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

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)

Ho Chi Minh City – Year 2016


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

Ho Chi Minh City – Year 2016


ACKNOWLEDGEMENTS
The completion of this thesis is a remarkable achieve in my life. It has been
several months and required a great effort for the research. I would like to express my
gratitude to all ISB staffs that supported necessary materials and helped summit my
papers. I also wish to express my deeply thank you for the support, patience and
encouragement from my family, my colleagues and my classmates helped me to
completing this thesis.
Especially, I would like to give my special thanks to Doctor Pham Ngoc Thuy for
supporting and guiding me with this research.

i


STATEMENT OF AUTHENTICATION
(Candidate Certificate)
I certify that the work in the thesis entitled “The impact of loyalty program’s
service quality and store reputation on customer satisfaction and customer loyalty” is the
result of my own research and has not been submitted for a higher degree to any
university 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 I
have received in my thesis have been appropriately acknowledged.
Ho Chi Minh City, 20 December 2015

Dang Bich Phuong

ii

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
3.1 Research design .................................................................................................. 23
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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

iv


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

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

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ABSTRACT

This study empirically examines the impact of loyalty program’ service quality
and store reputation on customer satisfaction and customer loyalty, which is carried on at
some biggest chains of supermarket at Ho Chi Minh city such as Big C, Co.opmart, Lotte
Mart, Metro, Vinmart,...The research also explores some of the factors that influence the
most towards customer satisfaction in retail industry. In the situation that the facilities
and the prices of all supermarket brand names are similar, the loyalty program’s service
quality and how good of this program plays an important role in attract and retain
customers. 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 are
interviewed must have the member card of one or more supermarket that they usually
shop at.
The results indicate that the three elements of loyalty program’s service quality
which are Regulation (included Rewards and Policy), Serving (included Staff and
Communication) and Personalization play significant role in increasing the customer
satisfaction as well as customer loyalty. In addition, the findings of this research also
provide evidence of the similarity between customer satisfaction and customer loyalty in
the mindset of supermarket retailer customer. Particularly, the effect of store reputation
is negligible and the customers do not pay attention to this element in judging their
satisfaction as well as their loyalty for a supermarket brand name.
The customers are persuaded by the Regulation, Serving and Personalization of
the loyalty program of one specific supermarket compared to other supermarkets. The
research 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.

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CHAPTER 1
INTRODUCTION

This chapter introduces the background of the Vietnamese supermarket
industry as well as the status of customer satisfaction and customer loyalty. The
research questions and objective are proposed to explore the influence of loyalty
program’s service quality and store reputation towards customer satisfaction and
customer loyalty. Based on this, the proposed delimitation of research and thesis
structure is presented.
1.1 Research background
After nearly nine years of joining the World Trade Organization (WTO), and
more 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 the
distribution 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 in
Vietnam besides the local companies, and there are still many other international
groups 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 dynamic
markets in the region with high annual growth rates. Hanoi and Ho Chi Minh City
have been ranked among the top 10 Asian cities for retail expansion in 2014. Over the
last few years, Vietnam’s retail sector has also witnessed healthy growth rates, with
retail 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 between
domestic enterprises but also with large foreign retailers. Huge system such as
Co.opmart supermarket chain is leading the market but the big retail groups of foreign
countries include Big C, Lotte, Metro Cash & Carry, also occupied a considerable
market share. In the near future, Vietnam is currently undergoing negotiation to
participate in the Trans-Pacific Partnership Agreement (TPP), Free Trade Agreement

Vietnam - EU (EVFTA). For these negotiations, it will be great for Vietnam’s
economy and for its people, and may also provide investors with attractive
opportunities. Should Vietnam participate, competition between domestic and foreign
retailers will likely take place on a more equal footing. In addition, Vietnam is
expected to experience an influx of retailers from Japan, South Korea and Thailand.
Large developers, such as AEON Mall, Central Group, and CJ Group, have expressed
great interest, gradually expanding their presence and announcing long-term plans for
the market. For example, Japan-based biggest retail group, AEON, is planning to build
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 the
specific strategy in order to enhance their competitiveness. In particular, developing
and maintaining a loyal customer base and raising the store reputation as background
basis for the development of enterprises is a crucial requirement.
1.2 Research problems
Currently, most large retailers in Vietnam has started building customer loyalty
program for their own, for example: "Customer Loyalty Program" of Co.opmart or
"Big Coin Programs" of Big C. The purpose of these loyalty strategies is cultivating
strong relationships with their customers , who are expected to regularly return for
additional purchase (Dowling and Uncles, 1997). The researcher learn about the
loyalty program service quality in the retail market of Vietnam's neighboring Malaysia
through the study of Omar and Musa (2011), Omar et al (2013). Research by Omar
and Musa (2011) also proposed the model of loyalty program service quality. The
study also points out the relationship between loyalty program’s service quality with
the level of satisfaction and loyalty customer success. Relationship between loyalty
program’s service quality with the degree of satisfaction and customer loyalty are
reaffirmed through research Zakaria et al (2014). In addition, the positive impact of

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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 researches
show that customers are affected by the store attributes and consider them to assess
perceived benefits and attitudes (Wang, 2009).
Thus, there is very little research has been done in Vietnam to verify the
effectiveness of loyalty program’s service quality in the retail sector. This leads to the
controversy about the contribution of these programs in the development process. In
addition, the elements that contribute to the loyalty program’s service quality of
Vietnam retailers have not been explored yet. This requires that we should have a
study to learn more about the factors affecting the loyalty program’s service quality as
well as the effect that the program offers. During the past decades, both marketing
academics and practitioners have been intrigued by the relationship between
satisfaction and loyalty (Dick and Basu, 1994; Oliver, 1996). Most of these studies,
however, have concentrated on products (brands) and to a somewhat lesser extent on
services or channel intermediaries. Surprisingly, research on the relationship between
store 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 rapid
market entry of new store concepts and formats, the managerial challenge of
increasing store loyalty also presents the research challenge of a more in-depth
understanding and an empirical estimation of this important type of consumer
behavior. There is some evidence that store loyalty may be (positively) related to store
reputation. However, it has remained unclear what the exact relationship between
satisfaction, store reputation and loyalty in a retail setting is. For instance, one
question that has been left unanswered concerns the issue whether there is a direct
relationship between store reputation and store loyalty or whether there is an indirect
relationship 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

3


loyalty". Research will bring a deeper understanding of the factors that contribute to
the loyalty program’s service quality in the retail area, the elements affects store
reputation, the relationship between this service quality, store reputation and the
satisfaction as well as customer loyalty. Since then, the author will make
recommendations that the retailer managers who are in charge of the store reputation
and customer loyalty program of retail enterprises can use to adjust to gain greater
efficiency. Research will be done based on survey of members of loyalty of the three
biggest 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 women
from 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 loyalty
program’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 loyalty
program’s service quality of Co.opmart, Big C and Lotte Mart in the area of Ho Chi
Minh City which is a big city in Vietnam. The author approach and interview directly
the customers when they go to the bike park to find their moto bike after shopping at
the supermarket.
The author applied data analysis tool (Microsoft Excel and SPSS) to handle the
collected data and to perform the research. And then, using SPSS to test the scale

reliability (Cronbach’ s Alpha), Factor analysis to determine which of a fairly large
set of items were answered most similarly by the respondents, using Multiple

4


Regression to check the relationship between independent variables and dependent
variables.
1.5 Significance of the study
The results of this study is hopefully enable retailer owners to develop the
suitable strategies for the loyalty program service quality as well as raising the store
reputation to attract more customers and gain more closed relationship with their
clients. 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, research
statements/ 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 of
each mentioned concept and theoretical modeling with the proposed hypotheses. In
this chapter, the conceptual model of the study is also presented.
Chapter 3: Research Methodology
This chapter mentions about the research design, research methodology and
illustrate the process of conducting the research.
Chapter 4: Data analysis and data results
For this chapter, the author summaries the characteristics of collected samples
and 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.

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Chapter 5: Conclusions, implications and limitations
The final chapter addresses the main results of the research, the contribution of
the study in management theory and practice. Summary of the study, limitations and
suggestions for future researches are also made.

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CHAPTER 2
LITERATURE REVIEW AND HYPOTHESES
This chapter is an overview of customer loyalty program, customer loyalty program’s
service quality, store reputation, customer satisfaction as well as customer loyalty and
their antecedents which have been conducted by previous researchers. Based on these
studies, a conceptual model is proposed.
2.1 Customer Loyalty Program
Customer loyalty programs are widely defined as combined system of
marketing behaviors that aim to make customers more loyal by building up
personalized relationship with them (Meyer Waarden, 2008). These programs can be
utilized 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 by
Texas International Airline in 1979 through the rewarding to the passengers based on
the length of their journey. Despite the rapidly growing trend of these programs, many
researchers question whether loyalty program actually create customer loyalty or
whether 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, recent

studies have shown that the accumulation of points that have very important
implications in terms of psychology (Yi and Jeon, 2003). Psychological benefits will
increase customer satisfaction when making transactions and thereby also increasing
the 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 create
customers expect a nice event for the future. The point to gift exchange system will
help increase the ability to maintain customer relationships and business.
The second step is the conversion step from accumulate points into gifts. In this
step, the customer receives the value of psychological and physical value from loyalty
programs. The reward that customers receive after conversion charge will have the

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function of increasing customers shopping behavior (Hoffman and Lowitt, 2008). The
respectful feelings will help increase satisfaction of customers and deepen their
relationships with enterprises. All the psychological benefits and material benefits are
transformed into attraction for customers, or in other words to increase customer
loyalty. In addition, loyalty program also targets many other goals as: to collect and
track data related to customers who are shopping for products and services of
enterprises, support the public relations...
In most loyalty program, benefits play the most compelling role to attract
customers; however, the most significant parts of loyalty program are the design or
structure and customer service. Although there are many researches related to this
topic, there is no tested scale for the retailers using to measure loyalty program service
quality 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 the
developing 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 unimportant

elements or neglects important ones (Vesel and Zabkar, 2009). In addition, some
loyalty programs of retailers that are running have the similarity that brings a lack of
distinctiveness for the customer to choose among many programs. As the program’s
rewards are then no longer appealing or different, consumers will move from one
program 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 years
both in terms of availability and popularity, and these programs are now playing a
strong role in influencing consumers’ choice of store. Below are the three most
powerful and famous customer loyalty program of Co.opmart, Big C and Lotte Mart
conducted in the area of Ho Chi Minh city. The author collects information from the
website of each supermarket, then goes shopping in reality to have the real picture of
loyalty programs of retailers. The most similarity characteristics among these loyalty

8


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
Factors
Program
Identity
System

Registration
form
Registration
procedures

Member Card
level
and
requiring
to
upgrade
Regulation of
accmulating
marks/buying
revenue

Co.opmart
Big C
Lotte Mart
- Entrance, way to the - Posters,
billboards - Information board at
shopping area
outside the store
the service area
- 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
lockers,..
C Radio

the shopping area
- Banner, billboard in - Using shelftalker to
the store
remark the products
- Via the sound of
that saving Big Coin
Co.opmart Radio
- Register directly at the - Register directly at - Register directly at the
store
the store
store
- Register via website
- Present Identity Card
- Present Identity Card - Present Identity Card
- Fill in the register - Fill in the register - Fill in the register
form
form
form
- 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
- Standard/

Gold/ - No devided level
- No devided level
Premium
- Standard + 600 marks
=> Gold
- Gold + 1600 marks =>
VIP
- 10,000 VND = 1 mark
- 200 VND = 1 Big
- 100 VND = 1 Mark
- The
accumulating
Coin
- After sa zving up to
marks
are
saving - Saving more Big
50,000
Marks,
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
year.
The - Big
Coin
that
year, customer will
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

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Benefits

-

-

-

Discount rate
Card reissue
fee

-

Card locking
regulation

-

voucher, the program
will
automatically
transfer to next year
saving and the the
using expiry date to 31
Dec
Standard member: 150
Marks = Voucher

30,000 VND
Gold and Premium
Member : 500 marks =
Voucher
100,000
VND
Gold and premium
member will receive
more
accumulating
points
in
the
promotion
Birthday gift: Voucher
discount
10%
(Standard) and 15%
(Gold & Premium)
Special Tet gift
Participate in special
promotion for Gold
and Premium member
2-3%
Main card : 20,000
VND
Keychain : 10,000
VND
2 years without buying
revenue

will be erase

- Refund the parking
fee, bus ticket fee
into
Big
Coin
account for each bill
that
more
than
100,000 VND
- Receive
discount
when using service
of cooperate partners
: Phở 24 Highland
Coffee,…
- Participate in special
promotion for Big C
member only.

- From 0.5 -1%
- 10,000 VND for the
set card
- No locking

50 million VND : 3%
+ More than 50 million

VND : 1%
- The
amount
of
saving
will
be
counted until 31 Dec
- Participate in special
promotion for Lotte
member only: buying
products with special
price,…

- From 1-3%
- 15,000 VND each
reissue time
-

No Locking

2.3 Conceptualization of Loyalty program’s service quality
It is true that customer loyalty programs are attracting more and more attention
from customers since these programs bring up lots of extra values for customers
shopping at supermarkets. To have a look at the impact of this program to customer
satisfaction and customer loyalty, the author chose the level of quality of loyalty
program for researching. Loyalty program service quality as an emerging issue in
relationship marketing will remain underdeveloped until its key dimensions have been
identified and operationalized. The definition of service quality was further developed
as “the overall evaluation of a specific service firm that results from comparing that

10


firm’s performance with the customer’s general expectations of how firms in that
industry 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 program
service quality depends on other factors that are important to customers, such as the
ability 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 program
and information and communication availability (Nobel and Phillips, 2004). Some
retailers have attempted to achieve loyalty by giving personalized service and special
treatment to customers.
A considerable number of studies have suggested that the customer's value, or
derived benefit, plays a significant role in determining his or her long-term
relationship with, or loyalty to, the firm. A customer loyalty program is a marketing
tactic employed by retailers to entice consumers, through rewards, into loyal buying
behavior 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 that
customers 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). In
fact, Gwinner et al (1998) highlighted that if the consumer does not perceive value in
building relationships within a firm, then they might only engage in a relationship
because a better option is not available elsewhere. From above discussion, we have
the hypothesis.
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 of

service quality is SERVQUAL, a well-known scale developed by Parasuraman et al.
(1985, 1988). The attributes of (Parasuraman et al., 1985), were: tangibles, reliability,

11


responsiveness, competency, courtesy, assurance, credibility, security, access, and
understanding. Although there has been criticism from some other researchers to
SERVQUAL instrument, yet SERVQUAL is the instrument most utilized for its
confirmatory 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 and
industries to measure service quality
Base on the review of previous literature pertaining to service quality and
loyalty program suggests that reward, service personnel, program policy, tangibility,
communication and personalization are most important to customers; each of these
dimensions 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 as
rewards or gifts to customers, depending on the amount of money they spend on of
buying products or service. In reality, big retailers such as Co.opmart, Big C and Lotte
Mart offer the rewards included vouchers, discount tickets, Tet gift sets, helmets, rain
coats,… for their customers. Researchers have been paying attention to the important
role of rewards (Dowling and Uncles, 1997). Moreover, Stauss et al.(2005) find out
that 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 attention
and recognition) can affect store satisfaction. From above discussion, we have the first
hypothesis.
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 to
the program of retailer’s employee will impact on the customer’s perception of the
program quality (Brady and Cronin, 2001). Previous research indicate that when the

12


employee using their communication skills such as orientation, listening with high
attention, 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 that
the employee should play good role in. Moreover, the more disparity that the member
customer can be offer through the feeling, the closer relationship of customer and
retailers can be maintain (Rosenbaum et al., 2005), in other words, it can increase the
customer satisfaction through good service personnel offering. From above
discussion, 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 on
the program’s policy (Liu, 2007), whose results can have good effect on customer
satisfaction. 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 service
encounter. It has been widely accepted as a key component of the perceived service

quality (Parasuraman et al., 1988). According to Dabholkar et al. (1996) physical
aspects comprise more than the physical facilities; it covers the convenience offered
the customer by the layout of the physical facilities. In a retail loyalty program

13


context, this consists of the loyalty program service counters being easy to find with
wide enough space to move around. Generally, from a customer's perspective,
anything which makes receiving the service more difficult is likely to impinge
negatively on his or her perception of the service quality. Moreover, good tangibility
can help increase the pleasant feeling about the service, and have good impact on the
satisfaction of customer (Rosenbaum et al., 2005). From above discussion, we have
the 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 informal
sharing 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 who
register to be members of loyalty group are likely to be more well-informed in case
there 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 of
customers who use the service at retailers. From above discussion, we have the fifth
hypothesis:
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 increase
perceptions of service quality (Srinivasan et al., 2002). Companies can select and
build special program as rewards for their main privileged clients to help increase the

personalization as well as the value perceived in the program. Moreover, just a lack of
personal attention may lead to the bad result that the customers realize the difference
service among suppliers and can cause the changing decision in the shopping stores
Javalgi and Moberg (1997). Companies can selectively build loyalty for their most

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valuable segments through personalized and privileged service. In the case of
personalization, a study of the Portuguese retail banking (Ball et al., 2006) postulated
and 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 program
provides relevant and accurate information such as reminding the cardholder about
expiring date of the points and informing the participating outlets that are involved in
the loyalty program. Results of several studies suggested that the exchange of
information is important in both traditional industrial selling as well as in relationship
marketing (Anderson and Narus, 1990). According to Salaün and Flores (2001),
information is what forms or transforms a representation in the relation which links a
system to its environment, where good-quality information is information that satisfies
the criteria of appreciation specified by the user, together with a certain standard of
requirement. Information in this thesis can be understood as news and informs from
the 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 store

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

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consumers perceive few differences between the stores on the attributes that are
usually the most salient, they would probably discriminate between the stores on
attributes that would usually be given only low markings. While an intangible
concept, having a good reputation can benefit a business in a multitude of ways
including: consumer preference; support for an organization in times of crisis or
controversy; and the future value of an organization in the marketplace.
If a retailer has a good reputation in the marketplace, consumers may have a
preference for that place even if there are similar businesses offering the same
products or services for different prices. The reputation of a retailer can enable a
company to differentiate its product in highly competitive markets, allow it to have
premium pricing, and can become the ultimate factor in whether a customer decides to
patronize 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 behaviors are
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 the
other hand, may be related to store reputation (Balmer, 1998). Rogerson (1983)
described firms with excellent reputations as having more customers, enjoying
positive word-of-mouth from those customers, resulting in higher volumes of new
customer acquisition and reduced churn.
According to Rogerson (1983), one tactic for ensuring a favorable retail store

reputation is a merchandise mix composed of a relatively high number of brands
possessing high brand awareness, and one or more brands with a strong brand
reputation, they together build the reliability from the customer. For the authors, brand
reputation and retail reputation are inextricably linked to one another, since favorable
reputation of brands positively influence patronage decisions and purchase behaviors,
while unfavorable reputation adversely influence such decisions and behaviors. It
means that the reputation associated with the brands a store carries influence a store

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