Relationships Among loyalty programs benefits, customer satisfaction, experiential encounter and customer loyalty in the hospitality industry: Survey of Star Rated Hotels in the Coastal Region of Kenya

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.