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JSTP
31,6 The mediating effects of program
loyalty in loyalty rewards
programs: an experimental design
932 in coffee shops
Received 20 January 2021 Pınar Başg€oze, Yaprak Atay and Selin Metin Camg€oz
Revised 30 April 2021
2 July 2021 Department of Business Administration, Hacettepe University, Ankara, Turkey, and
Accepted 3 July 2021
Lydia Hanks
Dedman School of Hospitality, Florida State University, Tallahassee, Florida, USA

Abstract
Purpose – The purpose of this study is to evaluate the impact of reward structure on the customer’s value
perception of the program, loyalty to the program and loyalty to the firm.
Design/methodology/approach – A 2 (type of reward) x 2 (timing of redemption) between subjects
experimental design was conducted. In addition, the indirect effect of the customer’s value perception of the
program on loyalty to the firm via loyalty to the program is tested with Hayes and Preacher’s mediation
procedure.
Findings – Study results indicated that type of reward has a positive impact on the perceived value of a loyalty
program. Program loyalty mediates the relationship between the perceived value of the loyalty program and
customer loyalty, as well as the relationship between type of reward and customer loyalty.
Originality/value – The findings of this study demonstrate the importance of the type and timing of loyalty
program rewards on customer perceptions of the value of the loyalty program. In addition, this study is a step
forward in providing a deep understanding of the impact of such perceptions on loyalty. These findings fill a
number of research gaps and provide tangible guidance for practitioners.
Keywords Value perception, Program loyalty, Timing of redemption, Type of reward, Customer loyalty,
Loyalty programs
Paper type Research paper

Journal of Service Theory and
Practice
Vol. 31 No. 6, 2021
pp. 932-949
© Emerald Publishing Limited
2055-6225
DOI 10.1108/JSTP-01-2021-0020
1. Introduction
In the last several decades, reward and loyalty programs have been shown to be effective
tools in building customer loyalty in many industries (Uncles et al., 2003). Hotel loyalty
programs, frequent flyer programs and credit card rebate programs are being offered to
customers in an effort to attract new guests and establish higher levels of customer retention
among existing guests (Berezan et al., 2015; Skogland and Siguaw, 2004). It is argued that
when organizations give incentives to customers, this act encourages repetitive purchase
behavior by providing value to the customer (Keh and Lee, 2006; Koo et al., 2020). Given the
prevalence of loyalty programs (DeKay et al., 2009), the effectiveness of such programs bears
investigation (Bolton et al., 2000; Dowling and Uncles, 1997). In particular, it is important to
illuminate the mechanisms by which loyalty programs result in positive outcomes, such as
repeat patronage and increased profits (McCall and Voorhees, 2010).
Previous research has demonstrated that there is a relationship among reward type,
reward timing and customer loyalty (Chhabra, 2017; Hu et al., 2010; Keh and Lee, 2006; So
et al., 2015; Yi and Jeon, 2003). However, little is known about how the consumer perception of
the loyalty program and his or her loyalty to the program itself impacts guest loyalty to the
firm. Transaction theory (Thaler, 1983) would suggest that when customers perceive that
they receive value from a loyalty program in the form of cash value, redemption choice,
aspirational value, relevance to the consumer or attainability (O’Brien and Jones, 1995), they
will be loyal to that program. Loyalty programs have also been shown to be effective tools in The mediating
building customer loyalty in many industries (Uncles et al., 2003; Kim, 2018), encouraging effects of
repetitive purchase behavior by providing value to the customer (Keh and Lee, 2006).
However, the nature of the theoretical relationship among perception of value, program
program
loyalty and customer loyalty is unclear. loyalty
Particularly in the highly competitive environment created by COVID-19, when travel and
dining out is restricted, it is of paramount importance for hospitality firms to understand
what attracts and retains loyal customers. Because of the fear of the unknown brought about 933
by the pandemic, customers feel the need to build confident relationships with sellers.
Confidence, trust and loyalty provide a sense of safety and certainty to that which is
intrinsically unknowable, feared and mysterious (Laros and Steenkamp, 2005). This
confidence and trust can then result in a loyal consumer (Addo et al., 2020). In addition, Yang
et al. (2020) indicate that in a pandemic situation, consumers may prefer to purchase products
from retailers who differentiate themselves from rivals in a positive way. For instance,
retailers can provide emotional or financial support to people in need by offering rewards,
prizes or incentives through loyalty cards. Such committed behaviors by retailers help create
positive attitudes in consumers’ minds and may have long term benefits to the loyalty
relationship. Thus, particularly in a time when customers are seeking comfort in established
relationships, a deeper understanding of the elements that create a sense of loyalty between
the company and the customer is essential.
Therefore, it is important to investigate the relationships between the elements of loyalty
programs and gain a better understanding of how they work together to produce positive
outcomes for hospitality firms. As hospitality companies craft and update their loyalty
programs, there is a need for data about what really works. Consequently, in this study, we
pose the following research questions:
RQ1. Do reward type and reward timing influence the customer’s value perception of the
loyalty program?
RQ2. Does this value perception of the loyalty program impact the customer’s loyalty to
the program or the loyalty to the firm? If so, how?
Based on the framework proposed by Dowling and Uncles (1997), this study investigates the
effects of the timing and type of the reward on the customer’s value perception of the
program, loyalty to the program and loyalty to the firm. The second aim of this study is to
consider the mediation effects of program loyalty between value perception of the loyalty
program and customer loyalty. The results of our investigation will contribute to our
theoretical understanding of loyalty and serve as a springboard for future research in
this arena.

2. Literature review
2.1 Loyalty programs
Loyalty, in a consumer behavior context, can be defined as the preferred attitudinal and
behavioral responses toward a brand over a specific period of time (Engel and Blackwell,
1982). Loyalty is a multidimensional construct (Kumar and Shah, 2004), comprising both
psychological components (i.e. attitudes and perceptions) as well as behavioral ones (i.e.
observed actions of customers) (Kumar and Reinartz, 2012).
The objective of any firm is to create a situation where customers display loyalty to the
company and act on that loyalty by spending money. To that end, numerous companies have
some type of loyalty program (Gustafson et al., 2004). A loyalty program can be defined as a
program which provides free rewards, prizes or incentives to consumers who make frequent
purchases from the same service provider (Liu, 2007). The hospitality industry has, over time,
JSTP become an increasingly competitive market, and obviously, customers are crucial assets of
31,6 hospitality firms (Purohit and Purohit, 2013) as loyal customers can lead to higher
profitability for the firm. To that end, hospitality companies often use loyalty programs in
order to enhance the customer’s sense of membership in a specific organization by providing
benefits from this membership (Tepeci, 1999).
In the literature, as well as in the vernacular, there is an inconsistency in the naming of
loyalty programs. They are often referred by a number of names, such as reward programs,
934 frequent-flier programs, frequency reward programs (Meyer-Waarden, 2015) and frequency
programs (Kivetz and Simonson, 2002). Although the term “loyalty” in the literature is often
confused with the term “frequency”, they are distinct concepts, with frequency merely
reflecting the behavioral aspects of loyalty (Choi and Kim, 2020). Dick and Basu (1994) note
that the frequency is not enough to explain the reason behind the loyalty; relative attitude
toward a brand is also a necessary component. Similarly, Shoemaker and Lewis (1999) point
out that frequency and loyalty programs differ from each other. According to this distinction,
frequency programs are merely designed to provide repeat purchase behavior, and the
customers’ continuity with the program depends on the economic benefits of the rewards.
While these frequency programs focus on only behavioral loyalty (Sharp and Sharp, 1997),
researchers argue that it is also important to understand attitudes related to frequent
purchase behavior (e.g. attitudinal loyalty) (Rundle-Thiele and Bennett, 2001; Choi and Kim,
2020). The aim of loyalty programs is not only to generate repeat purchases but to capture
this attitudinal loyalty and form an emotional bond between the brand and the customer
(Shoemaker and Lewis, 1999). In addition to providing economic benefits to customers,
loyalty programs can be used to confer status to customers (Ho et al., 2009) and make them
feel special, essential and respected (Morgan et al., 2000), thus inspiring further loyalty.
Loyalty programs can be a way to reward the most valuable customers and encourage them
to spend even more with the service provider (O’Brien and Jones, 1995), or they can be a tool to
attract and retain new consumers (O’Brien et al., 2020). However, Kumar and Reinartz (2012)
pointed out that unfortunately, in spite of their best efforts, many loyalty programs have
missed the mark when attempting to in build such attitudinal loyalty.
Therefore, it is essential that the rewards conferred upon customers communicate these
sentiments effectively and serve as a powerful mechanism to build loyalty. Since the
behavioral and attitudinal responses of customers are affected by the design of loyalty
programs (Dorotic et al., 2012), it is crucial to have well-designed loyalty programs capturing
both perspectives for sustainable customer loyalty (O’Brien and Jones, 1995). In designing
such programs, prior research has demonstrated that the type and timing of the rewards
earned by a customer significantly impact the efficacy of the loyalty program (Keh and Lee,
2006). Thus, in this study, we examine these two variables and their relationship to customer
outcomes.

2.2 Reward type

Operant learning theory (Skinner, 1965) may be used to explain the loyalty program notion
(Foxall, 1996, 1997). This theory is based on the idea that when an individual demonstrates a
behavior in the presence of a stimulus and receives a reward or a punishment, this stimulus
becomes discriminatory. In other words, the occurrence of the stimulus increases the repetitive
behavior if it has been rewarded and decreases the behavior if it has been punished. There are
two kinds of behavior reinforcers: primary and secondary reinforcers. In this context, primary
reinforcers are rewards that are related to the fundamental product or service, whereas
secondary reinforcers refer to the rewards that must be transformed before using them.
Reward programs are based on a similar principle. Rothschild and Gaidis (1981) proposed
that loyalty rewards may be either primary or secondary reinforcers (Foxall, 1996). Building
upon this concept, Dowling and Uncles (1997) identify two different types of loyalty program The mediating
rewards: direct rewards (incentives that are related to the product/service of the firm) and effects of
indirect rewards (rewards that are unrelated to the core product/service of the firm).
Examples of direct rewards would be “A 10% discount on a coffee purchase for loyalty card
program
members”, or “buy 7 coffees and get the 8th one free.” In these cases, the reward is related loyalty
directly to the core product or service and does not require any conversion in order to redeem
it. Conversely, indirect rewards are unrelated to the core product or service and usually
require some sort of conversion in order to be redeemed. Examples of indirect rewards would 935
be “spend $100 on our credit card and receive 100 miles on our partner airline”, or “spend $100
at our home improvement store and get a coupon for a free oil change.”
Keh and Lee’s (2006) research suggests that customers prefer direct rewards to indirect
ones, and that direct rewards build more loyalty than indirect rewards (Keh and Lee, 2006).
When consumers are performing mental accounting, evaluating the direct reward (as
opposed to indirect rewards) can be easier and clearer as the monetary reward can be easily
subtracted from the transaction price, and it does not involve any value conversion. As a
result, direct rewards can be perceived as more valuable by the consumer.

2.3 Reward timing

Another significant characteristic of a loyalty campaign is the timing of redemption –
immediate or delayed (Blattberg and Neslin, 1990; Yi and Jeon, 2003). In-store coupons,
point of purchase discounts and price packs are examples of the immediate rewards as the
consumer realizes this reward at the time of purchase (Keh and Lee, 2006; Yi and Jeon, 2003).
Delayed reward programs typically award points or credit to the loyalty program members
as they make purchases, and these points can be then be redeemed for rewards once a
threshold has been met (Dre`ze and Hoch, 1998).
Prior research has suggested that immediate rewards are perceived as more valuable than
delayed rewards (Hu et al., 2010). According to Dowling and Uncles (1997), immediate
rewards are valued by customers because of the psychological benefits of immediate
rewards, such as a sense of belongingness in the program and with the business. Behavioral
learning theory would also suggest that immediate rewards are perceived as more valuable
as delayed rewards may never be realized due to relationship expiration or other intervening
factors between the earning stage and the redemption stage (Rothschild and Gaidis, 1981).
Keh and Lee (2006) found that customers favored immediate rewards (instead of delayed
rewards) which can be used immediately at the point of purchase. Kivetz and Simonson (2002)
also found the same results. Similarly, Dowling and Uncles (1997) state that ease of
accessibility to the reward is the reason to prefer immediate redemptions.

2.4 Value perception of the loyalty program

In order for a loyalty program to be effective in retaining customers, the consumer must
perceive that the program has value, over and above the benefits they realize from the actual
product or service that they purchased. In our discussion of loyalty program value
perceptions, we build upon transaction theory as a theoretical framework. Transaction
theory (Thaler, 1983) posits that the value obtained by a customer from a loyalty program
exchange consists of the benefits associated with membership in the program. O’Brien and
Jones (1995) suggest that there are five characteristics of such benefits: cash value,
aspirational value, redemption choice, relevance to the consumer and attainability. Building
upon this framework, Dowling and Uncles (1997) suggested adding psychological benefits as
a sixth category, and in addition, Meyer-Waarden (2007) suggested that there is also a
sociological benefit (e.g. prestige or recognition and exclusive treatment). For example,
customers may be able to use loyalty points to upgrade products or services, or they may
JSTP receive special offers, coupons or discounts as a result of being in the program. Some
31,6 programs offer benefits that are only available to members of the program, as in the case of
airline lounges. Many customers gain emotional or psychological benefits from the status
associated with their loyalty program level. These benefits hold intrinsic value for the
consumer, apart from the value of the central product or service (Mimouni-Chaabane and
Volle, 2010), and the more valuable these benefits are, the higher the perception of the value of
the membership in the loyalty program. As prior research has suggested that direct rewards
936 and immediate rewards are valued more highly by the consumer (Hu et al., 2010; Keh and Lee,
2006), we predict that direct and immediate rewards will increase the value perception of
program loyalty, such that:
H1. Type of reward (direct vs indirect) influences the value perception of the loyalty
program, such that the value perception of the loyalty program tends to be higher
with direct reward as compared to indirect reward conditions.
H2. Timing of reward (immediate and delayed) influences the value perception of the
loyalty program, such that the value perception of the loyalty program tends to be
higher with immediate reward as compared to delayed reward conditions.

2.5 Program loyalty

Program loyalty can be defined as members’ relative attitudes and behaviors toward the
loyalty program itself. The perceived value of a loyalty program plays a key strategic role in
influencing the attractiveness of loyalty programs (Harris and Goode, 2004; O’Brien and
Jones, 2000; Yi and Jeon, 2003). Previous research empirically supports the significant effects
of perceived value on program loyalty (Harris and Goode, 2004). Rothschild and Gaidis (1981)
suggested that the value of deals offered by a loyalty program enhances loyalty to the
program. We can explain this positive effect with the reciprocity notion (Smith and Barclay,
1997). According to the reciprocity principle, customers tend to be loyal when they perceive
that the value of the rewards they receive from a company is well-balanced with the costs of
belonging to the program. In other words, the customer incurs certain costs for staying in a
loyalty program. These could include forgone benefits available from a competing loyalty
program, the inconvenience or cost of using the program (i.e. paying slightly more for an
airline ticket because he is a member of that airline’s loyalty program,) having to keep track of
a member number and login or carry a punch card, or missing out on variety that may be
available from other vendors. However, these costs are balanced by the benefits of the
program, such as discounts, preferential treatment and status. We expect that when the
benefits outweigh the costs for the consumer, leading him or her to perceive that the loyalty
program value is a net benefit, this will lead to program loyalty:
H3. Perception of the value of a loyalty program will have a significant, positive effect on
program loyalty.

2.6 Customer loyalty

There is a robust literature to suggest that reward and loyalty programs are effective
instruments in building customer loyalty in many industries (Uncles et al., 2003; Kim, 2018). It
is argued that when organizations give incentives to customers, this act encourages repetitive
purchase behavior by providing value to the customer (Keh and Lee, 2006). Likewise,
membership in a loyalty program increases switching costs and reduces uncertainty, thus
mitigating risk (Chuah et al., 2017). In this case, loyalty to the program encourages customers
to realize the value of their loyalty rewards by making repeat purchases, and the promise of
future value via rewards ensures customer loyalty. Thus, we expect that:
 H4. Program loyalty will have a significant, positive effect on customer loyalty. The mediating
effects of
2.7 Mediation effect of program loyalty between value perception of a loyalty program and program
customer loyalty loyalty
Loyalty programs may only be effective in building customer loyalty when the program is
perceived as valuable by customers. That means increases in perceived value will increase
customer loyalty (Yi and Jeon, 2003). Typically, consumers do not have expertise in 937
evaluating their own efforts and rewards associated with participating in a loyalty program
and are thus likely to rely on the quality and value cues of the program. Kivetz and Simonson
(2003) note that the value perception of a loyalty program is crucial for creating customer
loyalty.
O’Brien and Jones (1995) found that value perception of a customer is crucial when
creating brand loyalty, but that this happens through program loyalty. Yi and Jeon’s (2003)
results also support this causal relationship, in which program loyalty is a mediator between
value perception and customer loyalty. According to Hu et al. (2010), value perception of the
loyalty program has an effect on customer loyalty only through program loyalty because it is
the program that provides benefits to customers. Based on this previous literature, we
develop our hypothesis:
H5. The effect of value perception on customer loyalty is mediated by program loyalty.
Based upon the aforementioned literature, the figures of the proposed model and the
hypotheses are displayed in Figures 1 and 2.

3. Methodology
3.1 Participants
There are a number of different methods by which retail loyalty program can be accessed by
the customer, including scanning loyalty cards in the store, logging into the retailer’s website
in the store, using the retailer’s mobile application and integrating mobile payment systems.
While the rate of use varies from one country to another, the use of mobile applications is
reported to be higher in Turkey as compared to other European countries. The Nielsen Global
Retail Loyalty Sentiment Survey 2016 report [1] found that Turkey was one of the top

Reward Programs

Reward Type
(Direct/Indirect)
H1

Reward Timing Value Perception of

(Immediate/Delayed) H2 Loyalty Program

Figure 1.
Hypothesized
Reward relationships with
(Type/Timing) respect to reward
programs
JSTP countries in which integration with mobile payment systems was a highly rated attribute by
31,6 the consumers. Consequently, the sample of this study included Turkish users of mobile
loyalty programs. In order to be enrolled in the study, respondents were required to 1) be a
member of at least one retailer loyalty program via mobile application and 2) have formerly
been a member of retailer loyalty programs via mobile application.
Participants were recruited via an open online survey. Online surveys are beneficial for a
number of reasons, including the fact that they: 1) allow participants to remain anonymous, 2)
938 allow easy access to stored database files by researchers and 3) allow researchers to conduct
preliminary analyses while waiting for the responses (Wright, 2005). An invitation to
participate in the study survey was distributed through the professional and social media
networks of the first two authors of the study. Participants were randomly assigned to one of
the four scenario conditions, each with differing scenarios on the timing of redemption and
type of reward.
Of 254 total responses, 240 participants satisfied the inclusion criteria, with 76.2%
reporting that they had membership in hospitality loyalty programs. Among all the
participants, 65.8 % of them were female, and the mean age was 34. This age range complies
with Nielsen’s report which indicates that technology-based loyalty programs are found to be
more appealing methods to millennials than baby-boomers. The majority of the participants
had a bachelor’s degree (59.6%) and 29.2% had a graduate degree.

3.2 Measures
The survey was designed to gather information about the value perception of the loyalty
program, program loyalty and customer loyalty, as well as demographic variables. In
addition, participants answered a number of questions regarding their membership in loyalty
programs (number of memberships, retail type of loyalty program and usage frequency). The
items can be found in Appendix 1. All of the translations of the scales to Turkish were done by
the authors of the study, and the scales were then back translated by another bilingual person
to confirm meaning consistency.
Value perception of the loyalty program was measured by using Yi and Jeon’s (2003) scale.
One sample item was “The proposed rewards have a high cash value.” The participants
indicated their level of agreement with the items by using a five-point Likert scale ranging
from “totally disagree” (1) to “totally agree” (5). Higher scores in the scale denote higher levels
of perceived value for the program. The Cronbach’s alpha score was 0.67.
Program loyalty was measured by using the Yi and Jeon’s (2003) three-item scale. One
sample item was “I like the proposed loyalty program more so than other programs”. Again,
participants indicated their level of agreement with the items by using a five-point Likert

Program
Loyalty H4
H3

Figure 2.
Hypothesized Value
relationships with Perception of Customer
respect to customer Loyalty H5 Loyalty
loyalty Program
scale ranging from “totally disagree” (1) to “totally agree” (5). Higher scores in the scale denote The mediating
higher levels of loyalty for the program. The Cronbach’s alpha score was 0.90. effects of
We measured customer loyalty with the 10-item scale used by Keh and Lee (2006) with a
modification to the coffee shop context. Participants indicated the degree of agreement on
program
scale items like “I am likely to return to the X.” on a five-point scale. Participants indicated loyalty
their level of agreement with the items by using a five-point Likert scale ranging from “totally
disagree” (1) to “totally agree” (5). The Cronbach’s alpha score was 0.90.
939
3.3 Procedure
To test the framework, a 2 3 2 full-factorial between subject experimental design was used,
with timing of redemption (immediate vs delayed) and the type of rewards (direct vs. indirect)
as the variables of design. Building on prior research that used the vignette method (Choi and
Kim, 2013; Hu et al., 2010; Keh and Lee, 2006; Yi and Jeon, 2003), we adopted a scenario-based
approach to manipulate the timing and the type of the reward. Accordingly, four hypothetical
scenarios, set in a coffee shop, were generated. Each differed as to the timing of redemption
and type of reward. A brief explanation of the scenarios can be seen in Appendix 2.
Type of reward was manipulated in the form of direct vs indirect rewards. In the direct
reward scenario, the reward was operationalized as giving a reward directly related to coffee
(a 10% discount on a coffee purchase in the immediate scenario and a “buy 7, get the 8th coffee
free” reward in the delayed scenario.) In the indirect scenario, the reward was operationalized
as offering the customer an Internet package (a 250 MB with each coffee purchase in the
immediate scenario, and 2.5 GB after seven purchases in the delayed scenario). Internet data
packages are common in Turkey, and such a reward holds value to customers due to the high
prices of data in Turkey.
Timing was manipulated by offering immediate vs delayed rewards. In the immediate
reward scenario, the reward was operationalized as giving a reward at the point of purchase;
while in the delayed reward scenario, the reward was operationalized as offering the reward
at the point of the 8th purchase.
All of the four scenarios were pilot tested for their ease of understanding (1 5 difficult to
understand, 5 5 easy to understand, x ≥ 4.12), credibility (1 5 not credible, 5 5 credible,
x ≥ 3.87), realism (1 5 not realistic, 5 5 realistic, x ≥ 3.65), satisfaction (1 5 unfavorable/
unpleasant/displeased/frustrated/dissatisfied, 5 5 favorable/pleasant/pleased/delighted/
satisfied, x ≥ 3.48) and preferability (1 5 Do not like at all, 5 5 Like very much, x ≥ 3.40)
on a sample of 40 individuals (Keh and Lee, 2006). Table 1 displays the pretest results of four
scenarios on ease of understanding, credibility, realism, satisfaction and preferability ratings.

4. Results
4.1 Preliminary analysis
Prior to hypotheses testing, the data were screened for missing values, outliers and normality.
Missing values were less than 5% of the total number of cases. No outliers were reported. The

Table 1.
Mean scores of four
Rewards Credibility Realism Ease of understanding Preferability Satisfaction scenarios on ease of
understanding,
Immediate-direct 4.02 3.74 4.37 3.60 3.70 credibility, realism,
Immediate-indirect 3.87 3.65 4.12 3.40 3.48 satisfaction, and
Delayed-direct 4.07 4.10 4.35 3.82 3.73 preferability
Delayed-indirect 4.00 3.90 4.22 4.25 4.18 dimensions
JSTP skewness and kurtosis values of all study variables were between the ranges of
2 and þ2
31,6 (Tabachnick and Fidell, 2013), confirming that the data distribution was normal.
Confirmatory factor analysis (CFA) was conducted to determine how well the
measurement model fits the data and to explore the factor structure of the questionnaire
items. Accordingly, we ran CFA with three items for value perceptions, three items for
program loyalty and 10 items for customer loyalty. We excluded one item from the customer
loyalty factor due to its low loading (See Appendix 1 for the survey items and item factor
940 loadings). Subsequently, the results of the CFA confirmed the three-factor structure of the
measurement instrument. As can be seen in Table 2, the comparison of the three-factor
structure (VP, CL and PL) was compared with the one-factor structure. The results showed
that three-factor structure yielded a relatively good fit to data (χ 2 5 233.78, df 5 87,
GFI 5 0.88, TLI 5 0.92, RMSEA 5 0.08) compared to one-factor solution (χ 2 5 521.11,
df 5 90, GFI 5 0.73, TLI 5 0.78, RMSEA 5 0.14), thus demonstrating additional evidence for
discriminant validity of the measures.
After CFA, a correlational analysis was conducted among study variables. As seen in
Table 3, program loyalty and value perception were positively correlated (r 5 0.71, p < 0.001).
In addition, customer loyalty was positively correlated with value perception (r 5 0.52,
p < 0.001) and program loyalty scores (r 5 0.62, p < 0.001).
Manipulation check: As an initial step, we performed manipulation checks to verify that
the participants in each scenario condition perceived the scenario as intended. This was done
by assessing the respondents’ ratings of those conditions on a five-point scale (for the timing
of redemption: 1 5 The offered reward is given later in time (after 7 purchases), 5 5 The
offered reward, is given immediately (at the point of purchase); 1 5 The offered reward in this
scenario is unrelated with the products of the company, 5 5 The offered reward in this
scenario is related with the products of the company). Independent sample t-test analysis
yielded a significant mean difference between the timing of the redemption group
[t(238) 5 5.52, p < 0.01)] such that the participants receiving the immediate redemption
tended to rate the reward as immediate (M 5 4.6, SD 5 1.01), whereas participants receiving
the delayed redemption tended to rate the reward as delayed (M 5 1.2, SD 5 0.63). Likewise,
for the manipulation of the reward type, t-test analysis provided significant mean differences
[t(238) 5 5.89, p < 0.01)] such that participants receiving the direct reward tended to rate the
reward as related to the products of the company (M 5 4.8, SD 5 1.1), whereas participants
receiving the indirect reward tended to rate the reward as unrelated with products of the

Table 2.
Comparison of overall X2 df x2/df CFI TLI RMSEA
fit measures among the
three separate factor One-factor model 521.1 90 5.79 0.81 0.78 0.14
models Three-factor model 233.78 87 2.68 0.937 0.92 0.08

Variables 1 2 3 4 5

1. Gender 1
2. Age
0.059 1
3. Value perception
0.047
0.088* 1 (0.79)
4. Program loyalty 0.050
0.092 0.713** 1 (0.82)
Table 3. 5.Customer loyalty 0.136
0.005 0.520** 0.628** 1(0.91)
Correlations among Note(s): *p < 0.05, **p < 0.001, Sex: 0: Female, 1: Male
study variables Numbers in parentheses on the diagonal represent Cronbach alpha reliability coefficients
company (M 5 1.3, SD 5 0.79). Likewise, no significant gender differences were reported in The mediating
terms of value perception of loyalty program, program loyalty and customer loyalty. effects of
program
4.2 Hypotheses testing loyalty
4.2.1 The effects of type of reward and timing of redemption on value perception. In order to test
the main hypotheses of the study, a 2 3 2 between subjects factorial ANOVA was conducted,
with type of reward (direct vs indirect) and the timing of redemption (immediate vs. delayed) 941
as independent variables, while value perception served as the dependent variable.
As a first step, we checked that the error variance of the dependent variable was equal
across groups with Levene’s test. Levene’s test was not significant, indicating that the error
variance was equal. As seen in Table 4, the main effect of type of reward (F 1, 240 5 3.65,
p 5 0.05) on value perception was found to be significant. That is, in support of H1,
participants exposed to the direct reward scenario condition (M 5 2.39) score higher on the
value perception scale than those participants exposed to the indirect reward scenario
condition (M 5 2.68). However, the main effect of timing of redemption (F 1, 240 5 1.75,
p 5 0.18) was not significant. Therefore, H2 is not supported (see Table 5).
4.2.2 The mediating effect of program loyalty on the linkage between value perception and
customer loyalty. The hypothesis regarding the indirect effect of value perception on customer
loyalty via program loyalty was tested with Hayes and Preacher’s (2014) mediation procedure
(see Table 6). The regression analysis was run with customer loyalty as the dependent

Source df SS F p η2
Timing of redemption 1, 240 1.38 1.75 0.18 0.008
Type of reward 1, 240 2.87 3.65 0.05* 0.016 Table 4.
Type*Timing 1, 240 0.91 1.16 0.283 0.005 2 3 2 between-groups
Note(s): *p < 0.05, **p < 0.01 factorial anova results
df: degrees of freedom, SS: sum of squares, η2: effect size for value perception

Source df SS F p η2
Timing of redemption 1, 240 4.30 3.98 0.048* 0.017 Table 5.
Type of reward 1, 240 10.88 9.97 0.002** 0.041 2 3 2 between-groups
Type*Timing reward 1, 240 4.14 3.79 0.052* 0.016 factorial anova results
Note(s): *p < 0.05, **p < 0.01 for program
df: degrees of freedom, SS: sum of squares, η2: effect size loyalty (PS)

Value perception Program loyalty

Mean SD Mean SD

Immediate total 2.89 0.87 3.16 1.03

Immediate-direct (n 5 64) 2.94 0.91 3.25 1.01
Immediate-indirect (n 5 55) 2.84 0.84 3.06 1.05
Delayed total 2.79 0.89 3.00 1.08 Table 6.
Delayed-direct (n 5 62) 2.91 1.00 3.23 1.09 Post hoc tukey test
Delayed-indirect (n 5 59) 2.66 0.74 2.75 1.02 results
JSTP variable, value perception as the independent variable and program loyalty as the mediator.
31,6 The results of the mediation analysis shown in Table 7 illustrates the coefficients for direct
and indirect effects and bootstrap confidence intervals. Value perception was significantly
and positively related to program loyalty (b 5 0.86, t 5 15.83; p 5 0.00), and program loyalty
was significantly and positively related to customer loyalty (b 5 0.29, t 5 6.98; p 5 0.00), thus
supporting H3 and H4. Concerning the mediating effect of program loyalty, we checked the
indirect effects. Bootstrapping techniques confirmed the mediating role of program loyalty,
942 providing support for H5. That is, the indirect effect linking value perception to customer
loyalty was significant 0.26 (CI 95% [0.17, 0.34]).

4.3 Ad hoc analysis of the mediating role of program loyalty between type of reward and
customer loyalty
After testing our hypotheses, we conducted a post hoc analysis regarding the mediating role
of program loyalty between reward type and customer loyalty. The results of the mediation
analysis shown in Table 8 illustrates the coefficients for direct and indirect effects and
bootstrap confidence intervals. Reward type was significantly negatively related to program
loyalty (b 5
34, t 5
2.52; p 5 0.01), and program loyalty was significantly and positively
related to customer loyalty (b 5 0.36, t 5 12.31; p 5 0.00). Concerning the mediating effect of
program loyalty, we checked the indirect effects. Bootstrapping techniques confirmed the
mediating role of program loyalty, such that the indirect effect linking reward type to
customer loyalty was significant
0.12. (CI 95% [
0.22,
0.03]). These results indicate that
while reward type does impact customer loyalty, it does so through program loyalty. This
suggests that participation in the reward program holds value in itself, and that the aspects of
program loyalty translate into customer behavior that is favorable to the firm.

5. Conclusion and implications

This study aimed to investigate the relationships among type and timing of rewards, value
perception of a loyalty program, program loyalty and customer loyalty by using an
experimental design.

Paths b SE t p

Direct effects
Value Per → Cus. Loy 0.11 0.05 2.35 0.01*
Value Per → Prog. Loy 0.86 0.05 15.83 0.00**
Prog. Loy → Cus. Loy 0.29 0.06 2.36 0.01*
Total effect
Value Per → Cus. Loy 0.36 0.03 2.39 0.00**

Bootstrap results for indirect effect

Boot b/ SE Boot LLCI Boot ULCI

Effect through Prog. Loy (Value Per → Prog. Loy → Cus. Loy) 0.25 0.04 0.16 0.34
Table 7.
Regression results for
indirect effect of value Note(s): Value Per: Value perception, Cus. Loy: Customer Loyalty, Prog. Loy: Program Loyalty b:
perception on customer Unstandardized regression estimate, SE: Standard error of unstandardized estimate, Boot LLCI: bootstrapping
loyalty via program confidence interval lower bound, Boot LLCI: bootstrapping confidence interval upper bound
loyalty *p < 0.01, **p < 0.001
Paths b SE t p
The mediating
effects of
Direct effects program
Reward type → Prog. Loy
0.34 0.13
2.52 0.01*
Prog.Loy → Cus.Loy 0.36 0.02 12.31 0.00** loyalty
Reward type → Cus. Loy 0.02 0.06 0.36 0.71
Total effect 943
Reward type → Cus. Loy
0.10 0.07
1.28 0.19

Bootstrap results for indirect effect

Boot b/ SE Boot LLCI Boot ULCI

Effect through Prog. Loy (reward type → Prog. Loy → Cus. Loy)
0.12 0.05
0.22
0.03
Table 8.
Note(s): Cus. Loy: Customer Loyalty, Prog. Loy: Program Loyalty b: Unstandardized regression estimate, SE: Ad hoc regression
Standard error of unstandardized estimate, Boot LLCI: bootstrapping confidence interval lower bound, Boot results for indirect
LLCI: bootstrapping confidence interval upper bound effects of reward type
Reward type coded as 1: Direct reward, 2: Indirect reward on customer loyalty via
*p < 0.01, **p < 0.001 program loyalty

Our results expand the literature about the effects of attributes of program loyalty in several
ways. Our findings show that compared to indirect rewards (Internet data), direct rewards
(coffee) have a greater effect on the value perceptions of the loyalty program and program
loyalty of consumers. These findings not only correspond to previous work that highlights
the importance of reward structure in loyalty programs (Ho et al., 2009; Keh and Lee, 2006;
Yi and Jeon, 2003) but also support the central tenet that direct rewards can create more
loyalty (Keh and Lee, 2006) and be perceived as more valuable because of their relatedness
with the core product or service (Dowling and Uncles, 1997). For instance, Brandau (2014)
notes that Caribou Coffee offers a different timing structure in their reward structure. In this
program, the customers do not know when they will receive a freebie. Capitalizing on the idea
of surprise and delight, the company simply sends notifications to the loyalty program
participants at random times letting them know what reward they are eligible to receive.
Although prior studies show controversial findings of the reward timing and loyalty, the
unpredicted finding of our study is that the timing of the reward does not differentiate the
consumer’s value perception of the loyalty program. According to behavioral learning theory
(Rothschild and Gaidis, 1981), immediate rewards are perceived as more valuable. Some prior
research has supported this theory and found that customers favored immediate rewards
(instead of delayed rewards) which could be used immediately at the point of purchase (Hu
et al., 2010; Keh and Lee, 2006; Dowling and Uncles, 1997). Conversely, according to Kivetz
(2003), customers tend to prefer delayed rewards to immediate ones when the delayed reward
is of a higher value. In addition, according to Yi and Jeon (2003), low-involved customers may
prefer immediate rewards much more than the delayed ones. This result may provide
empirical support for “the importance of value or involvement differentiation in reward”. This
suggests the need for future research on the topic of reward timing in order to determine the
roots of this discrepancy.
Based on the work of Yi and Jeon’s (2003) and Hu et al. (2010), the current study tests the
same casual relationship (value perception-program loyalty-customer loyalty) within a
different service sector. In line with this previous work, we also found that value perception
has an indirect effect on customer loyalty through program loyalty in coffee shops. This
means that when consumers perceive the incentive as valuable, this may enhance the
program loyalty of the consumer, which in turn creates customer loyalty. In general, this
JSTP result supports the overall notion that value judgments have an effect on customer loyalty
31,6 (Lepp€aniemi et al., 2017). These results are also consistent with the prior research (Yi and Jeon,
2003; Hu et al., 2010) that explains the value perception and customer loyalty link with two
different paths: a direct route from value perception to brand loyalty and an indirect route
with program loyalty as a mediator.
Most interestingly, we found that program loyalty mediates the relationship between
reward type and customer loyalty, a novel finding that suggests that the complex
944 relationship between these variables bears further investigation. This finding emphasizes the
importance of a structured reward system, which is continuously customizable to members’
needs and the development of customer loyalty (Yi and Jeon, 2003). According to Nastasoiu
and Vandenbosch (2019), reward structure yields some benefits, such as competitiveness, and
is not easily replicated by competitors.
The findings of our study provide useful insights to managers with respect to loyalty
program reward structures. First, it was interesting to note that the timing of the reward did
not impact the customer’s value perception of the program. This is useful in that it creates an
opportunity for a second contact with the customer. As an example, suppose a customer
performs an action (perhaps makes a purchase) that earns them reward points rather than
awarding the points immediately, the company could later send an email awarding the
customer their points and then making suggestions about how to spend them by booking
another service or contact the customer to award points and then advertise auxiliary services.
Second, our results demonstrated that when designing loyalty programs, matching the
reward with customers’ needs and wants is crucial for the firms (Keh and Lee, 2006). Our
findings showed that customers valued direct rewards much more highly. Practitioners can
use this information to adjust their loyalty programs accordingly. While reward partnerships
with other companies may look attractive, customers do not value them. They would rather
redeem their rewards on the central goods or services of the company. From this point of
view, according to our findings, it is possible to increase the value perception and create
program loyalty by using direct rewards.
Third, our findings also indicate that rewards only impacted customer loyalty via the
value perception of the loyalty program and program loyalty. This is useful information for
practitioners as it indicates that an investment in acquiring and retaining customers in the
loyalty program and communicating program value to those customers is likely to ultimately
pay off in the form of loyalty.
While this study was conducted in the context of a coffee shop, these theoretical
relationships have implications for many hospitality companies. The ubiquity of loyalty
programs across the industry makes these results informative across a number of contexts.

6. Limitations and recommendations for future research

This study is not without its limitations. First of all, in our study, the loyalty program’s
reward structure is manipulated with the timing of redemption (immediate vs delayed) and
type of reward (direct vs indirect). However, reward structure includes many types of
rewards in the previous research such as tangible/intangible (Meyer-Waarden, 2015),
economic/social (Hanzee and Esmaeilpour, 2017), monetary/nonmonetary (Park et al., 2013)
and altruistic/self-oriented (Hwang and Choi, 2020). Therefore, it could be fruitful for future
studies to investigate these various reward types in the same industry.
The use of field experiments strengthens the internal validity but might limit the
generalizability of the study findings. Rather than using hypothetical scenarios, real-life and/
or firsthand experiences of participants (Park et al., 2013) could be used in further studies.
Likewise, this study was conducted in a coffee shop, where both the purchase price and the
reward are relatively inexpensive. It is possible that as the value of the purchase required to
obtain the reward, and the value of the reward itself, increases, the impact of reward type and The mediating
timing may shift. Similarly, this study was conducted in an independent coffee shop, but many effects of
hospitality firms are part of a much larger brand that inspires loyalty via multiple avenues.
Future research could investigate these relationships in the context of multi-brand companies.
program
Another limitation might concern the characteristics of the sample, which seems to be loyalty
skewed toward graduate and postgraduate respondents. According to Turkish Statistical
Institute (2019), of the over 40 million population aged between 25 and 65, almost 25%
possess a bachelor degree or higher. For increasing generalizability, future studies might also 945
gather data from a more heterogeneous sample and explore the potential differences among
those groups regarding the effects of retail loyalty programs on consumer outcomes.

Note
1. https://www.nielsen.com/wp-content/uploads/sites/3/2019/04/nielsen-global-retail-loyalty-
sentiment-report.pdf

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Appendix 1

Standardized Cronbach’s
Scales and items estimates alpha

Value perception of loyalty program (Yi and Jeon, 2003) 0.667

1. The proposed rewards have high cash value 0.485
2. It is highly likely to get the proposed rewards 0.598
3. The proposed rewards are what I have wanted 0.880
Program loyalty (Yi and Jeon, 2003) 0.901
1. I like the proposed loyalty program more so than other programs 0.774
2. I have a strong preference for the proposed loyalty program 0.939
3. I would recommend the proposed loyalty program to others 0.910
Customer loyalty (Keh and Lee, 2006) 0.903
1. I am likely to return to the coffee shop 0.884
2. I intend to use the services offered by the coffee shop as often as I 0.835
can in the future
3. I do not foresee myself switching to patronize another coffee shop 0.569
soon
4. I would consider the coffee shop my first choice when coffee 0.823
drinking
5. I would still continue to be a customer of the coffee shop even if it 0.602
were to raise prices slightly
6. I would switch to a competing coffee shop that offers a better price
0.539
on their services (R)
7. I would switch to a competing coffee shop if I experience a problem
0.536
with its services (R)
8. I would stand by the coffee shop even if its service has dropped in 0.346
standard on rare occasions*
9. I would highly recommend the coffee shop to my friends and 0.829
Table A1. family
Scale items and factor 10. I would say positive things about the coffee shop to other people 0.815
loadings Note(s): *Due to low factor loading in CFA, this item is deleted
Appendix 2 The mediating
effects of
First part of the scenario program
Assume that you are a customer of the X coffee. X is a world-famous coffee chain with branches in 30 loyalty
countries and sells quality products above the average of its industry.
X coffee offers customers quality products with a wide selection of coffee at its menus. At the same
time, X coffee, which prioritizes customer satisfaction, is at the forefront of its competitors with both the 949
interest and friendliness of its employees and the store atmosphere.
X coffee has a mobile app to offer a variety of incentives for its customers. Customers are planned to
take advantage of these deals using the mobile app at each purchase.
The average price of various coffees served on the menu of X coffee is 10 TL.

Second part of the scenario

Recently, X coffee has started to offer discounts/rewards to its customers who are members of the loyalty
program through the mobile app.

Direct Indirect

Immediate Scenario 1 Scenario 2

Immediate 10% discount on the price of each
purchased coffee (10% discount
approximately 1TL)
Delayed Scenario 3
One coffee gift after seven purchases of coffee
(8th coffee given as a gift)
(Think that the price of a coffee is about 10 TL)
For each purchased coffee immediate 250 MB
Internet package gift from your own mobile
operator valid for one month (250 MB Internet
package worth about 1TL)
Scenario 4
2.5 GB Internet package gift from your own
mobile operator valid for one month after seven
purchases of coffee (The gift will be given in the
8th purchase)
(2.5 GB of Internet package worth about 10TL)

Corresponding author
Pınar Başg€oze can be contacted at: pinaran@hacettepe.edu.tr

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