Effects of Employee Engagement and Empowerment on Initial and Longitudinal Customer Loyalty

Effects of employee engagement and empowerment on initial and longitudinal customer loyalty

Jessica Schwec

HMG 6586

December 12, 2015

Note: Highlighted text is an executable cross-reference.

ABSTRACT

Purpose

The truth of the matter is that why a particular loyalty program succeeds or fails in not deeply understood. Often, the assumption is that frontline employees are unable or unwilling to push the program at every guest interaction. The purpose of this research proposal is to bring to light the need for understanding the relationship between employee engagement and empowerment and customer loyalty. The proposed research would begin work to identify specific, measurable components that affect initial and longitudinal participation in a corporate loyalty program. Research will be limited to the effect of employee engagement and empowerment on loyalty participation.

Design and Methodology

Measuring Engagement, Empowerment and Loyalty

· Three different questionnaires will be used in the course of the proposed research. Each questionnaire will measure one aspect of the equation explored in the research.

o The first questionnaire will measure employee engagement (Appendix A) and consists of two sections. The first section consists of six sub-sections: training, empowerment, rewards, vigor, dedication and absorption. This section will be completed by the associate. The second section of the survey consists of two sub-sections: Job Performance and Extra-Role Customer Service. This section will be completed by the associate’s immediate Supervisor.

o The second questionnaire will measure employee empowerment and will focus on four aspects supported by previous research to define empowerment: Meaning, Competence, Self-Determination and Impact (Spreitzer 1995) (Appendix B). This questionnaire will be completed by the associate.

o The third questionnaire will measure customer satisfaction and loyalty (Appendix C). This questionnaire will be filled out by guests who recently stayed at the target location and are members of the loyalty program.

· All of the questionnaires will be answered by their respective parties by utilizing an Agreement Scale to answer each of the questions. The following scale will be used: Highly Disagree (HD), Disagree (D), Neutral (N), Agree (A), Highly Agree (HA). The researcher will convert the Agreement Scale to a Numeric Scale for scoring so that the following relationship is true:

ß---HD------D------N------A------HA---à

is the same as

ß----1------2------3------4------5----à

Then, the research will compute the average score for each statement. Finally, the researcher will add the average score for each statement. The final number will refer to the level of engagement/empowerment/loyalty experienced by associate/guest at the property being studied. Only surveys that are 100% complete will be considered.

o The outcomes will range from the lowest possible score of engagement/empowerment/loyalty level 1 to the highest possible score of engagement/empowerment/loyalty level 5. It is unlikely that any of the properties being studied will receive a 1 or 5 as a final score. If the numerical scores are translated into a familiar grading scale, such as the A through F scale used in schools, it becomes clear that the researcher should expect that of all the properties included the study 2% will score an A, 14% will score a B, 68% will score a C, 14% will score a D, and 2% will score an F(Appendix D).

Hypothesis and Expected Findings

The proposed research hypothesizes, based on literature review, that firms boasting engaged and empowered employees initially convert a larger quantity of newly acquired customers to loyalty program participants. Additionally, the proposed research makes a second hypothesis that the same firms retain a larger portion of loyalty program participants over time than their unengaged and un-empowered counterparts.

The proposed research is expected to find a positive correlation between employee engagement and empowerment and loyalty program participation.

Research Implications and Limitations

Implications

The proposed research is intended to produce results that can be generalized to most common stand-alone loyalty program models. The results are expected to assist corporate-level executives in developing a profitable organizational culture that produces value for both the customer and the firm. Additionally, the results are expected to assist property-level management tasked with nurturing an organizational culture that maximizes customer loyalty.

Primary Limitations

· Does not evaluate any multi-vendor loyalty programs

· Assumes that all of a firm’s employees are either engaged and empowered or not engaged nor empowered at all.

· Does not consider individual or generational differences that may effect employee engagement not does it consider how different management styles may effect employee empowerment.

Suggestions for Further Research

Suggestions for further research primarily encourage research that addresses the limitations contained in the current research. One avenue for future research is to study multi-vendor loyalty programs such as Choice Hotels, Marriot Rewards and the new phenomenon called Plenti. Research that explores this area would lay the ground work for a comparison between stand-alone and multi-vendor loyalty programs and their respective affects on associate empowerment and engagement.

Another suggestion for further research would be to study the differences in levels of associate engagement and empowerment experienced by different associate groups. For example, one study could focus on the levels experienced by associates of different age groups or generations. Another could study the levels experienced by associates of different cultural backgrounds.

Still a third recommendation for further research would be to study the affect of different management styles on overall associate engagement and empowerment.

Expected Practical Implications

The results of this research are expected to be applied in a manner that will improve corporate culture, foster engaged and empowered employees and increase and retain loyalty program participants.

It is expected that corporate-level executives will, based on the findings of this research, desire a corporate culture that emphasizes associate engagement and empowerment as well as develop loyalty programs that promote the same.

Originality and Value

Customer loyalty/loyalty programs and employee engagement/empowerment have been studied with gusto recently; however, the topics have for the most part been explored as separate entities. The proposed research is original in the extreme at the current time due to its focus on the relationship between the two topics.

Due to its originality and the impact of the expected results, the proposed research is value. The results of the proposed research are likely applicable to all levels within an organization: from corporate to property.

Keywords

Loyalty Program, Customer Loyalty, Loyalty, Engagement, Empowerment, Employee Engagement, Employee Empowerment, Value

DEFINITIONS

Loyalty—“A deeply held commitment to rebuy or patronize a preferred product or service consistently in the future, despite situational influences and marketing efforts having the potential to cause switching behavior (Kandampully 2015).” Previous research has identified the primary antecedents of loyalty: value, commitment, trust, communication, and satisfaction (Berezan 2015). The antecedents of customer loyalty mimic the antecedents of faithful interpersonal relationships. As a result it can be deduced that customer-firm relationships must be nurtured in much the same way as interpersonal relationships so that each party sees unparalleled value in the other. For the purpose of this research, loyalty will be measured in three parts (Carvec 2008):

Attitudinal—“reflect the emotional and psychological attachment

inherent in loyalty. The attitudinal measurements are concerned with the sense of loyalty, engagement, and allegiance.”

Behavioral—“considers measurements of consistent, repetitious

purchase behavior as an indicator of loyalty. In particular, it interprets a form of customer behavior directed towards a particular brand over time”

Composite—“combines the first two dimensions (behavioral and

attitudinal) and measures loyalty by customers’ products preferences, propensity of brand-switching, frequency of purchase, and total amount of purchase”

Loyalty Program—For the purpose of this research proposal, the term “loyalty program” is defined as it has been in previous research: “an integrated system of marketing actions that aim to [develop and promote increased customer] loyalty by developing personalized relationships (Meyer-Waarden 2008).” In the context of this research proposal, “loyalty program” refers strictly to stand-along programs offered by a firm, for the same firm. Additionally, the intended purpose of the loyalty programs referred to within this research is to acquire initial customers as well as foster the growth and development of the relationship between the same customer and the firm.

Value—The psychological value of a product or service as perceived by the customer combined with the economic value of the transaction (Kandampully 2015).

Employee Engagement—“A positive, fulfilling, work-related state of mind that is characterized by vigor, dedication and absorption (Karatepe 2013a).” In previous research, vigor, dedication and absorption are considered to be the primary dimensions of employee engagement and are defined as follows (Karatepe 2013a):

Vigor—“high levels of energy and resilience while working, the willingness to invest efforts into one’s works, and persistence even in the face of difficulties.

Dedication—“a sense of significance, enthusiasm, inspiration, pride and challenge.”

Absorption—“being fully concentrated and deeply engrossed in one’s work, whereby time passes quickly and one has difficulty with detaching oneself from work.”

Employee Empowerment—Employees characterized by the “freedom and ability to make decisions and commitments (Karatepe 2013a)” that benefit the guest, encourage loyalty and align with company goals of customer retention. For the purpose of this literature empowerment is specifically defined as the manifestation of the four characteristics determined by Spreitzer (1995): meaning, competency, self-determination and impact. Spreitzer defines these characteristics as follows:

Meaning—“the value of a work goal or purpose, judged in relation

to an individual's own ideals or standards” and involves “a fit between the requirements of a work role and beliefs, values, and behaviors.”

Competency—“or self-efficacy, is an individual's belief in his or her capability to perform activities with skill.”

Self-Determination—“an individual's sense of having choice in initiating and regulating actions.”

Impact—“the degree to which an individual can influence strategic, administrative, or operating outcomes at work”

HYPOTHESIS

LITERATURE REVIEW

The Concept of Customer Loyalty

Concept 1: The journey towards customer loyalty [Back]

In previous research, the journey towards customer loyalty has been depicted as a pyramid (Kandampully 2015) (Appendix E). Initially, the firm must attract a customer from the pool of all potential customers by enticing them to engage with and ultimately produce a product-value or service-value transaction with the firm. The customer’s attachment and trust progressively increase and strengthen with every transaction in which customer expectations are met or exceeded. As this relationship grows and solidifies the customer climbs the pyramid through the different levels of attachment. Some customers will fall off of the pyramid and some will only make it part of the way up the pyramid, but the ultimate goal of the firm is to guide and escort as many customers as possible to the top where the most profitable and valuable transactions are made.

Concept 2: Value

According to previous research, “value reflects the firm’s commitment to its customers while simultaneously establishing a point of differentiation and competitive advantage.” Successful communication of value is traditionally the initial pheromone that sparks attraction for a specific customer within the class containing all potential customers. It results in customer acquisition and the joint embarkation by customer and firm on the journey towards achieved customer loyalty.

Concept 3: Customer education, assurance, retention and loyalty

Recent research shows that customer purchase behavior by loyalty program participants is significantly different from customer purchase behavior by non-participants (Meyer-Waarden 2008). It can be concluded from this finding that firms should actively participate in the development of the customer-firm relationship. In order for the firm to be an active and positive influence on customer loyalty, it must develop and create a powerful customer education, assurance and retention program. A program that focuses on these aspects would include many of elements depicted in the following table.

TABLE 1

Customer Education / Customer Assurance / Customer Retention
Information Dissemination / Verbal and Written Guarantees / Promises of Additional/Increasing Rewards for Additional/Repeated Desired Customer Actions
Explanation of Reasonable Expectations / Consistency in Value or Increases in Value / Continued Communication or Preferred Communication
Description of Value Provided / Enrollment into a Loyalty Program, Initial Reward for the Desired Customer Action / Product/Service Differentiation Designed for Loyalty Participants

Components of a Successful Loyalty Program

Concept 1: A desired behavior

In review, value is one of the most important factors in the customer’s initial evaluation of alternatives and the ultimate selection of a firm resulting in customer acquisition. After a customer is acquired from the pool of all possible customers, the firm must encourage and elicit the desired behavior from the customer. The desired behavior is usually a purchase decision and a subsequent symbiotic relationship between customer and firm. This is achieved by creating point pressure. Point pressure is discussed at length in the section titled “Concept 2: A reward.” Once the desired behavior is achieved the firm must ensure it recognizes the customer for their decision and rewards them for it.

Concept 2: A reward

Meyer-Waarden (2007) cites additional research to support the notion that loyalty programs impact customer loyalty and create switching barriers. For example, Morgan and Hunt (1994) assert that loyalty programs are capable of creating three different types of barriers: psychological, sociological and economical. Respective examples are a customer’s belief that one brand of aspirin works better than another brand, a customers perception that one brand is more acceptable or “trendy” than another brand, and loyalty-based sales or discounts. Loyalty programs accomplish the creation of switching barriers via positive reinforcement of the desired behavior—specifically, a reward.

Rewards typically fall into two categories, according to Meyer-Waarden (2007), “points pressure” or “rewarded behavior.” The most successful loyalty programs employ both mechanisms. Point pressure [Back] produces an immediate and short-term burst of increased purchasing in order to obtain an initial reward. This mechanism is a hook to entice new customers to join the firm’s loyalty program and take the first step on the journey to loyalty. Rewarded behavior is concerned with the long-term retention of current loyalty program participants. It is the net that catches and reinvigorates participants that have slowed or stopped purchases as well as encourages active participants to continue or increase their commitment to the firm. Benavent et al. (2000) and Kivetz et al. (2006) support this analogy and give it a name: “accelerating towards the goal.” This phenomenon is characterized by the tendency of consumers to increase purchasing frequency as they near a loyalty reward point. [Back]