MEDIATING EFFECT OF LOYALTY PROGRAM MEMBERSHIP ON THE

RELATIONSHIP BETWEEN ADVERTISING EFFECTIVENESS AND BRAND

LOYALTY
Moutusy Maity and Seema Gupta
This study investigates the mediating effect of loyalty program membership on the relationship
between advertising effectiveness and attitudinal loyalty as well as behavioral loyalty. Data from
customers of a retail chain (members and non-members of the loyalty program), are used to test two
models that are based on the quality-value-loyalty chain. Findings reveal that for customers who are
not members of the loyalty program, advertising effectiveness does not signicantly affect either
attitudinal loyalty or behavioral loyalty. However, advertising effectiveness affects attitudinal loyalty
of members of the loyalty program. Loyalty program membership mediates the relationship
between advertising effectiveness and attitudinal loyalty.

The marketing literature extensively investigates the

relationship between advertising effectiveness and
brand loyalty (e.g., Arnold, Oum, Pazderka, and
Snetsinger 1987; Lawrence, Fournier, and Brunel
2013; Mackenzie, Lutz, and Belch 1986), and past ndings indicate that advertising effectiveness impacts
brand loyalty (e.g., Thompson and Malaviya 2013).
However, most studies do not test the impact of advertising effectiveness on behavioral and attitudinal loyalty, the two aspects of brand loyalty that extant
literature identies (e.g., Dick and Basu 1994).
The marketing literature is also replete with studies
that investigate the relationship between loyalty programs (LPs) and brand loyalty (e.g., Roehm 2002; Sharp
and Sharp 1997). Some studies decompose brand loyalty
into attitudinal loyalty (e.g., Wirtz, Mattila, and Lwin
2007) and behavioral loyalty (e.g., Furinto, Pawitra, and
Balgiah 2009), investigating the impact of loyalty programs on each type of loyalty, but ndings are mixed.
Some researchers contend that LPs are expensive and
that there is little evidence to justify such expenditures
(Sharp and Sharp 1997; Shugan 2005). The results of

Moutusy Maity (Ph.D., University of Georgia), Associate

Professor of Marketing, Indian Institute of Management
Lucknow, Noida, India, mmaity@iiml.ac.in.
Seema Gupta (Ph.D., University of Udaipur), Associate Professor
of Marketing, Indian Institute of Management Bangalore,
Banerghatta Road, Bangalore, India, seemag@iimb.ernet.in.
The authors wish to thank the Landmark store and the Indian
Marketing Research Bureau for sharing the data used in this
research.

some research measuring the ability of LPs to alter

repeat purchase rates and increase customer retention
are also inconclusive (Dowling and Uncles 1997).
Several empirical studies suggest that LPs generate
small effects (Verhoef 2003) or no effects (De Wulf,
Odekerken-Schroder, and Iacobucci 2001), on purchase
behavior. On the other hand, several other researchers
nd that LPs increase purchasing (Lewis 2004). Some
researchers nd that LPs positively inuence customers choice of company, transaction values, and resistance to counter-arguments and retention (Bolton,
Kannan, and Bramlett 2000). Kivetz et al. (2006) nd
that progress toward a reward can accelerate customers
purchases. Some researchers suggest that LPs retain
customers and provide higher value and satisfaction
(Bolton et al. 2000). Despite an interest in LPs, as the
above discussion suggests, empirical research is scant
and continues to be contradictory and inconclusive.
While extant literature enhances the understanding of
how advertising effectiveness inuences brand loyalty,
and how LP membership inuences brand loyalty (i.e.,
attitudinal loyalty and behavioral loyalty), there is no
research to the best of the knowledge of the authors, that
investigates the interplay among advertising effectiveness,
LP membership, and brand loyalty (attitudinal and behavioral). Therefore, the broad question that this research
investigates is whether there is a differential impact of
advertising effectiveness on the brand loyalty of members
vs. non-members of a loyalty program. Understanding this
difference is important from the perspective of pursuing
different strategies for members (and non-members) of a
loyalty program. For example, Shoppers Stop, a leading
Journal of Marketing Theory and Practice, vol. 24, no. 4 (Fall 2016), pp. 462481.
2016 Taylor & Francis Group, LLC
ISSN: 10696679 (print) / ISSN 19447175 (online)
DOI: 10.1080/10696679.2016.1205450

Fall 2016 463

retailer of apparel and home furnishing in India, avers that
more than 70 percent of their sales come from members of
their loyalty program (Financial Chronicle 2015).
In order to address this gap, this study adopts the
quality-value-loyalty framework (Parasuraman and
Grewal 2000) and investigates the impact of advertising
effectiveness on loyalty. This framework is suited to this
investigation since it is one such framework that allows
us to incorporate drivers of loyalty in our investigation.
We theorize that the expectation-disconrmation paradigm, which has been widely used in explaining consumers evaluation of services, is suited to explaining the
phenomena of usage and outcome loyalty programs,
which is the context of the current investigation.
This research addresses the above-mentioned gap in
the literature and provides a better understanding of the
known ndings that advertising effectiveness and LP
membership both separately affect the two types of loyalty. This study investigates the role of LP membership as
a possible mediator between advertising effectiveness
and each of the two types of loyalty, and provides an
understanding of the underlying process by which
advertising effectiveness inuences attitudinal loyalty
and behavioral loyalty in the context of LP membership.
The objectives of this study are twofold: 1) to test
whether advertising effectiveness affects behavioral loyalty and attitudinal loyalty; and 2) to test the mediating
effect of membership (of a loyalty program) on the relationship between advertising effectiveness and loyalty

(behavioral and attitudinal). In order to address the objectives of the study, the authors analyze survey data collected by a major retailer of educational and
entertainment items in India, which is an emerging market experiencing high growth. There is a need for better
understanding of consumer behavior in emerging economies to enable companies to shape their strategies better.
Data from India allows us to obtain this understanding of
consumers from an emerging economy, and provides
insights on aspects that are similar to those in markets
in developed economies (e.g., the United States). The data
set allows us to examine the attitudinal and behavioral
loyalty of members as well as non-members of the LP
that the retailer offers. Findings indicate that LP membership plays a mediating role between advertising effectiveness and attitudinal loyalty, but not between advertising
effectiveness and behavioral loyalty. The rest of the article
is organized as follows. The proposed model and the
hypotheses are in the next section. The following sections delineate the data collection method and results.
The article concludes with a discussion on implications
for managers and for theory.

LITERATURE REVIEW AND HYPOTHESES

In order to address the stated objectives, this study
proposes and tests separate models based on Figure 1,
which is based on the quality-value-loyalty chain

Figure 1
Hypothesized Model

Notes: Model 1: Hypotheses H1 through H8; Model 2: Hypotheses H1 through H11 (Mediation Model.)

464 Journal of Marketing Theory and Practice

proposed by Parasuraman and Grewal (2000). This framework is consistent with previous works that attempt
to understand the drivers of customer loyalty
(Reichheld 1996). The gure includes each construct
and the hypothesized relationships discussed below.

Service Quality and Product Quality

Service quality plays a key role in achieving sustainable
competitive advantage in the marketplace, and superior product quality in itself is not sufcient when a
company is a retailer that has a wide range of products
as its core offerings (Berry 1999). The basis of this
argument is that it is much easier for competition to
imitate product quality than it is to imitate service
quality. Past research denes service quality as the service expectation of the customer vis--vis the actual
service performance of the seller (e.g., Gronroos
1982), and is based on the expectation conrmation/
disconrmation paradigm (Oliver 1977, 1980). In the
service quality literature, expectations are the desires
and wants of consumers, that is, what they feel what
a service provider should offer rather than would offer
(Parasuraman, Zeithaml, and Berry 1988). This denition of service quality assumes a cumulative assessment
on the part of the customers, such that they have
certain expectations from the service (i.e., expectations
may be conrmed/disconrmed only when there is
prior experience that is used for setting expectations)
(e.g., Yi and La 2003). Five dimensions of service quality
are reliability, responsiveness, assurance, empathy, and
tangibles (Parasuraman et al. 1988). Product quality in
the context of this study is dened as the product
assortment that is carried by the store. This denition
is identied for this study, since the performance of the
store is related to the extent of assortment of products
carried by a store (Simonson 1999). Product assortment
has a positive relationship with store-level sales (Borle,
Boatwright, Kadane et al. 2005).

Brand Equity
Brand equity has been dened in several ways in extant
literature. Some studies dene brand equity as perceptual or psychological measures of the brand (Keller
1993; Park and Srinivasan 1994; Yoo and Donthu
2001). Brand equity is also the subjective appraisal of a
customers brand choice, and is the value added to a

product or service as a result of prior investments in the

marketing mix (Keller 1993). One of the most accepted
and widely used denitions of brand equity is that provided by Aaker (1996), where the construct is conceptualized as consisting of ve dimensions: brand loyalty,
perceived quality, associations, awareness, and market
behavior. Extant literature acknowledges that there is
no single accepted measure for brand equity, and
researchers have often used any one or a combination
of the above-mentioned ve dimensions in their studies to operationalize it (Agarwal and Rao 1996). In our
study, we include the dimensions of perceived quality
and associations as constituting brand equity. (Note that
in our study, brand equity is that of a store brand. Since
the study is carried out on existing customers, the issue
of awareness is not applicable. Second, brand loyalty is
separately operationalized as attitudinal and behavioral
loyalty. Third, it is difcult to obtain data on market
behavior of the brand).
Extant literature suggests that if customers judge a
particular brand as strong, unique, and desirable, they
experience high brand equity (Verhoef, Langerak, and
Donkers 2007). Literature also suggests that higher
level of service quality positively affects customer satisfaction (Brady and Cronin 2001). Greater satisfaction
enhances brand equity (Johnson, Hermann and Huber
2006). Therefore, we hypothesize that:
H1: A higher level of service quality leads to greater
brand equity.
Product quality affects brand equity (e.g., Baumgarth
and Binckebanck 2011). In the context of a retailer,
product quality includes the range and the performance of the products. Product range or assortment
size refers to the width and depth in product variety,
where, width refers to the range of categories available,
and depth refers to the range of brands available in
each category (Baumol and Ide 1956). Assortment perceptions inuence store choice (Broniarczyk, Hoyer,
and McAlister 1998). Reduction in assortment negatively affects shopping frequency and purchase quantity (Borle, Boatwright, Kadane, Nunes, and Shmueli
2005), as some buyers are not able to nd their preferred item (Broniarczyk et al. 1998). Consumers prefer
large assortment sizes as their preferences may change
over time as a result of satiation (McAlister and
Pessemier 1982), or the need for stimulation (Menon
and Kahn 2002), prompting them to prefer a choice set

Fall 2016 465

that allows for variety-seeking behavior. Assortment
size inuences customer experience, which in turn
inuences loyalty (Mantrala, Levy, Kahn, Fox,
Gaidarev, Dankworth, and Shah 2009). Extant research
also nds that product quality has a positive impact on
brand equity (e.g., Herrmann, Huber, Shao and Bao
2007). Therefore, a higher level of product quality
leads to greater perceived brand equity.
H2: A higher level of product quality leads to greater
brand equity.

Perceived Value
Perceived value is a customers overall evaluation of what
he or she receives compared with what he or she gives
up or pays (Bolton and Drew 1991), and is the denition that we adopt for perceived value. Perceived value is
a broad construct that encompasses perceptions of
quality, given price, and inputs versus output relative
to the competition (Johnson, Hermann, and Huber
2006). Extant literature also demonstrates that brand
equity is positively related to perceived value (Baldauf,
Cravens, and Binder 2003). We extend this nding to
our study and expect that higher brand equity leads to
a greater value obtained, and hypothesize that:
H3: A higher level of brand equity leads to greater
perceived value obtained.

Attitudinal Loyalty and Behavioral Loyalty

Brand loyalty is categorized into behavioral loyalty and
attitudinal loyalty (Dick and Basu 1994) in extant literature. The behavioral approach puts a greater emphasis on
outcome than on the motivations or reasons of brand
purchase (Jacoby and Kyner 1973). Attitudinal loyalty on
the other hand focuses on the psychological explanations of the causes of brand loyalty (Aaker 1996). It is a
deeply held commitment to rebuy a product consistently
in the future despite situational inuences and marketing
efforts having the potential to cause switching behavior
(Oliver 1997). The presence of behavioral loyalty, in the
absence of attitudinal loyalty is often characterized as
spurious loyalty. Such loyalty may be a result of factors
like convenience or nonavailability of an alternative
(Hawkins and Vel 2013), and customers may switch to
an alternative when such an option becomes available.

On the other hand, the presence of attitudinal loyalty, in

the absence of behavioral loyalty is often referred to as
latent loyalty. This situation is one where the customer
may hold the brand in high esteem, or may have an
emotional attachment with the brand, but does not purchase the brand. Therefore, one notes that the presence
of both types of loyalty is necessary for true loyalty to exist
(Dick and Basu 1994). Focusing on one and not on the
other may result in short-term success for the brand (e.g.,
when only behavioral loyalty exists), or may result in loss
of growth opportunities (e.g., when only attitudinal loyalty exists). Hence, companies need to focus on both
types of loyalty, and we include and investigate both
dimensions of loyalty in our study.
Consumers constantly seek value in their exchange
relationship with brands (e.g., Agustin and Singh
2005). Extant literature demonstrates that greater perceived value leads to greater attitudinal and behavioral
loyalty (e.g., Kuikka and Laukkanen 2012). Specically
in the context of green marketing extant research
demonstrates that perceived value has a positive
impact on loyalty (e.g., Koller, Floh and Zauner 2011).
Further, in a meta-analysis of the antecedents and consequences of customer loyalty, Pan and Xie (2008) nd
that the impact of perceived value on attitudinal loyalty
and behavioral loyalty are similar. The two distinct
dimensions of loyalty in literature necessitate the measuring of the effect of perceived value on both behavioral and attitudinal loyalty. Drawing from extant
literature, we offer the following hypotheses:
H4: A higher level of perceived value leads to greater
behavioral loyalty.
H5: A higher level of perceived value leads to greater
attitudinal loyalty.

Advertising Effectiveness
Advertising is a strategy, which helps in retaining loyal
customers (Agrawal 1996), as well as in attracting new
customers (e.g., Donius and von Gonten 1997). Most
advertising is repetitive whose objective is to reinforce
existing behavior by building brand salience and create
top-of-the-mind awareness (Ehrenberg 2000). There is a
long history of studying the effectiveness of advertising, in the advertising and marketing literature (e.g.,
Lawrence, Fournier, and Brunel 2013; Petty, Cacioppo,
and Schumann 1983). Advertising effectiveness may

466 Journal of Marketing Theory and Practice

impact sales and prot (e.g., Arnold et al. 1987), and
purchase intention (e.g., Petty, Cacioppo, and
Schumann 1983). Advertising effectiveness is dened
(and hence measured) in a number of divergent ways.
For example, attitude toward the advertisement (Aad in
MacKenzie et al. 1986; Fortin and Dholakia 2005), liking for an advertisement, and communication effectiveness (Eisend, Plagemann, and Sollwedel 2014) are
accepted measures of advertising effectiveness. This
study measures the advertising effectiveness of the
store-level advertisements.
Advertising positively inuences attitudinal brand
loyalty by establishing source credibility, and by setting
up a predisposition for favorable usage experience
(Smith and Swinyard 1983). Advertising enables consumers to differentiate among brands by establishing
evaluative criteria, which facilitate purchase decisionmaking. Advertising, therefore, shapes attitudes of consumers, which are more enduring (Vakratsas and
Ambler 1999). Extant research demonstrates that
greater advertising effectiveness leads to greater brand
loyalty (e.g., Yang, Bi, and Zhou 2005). However, there
is a paucity of research on the impact of advertising
effectiveness on attitudinal loyalty and behavioral loyalty. We extend the above ndings to the two types of
loyalty considered in this study, and expect that a
greater level of advertising effectiveness positively
impacts each type of loyalty. Therefore, we hypothesize
that:
H6: A higher level of advertising effectiveness leads to
greater behavioral loyalty.
H7: A higher level of advertising effectiveness leads to
greater attitudinal loyalty.
Extant research reveals that there is a relationship
between attitudinal loyalty and behavioral loyalty
(Chaudhuri and Holbrook 2001). Several researchers
(e.g., DeWitt, Nguyen, and Marshall 2008) observe
that behavioral loyalty is an observable outcome of
attitudinal loyalty, and that they have a positive relationship. The product category in the context of which
this study is conducted includes educational and entertainment items offered by a store. Attitudinal loyalty
and behavioral loyalty are measured for the store (and
not for the products). Educational and entertainment
materials represent credence products (i.e., evaluation
about the product may not be possible even after consuming the product), and do not belong to the realm of

routine purchase. One expects consumers to not purchase such products out of habit that is, it is less
likely that customers purchase the same items from
the store on each visit, or frequently purchase from
the same store. In such a purchase context, attitudinal
loyalty is likely to lead to behavioral loyalty. (In the
case of a routinely purchased product, it is more likely
that behavioral loyalty leads to attitudinal loyalty.) The
above theoretical reasoning, suggests the following
hypothesis:
H8: A higher level of attitudinal loyalty leads to
greater behavioral loyalty.

Loyalty Program
A loyalty program is an integrated system of marketing
actions that aims to reward and encourage customers
behavior and attitude through incentives (Kang,
Alejandro, and Groza 2015). LPs reward customers on
the basis of their purchase history, thus stimulating
loyal behavior (Yi and Jeon 2003). Both LPs and advertising are long term in orientation (Sharp and Sharp
1997). LPs focus on holding on to existing customers
and getting more from them. LPs emphasize on
increasing the average purchase frequency and rewards
customers for consolidating their purchases, and for
reducing the size of their brand repertoires (Sharp and
Sharp 1997). These programs lock customers in
through the equity the customer builds in the program
due to accumulation of points (Ehrenberg, Hammond,
and Goodhardt 1994).
Figure 1 consists of two models (Model 1 and Model
2), where Model 1 tests hypotheses H1 through H8,
and Model 2 tests hypotheses H1 through H11 (discussed subsequently). H9 through H11 consist of
hypotheses about loyalty programs, and the effect the
membership to such programs have on customers. The
latter model is applicable only to members of a loyalty
program of a retailer.
Research nds that a consumers prior disposition is
an important moderator of ad response (Cacioppo and
Petty 1985). If the subject is a loyal user of the brand or
is familiar with it, the positive response to exposure is
likely to be higher. Research also suggests that advertising is more effective in increasing the volume purchased
by loyal buyers but less effective in winning new buyers
(Raj 1982). Consumers who have high loyalty increase
brand purchase when advertising effectiveness for that

Fall 2016 467

brand increases. At low loyalties there is little impact
(Raj 1982). Extending the above argument to members
of loyalty programs suggests that advertising effectiveness will signicantly affect the perception of the value
provided by the LP. In this study, members of the loyalty program should perceive greater value in the LP in
the context of increased advertising effectiveness:
H9: For members of a loyalty program, a higher level
of advertising effectiveness leads to an enhanced perception of the loyalty program.
Many loyalty programs have shown some success in
raising attitudinal loyalty as well as behavioral loyalty
(Daams, Gelderman and Schijns 2008). Some researchers nd that LPs reinforce purchase loyalty (Rothschild
and Gaidis 1981). We extend these ndings to our
study and hypothesize that:
H10: For members of a loyalty program, a higher level
of perception of the loyalty program leads to greater
behavioral loyalty.
H11: For members of a loyalty program, a higher level
of perception of the loyalty program leads to greater
attitudinal loyalty.

METHOD

ve to thirty minutes. Members as well as non-members of

the store loyalty program participate in the survey.
The nature of the loyalty program offered by the store is
such that it allows reward points that are redeemable for
merchandise. One point is given for each Rs. 100 (approximately USD 1.70) spent on merchandise. One point is
worth Rs. 1.25 (approximately USD 0.22). A consumer
can start redeeming after fty points accrue. The store
often runs advertisements to attract customers to their
stores. These advertisements appear in the English language newspapers (national) when the store runs nationwide campaigns. Other major forms of advertising
undertaken by the store are hoardings (that appear in the
vicinity of the malls where the stores are located), as well as
advertisements that appear inside the mall (e.g., on standees, near elevators). The advertisements underscore the
nature of the experience that customers may expect
once at the store.
This study collected a total of 479 surveys. Sixty four
(64) of these surveys could not be included due to
incomplete questionnaires, resulting in 415 usable
responses. The company did not offer any incentives
to the participants for their inputs. Participants were
between twenty-two and sixty-four years of age. Most
of them were males (59.04 percent). Post-hoc analyses
suggest that there were no differences in demographic
characteristics (gender and age) between those who
completed the survey and those who did not.

Data Collection
A major retailer of educational (e.g., books, stationery) and
entertainment items (e.g., educational toys, music, computer accessories) in India conducts a study to investigate
the role of a customer loyalty program in the context of
customer loyalty. A leading marketing research agency
collects the data from fourteen store outlets across nine
cities throughout the country. For collecting the required
data, research associates approach customers leaving the
stores after purchasing at least one item from the store.
This research follows the purposive sampling methodology in approaching customers, and one in every sixteen
customers agree to participate in the survey. The research
associates read the survey in the English language to the
participants and note their responses. All those who are
approached to participate in the survey are uent in
English (read, write, and speak). Every person who is
approached is asked to indicate his/her age and the gender
of the person is noted. Each survey (for those who agree to
participate in the survey) lasts for approximately twenty-

Survey Instrument and Measure Development

This study uses existing literature as the source of measure for all constructs dened in the theoretical model.
This study draws all questionnaire items from previous
studies, and the wordings are modied to t this study.
A summary of the list of questionnaire items (indicators) is in Table 1. Service quality is measured with items
adapted from the SERVQUAL scale. Specically, we
include all ve dimensions of service quality (reliability,
responsiveness, assurance, empathy, and tangibles)
(Parasuraman, Zeithaml, and Berry 1991) in the study.
However, we nd that the items on tangibles do not
load signicantly on the factor service quality, and is
therefore not included in any further discussion. A
reason for this nding could be the fact that this store
is located inside malls, where the data were collected,
and malls usually are visually appealing and have modern facilities compared to other outlets, and so, this
factor may not be as applicable as the other factors.

Behavioral Loyalty
Dick and Basu (1994)

Perceived Value
Bolton and Drew (1991) (Based on the definition
provided by the authors)
Advertising Effectiveness (Eisend, Plagemann, and
Sollwedel 2014; Fortin and Dholakia 2005)

Brand Equity
Aaker (1996) (Based on the authors
conceptualization of brand equity)

Product Quality
Simonson (1999)

Service Quality
Parasuraman, Zeithaml, and Berry (1988) (Based on
SERVQUAL)

Constructs

Items

(Continued )

Warm and friendly service

Knowledge of salesperson about the merchandise
To come across as genuine and believable
Understanding of your need
Availability of new arrivals
Availability of best sellers
Usefulness of categorization of books under various genres
Range of categories available
Range of titles available in each category
Physical condition of the book at the time of your purchase
I believe the store is one of the best brands in the industry.
The store is one I prefer over other stores.
The overall reputation of the store is excellent.
The store that really cares about its customers.
The store is the destination book and music store
The store provides an enjoyable shopping experience
The store is a professionally managed store.
The store is a dependable one.
Considering the quality of the products and services offered by the store, and the price that you pay for these
products and services, how would you rate the overall quality of the products and services in relation to their
price?
* From time to time the store comes out with various advertising campaigns and promotions. How would you rate
the quality of the advertising effectiveness and promotions, which are offered / organized by the store?
Please rate the following attributes with regard to the advertising effectiveness and promotions that the store offers
* Attractiveness of newspaper advertisements
* Attractiveness of hoardings
* Visibility of ad campaigns
* Ease of understanding message conveyed in advertisements
* Ability to keep customers informed about new schemes/eventsthrough advertisements
* What is the likelihood that you will continue shopping at the store?
* How likely is it that your frequency of shopping would increase at the store?

*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*

* Enthusiasm and helpfulness of the sales person

* Politeness and courtesy

Table 1
Measurement Items

468 Journal of Marketing Theory and Practice

* If a friend or a colleague were to ask you to recommend a shopping store, what is the likelihood that you would
recommend the store?
* How would you rate the overall quality of the loyalty program of the store?
Please rate the loyalty program on the following attributes
* Attractiveness of the reward points of the program to motivate you to buy more
* Ease of redemption of reward points earned
* Adequacy of schemes and offers for loyalty members
* Ability to communicate promotion offers, event information through emails and short messaging services (SMS)
* Ability to communicate new releases through emails
* Complaint resolution for loyalty program members
* Efforts to make you feel special because of being a loyalty program member

Items

Notes: All items were measured on a ve-point Likert scale, where 1 = Poor, 2 = Fair, 3 = Good, 4 = Very Good and 5 = Excellent.

Attitudinal Loyalty
Reichheld (1996)
Loyalty Program
Rothenberger, Grewal, and Iyer (2008)

Constructs

Table 1
(Continued)

Fall 2016 469

470 Journal of Marketing Theory and Practice

Product quality is measured with items that are based on
the discussion by Simonson (1999), specically incorporating the spread and depth of product assortment.
Brand equity is operationalized in terms of the two
dimensions of perceived quality and associations with
the brand, as per Aaker (1996). Perceived value is measured through a single item that is adapted from the
denition provided by Bolton and Drew (1991).
Advertising effectiveness is measured through items that
enhance ad liking (Eisend et al. 2014, 262).
Behavioral loyalty is measured with two items adapted
from the denition of behavioral loyalty provided by Dick
and Basu (1994), which tap into the likelihood of continuing to serve as patrons of a specic brand/product.
Attitudinal loyalty is measured through a single item that
is adapted from Reichheld (1996), which is often referred
to as the ultimate question that may be asked of customers in order to gauge the extent to which a customer is
likely to recommend a brand/product to a friend/associate.
We note that attitudinal loyalty is measured through a
single-item scale, which is widely accepted in academia
(Cheng 2011; Host and Knie-Andersen 2004; Mai and
Ness 1999). This item adequately captures a customers
intention to undertake word-of-mouth (WOM), and
often represents what is referred to as the customers Net
Promoter Score (NPS). On the general issue of the use of
single-item scale in models that are tested using PLS,
Ringle, Sarstedt and Straub (2012) in their assessment of
the state of the literature, note that in the top journals in
the Marketing domain (specically in Journal of Marketing,
Journal of Marketing Research, and Journal of the Academy of
Marketing Science), 51.22 percent of the studies included
their analysis qualify (see pp. vi).
Hence, we argue that this single item adequately
captures customers extent of attitudinal loyalty. The
construct loyalty program is the overall quality of the
program that customers are members of, and is measured through items that are adapted from existing
scales that measure the perception of the quality of
loyalty programs (Rothenberger, Grewal, and Iyer
2008).

members are not different (Tables 2a and 2b). This

study tests the two models through structural equations modeling (SEM) using the partial least squares
(PLS) procedure, using the Smart PLS 2.0 software
(Ringle, Wende, and Will 2005).
Several researchers indicate that PLS-SEM is a good
choice when the sample size is small (e.g., Chin and
Newsted 1999). The sample size requirements for
applying PLS-SEM indicate that the minimum sample
size should be ten times the maximum number of
arrowheads pointing to a latent variable anywhere in
the PLS path model (Hair, Ringle, and Sarstedt 2011).
In the models under consideration, the maximum
number of items measuring a latent construct is eight
(measuring Brand Equity). Therefore, the minimum
sample size requirement is eighty. S1 and S2 are at
least double the minimum sample size requirement.
The PLS procedure involves a two-step approach (Hair
et al. 2011): the measurement model and the structural
model.

MEASUREMENT MODELS
The item loadings of the constructs in the model are statistically signicant (see Table 3), and are well above the
recommended benchmark of 0.7, indicating item
Table 2A
Sample Characteristics: Gender and Membership Status
Membership Status
Member
Gender

144
99
243
(df): 0.496

101
71
172
(1); not significant

Total
245
170
415

Table 2B
Sample Characteristics: Age and Membership Status
Membership Status

RESULTS
The authors divide the overall sample into two subsamples: S1 (n1 = 172) consists of customers who are not
members of the loyalty program, and S2 (n2 = 243) are
customers who are members of the loyalty program.
Demographic characteristics across members and non-

Male
Female
Total
Chi Square

Non-Member

Member
Age

Non-Member

18-35 Years
134
106
> 35 Years
109
66
Total
243
172
Chi Square (df): 0.112 (1); not significant

Total
240
175
415

Fall 2016 471

reliability (Hulland 1999). The ndings indicate that none
of the items load higher than 0.5 on any construct other
than the intended one, providing evidence that each item
loads only on the theorized construct. Extant research
guidelines treat average variance extracted (AVE) above
0.5 for each construct as an indication of convergent validity (Fornell and Larcker 1981). This use of CR and AVE
emanates from the two-step procedure recommended in
Anderson and Gerbing (1988). An AVE of greater than 0.50
indicates high validity of both the construct and the individual variables (Bagozzi 1991). The tests also achieve a
composite reliability above the 0.70 threshold and an
AVE above the 0.50 threshold (Hair et al. 1998).
The AVE empirically assesses discriminant validity
(i.e., the degree to which items of constructs are distinct). The criterion to examine discriminant validity is
to check whether the square root of the AVE exceeds
the correlation between every pair of latent variables
(Tables 4a, 4b, 4c). The tests establish discriminant
validity if all constructs have an AVE of at least 0.50
(Fornell and Larcker 1981), which this study achieves.
This research achieves item reliability, convergent, and
discriminant validity for all constructs across the three
tests of the two models.
Comparison of data across two groups offers advantages. However, we need to establish the comparability or
invariance of variance across the two groups (Henseler,
Ringle, and Sarstedt 2015), which we undertake using
multigroup analysis procedure in PLS (Smart PLS 3). We
compare the measurement model for Model1 for the two
samples S1 and S2 (in order to compare the heterogeneity
in the structural model). Specically, we compare the AVE
matrices and nd that the Welch-Satterthwait test suggests
that p-values for all constructs (except one construct,
Service Personnel) are not signicantly different across the
two groups (Table 5). We also nd that there is no signicant difference between the R2 values of the endogenous
variables (Table 5). We establish that the variance structures across the two groups are similar. Therefore, we
demonstrate that pooling data across the two groups is
valid.
When a study collects the dependent and the independent variables from the same source, common
method bias may be a potential concern. Harmans
one-factor test (Podsakoff, Mackenzie, and Podsakoff
2003) nds out whether no single factor emerges, or
whether a single factor explains the majority of the
variance. Five factors emerge for S1 (Model 1), ve for

S2 (Model 1), and six for S2 (Model 2). In each of the

three cases, a single factor accounts for a maximum
variance of 35.5 percent, 33.2 percent, and 29.8 percent. These results suggest that common method bias is
probably not a problem with the data set. However,
some researchers contest Harmans one-factor test for
its ability to detect common methods bias (Podsakoff
et al. 2003). In another test (Pavlou et al. 2007), an
examination of the construct correlation matrix (as
calculated by PLS, and reported in Tables 3a, 3b, and
3c) determine whether any constructs correlate extremely highly (more than .90). In this study, none of the
constructs are so highly correlated. This nding likewise indicates that common methods bias is not a
problem.

STRUCTURAL MODELS
After conrming the validity and the reliability of the
measurement model, this study tests the conceptual
models (Figure 1). Table 6 reports the path coefcients
and the associated R2. The results provide several interesting ndings. For customers who are not members of
the loyalty program (Model 1, S1), this study nds
support for all hypotheses except H6 and H7. This nding demonstrates that advertising effectiveness has no
signicant impact on either attitudinal loyalty or behavioral loyalty for customers that are not members of the
loyalty program. R2 for Brand Equity, Perceived Value,
Behavioral Loyalty, and Attitudinal Loyalty are 22.4 percent, 11.5 percent, 58.3 percent, and 10.5 percent,
respectively.
For customers who are members of the loyalty program (Model 1, S2), study results provide support for all
hypotheses except H6. R2 for Brand Equity, Perceived
Value, Behavioral Loyalty, and Attitudinal Loyalty for
the loyalty members are 31.7 percent, 16.8 percent,
58.2 percent, and 11.8 percent, respectively. This nding demonstrates that advertising effectiveness has a signicant impact on attitudinal loyalty but not on
behavioral loyalty for customers that are members of the
loyalty program. [Note that the effect of Advertising
Effectiveness on Attitudinal Loyalty is signicant (H7),
when tests do not include the mediator (i.e., Loyalty
Program) in the analysis (Model 2, S2)].
Therefore, the difference between the members and
non-members of the store loyalty program is that advertising effectiveness has a signicant impact on attitudinal

Service Quality
ServQ1
ServQ2
ServQ3
ServQ4
ServQ5
ServQ6
Product Quality
PRQ1
PRQ2
PRQ3
PRQ4
PRQ5
PRQ6
Brand Equity
BrandEq1
BrandEq2
BrandEq3
BrandEq4
BrandEq5
BrandEq6
BrandEq7
BrandEq8
Advertising Effectiveness
Adv1
Adv2
Adv3
Adv4
Adv5
Adv6

Construct and
Indicators

0.96 (0.94) 0.78

0.92 (0.90) 0.59

0.96 (0.95) 0.80

3.2
3.2
3.2
3.3
3.1
3.2
3.1
3.6
3.5
3.6
3.6
3.6
3.5
3.6
4.0
4.1
3.9
4.1
3.9
4.0
4.0
4.0
4.0
3.8
3.8
3.9
3.9
3.8
3.8
3.8

0.80
0.85
0.82
0.76
0.82
0.74
0.78
0.73
0.73
0.69
0.77
0.73
0.78
0.69
0.54
0.52
0.59
0.51
0.61
0.54
0.48
0.57
0.50
0.73
0.68
0.74
0.70
0.80
0.69
0.76

Model 1 (S1)

0.83
0.90
0.90
0.88
0.90
0.90

0.74
0.79
0.70
0.79
0.81
0.75
0.83
0.75

0.87
0.91
0.92
0.94
0.89
0.82

0.89
0.92
0.88
0.89
0.87
0.89

Std.
AVE Mean Dev Load

0.96 (0.95) 0.79

CR

7.85
8.52
7.05
7.26
6.79
6.97

9.74
11.56
6.83
14.29
18.64
9.81
13.89
8.60

28.01
41.59
60.83
72.44
40.90
17.90

24.77
32.05
24.72
25.73
26.26
26.14

t-val

0.95 (0.93) 0.75

0.93 (0.91) 0.62

0.95 (0.94) 0.76

Std.
Dev

3.7
3.8
3.9
3.8
3.7
3.7
3.6
3.9
3.9
3.9
3.8
3.8
3.8
3.8
4.1
4.1
4.0
4.1
4.1
4.1
4.1
4.1
4.0
3.8
3.7
3.9
3.8
3.9
3.8
3.8

0.81
0.86
0.80
0.78
0.87
0.73
0.80
0.73
0.74
0.70
0.75
0.75
0.71
0.76
0.63
0.61
0.69
0.61
0.66
0.65
0.62
0.61
0.60
0.89
0.88
0.87
0.88
0.94
0.85
0.89

Model 1 (S2)

AVE Mean

0.93 (0.92) 0.70

CR

0.81
0.90
0.88
0.87
0.88
0.85

0.82
0.79
0.80
0.77
0.77
0.79
0.79
0.79

0.83
0.89
0.87
0.92
0.91
0.82

0.85
0.84
0.83
0.86
0.80
0.85

Load

16.96
21.85
21.24
16.27
17.95
14.55

28.36
24.50
27.11
21.23
23.07
16.74
28.32
23.37

25.35
32.48
35.19
79.32
64.88
23.54

42.13
37.05
36.63
46.10
28.18
38.82

t-val

0.95 (0.93) 0.75

0.93 (0.91) 0.62

0.95 (0.94) 0.76

3.7
3.8
3.9
3.8
3.7
3.7
3.6
3.9
3.9
3.9
3.8
3.8
3.8
3.8
4.1
4.1
4.0
4.1
4.1
4.1
4.1
4.1
4.0
3.8
3.7
3.9
3.8
3.9
3.8
3.7

0.81
0.86
0.80
0.78
0.87
0.73
0.80
0.73
0.74
0.70
0.75
0.75
0.71
0.76
0.63
0.61
0.69
0.61
0.66
0.65
0.62
0.61
0.60
0.89
0.88
0.87
0.88
0.94
0.85
0.89

Model 2 (S2)

21.26
25.62
24.92
26.28
30.75
22.73

28.40
24.53
26.72
21.06
23.17
17.05
28.15
23.64

25.32
32.11
35.48
78.42
66.35
22.90

40.75
37.92
36.41
45.04
28.40
38.37

t-val

(Continued )

0.82
0.88
0.87
0.88
0.89
0.87

0.82
0.79
0.80
0.77
0.77
0.76
0.80
0.79

0.83
0.89
0.87
0.92
0.91
0.82

0.85
0.84
0.83
0.86
0.80
0.85

Std.
AVE Mean Dev Load

0.93 (0.92) 0.70

CR

Table 3
Properties of the Measurement Model (CFA) (Scale Items with Convergent Validity Statistics)

472 Journal of Marketing Theory and Practice

0.89 (0.87) 0.79

4.1
4.1
3.7

t-val

CR

Std.
Dev

4.25
4.30
4.06

0.73
0.71
0.78

Model 1 (S2)

AVE Mean

0.67
0.91 (0.90) 0.84
0.69 0.94 110.68
0.77 0.84 27.00

Model 1 (S1)

Std.
AVE Mean Dev Load
t-val

0.91 102.97
0.92 50.26

Load

0.94 (0.93) 0.68

4.2
4.3
4.1
3.7
3.9
3.7
3.8
3.7
3.7
3.6
3.8
3.6

0.73
0.71
0.78
0.86
0.82
0.81
0.79
0.84
0.91
0.92
0.87
0.94

Model 2 (S2)

t-val

0.80
0.88
0.85
0.87
0.80
0.81
0.79
0.79

16.58
32.82
29.46
28.43
16.12
16.92
17.98
19.11

0.93 107.49
0.90 49.30

Std.
AVE Mean Dev Load

0.91 (0.90) 0.84

CR

Notes: The measurement items/questions refer to Table 1. AVE = Average Variance Explained CR = Composite Reliability Perceived Value and Attitudinal Loyalty are not included as
these constructs are measured via single items. Loyalty Program is not included in Model 1. S1 = Customers who are not members of the loyalty program S2 = Customers who are
members of the loyalty program

Behavioral Loyalty
BehavLoy1
BehavLoy2
Loyalty Program
LoyalProg1
LoyalProg2
LoyalProg3
LoyalProg4
LoyalProg5
LoyalProg6
LoyalProg7
LoyalProg8

Construct and
Indicators

CR

Table 3
(Continued)

Fall 2016 473

474 Journal of Marketing Theory and Practice

loyalty for only the members (there is no impact of
advertising effectiveness on behavioral loyalty for either
group).
Model 2 tests the mediating effect of Loyalty
Program on the effect of Advertising Effectiveness on
Behavioral Loyalty and Attitudinal Loyalty for only members of the loyalty program (S2). Testing this mediation model, we nd support for H1 to H5, H8, H9, and
H11. Similar to the ndings for Model 1 (Groups S1
and S2), H6 is not signicant (i.e., advertising effectiveness does not signicantly impact behavioral loyalty).
The effect of Loyalty Program on Behavioral Loyalty is
not signicant (H10).
Study ndings indicate that the effect of Advertising
Effectiveness on Loyalty Program is signicant (H9), the
effect of Loyalty Program on Attitudinal Loyalty is signicant (H11), and the effect of Advertising Effectiveness
on Attitudinal Loyalty is not signicant (H7). The indirect effect of Advertising Effectiveness on Attitudinal
Loyalty is signicant as per the Sobel Test (see
Figure 2). R2 for Brand Equity, Perceived Value,
Behavioral Loyalty, and Attitudinal Loyalty for the mediation model are 31.7 percent, 16.8 percent, 58.1 percent, and 14.0 percent, respectively. Study ndings
provide support for the hypothesis that Loyalty
Program
mediates
the
relationship
between
Advertising Effectiveness and Attitudinal Loyalty.
However, ndings indicate that Loyalty Program does
not mediate the relationship between Advertising
Effectiveness and Behavioral Loyalty.

DISCUSSION AND CONCLUSION

This article uses the quality-value-loyalty framework
(Parasuraman and Grewal 2000), and investigates the
role of LP membership in the context of advertising
effectiveness on two types of loyalty (behavioral and
attitudinal). Examining Model 1 (for members and
non-members), we nd that advertising effectiveness signicantly impacts attitudinal loyalty in the context of
LP membership (Group S2), while there is no signicant impact in the context of non-membership (Group
S1) of the LP. We also nd that loyalty program membership mediates the relationship between advertising effectiveness and attitudinal loyalty, but not behavioral loyalty
(Model 2).
For Model 1, ndings indicate that R2 for brand equity
for members (.317) is greater as compared to that for
non-members (.224). We also note that for members,
the relationship between service quality and brand equity
(.47) is stronger than the relationship between product
quality and brand equity (.19), which indicates that the
quality of service provided is more important than the
product assortment for members of the loyalty program. This nding supports the general nding in the
services marketing literature that service quality is an
important factor in contributing towards sustainable
competitive advantage, and that product quality by
itself is not sufcient (e.g., Berry 1999). Such a nding
lends credibility to our article, providing condence in
the other ndings reported here. For the non-members,

Figure 2
Mediation Analysis

= .15 (S.E= 0.05); (t=2.08; p < .05)* (Model 3)

= .19 (S.E=0.06); (t=2.35; p < .05)** (Model 3)

Loyalty Program

= .17; (t=2.35; p < .05)** (Model 2)

Attitudinal
Loyalty

Advertising
Effectiveness
= .14; (t=1.92; p > .05) (Model 3)
Sobel Test: z = 2.77; p < .05

Fall 2016 475

the nding is the opposite, where, product quality (.30)
is more important than service quality (.24). This nding
indicates that in order to attract new customers to the
store (or, to attract customers who are not members of
the loyalty program), the store needs to pay more
attention to the product assortment, and service quality is not sufcient.
We also nd that brand equity has a stronger relationship with perceived value for the members (.41) than for
the non-members (.34).
The mediation model (Model 2) provides an
improved R2 for Attitudinal Loyalty (.14). For Model 1,
a comparison of the ndings for non-members of the
loyalty program (S1) and that for the members of the
loyalty program (S2), indicate that advertising effectiveness has a signicant impact on customers attitudinal
loyalty (H7) only for the members. A possible reason for

this nding may be that members identify more with

the store/brand than non-members.
For Model 1, there is no support for H6 across members (S2) or non-members (S1). A possible reason for
this nding could be that advertising effectiveness does
not directly impact behavioral loyalty, but its impact
on behavior is mediated through attitudinal loyalty.
(Note that the relationship between Advertising
Effectiveness and Behavioral Loyalty is not signicant in
Model 1, for loyalty program members, that is S2, and
so the study does not test for a mediation effect of
Loyalty Program on the relationship between
Advertising Effectiveness and Behavioral Loyalty).
We note that the use of data from India has its
possible strengths as well as associated caveats. In
terms of strength, such a sample contributes to the
growing evidence from large emerging economies.

Table 4A
Discriminant Validity Statistics
Model 1, S1
Advertising
Effectiveness
Attitudinal Loyalty
Behavioral Loyalty
Brand Equity
Product Quality
Service Quality
Perceived Value

Advertising
Effectiveness

Att.
Loyalty

Beh.
Loyalty

Brand
Equity

Product
Quality

Service
Quality

Perceived
Value

1.00
0.78
0.57
0.37
0.23
0.31

0.89
0.55
0.46
0.33
0.36

0.77
0.42
0.39
0.34

0.90
0.49
0.32

0.89
0.28

1.00

0.88
0.14
0.10
0.20
0.18
0.26
0.13

Notes: All correlations are signicant (p < 0.05).

Square root of AVE in the diagonal; Intercorrelations in the other cells.

Table 4B
Discriminant Validity Statistics
Model 1, S2
Advertising
Effectiveness
Attitudinal Loyalty
Behavioral Loyalty
Brand Equity
Product Quality
Service Quality
Perceived Value

Advertising
Effectiveness

Att.
Loyalty

Beh.
Loyalty

Brand
Equity

Product
Quality

Service
Quality

Perceived
Value

1.00
0.75
0.53
0.33
0.35
0.30

0.92
0.54
0.40
0.29
0.35

0.79
0.36
0.54
0.41

0.87
0.37
0.34

0.84
0.35

1.00

0.87
0.20
0.19
0.13
0.20
0.09
0.13

Notes: All correlations are signicant (p < 0.05).

Square root of AVE in the diagonal; Intercorrelations in the other cells.

476 Journal of Marketing Theory and Practice

Table 4C
Discriminant Validity Statistics
Advertising
Effectiveness

Model 2, S2
Advertising
Effectiveness
Attitudinal Loyalty
Behavioral Loyalty
Brand Equity
Loyalty Program
Product Quality
Service Quality
Perceived Value

Att.
Loyalty

Beh.
Loyalty

Brand
Equity

Loyalty
Program

Product
Quality

Service
Quality

Perceived
Value

1.00
0.75
0.53
0.24
0.33
0.35
0.30

0.92
0.54
0.21
0.40
0.29
0.35

0.79
0.32
0.36
0.54
0.41

0.82
0.24
0.31
0.26

0.87
0.37
0.34

0.84
0.34

1.00

0.87
0.20
0.18
0.13
0.19
0.20
0.09
0.13

Notes: All correlations are signicant (p < 0.05)

Square root of AVE in the diagonal; Intercorrelations in the other cells.

Table 5
Test of Invariance (Members vs. Non-Members): AVE and R2
R2

AVE

Advertising
Att. Loyalty
Beh. Loyalty
Brand Equity
Product
Quality
Service
Personnel
Value

Diff
(Members vs.
Non-Members)

t-Value
(Members vs.
Non-Members)

p-Value
(Members vs.
Non-Members)

Diff
(Members vs.
Non-Members)

t-Value
(Members vs.
Non-Members)

p-Value
(Members vs.
Non-Members)

0.032
0.000
0.040
0.023
0.036

0.325
0.881
1.125
0.328
0.929

0.746
0.379
0.262
0.743
0.354

0.013
0.001
0.093

0.220
0.013
1.036

0.826
0.990
0.301

0.089

2.315

0.022

0.000

0.288

0.774

0.053

0.766

0.445

Note: Results for Welch-Satterthwait test of differences in AVE and R for Model 1 (S2 vs. S1).

Note that many of the ndings reported in the article

agree with extant research (e.g., H1, H2, H3, H4, and
H5). These ndings provide us with condence that
ndings from this population are similar to that from
those reported in literature. In terms of caveats, though
the possibility is low, there remains some probability
that ndings reported from different population are
indeed very different.

Managerial Implications
This study has several implications for managers. First,
the role of the Loyalty Program in mediating the

relationship between Advertising Effectiveness and

Attitudinal Loyalty, underscores the need for managers
to use the loyalty program as a brand-building instrument. Managers should use a loyalty program as a strategic instrument to induce attitudinal loyalty, which has
a positive relationship with behavioral loyalty.
Second, note that the Service Quality Brand Equity
path has a greater (lesser) beta coefcient for members
(non-members) of the loyalty program (H1, Model 1),
and Quality of Product Brand Equity path has a greater
(lesser) beta coefcient for non-members (members) of
the loyalty program (H2, Model 1). These ndings indicate that customers who are not members of the loyalty

Fall 2016 477

Table 6
Coefficients Reported for the Models

Effects

Model 1, S1
(Support for
Hypotheses: Y/N)

Model 1, S2
(Support for
Hypotheses:
Y/N)

Model 2, S2
(Support for
Hypotheses:
Y/N)

(22.4%)
0.24** (Y)
0.30***(Y)
(11.5%)

(31.7%)
0.47***(Y)
0.19**(Y)
(16.8%)

(31.7%)
0.47***(Y)
0.19**(Y)
(16.8%)

Brand Equity

0.34***(Y)
(58.3%)

0.41***(Y)
(58.2%)

0.41***(Y)
(58.1%)

H3(+)

Perceived Value
Advertising
Effectiveness
Attitudinal Loyalty
Loyalty Program

0.14***(Y)
0.01n.s. (N)

0.27***(Y)
0.03n.s. (N)

0.13**(Y)
0.03n.s. (N)

H4(+)
H6(+)

0.71***(Y)

(10.5%)

0.71***(Y)

(11.8%)

0.71***(Y)
0.00n.s. (N)
(14.0%)

H8(+)
H10(+)

Perceived Value
Advertising
Effectiveness
Loyalty Program

0.30***(Y)
0.10n.s. (N)

0.28***(Y)
0.17**(Y)

0.24***(Y)
0.14n.s. (N)

H5(+)
H7 (+)

0.15*(Y)
(4.0%)

H11(+)

Advertising
Effectiveness

0.19**(Y)

H9(+)

Originally Hypothesized
Relationships

Causes

Brand Equity
Service Quality
Product Quality
Perceived
Value
Behavioral
Loyalty

Attitudinal
Loyalty

Loyalty
Program

H1(+)
H2(+)

Notes: * p < 0.05; ** p < 0.01; *** p < 0.001; n.s. = Not Signicant. Empty cells indicate that those variables are not included in the model tested.
R2 values are presented as percentages in parentheses.
Y = Support obtained for hypothesis. N = Support not obtained for hypothesis.+ = The hypothesized direction of the relationships that are
tested. Model 2 tests a mediation model. S1 = Customers who are not members of the stores loyalty program. S2 = Customers who are members of
the stores loyalty program.

program are attracted to the store largely due to the

product variety that the store has to offer. The members of the loyalty program, however, nd the encounters with the service personnel more important.
Managers need to leverage all opportunities to interact
with members of the loyalty program. Store managers
should try to personalize the experience for the member, be it in-store or outside the store (e.g., store website, online communication), as such measures are
likely to increase the perceived brand equity.
Third, managers need to note that since loyalty program membership positively affects attitudinal loyalty,
members may engage more in word-of-mouth (WOM).
WOM is more believable as it is personal, timely, and
comes from credible sources. Hence, it can positively

inuence purchase decisions of other customers.

Marketers can also benet from analyzing WOM in
online communities as it can give insights into consumer behavior, which can improve the effectiveness of
the marketing mix (Casal, Flavin, and Guinalu 2008;
Pitta and Fowler 2005). Such a nding has implications
for managing online communities that loyalty program
members may frequent. The importance of online
WOM is continuously increasing for marketers since
these user comments or user-generated content can be
analyzed for obtaining valuable consumer information
(Casal et al. 2008), including members likes, dislikes,
needs, behaviors, or concerns about those websites (Pitta
and Fowler 2005). Given the ongoing shift from traditional brick and mortar stores to Internet-based

478 Journal of Marketing Theory and Practice

marketing alternatives, where businesses pursue the
objective of enhancing user participation across a variety
of virtual communities, this investigation provides
insights on the importance of meaningfully engaging
on a continuous basis with a brands loyalty program
members.
Fourth, this nding essentially means that upon
exposure to related and effective advertising, loyalty
program members are reminded of the benets that
the loyalty program offers, but that advertising effectiveness in itself is not sufcient for inducing purchase
behavior, though it induces attitudinal loyalty.
Not all customers of a store automatically become members of a rms loyalty program (Leenheer, Heerde, and
Smidts 2007). Only when customers see long-term relationships resulting from repeated engagements are they
likely to become loyalty program members. The store
needs to pay attention to both segments as sometimes
customers may patronize a store but not become loyalty
program members, as they may not see a substantial benet in terms of reward points (Keh and Lee 2006). The
members become more receptive to stores advertising as
compared to non-members as they have some stake in the
store.
Loyalty program members and non-members are
likely to constitute separate consumer segments.
While research suggests that loyal consumers are more
protable, rms need to cater to the needs and therefore, create satised customers in both segments.
Addressing the needs of loyal consumers should not
necessarily alienate non-loyal consumers (and vice a
versa), but if there are competing needs that are displayed by the two segments, catering to the needs to
the two segments could potentially be an issue.
Effective advertising may not be enough to motivate
customers to purchase, but it deepens the bond loyalty
program members have with the store. Instead of looking only at the direct effect of a loyalty program on
brand loyalty, rms must also see the loyalty program
as indirectly inuencing brand loyalty through advertising. Consistent with previous research, this study
also found that brand equity inuences perceived
value. Consumers become less price-sensitive if they
consider the brand as having high equity.
The splitting of loyalty into attitudinal and behavioral
loyalty sheds light on the relative impact of a loyalty program on the two aspects of loyalty (Dick and Basu 1994).
The study nds that the Indian market is similar to

developed markets in terms of the effect of the loyalty

program on brand loyalty. The loyalty program did not
inuence behavioral loyalty; instead, it inuenced attitudinal loyalty.

Theoretical Implications
The present study contributes to the marketing literature
in the following ways: First, this study helps in understanding the nding that advertising effectiveness affects
attitudinal loyalty. Mediation analyses investigates the
underlying process by which advertising effectiveness
inuences attitudinal loyalty, and nds that the loyalty
program plays an important role in governing the relationship between advertising effectiveness and attitudinal loyalty. The ndings indicate partial mediation, which means
that the loyalty program accounts for some, but not all, of
the variance explaining the relationship between advertising effectiveness and attitudinal loyalty. These ndings
imply that there is not only a signicant relationship
between the loyalty program and attitudinal loyalty but
also some direct relationship between advertising effectiveness and attitudinal loyalty. Second, this study investigates the impact of advertising effectiveness on
behavioral loyalty. These ndings suggest that advertising
effectiveness does not affect behavioral loyalty. Perhaps,
positive perception of a brands advertising (i.e., higher
advertising effectiveness), is not sufcient to induce purchase behavior. Third, this study measures the effect of
advertisings effectiveness on both loyalty program members and non-members. These ndings show that advertising effectiveness affects loyalty of only LP members,
probably due to long-term association with the brand.

Research Limitations and Future Investigations

This study investigates the relationship between advertising effectiveness and loyalty (attitudinal and behavioral) in
the context of a single product category. Future studies
may investigate the question in the context of other product categories. This study is based on survey data alone.
Future research can measure the impact of advertising
effectiveness on loyalty based on behavioral data such as
increase in purchase frequency and increase in dollar
amount to more accurately establish the cause-and-effect
relationship between advertising effectiveness and loyalty.

Fall 2016 479

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