VIETNAM NATIONAL UNIVERSITY – HO CHI MINH CITY

INTERNATIONAL UNIVERSITY
SCHOOL OF BUSINESS

DISTINCTIVE INFLUENCE OF DIFFERENT

TYPES OF LOYALTY PROGRAMME ON
CUSTOMER RETENTION

Individual Research Proposal

Student’s name: PHAN HOANG LONG (BABAWE19071)

Lecturer: MR. LE DINH MINH TRI

Ho Chi Minh City, Vietnam

January 2022
Changing topic justification: My registered topic was “Loyalty programmes and consumer
engagement”- which I suppose is a bit general and do not meet my research pursuit. Therefore, I
would like to change it to be more appropriate: “Distinctive influence of different types of
loyalty programme on customer retention.”

Table of content:

1. Abstract.................................................................................................................page 3

2. Introduction..........................................................................................................page 3

2.1. Problems statement and research questions.........................................page 3

2.2. Significance and Implications.................................................................page 3

2.3. Research Objectives................................................................................page 4

3. Literature Review.................................................................................................page 4
3.1. Research Objectives...............................................................................page 4
3.1.1. Customer Retention......................................................................page 4
3.1.2. Customer Loyalty.........................................................................page 5
3.1.3. Loyalty Programmes....................................................................page 5
3.1.4. Loyalty Programmes....................................................................page 6

3.1.5. Types of Loyalty Programmes Users..........................................page 7

3.2. Previous Study ......................................................................................page 7

4. Methodology..........................................................................................................page 10
4.1. Research Process....................................................................................page 10
4.2. Research Model......................................................................................page 11
4.3. Research Approach...............................................................................page 11
4.4. Population and Sampling......................................................................page 11
4.5. Measurements and Questionnaire Design...........................................page 12
4.6. Data Analysis..........................................................................................page 12
 1. Abstract
Loyalty programmes are the systems sponsored by retailers or companies that give prizes,
promotions, and other unique rewards to appeal and keep the consumers. They are developed to
boost repeat consuming, encourage customers for staying with a business or brand. The more
frequently a client patronises and spends, the more handsome benefits they will receive. Since
the term “customer loyalty” has become increasingly worthy over time, companies have
leveraged these loyalty programmes as a powerful tool not only to retain the existing customers
but also attract new ones. In the field of academic, there has been a lot of researches relate to the
loyalty programmes such as factors that determine consumer participation or the general impact
of that system. However, what is still obscure is a detailed study on each type of the loyalty
programmes and their influence on retaining customer. Therefore, this paper aims to analyze
different types of loyalty programme: Point-based programme, Tiered programme, Charge an
Upfront Fee for VIP Benefits and Non-Monetary Programme. Then, they will be catorized
according to efficiency levels to find out which have the most major effect, which have the
weakest effect, etc. From that, companies can utilize them depending on particular situation,
strategy and budget of the business but still able to assure the engagement and retention with
customers.

2. Introduction
2.1. Problems statement and research questions
Owing to the intensified rivalry in the retail sector, businesses provide a variety of loyalty and
habitual purchaser programmes to enhance selling volume by encouraging customers to
repurchase over periods. Given the large usage of loyalty programmes in the retail industry, there
has been insufficient empirical study on the effectiveness of these types of programmes on
retaining customers. Furthermore, loyalty programmes should be created with more targeted
incentives, altering corresponding to various categories of members depending on their worth,
and providing higher benefit at higher client value levels, by awarding top customers to drive
greater levels of consumption. The following concerns will be examined in this research:
1. How loyalty programmes influence customer retention?
2. How point system influences customer retention?
3. How tier system reward influences customer retention?
4. How charge an upfront fee for VIP benefits influences customer retention?
5. How non-monetary programme influences customer retention?

2.2. Significance and Implications

This study will brings many values not only to the academia but also to the practical business
market. Firstly, defining the purpose of loyalty programmes and how they really affect client
retention. Secondly, serving as a unique scientific contribution to the field of consumer loyalty
program research. Lastly and most important, offering appropriate recommendations for
businesses regarding the most influential system, which will solve the problem is that businesses
cannot have a deep insight at each programme and so that cannot apply them to each business
stategy of their company to optimize the relationship with customers.

2.3. Research objective

The study's major goal is to acquire a thorough comprehension of the influence of loyalty
programmes on customer retention then provide the most suitable programme for each type of
customer and company’s strategy. The study will emphasize on the below sub-objectives in order
to achieve this goal:
1. Elucidate how loyalty schemes influence consumer retention.
2. Analyzing the influence of the point system on retaining customers.
3. Analyzing the influence of a tier-based reward scheme on retaining customers.
4. Analyzing the influence of charging an upfront fee for VIP benefits on retaining customers.
5. Analyzing the influence of non monetary on retaining customers.
6. Offering suggestions for businesses that may be utilized as a framework for gaining customer
loyalty and retaining customers.

3. Literature review
3.1. Concepts
3.1.1. Customer Retention
"Client satisfaction is indeed the cornerstone to client retention," according to Kotler. Customer
retention refers to a company's ability to maintain customers by offering an excellent customer
service. Customer retention is critical to a company's long-term success. Loyalty can assist a
company in retaining its most important clients.
Relationship improvement is reflected in loyalty, while relationship consistency is reflected in
retention. Customer retention is an important aspect of every customer relationship. The feelings
created by the buyer experiences, together with the firm's great reputation, are the most crucial
elements of retaining customers. Customer loyalty will be unachievable without the emotional tie
which is required to keep clients. Most businesses value client retention since the expense of
obtaining a new customer is higher than the costs of sustaining a connection with an existing
customer." (Singh & Imran 2012) Loyalty programmes are designed to transform one-time
customers into repeat customers who are more willing to refer the company to their relatives and
friends. They also increase the likelihood of customers switching from one or two purchases to
multiple-item purchases. (Rocking, 2005) Since the risk of leaving clients is increasing every
day, businesses are looking for innovative ways to capture and keep their loyal clients. Customer
service has always been an essential aspect in retaining customers, and recent study reveals that
its importance is growing and will likely to expand in the future. (Potter -Brotman Jennifer,
1994). In a competitive industry, customer retention helps a company build a positive reputation
and goodwill. (Singh & Khan, 2012). It 's all about the clients and their satisfaction when it
comes to customer retention. Customer engagement control is the process of studying and
utilizing marketing and communication technology to discover organizational policies and
procedures that optimize each customer's lifetime worth to the company (Reinartz, 2004).
Customer retention is commonly acknowledged as one of the most vital goals in relationship
marketing. Customer retention is linked to repurchasing since it concentrates on recurrent
patronage of a marketer or provider. (Hennig & Klee, 1997)
3.1.2. Customer Loyalty
Customer loyalty refers to a customer's attitude and conduct of favoring one brand over all
others, regardless it is because of product or service satisfaction. It motivates customers to
purchase more frequently. (Peiguss, 2012) Customer loyalty is described as a customer's desire
to choose the company's commodities and services above those offered by competitors in the
industry. (Singh & Khan, 2012). Customers tend to return to a company again and again since
loyalty is the outcome of creating previous optimistic interactions with customers and obtaining
them come back to the business multiple times thanks to these experiences; whether the company
has the finest goods, value, or delivery of services. (Ghavami & Olyaei, 2006). Zikmund (2002)
illustrate that loyalty is far more than a pattern of action. Quality, reputation, enterprise, and
other buyers may all be used to showcase customer loyalty. Customers ’ satisfaction, on the other
hand, is critical for any business, since it influences clients' willingness to return to the firm as a
result of its performance. Customer pleasure, emotional connection, faith, selection
reduction/habit, and corporate longevity are expected to have a significant influence on customer
loyalty. (Ghavami & Olyaei, 2006). As a result, customer contentment with a business 's goods
or services may be viewed as a cornerstone to its enduring success and competitiveness.
Customer contentment is observed as a critical factor in customer retention. (Peiguss, 2012)
Singh & Khan (2012) highlighted that enjoyment is insufficient because only half of the
company's pleased consumers will return. The business must convert pleased customers into
loyal customers. It's critical as it costs so much to persuade people to purchase and repurchase. A
favorable emotive experience, physically attribute-based contentment, and value perception of an
interaction, that involves the services or commodities, all contribute to customer loyalty.
3.1.3. Loyalty Programmes
Loyalty programmes are systematic marketing attempts that reward and hence foster loyal
purchasing behaviour, which may be profitable to a company. (Sharp, B. and Sharp A., 1997).
Consumers who make repeated purchases are granted incentive programmes by businesses. A
consumer may gain early accessibility to newest items, exclusive promotional coupons, or free
merchandise through a loyalty programme. Customers usually fill out a form with their personal
information for the company. (Peiguss, 2012) Loyalty programmes serve as a motivator by
offering rewards according to a customer's accumulated purchases over period. Consumers are
encouraged to switch from monocular or single-period choice to proactive or multiple-period
choice through loyalty programmes. By incentivizing consumers to buy more consistently and in
bigger quantities, these programmes stimulate repeat purchases and enhance retention rates.
(Lewis, 2004) The earliest loyalty programmes in the industry were implemented many decades
ago in Germany, when price mirroring was prohibited by the govt. American Airlines was the
pioneer to introduce loyalty programmes in 1981, and they were rapidly adopted by other
airlines, hotels, vehicle rental businesses, payment service providers, and merchants. According
to the New York Daily news, Forrester Research discovered that among 12 sectors, merchants
had the highest levels of loyalty, whereas others, such as Television and internet service
providers, had the lowest levels. Points, bonuses, rebates, or a mix of these are offered by retail
loyalty programmes. Loyalty schemes are an important aspect of a larger customer engagement
strategy. Despite the fact that many marketers make the fallacy of conflating "loyalty" and
"rewards." Loyalty, not points, provides support and dedication. Rewards programmes were
employed by businesses to keep their top clients. Exchangeable points are given to habitual
clients, which may be redeemed for free services, tier upgrades, or other items and services.
Loyalty programmes are not only a way to grow a company's loyal clients, but they also provide
a chance to learn about customers' buying patterns and interests. This data aids in the
customization of the company's services. Businesses realized that lacking a "customer database,"
they would be incapable to recognize and award their top consumers for their preferred
behaviour. (The Loyalty Marketer's Association) Since not all consumers have the tendency to
be loyal, the perfect loyalty programme would only serve loyal and potential loyal buyers. This
implies that clients were initially divided into classes before being contacted in various methods.
Client reward programmes should boost customer enjoyment and engagement. The preceeding
rules must be considered while developing an effective loyalty programme: (Clark Peter, 2010)
1. Attract consumers who are inclined to buy again.
2. Identify which clients are not likely to return and arrange marketing budgets correspondingly
for this category.
3. Concentrate the marketing spend on people who share the same characteristics as previous
repurchases but have not make a second purchase.
3.1.4. Types of Loyalty Programmes
A) Point-based programme
The most prevalent loyalty programme is this one. Customers who shop frequently receive
points, which may be exchanged for discounts, presents, or preferential privileges. Customers
must accumulate a particular number of points to claim their rewards. In the transit and leisure
industries, reward schemes based on service utilization rates (frequent purchaser programmes)
have grown widespread. Organizations that promote regular, short-term purchases are the best
candidates for this sort of loyalty programme. (Peiguss, 2012)
B) Tiered programme
Offer minor benefits as a starting point for joining the program, then increase the worth of the
awards as the consumer progresses up the loyalty level to stimulate repeat purchases. Customers
derive short-term vs long-term advantage from loyalty programmes, which is the distinction
between points and tiered schemes. Businesses with high commitment and higher price points,
such as airlines, hotels, and insurance firms, may more benefit from tiered programmes.
(Peiguss, 2012)
C) Charge an Upfront Fee for VIP Benefits
Consumers have to pay a one-time (or yearly) fee to begin accumulating points for their
transactions. Obviously, firms that rely on regular, repeat sales will benefit the most from this
approach. Buyers are spared of difficulties that might prevent future spends in exchange for a
one-time price. (Peiguss, 2012)
 D) Non-Monetary Programme
Offering benefit to customers through means besides discounts and cash rewards. Customers
may appreciate non-monetary or discounted incentives more than monetary or discounted
benefits, based on their values and on the sector. (Peiguss, 2012)
3.1.5. Types of Loyalty Programmes Users
In terms of customer's perspectives toward loyalty programmes, there are four classifications:
1- Never customers are individuals who are unaffected by any form of loyalty programmes
or their reward schemes.
2- Light customers are participants of reward programmes and are affected by their
attractions, but only to a limited extent.
3- Heavy customers are strongly affected participants of incentive schemes.
4- Extreme customers who are fascinated with or addicted to the programmes.

3.2. Previous Study

Over the previous decades, studies towards the issues ralated to the loyalty programmes have
attracted a lot of researchers from over the world. However, most of those studies were
conducted to investigate just about the general effect or many other aspects and not many authors
have mentioned or studied deeply those types of programmes one by one. Therefore, the most
obvious difference between my research and the previous ones is the extensive study of each
type of loyalty programmes and its impact on specific categories of target customer.
*Singh & Khan (2012) illustrated how short-term efforts with a few profit-oriented changes may
lead to long-term consumer loyalty and thus long-term advantage. The experts were interested in
learning more about client retention and loyalty, as well as their relevance to the firm. They also
have a good understanding of how to improve client retention and loyalty to the company. Once
customers' behavior be understood and satisfied, it would benefits the firm in the long run.
Customer loyalty and increased visits will grow over time if business establish solid relationships
with them by giving superior services. Long-term, this will increase profits for the company and
minimize rivalry. The research also revealed the techniques that draw customers to the shop, as
well as the considerations that must be made while employing them. If they are implemented
properly, this will assist the firm in gaining client retention and loyalty.
*Agchi & Xingbo (2011) recognized step-size ambiguity as a moderator, and it was determined
that when ambiguity is significant, only reward distance influences loyalty programmes. When
there is less uncertainty, buyers combine step size with incentive distance. Distances and step
sizes may differ (e.g., as a function of units: kilograms vs. pounds) in physical and emotional
distance assessment settings (e.g., weight reduction, savings), but notably in loyalty incentives
scenarios.
*Omar et al. (2009) pointed out that the use of customer relationship marketing techniques by
merchants has risen dramatically over the past years, both in theory and in reality. Merchants that
feel that loyalty programmes are an essential tactic and method for businesses to generate shop
traffic, enhance basket size, and boost frequency by developing stronger relationships with their
customers, that have made loyalty programmes a successful marketing approach. Nevertheless,
numerous members of the marketing profession have started to doubt loyalty programmes'
efficiency in gaining client commitment and loyalty. The researchers presented the findings of an
initial scientific report which was undertaken in order to better comprehend the dilemma and
function of service excellence in merchant loyalty programmes, as well as the elements that
influence service excellence in loyalty programmes.
*East et al. (2005) described consumer loyalty is a single term that refers to a person 's
attitudes toward a loyalty item or their recurrent patronage behaviour. In both an additive or
interactive expression, the definition might integrate attitude and behaviour. The writers contend
that loyalty criteria are beneficial if they can anticipate occurrences like suggestion, exploration,
and retention (loyalty outcomes). The research's findings revealed that in three consumer sectors,
combined customer loyalty evaluations generally operate badly as indicators of loyalty outcomes
when compared to solitary metrics, because suggestion is forecasted by attitude but not by repeat
purchases. Repeat consumption predicts retention and search activity better than attitude. The
adoption of an interacting factor in the framework has no effect on the estimation of loyalty
consequences. The usefulness of combining loyalty notions is limited. They dismiss the idea of a
broad definition of loyalty since there is no kind of loyalty that continuously anticipates all of the
diverse loyalty consequences.
*Lewis (2004) designed a framework for customers' reactions to a loyalty programme based on
the notion that purchases reflect the decisions of consumers who are handling a dynamic
optimization issue. A discrete-choice dynamic programming approach is used in this theoretical
system. The author uses a specific loyalty programme as well as data from an online retailer that
specialises in groceries and pharmacy products. The findings imply that the loyalty
programme under investigation is beneficial in raising yearly spending for a significant share of
clients. For companies in the travel-related industries, such as hotels, airways, and rental
vehicles, loyalty programmes have a significant impact on client interaction management.
*Kopalle and Neslin (2003) provided an analytical models to examine the effect of loyalty
programmes in classifications with varied topologies.
*Deighton (2000) highlighted the fact that information technology allows businesses to engage
in personal marketing, which has aided the mass adoption of loyalty programmes in a wide range
of sectors, including gambling, finance, and commerce.
*Henning & Klee (1997) concentrated on customer satisfaction regarding a company's services
and commodities as its a vital factor in the business's long rivalry and triumph. Client
contentment, according to the author, is a critical factor in retaining customer. The primary goal
of this research is to lay a conceptual framework for comprehending the customer retention
strategy through the application of customer happiness and connection quality principles. The
paper examines the satisfaction-retention correlation, as well as the construction of a thorough
knowledge of the customer's value perception.
*Dowling and Uncles (1997) indicated that the study they conducted yielded three main
conclusions. Firstly , competition is a fundamental factor in the establishment of many consumer
loyalty programmes. Secondly, when a loyalty programme does not support the quality
proposition of the service or commodity, it may be justified in enticing new distributors to
engage with the brand. Thirdly, loyalty with brand is more likely to be acquired through the
marketplace.
*O’Brien and Jones (1995) reveal that the relative quality of incentives and the likelihood of
receiving a reward are the two most important criteria that consumers evaluate when considering
programmes. The likelihood of obtaining a reward is determined by cumulative purchasing
levels and time limits.

4. Methodology
4.1. Research Process

Problem Statement

Research Objectives

Method: Collecting previous studies via books,

Literature review journals, online and offline libraries. Matching
relevant theories to the pursuits of topic.

Develop research model

Method: Applying quantitative method by

Establish extremely thorough
conducting questionnaire for survey purpose.
grasp of the influence
Determining the sample size and gathering
of loyalty programmes on
primary data; utilizing SPSS, Descriptive, and
customer retention.
Multiple-regression statistics for analysis.

Provide conclusion and

recommendation
4.2. Research Model
The purpose of the current research is to achieve a thorough comprehension of loyalty
programmes and their influence on retaining customers. The graphic below represents the
proposed research model:

Independent Variables: Dependent Variable:

H1 Customer Retention:
Loyalty Programmes:

H2  The probability of
 Point-based programme recommending the brand to
H3 others.
 Tiered programme  The probability of repeat
purchasing.
 Charge an Upfront Fee for H4  The probability of shifting.
VIP Benefits

 Non-Monetary Programme H5

Hypothesis 1: Loyalty programmes have a substantial influence on customer retention.

Hypothesis 2: Point-based programme has a substantial influence on customer retention.
Hypothesis 3: Tiered programme has a substantial influence on customer retention.
Hypothesis 4: Charge an Upfront Fee for VIP Benefits has a substantial influence on customer
retention.
Hypothesis 5: Non-monetary programme has a substantial influence on customer retention.

4.3. Research Approach

This paper uses quantitative approach since it is based on data gathered via surveys; statistics
will be generated, and assumptions will be formed depend on the outcomes.

4.4. Population and Sampling

Bailey (1987) states that the appropriate sample size is determined by the characteristic of the
population and the objective of the research. The author proposed several approaches for
determining sample size, such as rules of thumb, average size samples from previous similar
studies, statistical techniques, or the strategy in which researchers strive to explore everything
they can afford. (Bryman & Bell, 2011). Therefore, the samples will be selected using the
convenience sampling method. A survey will be undertaken to obtain data for hypothesis testing
from a targeted sample – which are consumers in centre mall and acquaintances who are
participating in any loyalty programmes. Questionnaires will be distributed randomly to 350
people.

4.5. Measurements and Questionnaire Design

To fulfill the study's aim, the emphasis will be put on obtaining primary data by constructing a
questionnaire in two languages (English and Vietnamese) to collect information from the
targeted sample. The questionnaire is divided into three sections, the first of which focuses on
demographic characteristics. Subject of the second section is regarding the kind of loyalty card
the consumer possesses. The third section is about the participant's attitude toward each
statement concerning different types of loyalty programmes. The instrument relies on a five–
points Likert Scale, with 1 indicating strongly disagree and 5 representing strongly agree, in
order to assess the effectiveness of loyalty programmes in terms of client retention.

4.6. Data Analysis

For the quantitative approach used in this study, the data was analyzed using SPSS software.
Tables of Demographics, Loyalty Program Usage Level, Correlation, Multicollinearity Test,
ANOVA Test, Reliability Test, Descriptive Analysis, and Multiple-regression Analysis will be
presented in the research sample description.
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