RESEARCH REPORT

CORP300

Group 28

TITLE: The Influence of loyalty programs on customers’ patronage in Midrand

Student names:

 Judith Phiri 6VP98TZY8

 Joyce Nyakapika JSDTJNQ63
 KudzanaiMaponga MDZQQMXRG
 Lloyd Sibanda 315F12Z93

Research report submitted in partial fulfilment of the requirements for CORP300

Ethical Clearance Number:

Date: 09thOctober, 2018
Contents
Abstract.....................................................................................................................................................3
1. Introduction......................................................................................................................................4
1.1 Basic overview of the topic..................................................................................................4

1.2 Background of the study......................................................................................................5

1.3 Problem Statement.................................................................................................................6

1.4 Research Question/Hypothesis...........................................................................................6

1.5 Objectives.................................................................................................................................7

2. LITERATURE REVIEW...................................................................................................................8
2.1 Customer Loyalty and loyalty programs...........................................................................8

2.2 Customer patronage............................................................................................................10

2.3 Retail Industry loyalty programs.......................................................................................11

3. RESEARCH METHODOLOGY....................................................................................................14
3.1 Research design...................................................................................................................14

3.2 Population and sampling design......................................................................................15

3.2.1. Population.......................................................................................................................15
3.2.2. Sample design...............................................................................................................15
3.3 Data collection.......................................................................................................................16

3.4 Data analysis..........................................................................................................................17

3.5 Validity and reliability..........................................................................................................17

3.5.1 Internal validity..............................................................................................................18

3.5.2 External validity.............................................................................................................18
3.6 Ethical considerations.........................................................................................................19

4 RESULTS AND FINDINGS...........................................................................................................20

5 CONCLUSIONS..............................................................................................................................25
6 RECOMMENDATIONS AND LIMITATIONS..............................................................................27
LIST OF REFERENCES...........................................................................................................29

2|Page
LIST OF TABLES
Table 1: Summary of loyalty programs 15
Table 2: Test statistic summary 25
Table 3: Respondent purchase frequency 27
Table 4: Distribution of benefits obtained by customers through loyalty programs 28
Table 5: Effect of loyalty programs 30

LIST OF FIGURES
Figure 1: Gender of respondents 22
Figure 2: Age of Respondents 23
Figure 3: Respondents monthly household Income 23
Figure 4: Illustration of benefits obtained by customers through loyalty programs 28
Figure 5: Customer satisfaction and influence on buyer behaviour 31

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The Influence of loyalty programs on customers’ patronage in Midrand

Abstract

Loyalty programs are a common strategy that businesses adopt to increase their
customer (market) share and to achieve competitive advantage [CITATION San151 \p 57 \l
1033 ]. This investigated the viability of loyalty programs on customers’ patronage in
Midrand. The research sought:

I. To investigate the influence of Pick n Pay loyalty programs on customers’

patronage in Midrand.
II. To investigate the influence of Click’s loyalty programs on customers’ patronage
in Midrand.
III. To investigate the influence of Dis-chem Pharmacy loyalty programs on
customers’ patronage in Midrand.
IV. To investigate the influence of Woolworths loyalty programs on customers’
patronage in Midrand.
V. To determine which loyalty program has the most influence on customers’
patronage.

In this study, a population of 150 persons were randomly selected in and around
parking lots of malls, which are situated in Midrand. This research design was based on
a constructed questionnaire and the data collected from the respondents was analyzed
using descriptive data analysis; the descriptive statistics and graphs.

Key words: loyalty, loyalty programs, customer patronage

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1. INTRODUCTION

1.1 Basic overview of the topic

Customer loyalty is referred to as customers’ propensity to buy a brand with reference

to the pattern of past purchases [CITATION Zha10 \p 128 \l 1033 ].Similarly customer loyalty
could also be defined as the feeling of attachment or affection for a company’s product
or service that will directly influence customer’s behavior according to [CITATION Wal13 \p
120 \l 1033 ].

Loyalty programs are marketing tools that retailers use to encourage loyalty from its
customers [CITATION Yoo11 \p 2 \l 1033 ] . Due to the escalating cost of obtaining new
customers, many retailers have turned to loyalty programs as a retention strategy tool. It
is reported that members of loyalty programs deliver distinct advantages to a firm such
as expanded incomes, fulfillment of customers and firms spend less on loyal customers
than new clients as loyal customers lessen costs related to customer education and
advertising[CITATION Mag15 \p 82 \l 1033 ].

This study focused on the influence of loyalty programs on customers’ patronage.

Organizations from different industries use loyalty programs to gain and retain loyal
customers, however, this research mainly focus on the retail industry. The retail industry
is one of the major industries in the world and according to Smith [CITATION Smi16 \n \l
1033 ]it plays a major role in the South African economy.

This research benefits three parties; the Midrand community, the retail stores that are
part of the study and the Pearson Institute of Higher Education. Retailers can use the
data collected for the study to understand the influence their loyalty programs have on
their target customers. Customers will be understood better by retailers and in turn will,
receive service according to their expectations and will be more knowledgeable about
various benefits of loyalty programs. The Pearson Institute of Higher Education students
will get an opportunity to carry out an undergraduate level research project in the

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Marketing field and in addition be able to put the theory taught in Research
Methodology into practice.

6|Page
1.2 Background of the study

Midrand is situated between Centurion and Kyalami, Johannesburg. It is small but

admirable in terms of the landscape. Based on the 2011 census, Midrand has a
population of 87387 with a majority being English speaking Black Africans at 54.47%
[ CITATION Cen11 \l 1033 ].

This research focused on the retail industry of Midrand, South Africa. Most retail stores
in Midrand are located within the following malls; Boulders Shopping Centre, Carlswarld
Lifestyle Shopping Centre, China Mall Midrand, Sandridge Mall, Water Fall Corner and
Mall of Africa. The study focused on the investigation of loyalty programs &customers’
patronage within the following retail stores; Pick n Pay, Woolworths, Clicks and Dis-
chem Pharmacy. The research was conducted to establish whether customers’
patronage has any direct relationship with the retail stores’ loyalty programs.

In the retail industry, fast moving consumer goods usually have small profit margins
resulting in fierce competition among the retailers. Due to the volatile nature of the retail
industry, marketers have resolved to strategies that encourage loyalty from customers,
strategies such as loyalty programs. In past research, it was discovered that when a
company retained 5% more of its clients, profits expanded from 25% to 125%, as a
result, and marketers invest greatly in loyalty programs [CITATION Sal12 \p 81 \l 1033 ].

Previous research have predominantly focused on the profitability effects of loyalty

programs than the influence they have on the customers’ patronage. Such are “The
long-term impact of a loyalty program: An evaluation from Las Vegas casino hotel”
study [CITATION Yoo11 \l 1033 ] . Furthermore, studies on measuring the impact of loyalty
programs on relationship quality, relationship commitment, and loyalty have also been
done. Such as “Relationships among customer loyalty programs, service quality,
relationship quality and loyalty” [CITATION OuW11 \l 1033 ].

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Loyalty programs have been developed to have an impact on customers’ behavior,
either in their frequency of purchasing or their purchase amount [CITATION Yoo11 \p 45 \l
1033 ].Similarly, [CITATION OuW11 \p 197 \l 1033 ]agrees that loyalty programs are marketing
activities intended to meet customer spending habits and consumption levels. Retailers
often use this tactic on their target markets with the aim of attracting the customers’
loyalty.

There are different categories of loyalty programs; points loyalty program, tiered loyalty
program, fee-based loyalty program, cash back loyalty program and coalition loyalty
program[ CITATION Bur18 \l 1033 ]. However, according to[CITATION Mag15 \p 92 \l 1033 ]the
tiered loyalty program is the most effective, despite the fact that customers differ in their
characteristics and preferences therefore distinctive loyalty programs should be
segmented customers characteristics and preferences.

1.3 Problem Statement

Many organizations make use of loyalty programs as a marketing means for gaining
market share, market revenue and for customers’ patronage [CITATION Oma13 \p 133 \l
1033 ].

Previous research has been carried out on the influence of customer loyalty programs
on customers’ patronage, internationally such as [CITATION Lew04 \l 1033 ].Furthermore, in
South Africa a similar study on the influence of loyalty programs on customers’
patronage has also been done[CITATION Mar08 \l 1033 ].Nevertheless, there has not been
similar research on this topic undertaken in Midrand, South Africa. This study will
attempt to close the knowledge gap, in relation to the influence of customer loyalty
programs on customers’ patronage in Midrand, South Africa.

1.4 Research Question/Hypothesis

The following questions were developed to understand the influence of loyalty programs
on customers’ patronage in detail.

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 1. What extent does the loyalty program, affect customers’ patronage of Pick n Pay
retail stores in Midrand?
2. What extent does the loyalty program, affect customers’ patronage of Clicks retail
stores in Midrand?
3. What extent does the loyalty program, affect customers’ patronage of Dis-chem
Pharmacy retail stores in Midrand?
4. What extent does the loyalty program, affect customers’ patronage of
WoolworthsWoolworth’s retail stores in Midrand?
5. Which loyalty program has the most influence on customers’ patronage?

1.5 Objectives

1. To investigate the influence of Pick n Pay loyalty programs on customers’

patronage in Midrand.
2. To investigate the influence of Click’s loyalty programs on customers’ patronage
in Midrand.
3. To investigate the influence of Dis-chem Pharmacy loyalty programs on
customers’ patronage in Midrand.
4. To investigate the influence of Woolworths loyalty programs on customers’
patronage in Midrand.
5. To determine which loyalty program has the most influence on customers’
patronage.

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2. LITERATURE REVIEW

2.1 Introduction

This chapter reviews the literature pertinent to the study of loyalty programs and their
influence in customers’ patronage. The review begins with the discussion on customer
loyalty and loyalty programs, then customers’ patronage and finally the retail industry.

2.2 Customer Loyalty and loyalty programs

Customer Loyalty is a customers’ commitment towards purchasing a particular product

or obtaining a particular service and it is also an indicator of the degree of satisfaction
the customer has with the product [CITATION Mag15 \p 79 \l 1033 ]. Additionally, customer
loyalty could too be defined as the sentiment connection for a company’s product or
service that will directly have an impact on their behavior, with the aim of keeping and
satisfying them and making them buy more of the firm’s products [CITATION Wal13 \p 164 \l
1033 ]. Subsequently, customer loyalty may take different forms, as it is sometimes
perceived as a repeat purchase pattern and sometimes as having an emotional
connection with the organization[CITATION Sal12 \p 79 \l 1033 ].

Loyalty programs are utilized in communicating certain rewards to customers in order to

establish reciprocity between the retailer and the customer [ CITATION She16 \l 1033 ].
Thus, these programs are being extensively used by retailers to develop store traffic
and deepen the relationship ties with their customers [CITATION Sre16 \p 882 \l 1033 ].

In addition, loyalty programs are used to generate information, to manipulate customer

behavior and as a strategy to gain competitive edge [CITATION OMa98 \p 5 \l 1033 ] .
Nam[CITATION Nam18 \p 36 \n \l 1033 ], agrees that loyalty programs aim in the increase of
sales revenue, through increased product usage levels and to build a strong relationship
between customers and organization so as to retain the organization’s current
customers. Noticeably the basic idea behind loyalty programs is to reward customers'
repeat purchasing and to encourage loyalty by providing them with various benefits.

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According to O’Malley [CITATION OMa98 \p 5 \n \l 1033 ], most loyalty programs are
implemented to influence customers’ behavior within a refined system and have been
individually targeted, in attempt to retain customers. They have been developed in a
way that makes it furtherlyfurther easy for marketers to jumpstart customer activity as
they can be targeted to a specific target group [CITATION Nex15 \p 1 \l 1033 ]. Most retail
organizations are using loyalty programs due to the benefits of customer retention.
Loyal customers tend to be more profitable as they cost less to serve; they are likely not
as price-sensitive and they willingly generate positive word of mouth on behalf of the
organization, which is effective “free” marketing [CITATION Mag15 \p 79 \l 1033 ].

Loyalty programs come in different forms. Firstly, the economic incentives programs,

this category of loyalty program encourages frequency of usage. Secondly the
relationship-based programs with extended privileges or last of all a combination of the
first two [CITATION Sal12 \p 81 \l 1033 ].

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2.3 Customer patronage

Customer patronage is defined as the support or influence of a patron [ CITATION Mer18 \l

1033 ]. It is the motives that drive a customer toward the selection of a particular outlet or
retailer [ CITATION Vri14 \l 1033 ].Patronage behavior represents an individual's preference/
commitment for a particular store for purchasing, [CITATION Wel04 \p 6 \l 1033 ].

Quite a number of studies have been undertaken on consumers' patronage behavior

and how its influences retail patronage. Researchers have highlighted that patronage is
not only characterized by a positive attitude toward a retailer as some customers may
re-purchase from a retailer out of habit [CITATION Kim12 \p 2 \l 1033 ] . Previous studies on
customers’ patronage show that antecedents to retail store patronage can include,
product assortment service quality, merchandise quality and the store environment of
these antecedents [CITATION Lee18 \p 677 \l 1033 ] . Researchers and marketers in the past
have recognized that past purchase behavior often lead to continued behaviors In
practice loyalty programs reward repeat purchase behavior, encouraging them to
purchase more and remain loyal to company [ CITATION Mag15 \l 1033 ] .In addition
customers with high frequency have potential to drive the success of a loyalty program
[ CITATION McC10 \l 1033 ].

According to Kelly [CITATION Kel67 \p 14 \n \l 1033 ] a major concern for retailers is

encouraging customers to choose them as a usual shopping venue over their
competitors. The less stores their target customers patronize the higher their degree of
loyalty, thus, retailers ensure to be well informed of how many competing retail stores
their customers patronize, as this variable is closely related to the potential for loyalty.

[CITATION Bal10 \p 46 \l 1033 ] Suggests that loyalty programs can be more than a defensive
means of retaining loyal customers. However, can also elevate the expenditure of non-
loyal customers and increase their potential loyalty.

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2.4 Retail Industry loyalty programs

Retail organisations all around the world make use of the different types of loyalty
programs to great effect as loyalty programs increase the frequency of customer visits
and the amount customers spend per each visit as they attempt to unlock rewards
[CITATION Mag15 \p 80 \l 1033 ]. There are different types of loyalty programs:

1. Points Loyalty Program- customers earn points through transactions and can
redeem their points for rewards; they can also receive points for non-
transactional actions such as downloading a mobile app or subscribing to the
organization’s-newsletter [ CITATION Bur18 \l 1033 ]. 
2. Tiered Loyalty Program-offers customer’s small rewards for being a part of the
program and increases the value of the rewards as the customer moves up the
loyalty ladder [ CITATION Bur18 \l 1033 ].
3. Fee-Based Loyalty Programs-require payment for customer to join and recurring
fees to keep membership active but provided value added benefits for customers
[ CITATION Bur18 \l 1033 ].
4. Cash Back Loyalty Programs- cash back rewards programs earns the customer
back the money they spend.[ CITATION Bur18 \l 1033 ].
5. Coalition Loyalty Programs – are managed by more than one business and the
customer data is collected in a shared customer database [ CITATION Bur18 \l 1033 ].
6. Loyalty card program - incentive strategy that allows the retailer to gather
information about its customers, they offer product discounts or coupons, in
exchange for the customers’ voluntary participation in the program [CITATION
Mag15 \p 81 \l 1033 ].

Loyalty programs have shown significant growth over the past 10years [ CITATION Dig17 \l
7177 ], similarly the [ CITATION Tru17 \l 7177 ] research found that that overall loyalty usage
in South Africa has increased by 8% points from 2016 to 2017 and that 79% of South
African consumers make use of loyalty programs.

Pick n Pay makes use of the points loyalty program, the “Smart shopper” which was
launched in 2011, with the points program Pick n Pay shoppers with a Smart Shopper
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card can earn points for the transactions they make and can redeem points for rewards,
one point per R1 spent with no annual fee involved. The Pick n Pay Smart Shopper is
designed on points collections and the points are redeemable through vouchers that
must be used within Pick n Pay stores.[CITATION Pic18 \l 1033 ].

The points loyalty program has also been adopted by Oother large retailers such as
Clicks and Dis-Chem have also adopted he point loyalty program. Clicks offers its
customers the Clicks Club card, which was launched in 1996. For each R5 spent, one
earns one cashback point. Clicks also offers ClubCardClub Card members exclusive
three-for-two special offers [ CITATION Cli18 \l 1033 ]. Some scholars refer to this program
as the cash back loyalty program. The Dis-cChem’s Benefit Program is slightly different
from the Clicks Club card in that the customer gets personalised benefits that are
specific to the member’s interest. For every R10 worth of purchase one earns 15 Benefit
Points and for every 100 points redeemed the customer gets R1 off purchases. A
customer can only redeem his cash back when he reaches 675 points. [ CITATION Dis18 \l
1033 ].

Woolworths has the Wrewards program, which was launched in 2010, where customers
can earns rewards based on a tiered system which is determined by their annual spend
in Woolworths stores in South Africa, the customers are required to swipe their Card
prior to each purchase they make in Woolworths stores in order for it to count towards
their Tier Calculation and appear on their Tier Calculation Statement The benefits seem
to be mainly 10% discounts for food and up to 20% in other departments, including
clothing, beauty and homewarehome ware.[ CITATION Woo16 \l 1033 ].

There are different benefits that retailers reap from loyalty programs:

1. Retailers can use the data collected from the loyal customers’ database to
gain more insight on their customers
2. Retailers can use the program as a way to build their brand name
3. Retailers can use the loyalty program to retain their current customers

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 4. Retailers can use the program to improve their communication with
customers by making use of the contact details customers provide when they
sign up. [ CITATION Pea16 \l 1033 ]

Below is a summary of the loyalty programs that were discussed in the study. It is
evident by the summary that most loyalty programs in South Africa have some
level of similarity.

Table 1: Summary of loyalty programs

Name of the Loyalty

Launch date Benefits
company programme
1. Pick n Pay smart 2011 Pick n Pay shoppers
Shopper with a smart shopper
card can earn points for
the transactions they
make and can redeem
points for rewards, one
point per R1 spent.
2. WRewards 2010 Customers earn
rewards based on a
tiered system which is
determined by their
annual spend in
Woolworths stores in
South Africa.
3. Clicks Clubcard 1996 For each R5 spent the
member earns 1
cashback point.

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 4. Dis-Chem Loyalty 2003 For every R10 worth of
Benefit purchase one earns 15
Programme Benefit Points and for
every 100 points
redeemed the customer
gets R1 off purchases.

2.5 Conclusion

An organization needs to have a relationship with its customers and the benefits of the
relationship should outweigh the costs. Furthermore, the key literature from prior
scholars clearly suggests there is a relationship between loyalty programs and repeat
purchase. Scholars also acknowledge loyalty programs as a strategic tool to retain and
reward loyal customers. Some findings have suggested that there are other factors that
drive repeat purchase behavior amongst loyal customers. However, it is noted that there
may be differences in these relationships putting location in context. The next chapter
discusses the research methodology utilized in this study.

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 3. RESEARCH METHODOLOGY

This chapter will discuss the methodology that was used for this study. It discusses in
detail the research design, population and sampling design, data collection, data
analysis, validity and credibility and ethical considerations.

3.1 Research design

A research design articulates what data is required, what methods are going to be used
to collect and analyze the data, and how all of this is going to answer your research
question, in other words it’s an overall plan for conducting a research detailing the
process essential to gathering the data to solve a research problem [ CITATION Abo16 \l
1033 ]

This study utilized the descriptive research design, which paints a detailed picture of a
social situation or relationship. It addresses the 'how' and 'who' [CITATION Wag12 \p 8 \l
1033 ]. Descriptive research is aimed at casting light on current issues or problems
through a process of data collection that enables them to describe the situation more
completely than was possible without employing this method [ CITATION Fox07 \l 7177 ].
This was ideal for this study as it was used to describe characteristics and/or behavior
of sample population and only one variable is required to conduct a descriptive study.

This study made use of surveys as not only are they associated with quantitative
research but they also can be designed to answer a specific set of research questions.
Surveys in research, an independent and dependent variables are used to define the
scope of study [ CITATION Pri05 \l 7177 ]. Customer loyalty and patronage are both
dependent variables of the study and the loyalty programs are the independent
variables as the goal was to measure their influence customer patronage.

A paradigm is a shared worldview that represents the beliefs and values in a discipline
and that guides how problems are solved [ CITATION Sch01 \l 7177 ].

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There are 4types of paradigms in research but are divided into 2 primary categories
namely, positivist and interpretivism, with interprevism associated with the qualitative
studies and the positivism associated with the quantitative studies. This study was
particularly concerned with testing the knowledge pertaining to understanding the
relationship between loyalty programs and repeat purchase behavior and therefore
used the positivism paradigm.

3.2 Population and sampling design

3.2.1. Population

The population defines those units for which the findings of the study are meant to
generalize[ CITATION McL14 \l 1033 ]. Identifying the population is necessary for a research
as it indicates clearly the characteristics of the target population that the findings will
directly apply to.

The target population for this study compromises of persons in and around malls
situated in Midrand.

 Element: Consumers
 Sampling Unit: Consumers shopping in and around Midrand malls
 Extent: Midrand
 Time: 2018

3.2.2. Sample design

A sample design is the framework, that serves as the basis for the selection of a survey
sample and affects many other important aspects of a survey [ CITATION Lavp08 \l
7177 ].The sample design should be simple to implement, efficient and should cover
various approaches to measure the sample to be generally applicable.

There are 4 four types of sampling methods used for quantitative research namely;that
is, simple random sampling, systematic sampling, stratified random sampling and

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cluster sampling[CITATION Wes16 \p 1 \l 1033 ]., Hhowever, due to the nature of this study,
convenient sampling was utilized as the population being chosen was unknown., Tthe
probability of any individual within the research population being chosen was
unidentifiable and each member of the population had an equal chance of being chosen
to be part of sample which eliminated bias from the selection in representative
samples[CITATION Wes16 \p 1 \l 1033 ].

Convenience sampling is a type of sampling where by the first available primary data
source is used for the research without additional requirements. It involves getting
participants wherever is convenient. In convenience, sampling there is no inclusion
criteria identified prior to the selection of subjects, all subjects are invited to participate
which makes it appropriate where the objective is to gain insight [ CITATION Dud18 \l 7177 ].

The sample frame is the list of all individuals in the population [CITATION Wag12 \p 86 \l
1033 ], in other words defines a set of elements from which a researcher can select a
sample of the target population.

The sample size is the number of people who are to be included in the study, people
that represent the population [CITATION Wag12 \p 89 \l 1033 ].

Previous similar studies on loyalty programs such as Dunković & Petković [CITATION
Dun \p 16 \n \l 1033 ] used a sample size of 286 and Marahaj [CITATION Mar08 \p 2 \n \l 1033 ]
used a sample size of115. However, in thisthe research a sample size of
150participants was used, the size was based on the average of two similar studies,
local and international. In choosing the sample size, the possible limitations of this study
as well as the period were also taken into consideration.

3.3 Data collection

Primary data is data that is collected first hand; it is specifically tailored to the research
needs [CITATION Gri18 \l 7177 ]. There are different ways to collect primary data example
focus groups and surveys in this study data was collected using self-administered
questionnaires, made up of closed-ended questions, which allowed quantitative data to
be collected.

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This study made use of different types of measurements such as nominal
measurements for general information example gender and interval measurement using
the Linkert scales to measure the effect of loyalty programs on customers’ purchase
behavior.

Research respondents were selected randomly at the parking lots of malls around
Midrand namely: Boulders Shopping Centre, Carlswarld Lifestyle Shopping Centre,
China Mall Midrand and Water Fall Corner. Data was collected within a space of 3 days,
during the month of July. One hundred and fifty 150 questionnaires were handed out to
the respondents. However, to ensure data quality a screening question; “Do you have a
loyalty program?” was used to ensure that only loyalty program members participated in
the study. The respondents completed the questionnaires on their own and handed
them back to the four researchers.

3.4 Data analysis

There are two ways to interpret quantitative data inferential and descriptive statistics, as
this is a descriptive study, therefore descriptive statistics was used to gather data and to
answer the research questions. Descriptive analysis summaries data by means of
frequency distribution, averages and percentage distribution [ CITATION Tho09 \l 1033 ]

Descriptive analysis was undertaken using SPSS 22 and which as data analysis system
whereby, the output of the method then gives out a specific descriptive analysis.
Descriptive statistics in this study explored the demographic profiling of respondents
through a representation of bar charts and tables found in the Data in analysis.

3.5 Validity and reliability

In research, these factors are used to determine the honesty or the dependability of the
study. Validity determines whether the research truly measures that which it is intended
to measure or how truthful the research results are [ CITATION Gol03 \l 1033 ].

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 3.5.1 Internal validity

Mortality/Attrition refers to the situation in which participants who have been selected to
participate in a research study do not participate in every phase of the study or leave
before the study is complete [CITATION Onw00 \p 39 \l 1033 ].

As data was being collected from respondents from the mall, there was a chance that
they would want to pull out of the study due to various reasons such as time constraints,
remembering that there was something they still needed to purchase and/ other
personal reasons.

3.5.2 External validity

Population Validity is the extent to which the results of a study can be generalized from
the specific sample that was studied to a larger group of subjects [ CITATION Sie \l 1033 ].

Respondents have different views of different stores and seek different benefits from
loyalty programs, therefore different benefits could have had a poor influence on other
customers compared to others.

Reliability

The accurate measure of an instrument and the research instrument consistently has
the same results to prior studies [ CITATION Gol03 \l 1033 ].Therefore to ensure reliability
the study conducted a pilot study to test measurement items using a sample of 10
research respondents.

Questionnaire pilot test

A pilot test is important for a study as it allows the researcher to ensure that the
questions and the instructions are clear and understandable to the respondents. The
other benefit is it ensures the questionnaire collects all the necessary information that is
relevant to the study [ CITATION Van02 \l 1033 ].

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In this study, ten respondents were selected to pre-test the questionnaire. After
completion, each respondent was asked to give feedback on the questionnaire and
overall experience. The respondents were timed and on average it took them, less than
5 minutes to complete the questionnaire, therefore on the questionnaire it was indicated
to the respondents that it would only take less than 5 minutes of their time. Eight of the
respondents said they understood all the questions, while the other two wanted clarity
on question A4 (How much is your monthly expenditure?), consequently the question
was re-worded in light of the feedback. Of the two respondents, one needed an
explanation with regard to the final question; hence, the instructions were edited to
make them clearer.

3.6 Ethical considerations

Ethical considerations ensure respect for persons through, 'informed' consent,

confidentiality of data beneficence to maximize possible benefits and minimize possible
risks to people involved in research and justice to guarantee fairness in the distribution
of research inclusion and exclusion [ CITATION Zay18 \l 1033 ].

Ethical considerations relation to this study no respondents were harmed or threatened

to participate in the study and did not require ethical clearance as the research is based
on individuals in the public ground.

The cover page of the questionnaire ensured that respondents were aware of the
purpose of the study and their roles.

The respondents were informed that at any point should they feel the need to pull out
they had the freedom to be excluded from the study and furthermore this study did not
require any personal information from the respondents.

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4 . RESULTS AND FINDINGS

This study sought to investigate the effect of loyalty programs on customer patronage in
Midrand. This chapter presents the results and findings. One hundred and forty-nine
(149) questionnaires were successfully administered yielding in 99.33 percent response
rate. This section is divided into two sections; first, the demographic data of
respondents and lastly the effect of loyalty programs on customer patronage.

4.1 Demographic Data

Gender of respondents

Distribution of respondents by gender is shown in figure 1. The graph shows that

females made up majority of the population of respondents at 54% and males at 46%.

Figure 1: Gender of respondents

Age of Respondents

Respondents were asked to indicate their age group. Figure 2 shows that the age group
between 24-29 year olds, which is leading at 46%, followed by 18-23 year olds and 30-
35 year olds equally at 23%. Lastly those older than 35 at 8%.

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Figure 2: Age of Respondents

Monthly household income

Respondents were asked to indicate their approximate household income. From Figure
3 majority of the respondents earned between 4000-5999 closely followed by
respondents earning 8000 and more, then those earning between 6000-7999 and the
least fell under the category of 3999and less.

Figure 3: Respondents monthly household Income

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 4.2 The effect of loyalty programs on customer patronage

Table 3: Purchase frequency based on age

The aim of this measure is understand the respondents purchase frequency at the retail
stores that the study is based on. According to the results, the ClicksClubClicks Club
members are majority females, between the ages of 24-29 at 33.33%. Dis-chem’s
majority customers are Females between the ages of 30-35 at 22.22%. Pick n pay’s
Smartshopper members are males between the ages of 24-29 at 29%. Then
Woolworths WRewards members are males between the ages of 30-35 at 41%.

Table 2: Respondent purchase frequency

Frequency
Store shopped at
most 24- 30-
18-23 Older than 35 Total
29 35
Female 19 37 16 8 80
Clicks 13 15 3 2 33
Dis-Chem 3 5 4 2 14
Pick n Pay 2 16 7 4 29
Woolworths 1 1 2 4
Male 15 31 18 5 69
Clicks 2 8 2 12
Dis-Chem 1 1 2 4
Pick n Pay 9 20 7 4 40
Woolworths 3 2 7 1 13
Total 34 68 34 13 149

Distribution of benefits obtained by customers through loyalty programs

At the core of this study is to understand loyalty programs from the retail sector. The
aim of this measure is to see the extent to which loyalty programs the retail companies
the study is based on were utilized, to show the extent to which the companies have
applied the programs. From the research, one can tell which company has spent the
most on loyalty programs. The higher the total the more they spend.

From the research we can tell that Pick n Pay spend the most on loyalty programs,
followed by Clicks and Dis-Chem and Woolworths closely following after each other.

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Table 3 Distribution of benefits obtained by customers through loyalty programs
Loyalty Club Distribution of benefits obtained
belonged to: by customers through loyalty Percentage

programs
Clicks
ClicksClub 45 100.00%
Cashback 12 26.67%
Discounts 32 71.11%
Free Products 1 2.22%
Dischem
Dischem Ben Prog 18 100.00%
Cashback 2 11.11%
Discounts 15 83.33%
Preferential 1 5.56%
Treatment
Pick n Pay
SmartShopper 69 100.00%
Cashback 12 17.39%
Discounts 48 69.57%
Free Products 9 13.04%
Woolworths
Wrewards 17 100.00%
Discounts 5 29.41%
Free Products 1 5.88%
Preferential 11 64.71%
Treatment
Grand Total 149

Below is Aa graphical illustration of the information provided is presented abovebelow.

From the graphgraph, is it clearer shows that both Clicks and Pick n Pay are both have
both greatly invested in their loyalty programs mainly the discount element of them. The
Free Products are the least used benefit by all retailers

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Hypothesis test: Chi-Square Test of Independence between loyalty programs
usage and customer patronage

H0: There is independence between loyalty programs usage and customer patronage

H1: There is no independence between loyalty programs usage and customer patronage

The Chi-Square test applied 5% significance level which is a standard level of

significancelevel, which is a standard level of significance, applied in most scientific
studies. The study applied 16 degrees of freedom [(r-1)x(c-1)] are applied in obtaining
the critical values of the Chi-Square.

Therefore the null (H0) is rejected if Chi-Square test statistic falls above +26.296,
elsewhere the null will not be rejected. The test statistic is estimated using the Chi-
Square formula:

2
2 [ f o−f e ]
χ stat =∑
fe

The test statistic is calculated from the summary data as shown below:

Table 4: Test statistic summary

Observed Observed
Shopping Frequency Frequenc [ f o −f e ]
2

Store  Loyalty benefit ( f o) y ( f e) fe

Clicks Cash Back 12 7.8523 2.1908
  Discounts 32 30.2013 0.1071
  Free Products 1 3.3221 1.6232
Preferential
  Treatment 0 3.6242 3.6242
Dischem Cash Back 2 3.1409 0.4144
  Discounts 15 12.0805 0.7055
  Free Products 0 1.3289 1.3289
Preferential
  Treatment 1 1.4497 0.1395
Pick n Pay Cash Back 12 12.0403 0.0001
  Discounts 48 46.3087 0.0618
  Free Products 9 5.0940 2.9951
  Preferential 0 5.5570 5.5570
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 Treatment
Woolworth
s Cash Back 0 2.9664 2.9664
  Discounts 5 11.4094 3.6006
  Free Products 1 1.2550 0.0518
Preferential
  Treatment 11 1.3691 67.7466
Total 93.1131

Since the test statistic (93.1131) falls below the critical value of the Chi-Square
(26.296), the study rejects the null hypothesis and concludes that there is association
between the loyalty programs usage and the level of patronage of customers of the
stores used in this investigation. Therefore, it is concluded that there exists dependence
between the loyalty programs offered and the patronage of customers at 5% level of
significance.

29 | P a g e
 Effect of loyalty programs on Customer patronage

Table 5 is the criteria for assessing the effect of each retailer and their loyalty program
on customer patronage. The table shows that 61.07% of all respondents are most likely
to shop where they are part of a loyalty program, 76.92% of Clicks Club members are
most likely to shop at Clicks because of the loyalty program, and Woolworths had the
least effect on their customers at only 6.59% of their customers.

74.50% Oof all respondents 74.50% were willing to recommend their friends to join
loyalty programs with Clicks Club members leading at 72.97% and Dis-chem with the
least influence at 7.21%.

Respondents were asked if they were willing to spend more due to the loyalty program,
72.48% of all the respondents were willing to spend more due to the loyalty program
Clicks is leading at 75% and Woolworths is the least at 6.48% of their members.

Lastly, the respondents were asked if they being part of a loyalty program made them
feel special 81% of all respondents agreed that being a member of a loyalty program
made them feel special and Clicks Club members were the most influenced at 76.23%
and Woolworths influencing their members the least at 5.74%.

Table 5: Effect of loyalty programs

Likely to shop
Recommend to Willing to spend Feel special due
where I am on
Store friends to join loyalty more due to loyalty to loyalty
loyalty
program program program
program
Clicks 70 81 81 93
Dischem 7 8 11 12
Pick n Pay 8 12 9 10
Woolworths 6 10 7 7
Total 91 111 108 122

The key aim of this table is to show how effective and or influential the loyalty programs
of each company has been, compared with how much they have invested from the
information provided on Table 4.

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The table looks at different satisfaction criteria:

“Likely to shop where I am on loyalty program”, “Recommend to friends to join loyalty

program”, “Willing to spend more due to loyalty program” and “Feel special due to
loyalty program”

The two key clear points that speak clearly to loyalty programs with patronage:

1. Satisfied with the experience of using loyalty program – The more the customer
is satisfied the greater the possibility of them being loyal to the loyalty program
and the company.
2. Shopping behavior changed by loyalty program – meaning the loyalty program
has effectively influenced the customers’ shopping behavior.

Both these key points show the level at which, the companies were able to influence
effectively influence their customers through loyalty programs.

Below is the graphical representation of Table 5, From Table 4 Pick n Pay clearly
spends more on their loyalty program but looking at the graphical representation of data
Clicks is satisfying their customers the most as all their bars of the different criteria that
were used are higher than all the other retail stores.

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 100
Level of satisfaction from loyalty programs

90
Count of Satisfaction level
80 with the experience of using
loyalty program
70
Sum of Likely to shop
60 where I am on loyalty
program
50 Sum of Recommend to
friends to join loyalty
40 program
Sum of Shopping behaviour
30
changed by loyalty program
20 Sum of Willing to spend
more due to loyalty
10 program
Sum of Feel special due to
0 loyalty program
Clicks Dischem PicknPay Woolworths
Shopping Store

Figure 5: Customer satisfaction and influence on buyer behavior

There are numerous reasons why this all might be from previous studies and
observation it could be because that there are other criteria that could affect the loyalty
programs that were not considered in this study such as: Nature of product, quality,
location, competition and brand positioning.

4.3 Summary

EvidentlyEvidently, these findings demonstrated Loyalty programs have a positive

influence on customer patronage. Moreover that ClicksClub loyalty program has the
most influence and the most satisfied members, followed by Pick n Pay Smartshopper ,
then the Dis-Chem loyalty program members followed closely by the Woolworths
WRewards.

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5 . CONCLUSIONS

The study wanted to examine the mediating influence of loyalty programs on customer
patronage. It was eminent that loyalty programs positively influenced patronage
behavior of customers towards the four retailers that the study employed, it was noted
that the level of influence in uncertain as there are other factors that influence customer
patronage such as the nature of the product, location and prices.

Nature of product affects the performance of the loyalty program. For example, the
products that Dis-Chem sells and the ones Pick n Pay sell are not the same, Dis-Chem
is more pharmacy based where by Pick n Pay is focused on fast moving consumer
goods, customers can purchase products from Pick n Pay in bulk were as they would
not purchase medication in bulk.

Location, customers take into consideration the travelling costs when they purchase
products. The convenience of the stores makes a difference in the purchase decisions
and purchase behavior. Dis-Chem could be having low scores because it is more
married to the shopping mall-based, big format location. Compared to Clicks which is
their direct competitor in reality and in the study as they provide similar products they
have only 101 stores whereby Clicks has 511 stores and 442 of them have in-store
pharmacy, ClicksClub has 6.2 million loyalty members whereas Dis-Chem only has 4.2
million members (Tarrant, 2016)

Prices play a major role in the performance of the loyalty programs. Even though
WoolworthsWoolworth’s offers discounts and benefits to its customers, the loyalty
program is least appreciated by customers, as their prices are high therefore compared
to, the other retailers in this study. in the study their discounts and benefits are the least
appreciated. Example Pick n Pay targets all income people from low to high income
hence their benefits and discounts are more appreciated, also compared to Woolworths
after the VAT increase their prices didn’t increase as much. (BusinessTech, 2018)

However, Customers from a previous customers research study on South African retail
stores believe that they receive more value from Woolworths, although but the study

33 | P a g e
included the quality aspect of the services and products, which were not taken into
consideration in this study . (Tarrant, 2016).

All objectives were accepted and proven; therefore, there is a positive influence
between loyalty programs and customer patronage. From Tthe findings shows indicate
that there is value in implementing a loyalty program for Midrand customers.

34 | P a g e
6 . RECOMMENDATIONS AND LIMITATIONS

6.1 Limitations

The study relied on a quantitative research strategy using self-administrated

questionnaires. This limited the respondents to a set of prescribed statements that they
needed to agree or disagree with. It did not take into account personal insights or view
on loyalty programs of which a qualitative research study could have possibly
unpacked. In addition, it was not possible to change the instruments once the study is in
progress.

Furthermore, the study was a snapshot of what was happening at a point in time, it does
not observe the loyalty program members over a longer period to track their purchasing
behavior therefore Information could not be contextualized to the reality of the
respondents.

6.2 Recommendations

In order for companies to realize competitive advantage through loyalty programs, they
need to be more innovative with their rewards programs offerings. To less established
brands like Dis-Chem, they need to go beyond redemption of rewards through goods
but should also include services.

Retailers should use the information from the loyalty cards on their customers to build
customer relationships through personalized reward systems based on purchase
patterns, furthermore focus on other attributes such as location convenience, speed of
service, and staff responsiveness in conjunction with loyalty programs to ensure
maximum customer satisfaction.

Retailers need to make more use of sales promotions and get instant rewards that will
ensure customers do not switch between retailers due to lengthy processes

Pick n Pay should focus more on spending money to get maximum customer
satisfaction rather than overspending on loyalty programs

35 | P a g e
Recommendations for further studies

Further studies should incorporate competitive advantage and satisfaction of loyalty

programs in the study. The study could also be done over a longer period to
contextualize to respondents reality. In addition, The further studiesy could also include
more retail stores and look more into competition of each loyalty program in the future.

36 | P a g e
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