Chapter 1: Introduction

1.1 Research background

Customer loyalty programmes have been taken as the key strategy to improve customer retention (Swoboda et al., 2012). Loyalty programme refers to a structured reward that is given to customers, in the exchange of required behaviours with the purpose of increasing customer retention (Evanschitzky et al., 2012). On the other hand, customer retention is a business activity that makes customers not to defect to other alternative businesses. Customer loyalty programmes can be used to attract customers for repeat purchase as well as to cross-sell and up-sell to the already existing customers at a lower cost than to attract new ones. Under the loyalty programmes, different kinds of benefits can be offered to customers. Both monetary and non-monetary customer loyalty programmes are often applied to encourage repeat purchase (Haley, 2013). Some of the examples of monetary customer loyalty programmes include point system, a tier system; charge an upfront fee for VIP benefits. On the other hand, non-monetary programmes include coalition programme and organic loyalty programme. This research study thereby, aims to investigate the influence of customer loyalty programmes on customer retention in the Chinese banking industry.

1.2 Statement of the problem

With the intensifying competition in the Chinese banking industry- consisting of both state-owned banks and private banks- players in the industry are facing a huge challenge in retaining customers (Yong, 2017). Moreover the advent of virtual banks and even virtual money remittance systems has added more threat and competition in the industry. Consequently, Chinese banks have to come up with effective ways of not only attracting new customers but importantly, retaining their existing customers.

1.3 The theoretical base and purpose of the study

Monetary and non-monetary customer loyalty programmes are the main types of loyalty programmes. Point system, tier system, charges an upfront fee for VIP benefits are some of the examples of loyalty programmes; and coalition programme and organic loyalty programme are the main examples of non-monetary customer loyalty programmes (Henderson et al., 2011). Verhoef (2003) and Lewis (2004) argue that monetary customer loyalty programmes have positive effects on the retention of customers. In addition, a number of research studies demonstrate that non-monetary loyalty programmes promote repeat buying (Salem, 2004; Stauss et al., 2005 and Walsh et al., 2006).  As such, the aim of the researcher of the study is to investigate the influence of customer loyalty programmes on customer retention in the Chinese banking industry after which he/she will offer recommendations to banks in China on how to enhance customer retention strategy using customer loyalty programmes. The specific research objectives include:

1. To summarise and evaluate the existing customer loyalty programmes in Chinese banking industry;
2. To compare and analyse the impact of monetary and non-monetary loyalty programmes on customer retention in Chinese banking industry;

• To provide recommendations to banks in China on how to enhance customer retention strategy using customer loyalty programmes;

1.4 Research questions

Based on the above objectives, this research formulates research questions as listed below.

1. What are the existing customer loyalty programmes in Chinese banking industry?
2. What is the impact of the existing monetary and non-monetary loyalty programmes on customer retention in Chinese banking industry?

• How can banks in China enhance their customer retention strategies using customer loyalty programmes?

1.5 Significance of the study

The research rationale of this study has two aspects and they include theoretical and practical aspects. In the view of the theoretical perspectives; it is quite true that many studies have been performed to investigate the influence of customer loyalty programmes on customer retention (Stauss et al., 2005 and Walsh et al., 2006; Mimouni-Chaabane et al., 2010; McCall & Voorhees, 2010; Daryanto et al., 2010; Ou et al., 2011; Sharmeela-Banu et al., 2012). Despite numerous research studies on the influence of customer loyalty programmes on customer retention, few of them have been conducted through summary and evaluation of various customer loyalty programmes in relation to banking industry. Moreover, few of them analyse and compare the effectiveness of the different customer loyalty programmes. As such, the study of the customer loyalty programmes is theoretically meaningful and is beneficial to the existing theories.

In regard to the practical aspect, the findings of the study will provide managers of Chinese banks with information on how to increase customer retention using customer loyalty programmes. Moreover, the findings of the study will be helpful to students and researchers who are looking forward to perform studies on the impact of loyalty programmes on customer retention particularly in the Chinese banking industry. Lastly, the research study will provide researchers and students with information on the areas that need further research study on the topic under the examination.

1.6 Limitations of the study

This study seeks to collect information about Chinese banks and bank companies’ customer retention strategies. Such information is of great value to the banks and therefore the banks may be cautious on the amount of information they let out to the public as regards their retention strategies. This will limit the depth of information that this research can collect about specific banks’ customer retention strategies.

1.7 Organisation of the study

The aim of the study is to investigate the influence of customer loyalty programmes on customer retention in the Chinese banking industry. To achieve this aim the dissertation is organised into five chapters. Chapter one of the dissertation introduces the study and it contains the research background, research rationale, research aim and objectives. Chapter two follows chapter one; chapter two on addresses literature review and it provides a survey of theoretical sources as well as the empirical survey of the dimensions of the study. Chapter three follows chapter two; chapter three is on the methodological procedures that are adopted in the process of data collection. Chapter three is then followed by chapter four; chapter four provides an analysis of the research findings. Lastly, the dissertation closes with chapter five; chapter five is on the conclusion, recommendations, study limits and areas that require further research.

 

Chapter 2 Literature review

2.1 Introduction

Chapter two of the research paper reviews the previous and the current literatures that are related to the research study to support the objectives of the research and guide data collection. To gain the objectives of the study, the researcher of the dissertation performs comprehensive and critical analysis of the past and present literature to the current area of study. The purpose of this study is to investigate the influence of customer loyalty programmes on customer retention in the Chinese banking industry. The researcher of the dissertation arranges literature review of the study into three different sections so as to achieve research objectives. The first section of the literature review is concerned with the customer loyalty programmes. The second section of chapter two addresses customer retention. The third section examines the impact of loyalty programmes on customer retention. The chapter two then ends with a chapter summary.

2.2 Customer loyalty programmes

2.2.1 Definition of customer loyalty

Customer loyalty has been defined very differently by many researchers and moreover, there is no universally agreed definition of customer loyalty. Sharmeela-Banu et al. (2012) contended that customer loyalty is a sense of bonding that customers have towards a business and its offerings, which enhances their stays with the company. The behaviour and attitude of the loyal customers favour the company as the loyal customers will stay longer with the company and increase their purchases apart from being customer evangelists.

Liu et al. (2011) defined customer loyalty as the willingness of a customer to buy the same product or service and maintain the same profitable relationship with a certain company. In other terms, customer loyalty is the continuous buying of a certain brand by customers and suggesting to other friends and family. Liu et al. (2011) emphasised that there must always be something that is attractive in a brand that keeps a consumer to purchase the product or service over a period of time without preferring other competitor brand.

The definition of customer loyalty given by Clottey et al. (2011) is an extension of Liu et al (2011) definition.  In the words of Clottey et al. (2011) customer loyalty is the possibility of the previous consumers to continue to purchase from a certain company. Great attention is directed to marketing and customer service to retain the current consumers by increasing the customer loyalty. Most companies are employing loyalty programmes which reward consumers for repeat business.

Zichermann & Linder (2010) defined customer loyalty as a deeply held commitment to repurchase a preferred product or a service consistently in the future. According to Zichermann & Linder (2010) customer loyalty occurs at four different levels and they include affective, cognitive behavioural and connation.

According to Mandhachitara & Poolthong (2011) customer loyalty is the consistent positive emotional experience, physical attribute-based satisfaction and perceived value of an experience that entails the products or services. Mandhachitara & Poolthong (2011) further asserted that to build customer loyalty, consumer experience management blends the emotional, physical and value elements of an experience into a single cohesive experience. Martínez & Del Bosque (2013) extended the definition of customer loyalty as provided by Zichermann & Linder (2010). Martínez & Del Bosque (2013) asserted that customer loyalty is the attitudinal and behavioural tendency to favour a certain brand over all the other brands, due to satisfaction with the products or services, its performance or convenience or comfort and familiarity with the brand. The dissertation adopted the definition of customer loyalty as provided by Martínez & Del Bosque (2013).

2.2.2 Definition of customer loyalty programmes

Kumar (2010) defined customer loyalty programme as marketing strategies that are designed to encourage consumers to continue purchasing products or services of businesses that are related with each programme. Effective and efficient programmes motivate customers in a business’s target market to make frequent purchases, return often and shun competitors. Kumar (2010) further argued that loyalty programmes provide customers with advanced access to special sales coupons, new products or free merchandise. Customers register their personal information with the company and are provided with a unique identifier, such as a membership card or a numerical ID and use that identifier to make purchase.

Daryanto et al (2010) opined that customer loyalty programme is a long-term marketing effort that gives incentives to repeat customers who show loyal buying behaviour. Daryanto et al (2010) further maintained that there are two main types of loyalty programmes; firstly, loyalty programmes increase the sales revenues of a company by raising purchase, usage levels or increase the range of products brought from the supplier. Lastly, loyalty programmes build a closer bond between the current customers and the brand to maintain the current customer base.

Kheng et al. (2010) maintained that loyalty programme is a reward programme that is provided by a company to customers who often make purchases. Loyalty programmes reward loyal customers with discounts, rebates, special offers, prizes or points. Loyalty programmes have two important functions; they provide consumers with rewards for brand loyalty and they offer the issuing company with abundant of customer information.

Ou et al. (2011) asserted that a loyalty programme is a programme that allows customers to accumulate free rewards when making repeated purchases with a company. Such a programme is rarely beneficial to customers who make one-off purchase; a loyalty programme is aimed at fostering customer loyalty over time. As such, one-time promotions, for instance, instant scratch cards are not preserved as customer loyalty. One-time promotions do not create the same customer lock-in as true loyalty programmes.

Evanschitzky et al (2012) defined a loyalty programme as a structured reward that is given to consumers, often in exchange of desired behaviours, with an aim of increasing customer retention and collection of customer data. Loyalty programmes adopt the psychological principle of commitment, reciprocity and loss aversion to increase the likelihood of customer loyalty. Evanschitzky et al (2012) opined that customer loyalty programmes increase customer happiness and retention.  As such the researcher of the dissertation adopted the definition of loyalty programme as suggested by Evanschitzky et al (2012). Evanschitzky et al. (2012) combined the definitions proposed by Kumar (2010), Daryanto et al. (2010), Kheng et al. (2010), Ou et al. (2011) and Sharmeela-Banu et al. (2012)  in their research studies.

2.2.3 Different types of customer loyalty programmes

2.2.3.1 Monetary customer loyalty programmes

The monetary loyalty programmes include point system and a tier system, which charge an upfront fee for VIP benefits programmes (Kheng et al., 2010 and Evanschitzky et al., 2012).

2.2.3.1.1 Point system

Point system is the most common type of loyalty programme. In this system frequent consumers gain points, this translates into some types of rewards (Van Doorn et al., 2010). The rewards can be in the form of gifts or discounts; customers work toward certain amount of points so as to redeem their rewards. However, point system is not applicable to all businesses; it functions well for businesses that are encouraging frequent and short term purchases (Huang & Chen, 2010). Boloco which is an American restaurant is an example of a company that uses point system loyalty programme well. The customers of the company swipe their stylish Boloco Card on every purchase made and the card tracks the amount of money spent (Walker et al., 2014). Every $50 that is spent earns the customer a free item; Boloco speaks the language of its customers by measuring points in dollars and rewards in drinks and food.

2.2.3.1.2 Tier system

Tier system provides small rewards as a base offering for being part of the programme. Tier system encourages repeat customers by improving the value of the rewards as the customers get up the loyalty ladder (Tuli et al., 2010). The major difference between a tiered system and a point system and is that customers extract long-term versus short-term value from the loyalty programme (McCall & Voorhees, 2010). Tiered systems function well for high commitment and higher price-point businesses like insurance companies, hospitality or airlines businesses (Henderson et al., 2011). For example, a part from earning miles Virgin Atlantic’s Flying Club allows members to gain tier points (Rowley, 2004). The Club introduce members at the Club Red tier, then to Club Silver and then to Club Gold. Members of Club Red tier earn miles on flights and get discounts on hotels, airport parking, holiday flights and rental cars. Members of Club Silver earn 50% more points on flight and they have an access to expedited check-in. lastly, members of Club Gold receive priority boarding, double miles, and an access to exclusive clubhouses where they can get a massage or a drink before their flight (Virgin Atlantic, 2016).

 

 

2.2.3.1.3 Upfront fee for VIP benefits programmes

The programme requires a business to charge an upfront fee for VIP benefits.  Businesses that are using this programme charge customers one-time fee (annual) to start collecting points by their purchases (Dorotic & Verhoef, 2012). The system is suitable for businesses that thrive on repeat and frequent purchases. The programme also works well for B2B businesses that deliver products to businesses on a regular basis. Upfront fee relives customers of inconvenience that are likely to impede their future purchases (Tanford et al., 2012). For instance, Amazon which has a big online market provides a surface called Prime. For $99 a year, Amazon Prime members receive a free two-day shopping on the millions of its products with no minimum purchase, among other many benefits (Yarow, 2014). Amazon Prime members spend an average of $ 1,500 per year on Amazon.com, compared to the $ 625 per year that is spent by Amazon customers who are not Prime members (Yarow, 2014).

2.2.3.2 Non-monetary customer loyalty programmes

Non-monetary programmes include coalition programme and organic loyalty programme (Daryanto et al., 2010 and Kumar, 2010). Non-monetary loyalty programmes entail providing value to customers in other ways than discounts and dollar rewards. Depending on the values of the customers and the industry customers are likely to find more values in non-monetary than monetary rewards (Ou et al., 2011). Businesses that can provide values to their customers in other ways than cents and dollars have a great opportunity to connect to their customers (Daryanto et al., 2010).

2.2.3.2.1 Coalition loyalty programmes

In coalition loyalty programme businesses provide all-inclusive offer. Businesses find strategic partners that fit their programmes; this is beneficial to the growth of the business and customer retention. To find a suitable company to form this partnership, the business should have a clear understanding of the behaviours of its customers (Yoo, & Bai, 2013). When a business provides its customers with values that are relevant to them but goes far beyond what it can provide alone, the business shows customers that it understands and cares for their customers (Dorotic & Verhoef, 2012). For instance, a dog company might partner with a pet grooming facility or a veterinary office to provide co-branded deals that are mutually beneficial to both the business and the customers’ needs. For example Patagonia which is an eco-friendly outdoor apparel business, realised that its consumers were in need of more than just points and discounts from its loyalty programme (Smedley, 2013). In partnership with eBay, it implemented the common threads initiatives to assist its consumers resell their highly durable Patagonia Online via Pantagonia website (King, 2011).

2.2.3.2.2 Organic loyalty programme

Organic loyalty programme requires an effort from the seller to attract new customers to try a new product or service. The seller should be able to share and communicate the value of the brand on his/her first interaction with the customers (Meyer-Waarden, 2007). The programme works well for businesses that sell unique products/ services and for businesses that are pioneering a new product or service. For example, Apple enchants customers by delighting them with a product/service on the very first time. Apple has many consumers, both offline and online who are willing and ready to boast about its product. For example Apple, loyalty takes place organically (Chan & Selden, 2013).

2.3 Customer retention

2.3.1 Definition of customer retention

Different researchers have provided varied definitions of customer retention based on their area of research. Khan (2012) wrote that by definition customer retention is the activity that businesses take to prevent customers from defecting to alternative businesses.  Customer retention is the mirror image of customer churn; high retention is equivalent to low defections.

Khan (2012) argued that successful customer retention begins with the first contact and continues throughout the entire lifetime of business-customer relationship. The ability of a business to attract and retain new customers is not only related to its products or services but also to the manner in which it treats its existing customers and the reputation that it creates across and within the marketplace.

According to Verhoef et al., (2010) customer retention takes place when consumers keep on purchasing the same market offering over a long period of time. Nitzan & Libai (2011) adumbrated that the definition of customer retention as suggested by Verhoef et al. (2010) is not applicable in most of the high end and low purchase frequency products as each and every product is not purchased by the customers. For instance a customer of stock brokerage industry may not buy certain products in the given period but is intended to purchase the same when the conditions to purchase it are favourable.  Then in that case customer retention is defined as the process in which a customer is intended to buy the product/service at next favourable buy occasion (Nitzan & Libai, 2011).

Nitzan & Libai, (2011) further argued that customer retention is far beyond giving customers what they expect; it is all about exceeding customers’ expectations so that they are loyal advocates of the products/services. Edward & Sahadev (2011) noted that customer retention is the number of customers who are doing business with a company at the end of a financial year, expressed as percentage of those customers who were active at the beginning year. The researcher of the study adopts Khan’s (2012) definition of customer retention that states that customer retention is a business activity that prevents customers from defecting to alternative businesses.  Khan’s (2012) definition of customer retention is a combination of the definitions poposed by Verhoef et al., (2010); Nitzan & Libai (2011) and Edward & Sahadev (2011).

2.3.2 Measurement of customer retention

Customer retention has become the key agenda for companies that focus on maintaining a productive relationship with customers, besides functioning as a key instrument to produce financial gains. Past literatures demonstrate that continuance commitment, affective commitment and composite measurements are used to measure customer retention (Gounaris, 2005; Verhoef, 2003; Venetis & Ghauri 2004).

Continuance commitment is the colder, more rational and economic-based dependence on product benefits due to a lack of switching costs (Gounaris, 2005). Customers who have strong continuance commitment to an organisation stay with the organisation because they believe they have to do so.  Customers whose main link to the business is based on the strong continuance commitment stay with the business not for reasons of emotional attachment, but because of a recognition that the costs associated with doing otherwise are just too high (Gounaris, 2005). Continuance commitment will make customers not to switch to other businesses because of slightly higher prices; such customers believe that slightly higher prices demonstrate higher quality besides demonstrating company’s above average customer service. Moreover, such customers normally shop all year around even after the discount periods at their preferred shops (Nitzan & Libai, 2011)

Affective commitment is a hotter or more emotional factor that develops through personal involvement that a customer has with a company, which leads to higher level of trust (Williams & Naumann, 2011). Along similar lines (Sashi, 2012), argue that affective commitment exist when consumers identify and attach themselves to their relational partner. If a consumer is affectively committed to a business, he/she is likely to purchase additional product/services from that business in preference to their competitors. More affectively committed customers form a positive overall impression of the total duration of the relationship, including different transactions, negative and positive, and these consumers show strong intentions to stay in the relationship. Williams & Naumann (2011) and Sashi (2012) demonstrated that affective commitment positively influences customers’ predisposition to act in the interest of their partner relationship. Furthermore, there is a link between affective commitment and consumers’ predisposition to the consent (Verhoef, 2003) and specifically the acceptance of higher prices. In the context of financial services, (Gustafsson et al., 2005) showed that effective commitment has a direct effect on both relationship development (share of a customer’s business) and relationship maintenance (retention). A research study on the consumer brand relationships demonstrates that affective commitment is at the core of all strong relationships (Hur et al., 2010). Moreover, the findings of (Palmer, 2010) demonstrated that affective commitment is positively correlated to word of mouth-of-mouth behaviours.

Composite measurement contains both behavioural and attitudinal measurements. Behavioural activities are purchase activities that are consistent and repetitious in nature (Edward & Sahadev (2011). Moreover, previous research studies have demonstrated the existence of a positive correlation between repeat purchase and customer retention (Edward & Sahadev, 2011). When services provided are far much above the expectation, repeat purchase and positive intentions concerning firms are generated (Mohsan et al., 2011). Repeat purchasers will not shop at other firms and they are happy to shop at a particular firm.  These customers are much comfortable to shop at a particular firm more and more.  Customer retention can also be measured using attitudinal data that mirrors the customer’s emotional and psychological attachment such as adherence, engagement and loyalty. Composite measurement encourages customers to spread word-of-mouth to their social circle concerning firms and their offerings. Such customers volunteer to be spokesperson or street ambassador for the firm.

2.4 Impact of loyalty programmes on customer retention

Several research studies show how customer loyalty programmes affect customer retention (Bolton et al., 2000; Lewis, 2004; Kivetz et al., 2006; Meyer-Waarden et al., 2008; Kheng et al. 2010; Mimouni-Chaabane et al., 2010; McCall & Voorhees, 2010). Psychological research studies show that rewards are highly motivating and consumers do posses a huge drive to behave in whatever manner to achieve future rewards. As such during participation in a loyalty programme, a consumer may be motivated by programme incentives to buy the programme sponsor’s brand repeatedly. A research investigation of hotel guests carried out by Bowen and Chem supports the argument that there is indeed a positive correlation between loyalty programmes and repeat business. Loyalty programmes are designed to encourage increased usage of a business’s products/services. In general, the more a consumer purchases a product/service, the more rewards he/she is likely to earn (Bolton et al., 2000). As such, customer loyalty programmes create an expectancy of positive outcomes that are related with the buying. When customers realise that their buying behaviour is instrumental in receiving a positive outcome, they are more likely to continue with the behaviour. Loyalty programmes incentivise new clients to stick around after purchasing products/services, and to ensure that the existing customers still feel as if they are valued by the business.  From the argument of Lewis (2004), rewards from loyalty programmes function as the conditioning stimulus to maintain desired behaviour. Loyalty programs encourage customers to shift from a single or myopic-period decision making to multiple or dynamic-period decision making (Lewis, 2004). In support of the argument, empirical research studies demonstrate that rewards direct behaviours and increase task performance (McCall & Voorhees, 2010). Hence, it is expected that loyalty programmes will have positive impacts on the customers’ usage levels which results to customer retention. Since rewards from loyalty programmes largely depend on the behaviour of a customer, loyalty programmes can offer barriers to customers’ switching to another business (Bolton et al., 2000). For instance, when the structure of the reward depends on the length of the relationship, consumers are less likely to switch to another business. Kivetz et al (2006) cited Keaveney’s (1995) critical-incident study of customers switching behaviours in service businesses; Keaveney’s  (1995) study founded that customers switch service providers for many reasons including lack of loyalty programmes, inconvenience, failed service encounters, competition, response to failed service encounters and ethical problems.

In their research study, Kheng et al. (2010) and Mimouni-Chaabane et al. (2010) found out that loyalty programmes have a significant positive effect on product/service usage and customer retention. Kannan & Bramlett (2000) adopted cross-sectional and time-series data from a financial service company that provided loyalty rewards programmes. The result of the study demonstrated that members in the loyalty rewards were more than willing to extend their relationship with the company than customers who were not part of the loyalty reward programme. Members of the loyalty reward programme admitted that they were getting “good value”, in other words they were getting better quality services for their price and hence, their willingness to stay. Lewis (2004) opined that loyalty programmes have an essential impact on the customer relationship management for businesses in travel related industries such as rental cars, hotels or airlines. Instituting a loyalty programme not only increases customer retention but also increases the chances that the existing customer will share the joy with those close to them.

2.4.1 Impact of monetary loyalty programmes on customer retention

Evidence available in the previous literature show that loyalty programme that gave financial incentives had positive effects on customer retention (Verhoef, 2003and Lewis (2004). Verhoef (2003) examined that monetary loyalty programme is a step towards great customer retention. Lewis (2004) conducted a research study on loyalty programme of an online grocery and drug store merchant using experiments to check for the long-term effects of financial incentives of loyalty programme on customer retention. He concluded that financial incentives of loyalty programmes were successful in increasing the yearly purchase of a substantial proportion of customers.

To retain its customers, Titan allows its users to gather points from their purchases and they can exchange it for a gift like Rs. 25 which is equal to the 1 point (Titan Company, 2016). American Express also retains its customers by allowing them (customers) to accumulate points that they can use for travel, gifts, or transfer to airline frequent flyer programme (American Express (2016). Just recently, Southwest airlines announced that they had invested $100 million and changed its flyer programme by offering greater rewards and more complex point system so as to retain its customers (CAPA, 2013). GrubHub, an online food ordering and delivery website uses monetary loyalty programme to retain its potential customers. Since the year 2011, GrubHub has been running its successful Yummy Rummy sweepstakes (Grubhub, 2016). Once a consumer places more than two unique orders through GrubHub regardless of price, he/she get a voucher to play a game for a chance of winning free stuff.  A player chooses one of the four presented cards and he/she has a 25% chance of winning a free drink, dessert or GrubHub credit. Amazon Prime is also another company that adopts monetary loyalty programme to increase its customer retention (Loyalty 360, 2015). For a $ 99 a year, users of Amazon Prime are able to receive two-day shipping on millions of products with no minimum purchase. This is a great example because Amazon provides enough value to their frequent customer that makes them (customers) to have a feeling that they are valued and hence, an increase in customer retention. Analysts do estimate that Amazon loses about $ two billion per year on Prime (Loyalty 360, 2015). However, the company makes up for it in increased transaction frequency which is as a result of customer retention. Prime members prefer to stick with Amazon because they can spend an average of $ 1, 500 per annum on Amazon.Com compared with $ 625 per annum spent by Amazon consumers who are not members prime (Loyalty 360, 2015).

2.4.2 Effect of non-monetary programs on customer retention

Several research studies show that non-financial loyalty programmes encourage customers’ repeat purchase (Salem, 2004; Stauss et al., 2005; and Walsh et al., 2006). Walsh et al (2006) cited studies from the London School of Economics that showed that the monetary loyalty programmes are not effective as the non-monetary loyalty programmes in increasing customer retention. Along similar lines Meyer-Waarden (2007) cited a survey conducted by Watson Wyatt in the UK in 2005; the survey demonstrated that only 38% of customers are motivated by financial reward to keep their relationship with the company.

The research findings indicated that appreciation and partnership loyalty programmes do increase customer retention. Appreciation makes customers to have a feeling that their activities are valued by the company; customers are less likely to switch to other companies and are more likely to be committed to their relationship with the company when they have a feeling that they are valued by the company. Most businesses appreciate their customers so as to increase their customer retention. According to a research study that was conducted by (Day, 2000), frequent customers need to be appreciated with each and every purchase. Sending an e-card of gratitude or writing a thank-you note are simple, yet very powerful ways to show appreciation to customers. Hotels and airlines are some of the businesses that frequently appreciate their frequent customers; hotels provide their frequent customers with hotel stays at different locations while airlines provide such customers with free tickets or seat upgrade (Salem, 2004). Stauss et al. (2005) contended that airlines would appreciate their loyal customers based on their accumulated travel miles while hotels would appreciate their frequent customers based on their number of nights stayed. Patagonia Apparel Company adopts non-monetary programme to increase its customer retention. Patagonia realised that its consumers needed more than monetary rewards from its loyalty programme (Murray, 2012). In partnership with eBay it implemented the common threads initiatives to assist its customers resell their high end durable Patagonia clothing online via Patagonia’s website. The common threads programme matches with the company’s target customers by providing a value that their customers are more concerned about. American Express also adopts non-monetary loyalty programme to retain its customers. American Express has a large partner base with different businesses across the world. In 2015, the company launched Plenti programme to allow its customers to obtain benefits from various retailers like Rite Aid, Macy’s, AT & T, Hulu, Enterprise Rent-A-Car and many other companies (American Express, 2016).

Apple Inc, a multinational technology company adopts non-monetary loyalty programmes to increase its customer retention. In Apple Inc, salespersons share and communicate the value of the company’s new brand to their first interaction with the customers. As such, Apple’s loyalty programme is said to take place organically (Chan & Selden, 2013).

2.5 Customer loyalty programs adopted in Chinese banking industry

2.5.1 Credit Card Functions

This program is used by the banks in China to encourage high value customers to purchase frequently. According to China Merchant Bank (2019), the credit cards come in different forms to attract the customers and retain since their needs are met. For example, banks offer credit cards for withdrawals, revolving credit, and store installation. The credit cards for withdrawals enable the customer to withdraw money from the banks’ ATM that approves the service for emergence needs. Amin (2016) argues that banks such as ICBC, CBM, and Pingan allow the customers to borrow money up to 50% of their credit limit. This implies that the customers can access money from any location during an emergence. The customers enjoy the program since it is convenient and lacks approval or time restriction. The customers are also happy that the services could be accessed through diverse channels such as ATM, counters, online banking, and telephone. Murray (2012) argues that although the credit card allows the customers to access money easily based on credit limits, it entices the customer to overuse the service. The author further argues that if the commission for borrowing Renminbi in China is 1%, then the interest will be lower at 0.05$. This makes the borrowing easy hence it induce impulse budgeting. However, Amin (2016) retaliates that revolving credit allows the customers to repay at their convenience. As a result, the banks ensures that the credit holders enjoy financial liberty hence they continue to be loyal to the banks.

2.5.2 Star-Rated Services

According to ICBC (2019), the star-rated service is a program aimed at returning favour to the customer and improves the services. In other words, the banks offer exclusive series of services to customers in terms of VIP channels, preferential handling charges, and value added services. According to Mortimer et al. (2015), many customers will be willing to continue depositing with the bank in order to achieve high star-rating. For example, if a customer handles a business via the bank’s internet banking, he/she will enjoy preferential discount. Based on ICBC (2019), some customers are lucky to enjoy the global medical recue services 27/7. However, the customers only enjoy the benefits based on comprehensive business volume. This implies that if the customer fails to deposit loans, consume with bank cards, conduct withdrawal, or engage in wealth management, it is difficult to enjoy the services. Therefore, Salem (2004) alludes that banks such as China Merchant Bank have introduced Sunflower VIP Cards to bridge the gap. The card encourages customers to conduct business more with the banks to enjoy diversified services such as toil-free 800 hotline services.

2.6 Chapter Summary

The influence of customer loyalty programmes on customer retention is a highly contended research topics. The researcher of the study adopts the definition of customer loyalty programme as suggested by Evanschitzky et al (2012). According to Evanschitzky et al. (2012), a loyalty programme is a structured reward that is given to consumers, often in exchange of desired behaviours, with an aim of increasing customer retention and gathering of customer data. There are two main types of loyalty programmes and they include monetary and non-monetary loyalty programmes. Monetary customer loyalty programmes includes point system and a tier system; charge an upfront fee for VIP benefits. On the other hand, non-monetary programmes include coalition programme and organic loyalty programme. Customer retention is measured based on the following four aspects; continuance commitment, affective commitment and Composite measurement.

 

Chapter 3 Methodology

3.1 Introduction

Chapter three of the dissertation aims to discuss methodological procedures that are used in data collection and data analysis in the investigation of the influence of customer loyalty programmes on customer retention in the Chinese banking industry. To come up with the appropriate methodological procedures the researcher of the study discusses the following contents: research philosophy, research approach, research strategy, research instrument, design of research instrument, sampling method, practical data collection process and analysis, reliability and validity of research findings and research ethics. The chapter then closes with chapter summary.

3.2 Research philosophy

Positivism and interpretivism philosophy are the two main types of research philosophy and as such a researcher can either be a positivist or interpretivist (Fowler, 2013). Positivists use positivism philosophy during their process of investigation; positivists are always objective during study. Moreover, positivists detach their personal experiences in their field of study (Creswell, 2013). Lastly, positivists believe that knowledge acquired through observation and measurement is trustworthy and as such, they use mathematical and scientific methods to analyse the gathered data so as to gain the objective of their study.

On the other hand, interpretivists use interpretivism philosophy to explain the subject of their research from their own point of view (Creswell, 2013). Thus, interpretivists are subjective the research study and as such they adopt qualitative methodological procedures to give their opinions on the topic under investigation. Interpretivists do assume that there is no direct co-relation between human beings and the world and human beings can only understand the world through graphic classification of the mind.

The researcher of the dissertation used positivism philosophy because of several reasons. The aim of the research study is to investigate the influence of customer loyalty programmes on customer retention. Customer loyalty programmes and customer retention are two variables and the relation between them exists objectively in social world of business. The objective stance of positivism philosophy enables the researcher to focus on the objectivity of the research study and thus, the research findings are more reliable. Moreover, the objective stance enables the researcher to use scientific tools that can accurately and scientifically explain the topic under investigation. Interpretivism which advocates for the use of qualitative methodological procedures needs the researcher to explain the relationship between the two variables by applying the analysis of meanings expressed through words. The accuracy and scientificity of the relationships of the two variables following interpretivism philosophy is lower than the one that obey positivism philosophy.

3.3 Research approach

The two main types of research approaches used in business research include deductive and inductive research approaches (Saunders et al., 2007). The major difference between deductive and inductive research approach is in the placement and existence of the theories and hypotheses. To adopt deductive research approach a researcher needs to place hypothesis and then design a research strategy to test the hypothesis (Bernard, 2011). Researchers who adopt deductive research approach are independent of what is being investigated during the study and they stress on the collection of quantitative data. As such, deductive research approach is related to positivism philosophy (Creswell, 2013).

On the other hand, to use inductive research approach a researcher needs to perform the research from a specific phenomenon to a general theory (Bernard, 2011). Lastly, researchers who opt for inductive research approach are part of the process of research study and focus on the collection of qualitative data. Thus, inductive research approach is largely associated to interpretivism philosophy.

Based on the above discussion, deductive research approach contributes in the existence of the methodology of the study. There are several reasons as to why the researcher of the study opts for deductive research approach. Firstly, the researcher keeps objectiveness during the process of study as required in positivism philosophy. Secondly, deductive research approach focuses on the collection of quantitative data, which is consistent with what is required by positivism philosophy.

Lastly, customer loyalty programmes have an influence on customer retention (Meyer-Waarden et al., 2008; Kheng et al. 2010; Mimouni-Chaabane et al., 2010; McCall & Voorhees, 2010). As such, the research study develops the following hypotheses: H1: monetary customer loyalty programmes have a significant and positive impact on customer retention; H2: non-monetary customer loyalty programmes have a significant and positive impact on customer loyalty; and H3: the impact of monetary customer loyalty programmes on customer retention outweighs that of non-monetary customer loyalty programmes on customer retention. The three hypotheses are then tested through the selection of a suitable research strategy to perform data collection and analysis.

3.4 Research strategy

There are several types of research strategies and some of them are experiment, archival research, ethnography, survey, case study, action research and grounded theory (Goulding, 2002). Case study and survey are the commonly used research strategies. Researchers use case studies to investigate causal links in real-life situations that cannot be examined by survey. In most cases researchers settle for case studies to gather qualitative data (Saunders et al., 2007).

It should be observed that case studies are more expensive than survey research strategies and cannot be used to generalise results from a larger population. In most cases studies are always associated with inductive research approach.

On the other hand, survey research strategy is largely associated with deductive research approach (Fowler, 2013).  Researchers opt for survey research strategy to collect a large amount of quantitative data from a huge population in an economical manner. Lastly, survey research strategy assists researchers to make representative findings from the gathered data via sampling (Fowler, 2013).

From the explanation above, the researcher of the study settled for survey research strategy. There are several reasons as to why the researcher opts for survey research strategy and not case study. Firstly, survey research strategy owes more deductive research strategy. Secondly, the study focuses on the gathering of quantitative data that can be analysed scientifically. As already stated, quantitative data is a requirement for positivism and deductive research approach. The investigation of the influence of customer loyalty programmes on customer retention in the Chinese banking industry can be conducted accurately through scientific analysis of quantitative data.

Thirdly, the study is conducted on the customers of Chinese banking industry; these customers are a sizeable population and it is quite difficult to have a discussion with all these customers. Thus sampling is used in the dissertation; survey research strategy assists the researcher to produce representative findings through sampling. In addition, survey enables the researcher to gather large data from a sizeable population at a relatively lower cost and hence, saving research capital. Lastly, the collected large data enhanced the representativeness of the finding that was obtained from the selected respondents.

3.5 Research instrument

Interviews and questionnaires are the commonly used research instruments (Beiske, 2007). Interviews are mostly associated with the collection of quantitative data; interviews are used to collect qualitative data from a small number of respondents with an aim of getting their opinions on certain phenomenon. On the other side, questionnaires are largely related to the collection of quantitative data from a huge number of respondents (Fowler, 2013). From this argument, the researcher of the study opts for questionnaires for several reasons. First and foremost, interviews do not assist in gaining of larges sample size and thus, it is excluded. The researcher adopts questionnaires to target a large population of the customers in the Chinese banking industry Lastly, the researcher adopts questionnaires to collect quantitative data to objectively examine the impact of customer loyalty programmes on customer retention in the Chinese banking industry.

Moving forward, there are two main types of questionnaires and they are self-administered and interviewer-administered questionnaires (Beiske, 2007). In self-administered questionnaire, the researcher does not assist those taking part in the research study to answer research questions in the questionnaire (Hinds, 2000). Moreover, self-administered questionnaires are used to target a sizeable population at a relatively shorter period. On the other side, in interviewer-administered questionnaire the researcher helps the respondents to complete answering the research questions in the questionnaire (Hinds, 2000). As such, the researcher of the dissertation used self-administered questionnaires to target a large number of customers at oriental plaza at a relatively shorter period. Moving on, self-administered questionnaires can be distributed using two main methods and they include online method and delivery and collection method (Hinds, 2000). In online method a researcher distributes the questionnaires to the respondents through mail; on the other hand, in delivery and collection method a researcher distributes the questionnaires to the respondents by physically engaging with them (with the respondents) after which the researcher collects the questionnaires upon completion (Creswell, 2013). The researcher of the dissertation uses delivery and collection method to distribute the questionnaires to the customers at oriental plaza, Beijing municipality because these customers who shop there are more likely to be customers of some banks. Unlike the online method, delivery and collection method is not time consuming because the researcher does not need the email address of the respondents to distribute the questionnaires.

3.6 Questionnaire design

The design of the questionnaire that was used in the research study was based on the guidance of positivism philosophy. The questionnaire had three main parts; the first part was on the warm up questions that aims to understand Chinese customers’ overall evaluation towards the existing loyalty programmes in banking industry. The second part of the questionnaire was the main body of the questionnaire; it shows the existing customer loyalty programmes and measures the influence of both monetary and non-monetary loyalty programmes on customer retention. Research questions in this part of the questionnaires are constructed based on the help of the Likert’s five point scale and as such the researcher was able to perform mean analysis. The last part of the questionnaire addresses respondents’ demographic information (for example gender, age, income and level of education). The exact contents of the questionnaire are shown in the appendix 1.

3.7 Sampling method

Sampling is grouped into two main groups and the two groups include probability and non-probability sampling (Saunders et al., 2007). In probability sampling members have a non-zero probability of being chosen. For one to use probability sampling he/she must possess a sampling frame (Gray, 2013); in the case of this research study a sampling frame is a list of customers in the Chinese banking industry. It must be noted that it is very difficult to have a list of the names of customers and thus, the dissertation excludes probability sampling. On the other hand, in non-probability sampling members have a chance to be chosen in a random manner (Gray, 2013). It is essential to note that, non-probability sampling is further categorised into the following groups; purposive sampling, quota sampling, snowball and convenience sampling (Schwab, 2013). The researcher of the study does not use purposive sampling because it is very challenging to identify respondents who can best answer the research questions. Nevertheless, the researcher excludes quota sampling because the sample does not have stratified characteristics that are significant for the study. Moreover, the researcher did not go for the snowball sampling because it is very challenging to determine the elements of the target population. In this research study, the researcher can determine members of the population that is targeted by constructing a question to ask whether the respondents are customers of Chinese banking industry. Thus, the researcher uses convenience sampling, which enables him/her to consider respondents who can be accessed conveniently and are more than willing to participate in the process of study. In addition, convenience sampling enables the researcher to save time and research capital. Unfortunately, convenience sampling has one major weakness. Convenience sampling has a low representativeness of the samples and this is as a result of the unknown identity of the respondents (Schwab, 2013). To reduce this weakness, the researcher of the dissertation constructed a question at the beginning of the questionnaire. The question was, “are you a customer of Chinese banking industry?”

3.8 Data collection and analysis

The practical data collection process is carried out at oriental plaza, Beijing municipality. The researcher gave out the questionnaires to each and every passerby who was willing to take part in the process of investigation. The researcher gave the respondents the freedom to quite whenever they felt like doing so. The researcher told the respondents to directly return the questionnaires to him/her after finishing answering the research questions. 250 questionnaires were given out and 179 of them were returned and hence, a response rate of 71.6.5%.

To improve the representativeness of the respondents a question was designed at the beginning of the questionnaire, are you a customer of the Chinese banking industry?” From 179 questionnaires that were returned, 21 of them had a no answer on this question and 37 of them were not completely filled. The exclusion of these respondents left the study with 121 valid questionnaires. The gathered data was then processed and analysed with the help of Excel software. Frequency and mean were the methods of analysis; frequency analysis was carried out on the data that was acquired from both part one and three. Mean analysis was conducted on data that was gained from the five point scale in part two and it aimed at investigating the influence of both monetary and non-monetary loyalty programmes on customer retention in the Chinese banking industry.

3.9 Reliability of research findings

The researcher of the study ensured reliability of research findings from the following dimensions.  Creswell (2013) defined research reliability as the extent at which methodological techniques produce stable and steady findings in different research studies. Research reliability assisted the researcher of the dissertation to determine questions that were ambiguous and faulty during the study. The researcher of the dissertation maintained the reliability of the research findings from the following dimensions. Firstly, with the guidance of positivism philosophy, the researcher of the dissertation maintained objectiveness during the process of study. Secondly, the researcher distributed questionnaires only to those who were willing to take part in the process of investigation and this minimised the likelihood of respondents providing false information due to negative feelings. Thirdly, the researcher did not assist the participants to answer the research questions. The respondents completed the questionnaire on their own. However, the researcher explained research questions that were unclear to the respondents and hence the respondents gained a good understanding of what was expected of them and thus providing more reliable answers.

3.10 Research ethics

Bernard (2011) maintained that research ethics are the values and norms that guide a research study. The researcher of the study adhered with research ethics by considering the following aspects. Firstly, the researcher of the study only engaged respondents who were willing to complete the questionnaires. The respondents were answering the questions at their own will. As such, the researcher ensured the voluntary nature of the respondents. Secondly, the research did not provide personal information of the respondents such as names on the questionnaire. Thus, the researcher ensured the privacy of the respondents during the study. Lastly, the researcher of the dissertation will use the collected data only for academic purposes and not for commercial purposes. The data that was collected will only be accessed by the supervisor and those who are involved in the examination of the dissertation. Thus, the researcher ensured the data confidentiality.

3.11Chapter Summary

The chapter has succinctly elaborated on the methodological techniques that were adopted during the process of investigation. The researcher has extensively clarified on why he/she used positivism philosophy, deductive research approach, survey research strategy, questionnaires and convenience sampling.  Data that is gained from the questionnaire is analysed using Excel software. The chapter is the basis of the empirical study of the next chapter (chapter four).

 

Chapter 5 Interpretation and Conclusions

5.1 Introduction

This study section presents the conclusions that emerge from the process of data analysis. Presentation of conclusions is aimed at addressing the set aim and objectives. This section moreover presents the limitations that the researcher faced in the process of collecting and analysing data. Based on the presented limitations the researcher presents suggestions aimed at handling the faced challenges.

5.2 Conclusions

5.2.1 Existing customer loyalty programmes in Chinese banking industry

From the results of the analysis, it was revealed that two types customer loyalty programmes exist: monetary (point system, tier system, upfront fee for VIP benefits programmes) and non-monetary (coalition and organic loyalty programmes). From the results of the literatures reviewed, it was revealed that there existed some types of customer loyalty programs in Chinese banking industry; credit card functions and star-rated services. Credit card functions were noted to be used by banks in China to encourage high value customers to purchase frequently. Literatures by Murray (2012) revealed that banks offered credit cards for withdrawals, revolving credit, and store installation. On the other hand, star-rated function programme was aimed at returning favour to the customer and improving services. It was evident from the literatures by Mortimer et al. (2015) that the banks offered exclusive series of star-rated services to customers in terms of VIP channels, preferential handling charges, and value-added services. Results from both analysed literatures by Mimouni-Chaabane et al., (2010) and collected data revealed that a link existed between existing customer loyalty programmes and customer retention.

From the study, an agreement between literature results and data results is noted as it has been revealed that customer loyalty programmes which exist were aimed at favourably influencing consumer behaviour. This was the case as it was noted by Verhoef (2003) and Lewis (2004) that consumers possessed a huge drive to behave in whatever manner to achieve future rewards. This thereby implied that by participating in a loyalty programme, a consumer was motivated by programme incentives to buy the programme sponsor’s brand repeatedly. In this regard, study results were consistent with results by Bolton et al., (2000) where it was noted that loyalty programmes are designed to encourage increased usage of a business’s products/services. As such, the more a consumer purchases a product/service, the more rewards he/she is likely to earn. Similar results were equally noted in studies by Meyer-Waarden (2007) and analysed data results as it was noted that it was expected that loyalty programmes had positive impacts on the customers’ usage levels which in turn resulted into customer retention. Along these lines, results of a study by Salem (2004) revealed that since rewards from loyalty programmes largely depend on the behaviour of a customer, loyalty programmes can offer barriers to customers’ switching to another business.

5.2.2 Comparison and analysis of the impact of monetary and non-monetary loyalty programmes on customer retention in Chinese banking industry

Existing customer loyalty programmes; monetary and non-monetary, were noted to significantly contribute to increased customer retention in the Chinese banking industry. It was evident from reviewed literature results by Salem (2004) and Stauss et al., (2005) that loyalty programmes incentivised new clients to stick around after purchasing products/services, and ensured that the existing customers felt as if they were valued by the business. These results were equally reverberated in results from the data analysed as it was noted that loyalty programmes made customers believe that banks offered value added service and as such increased their willingness to use the service of these banks continuously. Along these lines, from the data results, it was evident that as customer wanted to earn more points, they were more likely to keep using bank’s services. These data results were in agreement with results from the literatures. Literatures by Lewis (2004) for instance revealed that rewards from loyalty programmes function as the conditioning stimulus to maintain desired behaviour. In this regard, it was evident that loyalty programs encouraged customers to shift from a single or myopic-period decision making to multiple or dynamic-period decision making. Thereby, based on the results of both the data analysed and the reviewed literatures (such as literatures by McCall & Voorhees, 2010) it was concluded that rewards direct behaviours and increase task performance.

From further results of data analysed it was evident that loyalty programmes were considered to be of value. The data additionally revealed that loyalty programmes advanced the relationship that existed between the customer and the bank. These data results agreed with results from the reviewed literatures as it was argued by Kheng et al. (2010) and Mimouni-Chaabane et al. (2010) that loyalty programmes possessed a significant positive effect on product/service usage and customer retention. From both data results and literature results, it can be concluded that members in the loyalty rewards are more than willing to extend their relationship with the company than customers who were not part of the loyalty reward programme. This conclusion has been made in consideration of the results of the data analysis which showed that members of the loyalty reward programme admitted that they were getting ‘good value’. From the results of literatures by Kivetz et al (2006) it was noted that getting good value implied getting better quality services.  Such services were termed to impact on the customer’s willingness to stay. The willingness to stay was additionally noted to make customers recommend a bank’s services to peers.

Moreover, data results revealed that as consumers of a bank’s service programme wanted to earn more points, they kept using its services. These results were in agreement with results from the literatures reviewed as it was noted by Lewis (2004) that financial incentives of loyalty programmes were successful in increasing the yearly purchase of a substantial proportion of customers. Nonetheless, from the results of literature reviewed, it was revealed that monetary loyalty programmes were not as effective as the non-monetary loyalty programmes in increasing customer retention. This was mostly because aspects such as appreciation and partnership in non-monetary loyalty programme were linked to formation of stronger relationships between firms and their customers. From the data collected it was evident that appreciation made the customers have a feeling that their activities were valued by the company. As per results of reviewed literatures by Kivetz et al., (2006) and Meyer-Waarden et al., (2008), it was revealed that customers who felt valued were less likely to switch to other companies and were more likely to be committed to their relationship with the company

5.3 Research Limitations and Opportunities for Further Research

The study’s research aim and objectives have successfully been attained. Even so, the researcher encountered a number of limitations which may have negatively impacted on the achievement of the set research aim and objectives. Handling these challenges in future studies would thereby be recommended. A key challenge that was encountered by the researcher in the course of undertaking this study pertained the limited time and funds which were at the researcher’s disposal. Limited time and funds led to utilisation of a smaller sample size. According to Gray (2013) use of smaller sample size in a study often limits results’ generalisability. As different populations were termed by Creswell 2013) to exhibit dissimilar behaviour and inclinations, use of a larger sample size in future studies is recommended. This would permit enhancement of study results’ generalisability. To enable the use of a larger sample size however, more resources (time and funds) along with appropriate budget and scheduling need to be dedicated to undertaking future studies.

Further, another challenge that was witnessed by the researcher in the course of the undertaking the study related to utilisation of structured questions in the questionnaires that was administered to the study respondents. Use of structured questionnaire may have confined the respondents to only offering responses to questions asked (Bernard, 2011). Such an aspect limited the collection of other relevant data that is often displayed through body language, facial expression and reactions. Such data pertains the emotions and feelings of respondents. Gray (2013) argued that without administering questions face-to-face, a researcher cannot observe respondent reaction. In dealing with this challenge in future studies, use of interviews along with questionnaires in collecting data is recommended. By so doing, researchers will be aimed at collecting more conscientious responses which would increase results credibility. Along these lines, respondent subjectivity was another challenge that was witnessed by the researcher. It was evident to the researcher that all through the course research undertaking, the respondents possessed pre-formed thoughts and attitudes toward the manner in which customer loyalty programmes influenced customer retention in the Chinese banking industry. Respondent subjectivity thereby may have detrimentally impacted on the reliability of the data collected (Creswell, 2013). In dealing with this challenge nonetheless, the researcher simplified the administered questions and gave the respondents enough time to fill in the administered questionnaire.

 

Chapter 6: Recommendations

6.1 Introduction

This chapter offers relevant recommendations on how Chinese banks can enhance customer retention strategy using customer loyalty programs. From the previous chapters, it is apparent that loyalty programs are critical in customer retention in the Chinese banking industry. The study recommendations for Chinese banks are discussed below.

6.2 Implementing monetary loyalty programs by Chinese banks

From the findings, the study determined that both monetary and non-monetary loyalty programs have a significant impact on customer retention in an organisation. However, the study also indicated that monetary programs have more impact on customer retention compared to non-monetary programs. Meaning, several customers prefer monetary programs to non-monetary initiatives (Kheng et al., 2010). Therefore, this research recommends that Banks across China should focus more on monetary customer loyalty programmes in order to retain majority of their customers. The need to save money while transacting appears to be the main reason why nearly all customers are in favour of monetary rewards from their banks. The study therefore suggests that Chinese banks can improve their loyalty program is by introducing a monetary loyalty programs that gives the customers an opportunity to earn points that can be redeemed for cash in future. However, the banks should only offer reward points to customers in accordance to certain conditions including banking duration, amount banked, and frequency of banking. This will eliminate any kind of discomfort or disunity among the customers that might be caused by unfair rewarding strategies.

Alternatively, the research recommends the introduction of a real-time and flexible monetary reward initiative that begins at the selling point and can offer the customer reward based on prior or current purchase or cash-back offer on purchases at a later date. In other cases, the banks can even introduce programs that have immediate discount on made purchases in exchange for reward points in the store. Kim et al. (2013) argue that customers also tend to prefer monetary rewards as it elevates them to a certain class, and this could come with special treatment. Notably, monetary reward is the best way to show this special treatment, more so when VIP programs is concerned.

Furthermore, from the discussion, the study established that most Chinese banking customers prefer easy loan express and cash borrowing limit benefits loyalty programs. Easy loan express is a monetary reward program that gives easy access to a short term loan for the customers in need of immediate cash through their credit cards (Trönnberg & Hemlin, 2014). Considering this, the research recommends that Chinese banks should set a reasonable cash advance fee in accordance to a customer’s level of loyalty with the bank. Furthermore, most customers tend to complain about user interface unfriendliness when signing up for loan express services with their banks. As such, the banks ought to design easy to use and friendly web interface, as this will subsequently improve customer’s overall experience. In addition, banks should consider lowering transactions costs incurred while withdrawing the advance cash in various participating ATMs.

Study findings also established that majority of Chinese banking customers prefer cash borrowing limit benefits. According Munro (2013), cash borrowing limit translates to a facility that allows customers to withdraw money from their banks without necessarily having credit balance, but rather limited to the borrowing limit extent set by a commercial bank. To have efficient and functional cash borrowing limit program, this research recommends that Chinese banks should adequately vet their customers before setting up their credit limit in order to avoid repayment default in regards to the borrowed amount of money. However, the banks must always not offer the limit above the one set by the commercial bank.

6.3 Implementing non-monetary loyalty programmes by Chinese banks

Study findings and literature review also determined that certain non-monetary programs still have critical role in the retention of customers in the banking industry. For instance, Yoo & Bai (2013) found that coalition loyalty program can help an organisation find a key partner that perfectly fits their programs. However, loyalty programs involving third party can pose danger to the company in multiple ways if not properly considered when entering the partnership. For example, operating a bakery in a relatively small town and in coalition with other two bakers down the street, customers will not have any incentive to visit a specific bakery. This is mainly because regardless of the bakery, they are guaranteed to earn points. In general, a coalition loyalty program gives the business limited control and can at times lead to mass exit of customers to the partnering organisations. Thus, when implementing a coalition loyalty program, an organisation should focus on regaining major aspects of the program such as insisting on visiting a specific store or website. Notably, this will give the customer an incentive to visit the company’s store or website, or risk not getting reward points on offer.

Based on the research findings, it was found that majority of Chinese customers usually offer large and timely information to their customers as a non-monetary loyalty program (Schumann et al., 2014). However, coalition loyalty program tends to only give the business limited information on the market or customers. Considering this context, this research recommends that Chinese banks should always consider operating a standalone program when it comes to customer loyalty initiatives. Internal loyalty program gives the business complete control and they can decide on how to customise and reward their customers unlike in third party partnerships. Notably, during implementation of internal loyalty programs, the banks should focus on generating large volumes of data concerning their customers in order to understand their current as well as future needs. This will give the business enough time to plan reward programs and strategies in advance thereby leading to increased rate of customer retention.

Based on literature review findings, this study found that organic loyalty program is another non-monetary program that can significantly impact customer retention strategy. According to Meyer-Waarden (2007), organic loyalty program requires the seller to communicate and share the value of the brand which is usually unique upon first interaction with the customer. In the case of Chinese banking industry, this research recommends that the banks should introduce some unique services and products to their customers. For instance, the banks can employ artificial intelligence (AI) and Big Data tools to help alternate the habits of various customers including savings plan, effort, and time during transactions. This will make the customers to market the bank’s capabilities both online and offline while at the same time retaining the existing ones. The company can achieve this by focusing on its one-to-one service whenever the customers visit the banking website or physical premises. However, the banks should avoid employing big data if they lack data scientists or experts to analyse and interpret the gathered data. Instead, they can integrate it slowly in their system as training or hiring data experts could be expensive.

6.4. How banks in China can attract customers to join loyalty programmes

Study findings also determined that majority of customers joined loyalty programs in order to get extra benefits or to get perks as well as to take advantage of special promotions. According to Bowen and McCain’s (2014) research, the primary reason or motivation for joining loyalty program is to save money or get discounted goods and services. This is usually done through a business model either through digital or card-based that offer points on a selected set of products or services.

Therefore, to attract potential or to retain current customers, this study recommends that Chinese banks should consider introducing programs that would enable the customers to save money. To achieve this, the bank can introduce programs such as cash borrowing limit where the customers are not charged on the borrowed amount but on the running balance. However, the banks must carefully analyse all their customers while putting commercial bank’s set limit into consideration before offering cash borrowing limit benefits. This can greatly help the bank in avoiding cases of loan defaults or late payments.

This study also suggests that banks across China should strongly focus on incorporating rewards such as discounts in their loyalty programs. For example, this study established that most customers like join loyalty programs in order to earn rewards, hence, the banks can consider initiatives such as setting a relatively lower transaction fees for the customers who have been around for more than two years. Notably, transactional discounts will more likely make the customers to remain loyal to the bank besides attracting new customers in the hope of receiving discount when the time is appropriate.

Appendix: Questionnaire

This questionnaire focuses on obtaining data for a research on the influence of customer loyalty programmes on customer retention in the Chinese banking industry.  The data that I seek to collect using this questionnaire will essentially help me complete my research. As a participant, you do not have to use your name since the survey is anonymous. Kindly please tick against your answer on each of the questions to allow me complete my research. Thank you for your participation.

Participant Code: …………………………………..

Gender: …………………………………..

Warm-up questions

Have you ever used any credit card in your life? 121

Yes        [ ]

No        [ ]

If yes, please continue to complete the following questionnaire survey, if no, please stop here.

Section 1: The customer loyalty programmes of Chinese banks

1. How often do you use your credit cards?

Once a week or less                [ ]

2-3 times a week                     [ ]

3-6 times a week                     [ ]

More than 6 times a week                   [ ]

 

2. Which of the following service have been offered by your bank? ( select all the programmes that the bank has offered from each categorization)

Monetary customer loyalty programmes

Point system                            [ ]

Tier system                             [ ]

Upfront fee for VIP benefits [ ]

Cash borrowing limit benefits [ ]

Easy Loan Express    [ ]

Discount and exemption on many service charges and consumption discounts offered by contracted shops       [ ]

Non-monetary Customer loyalty programmes

Star-rated service                    [ ]

VIP Plane boarding service                 [ ]

Overseas emergency relief service                 [ ]

One-to-one service                 [ ]

Bountiful and Timely Information      [ ]

Priority and Exclusive Space for VIPs       [ ]

Nationwide Universal Service like hotel reservation and VIP services in hotels, remote medical first aid, air ticket booking, weather/traffic information inquiry, etc.                 [ ]

3. Which of the service have you ever used (select all the programmes that you have used from the list below)

 

Monetary customer loyalty programmes

Point system                            [ ]

Tier system                             [ ]

Upfront fee for VIP benefits [ ]

Cash borrowing limit benefits [ ]

Easy Loan Express    [ ]

Discount and exemption on many service charges and consumption discounts offered by contracted shops       [ ]

Non-monetary Customer loyalty programmes

Star-rated service                    [ ]

VIP Plane boarding service                 [ ]

Overseas emergency relief service                 [ ]

One-to-one service                 [ ]

Bountiful and Timely Information      [ ]

Priority and Exclusive Space for VIPs       [ ]

Nationwide Universal Service like hotel reservation and VIP services in hotels, remote medical first aid, air ticket booking, weather/traffic information inquiry, etc.                 [ ]

 

4. Which type customer loyalty programmes mentioned in question 3 do you prefer

Monetary programmes                                    [ ]

Non-monetary programmes                [ ]

 

5. Considering the reasons below, why did you join the programmes mentioned in question 3?

• To get perks or extra benefits
• To be given first preference as a customer
• To take advantage of special promotions
• Because they offered me a chance

Section 2 To find out the effectiveness of loyalty programs

6. Kindly indicate the extent to which you agree/disagree with the following statements in regard to the above programmes you are enrolled to

	Strongly disagree	Disagree	Neutral	Agree	Strongly Agree
The programmes have offered me more value in my life	1	2	3	4	5
The programmes have increased my knowledge of the products and services of the bank	1	2	3	4	5
The programmes have advanced the knowledge of my preferred services and I therefore get customised packages	1	2	3	4	5
The programmes have made me recommend my friends to the bank	1	2	3	4	5
I believe my bank offers me quality service programmes so that I can get unique treatment	1	2	3	4	5
I believe my bank me loyalty programmes so that I do not use other banks’ service	1	2	3	4	5
I believe my bank offers me loyalty programmes so that they will improve their relationship with me as a customer	1	2	3	4	5
I believe my bank offers me loyalty programmes so that I can visit the bank more regularly	1	2	3	4	5

 

7. The impact of loyalty programmes on customer retention (Customer retention is the ability of a business, in this case a banks, to prevent customers from defecting to competitors)

Please indicate the extent to which you agree/disagree with the influence of the Regal loyalty programme on your intention to visit the hotel

	Strongly disagree	Disagree	Neutral	Agree	Strongly Agree
The bank programme offers preferential arrangement prior to my visit and thus increases my intention to keep using its service	1	2	3	4	5
The bank offers me with value added service and this increases my willingness to use the service of the banks continuously.	1	2	3	4	5
The bank’s service programme makes me want to earn more points and thus I keep using	1	2	3	4	5
The bank’s service programmes are better than those offered by competitors and thus I keep using	1	2	3	4	5

 

8. Which of the two types of customer loyalty programmes in question 3 has a stronger influence to customer retention in the banking industry

Monetary customer loyalty programmes                                [ ]

Non-monetary Customer loyalty programmes                       [ ]

 

Section 3: General Information

1. Indicate your age bracket

20-30 yrs.                   [ ]

31-40 yrs.                    [ ]

41-50 yrs.                    [ ]

51 and above                [ ]

2. Level of education

Secondary level                       [ ]

College Certificate                  [ ]

University Degree                   [ ]

Postgraduate Degree               [ ]

3. Income level

1,000 Yuan – 4, 999 Yuan                  [ ]

5,000 Yuan – 9,999 Yuan                   [ ]

10,000 Yuan -14, 999 Yuan               [ ]

15, 000yuan and above                       [ ]

 

 

 

Appendix I: Personal Development Reflection Statement

Undertaking this project has been instrumental to my personal development of competencies and skills. The skills and competencies that I developed have advanced my future employability and will be essential in easing my career endeavors. To begin with, founded on the andragogy theory, Rouse (2010) argues that experience offers a solid basis for learning. By carrying out this research, I learnt via accommodating (CE/AE) as delineated in Kolb’s Learning theory. Based on the theory, learning through the accommodating technique pertains Concrete Experience-CE and Active Experimentation-AE. All through the research process, I was involved with undertaking activities that eased my skills and competencies development. These activities included coming up with a research topic, planning research activities, undertaking a literature search, collecting data and analysing collected data. Key skill and competencies that I developed as a result of undertaking these activities included planning and communication. By learning through the accommodating technique, Bob (2010) argued that learners rely on hands-on experience. Such an experience was noted to enhance the learning process. Moreover, as a result of carrying out the research, I have acquired more knowledge on how customer loyalty programmes impact on customer retention in the Chinese banking industry. More specifically, my knowledge on the impact of monetary and non-monetary loyalty programmes on customer retention has improved. Such knowledge enhances my future employability as it would be essential in aiding my decision making as a future manager.

Having tasked with communicating with a wide range of stakeholders in the course of undertaking the research, my communication skills were enhanced. I learnt that offering clear messages substantially improved communication outcomes. In the processes of collecting data that was used in the data, I interacted with the potential research participants. This undertaking was essential in boosting my self-confidence and autonomy. Besides, having interacted with a wide range of individuals/groups; prior to the data collection process, my group collaboration skills were improved. These skills will be essential in advancing my future employability prospects as it was noted by Aggarwal and Goodell (2014) that effectiveness of teams within organisations was essential in easing performance.

A key element (as noted from the research undertaking process) that was essential in communicating was language. Though I made significant progress in my language skills, I realised that I further need to put more effort to attain improvement. In this regard, to advance my language skills, I intend to read a wide variety of literatures and journals and also take part on intellectually stimulating conversations with fellow colleagues. Along these lines, I also learnt that in the communication process, there exist both non-verbal and verbal messages which the listener ought to understand. Kraiger and Cavanagh (2014) argues that the ability to communicate effectively is founded on comprehending both verbal and non-verbal messages. Such skills were argued to be essential in today’s workplaces. Nonetheless, despite the learning successes that I experienced, I equally experienced a number of challenges in communicating with individuals from different cultures. Knowing this, I aim to make efforts to improve my cross-cultural communication skills. To attain increased cross-cultural competence, I intend to learn more about other cultures (practices, behavior). By so doing, I will be in apposition to effectively adapt in cross-cultural environments.