio of
purchase) (Baloglu, 2002), frequency of purchase (Sharp
and Sharp, 1997; Ho et al., 2009), past activities of
consumer (Olsen, 2002; Too et al., 2001) and so on. In
retailing, the characteristics of purchase behavior are
buying frequently (Drze and Hoch, 1998) and making
transactions varying in basket sizes (Kahn and
Schmittlein 1992). Moreover, most consumers often
purchase products/services from different retailers (Kahn
and McAlister, 1997), a phenomenon viewed as
polygamous loyalty (Dowling and Uncles, 1997). Other
researchers also posited that repeat purchase is spurious
loyalty while the following occurs: consumer does not
have another provider to choose, consumer participation
lever is low and consumer has to buy from the same

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Afr. J. Bus. Manage.

provider because of perceiving no differentiation between

providers (Zeithaml et al., 1996; Dick and Basu, 1994).
Kandampully (1998) suggested that true loyalty between
company and its customers is built on the basis of longterm link and emotional connection between them. This
emotional bond could evoke customers establishing
psychological attachment to provider, and make
customers more willing to maintain continuous
relationships with company. Further, customers will form
a stronger emotional attachment to retailers if their
shopping experience meet their expectation and satisfy
their fundamental need. True loyalty based on emotional
connection is hard to imitate and could form a competitive
advantage of company (Palmer et al., 2000). Due to the
importance of behavioral loyalty and affective loyalty to
customer loyalty, many scholars stressed that customer
loyalty was a complex of the two aspects (Dick and Omar,
1994; Davis, 2006; Gmez et al., 2006). They believed
that both actual purchase behavior and preference
degree to specific provider of customers could reflect
customer loyalty.
Based on Dick and Omar (1994), this paper measures
customer loyalty through behavioral loyalty and affective
loyalty in retailing. Behavioral loyalty refers to repeat
purchase from a certain retailer, and affective loyalty
refers to emotional connection of customers with certain
retailer on the basis of shopping experience and their
attitude towards the retailer.
Relationship benefits
Presently, there are plenty of studies on the relationship
between firms and customers; however, most of these
studies are investigated from the enterprises perspective
(Zhu and Kraemer, 2002). The marketing literature over
the past decade has begun to focus on the motivation
and desire of establishing and maintaining long-lasting
relationship between customers and service providers
(Hennig-Thurau et al., 2000). Customers should perceive
the relationship valuable to stay in a long-term
relationship. Besides core benefits, such as product and
service quality, firms should offer additional benefits to
their customers, including social, psychological, economic
and other benefits (Berry, 1995; Binter, 1995; Zeithaml,
1996). Many scholars have called these benefits
relationship benefits and defined this concept as
interests customer perceived from long-term relationship
with service provider (Gwinner et al., 1998; Reynolds and
Beatty, 1999; Patterson and Smith, 2001; Hennig-Thurau
et al., 2002; Yen and Gwinner, 2003; Marzo-Navarro et
al., 2004; Vzquez-Carrasco and Foxall, 2006). In this
way, benefits customer gaining from relationship with
company has been separated from core service of firms.
It stresses the differentiation between interests provided
by company and effectiveness perceived by customer
which was of great importance to enterprises (Crawford,
1985; Friedmann and Lessig, 1987).

From a customer view, Berry (1995) and Bitner (1995)

have first explored the dimensions of relationship benefits
through theoretical analysis in consumer service context.
Berry suggested that relationship benefits should be
composed of customized service benefits, risk reduction
benefits and social benefits; whereas, Bitner recognized
that besides social benefits, relationship benefits should
include the benefits which could simplify personal life and
save switching cost for customers. Beatty et al. (1996)
emphasized that the relationship between customers and
individual sales could bring convenience and better
purchase decisions to customers. However, these studies
analyzed only from the level of theory, until Gwinner et al.
(1998) put forward the three dimensions of relationship
benefits by empirical studies: confidence benefits, social
benefits and special treatment benefits. Some other
scholars also have examined this conclusion in service
context with empirical research (Patterson and Smith,
2001; Hennig-Thurau et al., 2002; Park and Kim, 2003).
Confidence benefits refer to a series of psychological
factors, which are related to reduction of customer
perceived anxiety and risk after transaction. This type of
benefits could not only make customers trust the service
provider but also make providers maintain their
commitment to customers (Grnroos, 2007; Bitner, 1995).
Therefore, it has been viewed as a key factor of
successful relationship (Morgan and Hunt, 1994). Social
benefits including sense of belonging, empathy,
understanding, familiar, personal knowledge, social
support and even friendship (Berry, 1995), are derived
from long-term relationship between employees and
customers, and associated with interpersonal links
between them. Special treatment benefits consist of economic interest customers obtaining from the relationships
with firms and the benefits of customized service,
because saving money is the main motive of customer to
make relationship transaction (Peterson, 1995; Sheth and
Parvatiyar, 1995).
CONCEPTUAL FRAMEWORK AND HYPOTHESES
In line with psychology theories, human behavior is
evoked by extrinsic motivation and intrinsic motivation. As
far as consuming behavior is concerned, extrinsic
motivation is rational (functional)-oriented, yet intrinsic
motivation is hedonic-oriented (Lofman, 1991). Gursoy et
al. (2006) revealed that many consuming behavior was
the result of both utilitarian motivation and hedonic
motivation. So that customers join in loyalty programs to
seek utilitarian benefits and hedonic benefits, that is,
utilitarian value and hedonic value. The utilitarian value
derives in part from financial benefits, such as cash-back
offers and coupons that members accumulate while
frequently buying from the same retailer (Bolton et al.,
2004). Retailers also offer value-added services like
exclusive reservations or priority for their members to
decrease their cost. Meanwhile, participants can also

Saili et al.

enjoy hedonic value from various loyalty programs. For

instance, participants could satisfy their curiosity by
seeking information to keep pace with the latest trends
(Arnold and Reynolds, 2003). They can also feel joyful
during collecting and redeeming accumulated points.
Therefore, we proposed:
H1a: Perceived effectiveness of loyalty programs has
positive impact on utilitarian value.
H1b: Perceived effectiveness of loyalty programs has
positive impact on hedonic value.
Previous empirical research in retailing has identified that
customer value had a positive impact on customer loyalty
in following settings: restaurant industry (Kwun and Oh,
2004; Tam, 2004), airline service (Sirdeshmukh et al.,
2002; Atalik, 2009), retailing services (Sirdeshmukh et al.,
2002; Tsai et al., 2010) and so on. Zeithaml et al. (1996)
discussed the positive relationship between customer
value and their future purchase/repurchase intentions.
Utilitarian value like convenience, price and availability
could affect behavioral intentions of customers (Cronin
and Taylor, 1992). Rational customers would stay in the
relationship with providers to receive more economic,
time and other value. In addition, many studies claimed
hedonic value such as exploration, entertainment and
expression could increase behavioral loyalty (Arnold and
Reynolds, 2003; Babin and Attaway, 2000; Jones et al.,
2006). Researchers have also shown that increasing
superior customer value could bring companies emotional
links with customers (Butz and Goodstein, 1996).
Through empirical analysis, Sweeney and Soutar (2001)
proposed that customer value was positively related to
behavioral and attitudinal intentions in retailing context.
As a consequence, we proposed:
H2a: Utilitarian value has a positive impact on behavioral
loyalty.
H2b: Utilitarian value has a positive impact on affective
loyalty.
H2c: Hedonic value has a positive impact on behavioral
loyalty.
H2d: Hedonic value has a positive impact on affective
loyalty.
According to goal and action identification theories, the
value plays a mediating role in relational exchanges
(Carver and Scheier, 1990). Within the realm of
marketing, customer value is the primary basis for all
marketing activity (Holbrook, 1994). As a result, the main
objective of customers to maintain relationship with firms
is to achieve their interests and satisfactions from the
relational exchanges. Retailers design and implement
loyalty program through offering customer value to
customer in order to develop long-term relationship with
customers and win customer loyalty. Prior research has
texted the mediating role of customer value in service

4299

quality-loyalty relationships (Chang and Wildt, 1994;

Grisaffe and Kumar, 1998). Customer value could not
only influence purchase behavior of customers but also
urge customer to make more attitudinal and emotional
commitment to retailers. Therefore, we believe that
customer value is a mediator between loyalty programs
and customer loyalty.
Effective loyalty programs could make customers feel
more perceived value of products and service through the
followings: offer more economic direct reward and valueadded service for participants than non-participants, bring
them experiential, emotional and recreational interest,
and help them express their preference. Additionally,
these programs could reduce customer costs by providing convenience, saving time value, and cutting down
search and decision costs. After enjoying customer value
above, customers would increase purchase volume and
frequency and engender positive attitude and emotional
attachment towards retailers. As the direct impact of
loyalty programs on customer loyalty is still in doubt, we
propose that when customers obtain more customer
value from loyalty programs, the behavior and affection of
customers would become more loyal to retailers. That is,
customer value could act as a mediator to understand the
impact of loyalty programs on customer loyalty in depth.
As is stated earlier, we propose:
H3a: Utilitarian value plays a mediating role between
perceived effectiveness of loyalty programs and
behavioral loyalty.
H3b: Hedonic value plays a mediating role between
perceived effectiveness of loyalty programs and affective
loyalty.
Relationship benefits as a core conception of relationship
marketing, has been empirically confirmed positively
related to customer value (Chen and Hu, 2010) and
customer loyalty (Gwinner et al., 1998; Hennig-Thurau et
al. 2002; Reynolds and Beatty, 1999; Bieger et al., 2010;
Dagger et al., 2011). DeWulf et al. (2001) has proposed a
principle of reciprocity about the investment in relationship between customers and companies: customers
would feel responsible for the company offering good
service and benefits to themselves. In terms of this
principle, relationship benefits may explain and guide
customers to stay in relationship with retailers. From the
perspective of relationship marketing, when customers
perceives value, they would not only be concerned about
products and services, but also will be concerned about
the overall relationship with providers; thus, the
relationship would influence the total perceived value
(Grnroos, 2007). According to these views, under high
relationship benefits, customers would establish strong
emotional connection with providers and perceive higher
total value even perceived effectiveness of loyalty
programs is low. Meanwhile, by the impact of reciprocity,
there is less chance for customers to switch retailers. In

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Afr. J. Bus. Manage.

Figure 1. Conceptual framework.

this case, higher relationship benefits would enhance

customer value and win customer loyalty, no matter
whether perceived effectiveness of loyalty programs is
high or low. Thus, this leads to the following hypothesis:
H4: Relationship benefits moderate the relationship
between loyalty programs and customer loyalty via
customer value (H4 is valid with either H4a or H4b is
supported).
H4a: The relationship between customer value and their
perceived effectiveness of loyalty programs is controlled
by relationship benefits.
H4b: The relationship between customer value and
customer loyalty is control by relationship benefits.
On the basis of literature, this paper proposes a
conceptual model, as shown in Figure 1. This model
reflects the mediating role of customer value and the
moderating role of relationship benefits in relationship
between perceived effectiveness of loyalty programs and
customer loyalty.

RESEARCH METHODOLOGY
Sample and data collection
Due to the widely use of loyalty programs in retailing, this paper
uses survey methods and selects this industry. Members of loyalty
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
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
(effective response rate was 71%, meeting the requirement of large
sample in SEM (at least 100 samples). Most members have
participated in the loyalty program more than one year (85%), and

more than 50% of the respondents go shopping in this store at least

4 times a month, indicating that respondents have a rich shopping
experience and the sample has representativeness of retailing
customers. The number of VIP members was 136, about 42.6% of
total samples; more than half of the respondents for the sample
were female (54.9%); 178 respondents ranged in age from 31 to 40
(55.8%).

Measurement
All measures were adopted from previous research, and minor
modified to suit the study context. New scales were developed for
six key variables in accordance with conventional procedures
(Churchill, 1979). The article used three questions from Leenheer et
al. (2007) and Gable et al., (2008) to measure perceived
effectiveness of loyalty programs proposed earlier. Customer value
consisted of two dimensions: utilitarian value and hedonic value.
Scales used for these two dimensions of customer value were
adapted from Rintamaki et al. (2006). Customer loyalty was
measured through behavioral and affective loyalty, using scales
modified from Yi and Jeon (2003). Relationship benefits scale
consists of five items: two items representing confident benefits
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
students and 10 students of MBA from the same university in
Beijing. Each respondent at least has a membership card of
department stores or supermarkets. According to the feedback from
the pre-survey, final scales were composed of 24 items and all
responses were assessed on 7-point Likert scales ranging from 1
(strongly disagree) to 7 (strongly agree).

ANALYSIS AND RESULTS

Reliability and validity analysis
The statistical analysis adopted SPSS 17.0, and all the
item-total-correlation were higher than 0.4 (Table 1). To

Saili et al.

Table 1. Measurement model results.

Factor
Perceived effectiveness of loyalty programs (LP) Cronbachs = 0.794 CR = 0.798
LP1: I feel stronger connected to the store of which I hold a loyalty card.
LP2: Loyalty and saving programs of the store offer attractive benefits.
LP3: I enjoy the benefits of memberships.

Mean

Loadings

T-value

Item-total correlation

5.00
4.98
4.91

0.74
0.79
0.73

13.81
15.02
13.55

0.639
0.670
0.607

Utilitarian value (UV) Cronbachs =0.786 CR= 0.788

UV1: I was able to make my purchases conveniently.
UV2: I was able to shop without disruptive queuing or other delays.
UV3: I saved money when I shopped here.

5.03
5.07
5.02

0.71
0.72
0.80

13.26
13.44
15.27

0.581
0.622
0.674

Hedonic value (HV) Cronbachs = 0.863 CR = 0.864

HV1: In my opinion, shopping around was a pleasant way to spend leisure time.
HV2: I felt adventurous and wanted to visit different departments in order to find interesting products.
HV3: I was looking for insights and new ideas to buy.
HV4: I enjoyed this shopping trip itself, not just because I was able to get my purchases done.

5.16
5.23
5.09
5.22

0.77
0.76
0.78
0.82

15.46
15.35
15.73
17.12

0.698
0.696
0.701
0.750

Behavioral loyalty (BL) Cronbachs = 0.80 CR = 0.788

BL1: I am willing to increase expenditure in this store.
BL2: I am willing to purchase more products and services from this store.
BL3: Loyalty and saving programs of the store make me consider extending purchase time.
BL4: I will not switch to other stores, if this store raise price.

4.73
4.76
4.83
4.82

0.77
0.71
0.66
0.70

15.11
13.70
12.44
13.23

0.686
0.604
0.575
0.588

Affective loyalty (AL) Cronbachs = 0.873 CR = 0.874

AL1: I like the product and service offered by the store.
AL2: I will recommend this store to others.
AL3: If the stores product or service makes a mistake, I could forgive its error.
AL4: I will praise this store to others.
AL5: I prefer this store.

5.30
5.27
5.11
5.11
5.17

0.83
0.76
0.71
0.74
0.77

17.86
15.34
13.74
14.75
15.65

0.763
0.705
0.658
0.679
0.702

Relationship benefits (RB) Cronbachs = 0.847 CR = 0.846

RB1: I believe that the store is capable to meet customer needs.
RB2: I believe this store would service customers sincerely and never deceive customers.
RB3: I am familiar with the stores employees.
RB4: I enjoy this interpersonal relationship with the stores employees.
RB5: I get special offers and deals that most customers do not get.

5.00
5.07
5.13
4.98
4.96

0.71
0.72
0.72
0.74
0.73

13.87
13.99
14.12
14.60
14.28

0.660
0.665
0.674
0.657
0.622

2
k
CR =

n =1
Note:

2 k
k
+

n =1 n =1 , where is the standardized factor loading coefficient, and is the measurement error.

4301

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Afr. J. Bus. Manage.

Table 2. Discriminant validity tests.

Latent variable
LP
UV
HV
AL
BL
RB
AVE

LP
0.754
0.42
0.51
0.41
0.53
0.48
0.57

UV
0.744
0.49
0.53
0.68
0.42
0.55

HV
0.783
0.60
0.69
0.59
0.61

AL
0.763
0.61
0.72
0.58

BL
0.711
0.59
0.51

RB
0.724
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
H1a
H1b
H2a
H2b
H2c
H2d

Path
LPUV
LPHV
UVBL
UVAL
HVBL
HVAL

0.54***
0.46***
0.46***
0.45***
0.32***
0.45***

T-value
8.26
6.66
6.36
6.35
4.72
6.26

Results
Supported
Supported
Supported
Supported
Supported
Supported

is standardized path coefficient: *p<0.05, **p<0.01, ***p<0.001.

examine construct validity of each scale, we computed an

exploratory factor analysis on the basis of a principal
components analysis with a varimax rotation. Bartletts
2
test of sphericity ( = 3813.639, p = 0.000) was significant. Moreover, the Kaiser-Meyer-Olkin (KMO) value
was 0.924, and accumulated variance contribution rate
was 68.2%, which presented factoring was appropriate.
The Cronbachs alpha coefficient of total scale is 0.927,
and the six Cronbachs for each factor were basically
more than 0.7 (Table 1). Composite reliability (CR) of
each latent variable was acceptable (Table 1). As shown
in Table 2, the factor loadings ranged from 0.66 to 0.83,
which were significant in t-test, and average variances
extracted (AVE) were acceptable; thus, the model had
adequate convergent validity. Furthermore, each square
root of AVE was greater than correlation coefficients
between factors, which confirmed the model had
adequate discriminant validity.
Hypotheses testing
This article used Lisrel 8.70 to conduct hypothesis
2
2
testing. The fit statistics ( = 251.44, d.f. = 144, / d.f. =
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
of a good model fit. As revealed by Table 3 and Figure 2,
perceived effectiveness of loyalty programs had
significant impact on the two dimensions of customer
value. Its impact on utilitarian value ( = 0.54, p < 0.001)

was higher than its impact on hedonic value ( = 0.46, p

< 0.001). Thus, H1a and b were supported. Moreover,
higher utilitarian value would enhance behavioral loyalty
( = 0.46, p < 0.001) and affective loyalty ( = 0.45, p <
0.001) of the customers, so that H2a and b are supported.
Hedonic value was also significantly related to behavioral
loyalty ( = 0.32, p < 0.001) and affective loyalty ( =
0.45, p < 0.001), which supported H2c and d.
Following the measurement procedure of Kelloway
(1998), this paper analyzed the mediating role of
customer value through SEM. According to basic model
in Figure 2, we constructed two rival models (Figure 3). In
partly intermediate effect model M1, loyalty programs not
only have direct influence on behavioral loyalty and
affective loyalty of customers, but also have indirect
impact on customer loyalty through customer value. In
fully intermediate effect model M2, loyalty programs only
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
customer loyalty. The structural model fit of each model
were shown in Table 4. According to the suggestion of
Morgan and Hunt (1994), the paper compared the
2
significance of differentiation between of each model
2
( ) and took principle of parsimonious into account.
The result of comparison indicated that the
differentiation between M1 and M2 is not significant
2
( df=2 = 12.58, p > 0.05), thus M1 was better than M2;
2
similarly, M2 was better than M3 ( df=2 = 37.08, p >
0.05). In addition, PNFI of M2 was less than the other two

Saili et al.

4303

0.05

Utilitarian
value

0.46***

B ehavioral
loyalty

0.54***
0.45***

Pe rc eived
effec tivene ss of
loyalty progra ms

0.32***

0.46***
He donic
value

0.45***

Affec tive
loyalty

0.12
Figure 2. The model for the baseline model.

Customer
value

Perceived
effectiveness of
loyalty programs

Customer
loyalty

Model M1:Partially intermediate effect model

Perceived
effectiveness of
loyalty programs

Customer
value

Customer
loyalty

Model M2Fully intermediate effect model

Customer
value

Perceived
effectiveness of
loyalty programs

Customer
loyalty

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

models. That is, customer value played fully intermediate
effect between perceived effectiveness of loyalty
programs and customer loyalty, which supported H3a and
b.

In order to examine whether relationship benefits would

produce the impact on the mediating progress, we define
perceived effectiveness of loyalty programs as
independent variable, X; utilitarian value and hedonic
value as mediating variable, Me; relationship benefits as

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Afr. J. Bus. Manage.

Table 4. Results of rival models.

Model
M1
M2
M3
2

M1 - M2
M3 - M1

251.44
254.63
425.60
2

d.f.

RMSEA

CFI

NFI

NNFI

IFI

GFI

AGFI

PNFI

144
146
148

0.048
0.048
0.077

0.98
0.98
0.97

0.97
0.96
0.95

0.98
0.98
0.96

0.98
0.98
0.97

0.92
0.92
0.88

0.90
0.90
0.84

0.81
0.71
0.82

3.195.991 (0.05, 2), M2 is accepted, M2 > M1.

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

Table 5. Least squares regression results for moderated mediation.

Model

Predictor

MI
LP

UV

BL

X: LP
Mo: RB
XMo: LP RB
Me: UV
MeMo: UV RB

MII
LP

HV

BL

X: LP
Mo: RB
XMo: LP RB
Me: HV
MeMo: HV RB

MIII
LP

UV

AL

X: LP
Mo: RB
XMo: LP RB
Me: UV
MeMo: UV RB

MIV
LP

HV

AL

X: LP
Mo: RB
XMo: LP RB
Me: HV
MeMo: HV RB

Equation 1
b
T
(Criterion BL) R = 0.619
0.21 (b11)
2.60*
0.50 (b12)
11.61***
0.01 (b13)
1.09

Equation 2
b
T
(Criterion V) R = 0.572
0.39 (b21)
5.47***
0.30 (b22)
8.05***
0.03 (b23)
2.43*

Equation 3
b
T
(Criterion BL) R = 0.659
0.09 (b31)
1.05
0.40 (b32)
8.81***
0.01 (b33)
0.51
0.33 (b34)
5.27***
-0.01 (b35)
-0.43

(Criterion BL) R=0.619

0.21 (b11)
2.60*
0.50 (b12)
11.64***
0.01 (b13)
1.09

(Criterion HV) R=0.529

0.22 (b21)
4.29***
0.13 (b22)
4.76***
0.02 (b23)
2.95**

(Criterion BL) R=0.659

0.11 (b31)
1.40
0.44 (b32)
10.18***
0.01 (b33)
0.32
0.45 (b34)
5.19***
-0.01 (b35)
-0.33

(Criterion AL) R = 0.589

0.34 (b11)
5.85***
0.25 (b12)
8.15***
0.03 (b13)
1.86

(Criterion UV) R=0.572

0.39 (b21)
5.47***
0.30 (b22)
8.05***
0.03 (b23)
2.43*

(Criterion AL) R=0.661

0.23 (b31)
4.04***
0.16 (b32)
5.15***
0.03 (b33)
3.37***
0.29 (b34)
6.78***
-0.01 (b35)
-1.17

(Criterion AL) R = 0.589

0.34 (b11)
5.85***
0.25 (b12)
8.15***
0.03 (b13)
1.86

(Criterion HV) R=0.529

0.22 (b21)
4.29***
0.13 (b22)
4.76***
0.02 (b23)
2.95**

(Criterion AL) R=0.672

0.24 (b31)
4.27***
0.19 (b32)
6.31***
0.02 (b33)
2.59*
0.45 (b34)
7.67***
-0.01 (b35)
0.83

*p < 0.05, **p < 0.01, ***p < 0.001.

moderating variable, Mo; behavioral loyalty and affective

loyalty as outcome variable, Y. Thus, XMo is computed as
the product of independent variable and moderating
variable. If XMo impacts on Me and Me impacts on Y,
XMo would (at least partially) influence Y through Me,
therefore, Mo is an mediated moderator (Baron and
Kenny, 1986). According to Muller and Judd (2005), to
demonstrate moderated mediation, one should estimate
three fundamental models:

Y = 10 + 11X + 12Mo + 13XMo + 1

(1)

Me = 20 + 21X + 22Mo + 23XMo + 2 (2)

Y = 30 + 31X + 32Mo + 33XMo + 34Me + 35MeMo + 3
(3)
In all three equations, we are making the same assumptions about all variables we did earlier. In Equation 1, 11

Saili et al.

Rela tionship
benefits
H 4a
Perceived
effectiveness
of loyalty
programs

Perceived
effectiveness
of loyalty
programs

R elationship
benefits
H4b

Utilita rian
value

H4a
B ehavioral
loyalty

Perceived
effectiveness
of loyalty
programs

H4b
U tilitarian
value

Affe ctive
loya lty

M oderated media te d model

Moderated mediated model

Rela tionship
benefits

R elationship
benefits

H 4a

4305

H4b

Hedonic
value

H4a
B ehavioral
loyalty

M oderated media te d model

Perceived
effectiveness
of loyalty
programs

H4b

Hedonic
value

Affe ctive
loya lty

Moderated mediated model

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

should be significantly while 13 should be not. In

Equations 2 and 3, either (or both) of the two modes
should exist: both 23 and 14 are significant or both 21
and 35 are significant.
The paper used regression analysis test models. Table
5 estimated Equations 1 through 3 with these variables
and presented unstandardized coefficients (b) and their
associated T statistics. In these equations, interactions
are included in predictors (LP RB; UV RB; HV RB).
For moderated mediated model (Figure 4), b11 (b11 = 0.21,
p < 0.05) is significant, while b13 is not (b23 = 0.01, p > 0.1)
in Equation 1. Both b23 (b23 = 0.03, p < 0.05) and b34(b34 =
0.33, p < 0.001) are significant in Equations 2 and 3.
However, b21 is significant but b35 is not. Here, there is a
significant effect of loyalty programs and a significant LP
RB interaction.
It means the magnitude of the indirect effect of loyalty
programs, via the utilitarian value, varies in magnitude as
a function of relationship benefits, which indicates
moderated mediation. Thus, in model, H4a is supported
whereas H4b is not. Similarly, Table 5 also shows three
other
valid
interactions
LP

RBHVBL,
LPRBUVAL and LPRBHVAL. That is, H4a is
supported in other three models, yet H4b is not
supported. As a result, relationship benefits as a
moderator indirectly affect customer loyalty through
influencing
the
relationship
between
perceived
effectiveness of loyalty programs and customer value
(supporting H4).

For the purpose of understanding the indirect effect in

these data in depth, it is imperative to calculate the
simple effects of loyalty programs on the mediator
(customer value) at different levels of moderator
(relationship benefits).
Since perceived effectiveness of loyalty programs and
relationship benefits are measured by a 7-point scale, we
use cluster analysis to divide these two conceptions into
high and low groups. After that, we get four alignments: 1)
low relationship benefits low perceived effectiveness of
loyalty programs (n = 25); 2) low relationship benefits
high perceived effectiveness of loyalty programs (n = 85);
3) high relationship benefits low perceived effectiveness
of loyalty programs (n=118); 4) high relationship benefits
high perceived effectiveness of loyalty programs (n =
91) (Table 6).
Table 6 indicates the results of the ANOVA analysis and
post- hoc test, and the F value and p value are significant
(F = 32.461, p < 0.001). Moreover, Scheffe and Duncan
post-hoc test prove that the four groups are obviously
different and customer value of the forth group is highest
followed by the third group and the second group.
As Figure 5 indicates, when customers perceive higher
relationship benefits, even if their perceived effectiveness
of loyalty programs is lower, they would feel more
customer value than participants who perceive higher
effectiveness from loyalty programs but have low relationship benefits. These results as a whole clearly show
that the indirect effect, via the mediator, is much higher

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Afr. J. Bus. Manage.

Table 6. ANOVA analysis.

Low relationship benefits

Customer
value
F
P

High relationship benefits

Low perceived
effectiveness of LP

High perceived
effectiveness of LP

Low perceived
effectiveness of LP

High perceived
effectiveness of LP

4.440

4.879

5.03

5.633

Duncan

Scheffe
post-hoc

(1, 2, 3,
4)

3>2>1
>4

32.461
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

in our study. That is, customer value has a notable
moderating effect on the relationship between perceived
effectiveness of loyalty programs and customer value.

DISCUSSION AND IMPLICTIONS

Based on analysis and conclusion of previous literature,
this paper proposes a moderated mediated model to
explore relationship among loyalty programs and
customer loyalty. It also confirms the mediating impact of
customer value and moderating impact of relationship
benefits.
In the context of Chinese retailing, through actual
research on members of a certain large department store,
research findings are summarized as follows: firstly, this
article, as expected, approves that customer value has
positive impact on customer loyalty (Sirdeshmukh et al.,
2002; Atalik, 2009). Additionally, the paper adopts
multi-dimensional approach beyond the price, location
and time of utilitarian value. It proposed that hedonic
value is the other antecedent of customer loyalty, which

expands existing knowledge of customer value.

Meanwhile, relative research frequently based on general
service industry, but little of them discussed the influence
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
role in affective loyalty in retailing, and the effects of
these two dimensions were equivalent. Furthermore, both
dimensions of value were positively related to behavioral
loyalty, and the influence of utilitarian value was higher
than that of hedonic value. Hence, perceived value of
customers could not only promote their repeat purchase
behavior, but also enhance their commitment to retailers
at emotional level.
Secondly, due to the current debate of loyalty programs
effectiveness, the paper explored the mediating impact of
customer value on the relationship between perceived
effectiveness of loyalty programs and customer loyalty.
The study paid attention to integrated relationship among
perceived effectiveness of loyalty program, customer
value and customer loyalty, and explained how loyalty
programs promoted customer loyalty. Although, existing
studies have suggested loyalty programs could provide

Saili et al.

more utilitarian value, there is still lack of empirical study

to confirm whether loyalty programs could increase
perception of hedonic value. The results of this paper
proposed perceived effectiveness of loyalty programs
exerted positive role in both dimensions of customer
value, and its influence on utilitarian value was larger
than hedonic value. After comparing three rival mediating
models, the paper concluded that the direct impact of
loyalty programs on customer loyalty was not significant.
Whereas, loyalty programs could promote customer
value and enhance affective loyalty and behavioral loyalty
via customer value. As a result, as long as customers
could feel the enhancement of customer value after
participating in loyalty programs, they would increase
behavioral and affective loyalty to retailers. This
conclusion added new path from loyalty programs to
customer loyalty and enriched theoretical study of loyalty
programs and customer loyalty.
Thirdly, current paper proposed a moderated mediated
model, which proved the moderating role of relationship
benefits on the relationship between loyalty programs and
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
maintain long-term relationship between customer and
company. Researchers have argued relational benefits
play an important role in enhancing customer value
(Chen and Hu, 2010). This article initially investigated
how relationship benefits controlled customer value after
customers participating in loyalty programs in depth. An
interesting discovery presents that the indirect impact of
relationship benefits via customer value is much higher
when relationship benefits is high rather than low. That is,
even customers perceive lower effectiveness of loyalty
programs, if retailers provide more relationship benefits to
members, they would feel more customer value and
become more loyal to retailers.
This paper has several practical implications for firms
that want to retain customers through effective 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
when customers obtain more customer value from loyalty
programs, can they keep on maintaining the long-term
relationships with retailers and then become more loyal to
retailers. Therefore, customer value is key factor of
implementing effective loyalty program, and is of vital
importance to promote customer loyalty. While designing
loyalty programs, retailers should not only pay attention to
offer utilitarian value derived from time saving, special
price and convenient location, but also differentiate their
products and services from other retailers by supplying
hedonic value from emotional, exploring aesthetics and
other aspects to develop and maintain loyal customers.
Retailers should carry out relational benefit-oriented
loyalty programs. Currently, many retailers only view
loyalty programs as short-term promotional tools and
Often focus on economic reward and award. Whereas,

4307

this kind of loyalty program is easy to imitate, which lead

to overuse of loyalty programs plenty of investment
with little return. The empirical outcome proposed the
moderating role of relationship benefits and suggested
that firms should provide more relationship benefits and
customer value to gain higher customer loyalty. Thus,
retailers should not only offer customer economic award
and promote customer perception of special treatment
benefits, but also make customer feel other relationship
benefits and develop close emotional attachment to them.
As a result of the difficulty to imitate the loyalty program, it
could form a competitive advantage of retailers and
ultimately win customer loyalty.
Furthermore, retailers should design loyalty programs
elaborately using customer value to manage customer
relationship. As extensive use of information storage and
network technology, retailers can collect valuable
information of customers through loyalty programs and
find out different value desired by different customers; so
that they can adjust loyalty program to meet the customer
need and enhance customer loyalty.

LIMITATIONS AND FUTURE RESEARCH DIRECTIONS

First of all, this paper only collected member data of
department store; thus, whether the results of the paper
apply to other forms of retailing and other industries still
need to be further verified. Secondly, the data used in this
study is cross-sectional data on the same point in time. In
the future, we could analyze the same consumers at
different developing stages of loyalty programs and find
out differentiation of customer perception of customer
value. Finally, the paper focuses on the mediating role of
customer value between loyalty programs and customer
loyalty. Hence, future research could bring satisfaction,
commitment and other concepts, and further explore the
effects of customer value on loyalty programs and
customer loyalty.

ACKNOWLEDGEMENT
Project 70972002 supported by National Natural Science
Foundation of China; Project GX2011-1003(Y) supported
by Generalized Virtual Economic Special Study Funded.
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