Abstract:
To sustain competitive edge and overcome the challenges of dynamic business
environment in the hospitality industry, customer loyalty and retention have become
the much sought after organizational goals. Marketing scholars and practitioners have
recognized the importance of loyalty program as strategic tools and objectives for
sustaining customer satisfaction and customer loyalty in the service industry. Though
there have been dissenting views on the effect of loyalty programs on customer
satisfaction and customer loyalty they still remain a popular strategy in cultivating
relationships with customers. This study therefore examines the direct effect of loyalty
programs benefits on customer loyalty and the moderating effect of experiential
encounter on the indirect relationship between loyalty programs and customer loyalty
through customer satisfaction. The specific objectives of this study are; to establish the
direct effect of loyalty programs benefits on customer satisfaction and customer loyalty,
to investigate the effect of customer satisfaction on customer loyalty, to investigate the
mediating effect of customer satisfaction on the relationship between loyalty programs
and customer loyalty, to determine the moderating effect of experiential encounter on
the relationship between loyalty programs and customer satisfaction, to establish the
moderating effect of experiential encounter on the relationship between loyalty
programs and customer loyalty, to establish the moderating effect of experiential
encounter on the relationship between customer satisfaction and customer loyalty and
to investigate the moderating effect of experiential encounter on the indirect
relationship between loyalty programs and customer loyalty through customer
satisfaction. This study is guided by the Expectancy Disconfirmation Theory (EDT)
and the Social Exchange Theory. The study utilizes explanatory research design as the
study seeks to describe the relationship between loyalty programs, customer
satisfaction, experiential encounter and customer loyalty at a given point in time. The
target population comprised of registered loyalty program members patronizing
classified hotels and restaurants in Coastal region of Kenya. The sample was drawn
from the 1096 registered loyalty program members patronizing star rated hotels in the
Coastal Region of Kenya. Using Cochran Sample Size equation and stratified random
sampling methodology a sample size of 384 respondents was selected. Data was
collected by means of a questionnaire and analysed using descriptive and inferential
statistics. The study adopted a path analytic model, which was analysed through
PROCESS macro and hierarchical multiple regression. Using the bias – corrected
percentile bootstrap method the results indicated an indirect effect of loyalty programs
benefits on customer loyalty through customer satisfaction, ab =0.0607, SE =0.0340,
95% CI = [0. 0019, 0.1357]. In addition, the mediating effect of customer satisfaction
was partially moderated by experiential encounter. The findings indicated that the effect
of loyalty programs benefits on customer loyalty through customer satisfaction can be
buffered by introduction of experiential encounter as an intervention in the early stages
of customer patronage. Interventions should target individuals with low level loyalty
programs benefits. The study recommends that service providers should put more
emphasis on loyalty programs benefits since they influence customer satisfaction and
hence customer loyalty. The study provides new theoretical insight into factors
influencing customer loyalty by incorporating customer satisfaction as a mediator in
the relationship between loyalty programs benefits and customer loyalty.