Investigating Customer Opinions on Loyalty Programmes: A Study of Malaysian Credit Cards

Introduction

Credit cards are increasingly being made more attractive for consumers by providing them with offers of attractive customer loyalty programs. Loyalty programs help improve product revenues for the card issuer through increased use of the cards and enhanced value perceptions for the cards by customers. While loyalty programs have been around for a hundred years and credit card loyalty programs have been comprehensively studied, most such studies have been at the global or corporate level, rather than on a local or national level and researchers have rarely attempted to investigate the consumer preferences for loyalty programs offered on credit cards in Malaysia. In particular, the key factors in credit card loyalty programs that may contribute to increased credit card use in the Malaysian market, characterized by its own peculiarities like Islamic culture, multiple ethnic population mix and inherent customer disinclination to credit card use owing to an orthodox attitude, appears to have been rarely studied. Hence, an investigation of the opinions of the local Malaysian credit card customers on loyalty programs offered on the cards appears novel and also holds much promise both for the card issuing company and marketing professionals, particularly marketers of financial services. It is therefore proposed to investigate the opinions of the Malaysian credit card consumers on the loyalty programs offered on the cards. Such a study could add to the existing literature on services marketing and also provide vital information on the consumer preferences in the Malaysian credit card industry in general. The results of this study may also be successfully used to improve the efficacy of loyalty programs for increasing sales of credit cards and enhancing customer satisfaction levels to result in a win-win situation for all.

Loyalty programs in the credit cards sector were introduced after businesses realized that in the absence of a tool for customer identification, they were not able to understand individual customers in order to reward them for behaviors that were directed towards purchasing the goods and services produced or provided by them. For the banking industry, this was an extremely advantageous proposition since they are in possession of a huge customer data base as a part of their normal functioning procedure. Businesses are now in agreement that, consumers get motivated with loyalty programs and that about 12 to 15 percent of customers are consistently loyal to a single service provider. Such customers account for 55 to 70 percent of the entire sales of a given company. Mostly loyalty programs are introduced with positive intentions although their objectives are not always very clear. For businesses the biggest objective of loyalty programs is to relate with their customers and to recognize their behaviors under different situations. The basic advantages of making use of loyalty programs are as under:

• Obtaining customer information
• Acquiring new customers
• Increasing the spending of current customers
• Retaining customers and improving their natural churn rate
• Encouraging customer spending towards products with higher profit margins

Most banks find it extremely troublesome to sell consumer finance products such as credit cards in emerging markets such as Malaysia. In such markets income levels are not very high, the values of most transactions are not very big and very small proportion of people use credit cards. Added to this characteristic is the recent global economic turmoil which makes the prospects for success of credit cards to be quite bleak. However in reality, the opportunities to create a successful credit card business in emerging markets such as Malaysia are extremely attractive. In order to take advantage of such opportunities, banks and financial services institutions in Malaysia will have to devise new business models and forge ahead with new business partners. Though the volumes of consumer finance business in Malaysia are not very high, the people in the country have a strong appetite for debt in order to purchase usual consumer goods such as motor vehicles, refrigerators and televisions. Presently the transactions in Malaysia that emanate through credit cards are quite low and form a very low percentage of the nation’s credit portfolio. But the transaction share of credit cards in Malaysia is set to grow consistently at least for the next five years. The operating cost and default rates in the credit card business are not much, thus making the business quite profitable. Malaysia has also been adversely impacted by the global economic recession but there is immense potential for the growth in furure business. This paper will conduct a study of the Malaysian credit card market in the context of customer opinions on loyalty programs as introduced and practiced by financial institutions in the country.

According to Chakravorti and Emmons (2001), “the consumer credit-card use literature suggests that liquidity-constrained consumers are willing to pay relatively high interest rates partly because they have few alternatives and their demand for these services is fairly inelastic. Their demand inelasticity may be partly due to their relatively high discounting of future consumption. Card issuers could capture the difference between the willingness to pay higher interest rates and the cost of providing such loans, and distribute it to other agents as an incentive to increase their participation” (Chakravorti and Emmons, 2001).

What is Customer Loyalty

Customer loyalty is essentially about the inclination of customers to choose a product or service that meets their aspirations in fulfilling their needs and wants. Because of the intense competition in the credit card sector, customers have a wide variety of choice in opting for a financial services company that he or she believes will deliver very well in meting his or her aspirations. In the credit cards business, a customer is said to be loyal if he or she sticks to the same credit card than he or she would do with other competing credit card companies. It is pertinent to note that in a free economy customers are not bound to stick to only one credit card throughout their lives. They have the choice to shift to another credit card company if they feel that the company is no longer meeting their aspirations; which implies that the customer has shifted loyalty to another company. Credit card companies make use of surveys in ascertaining how well they are meeting the expectations of their customers. Customers have the choice to express their opinion in terms of whether they are satisfied with the services of the credit card company and can also make suggestions about how the company can improve its services. However financial services companies must recognize that even if the survey indicates positive feedback from customers, it does not imply that customers will be loyal because loyalty is a term that is used in the context of end result of the business.

Different marketing approaches such as database marketing and relationship marketing work towards motivating customers in getting to know their expectations and their needs. Financial institutions make their best efforts in garnering customer loyalty by giving customers the maximum rewards and facilities in keeping with their own potential. If the company is able to retain its customers over a long period of time, customers are said to demonstrate high levels of loyalty for the company. Through marketing strategies and loyalty programs the financial services company encourages customers to take advantage of the services offered. Such customers remain active with the credit card and hence prove to be loyal customers and the company does well in terms of customer loyalty. Loyalty programs engage customers in taking action by not only using the credit card frequently but also by doing other things such as visiting the company website, subscribing to newsletters and talking about their opinion in terms of the services offered. In getting to know of customer expectations from such feedback, companies are able to reach out to potential customers in addition to serving current customers better. The surveys conducted by such companies reflect on how customers respond and how long they will remain loyal to the company. If the customer opinions are positive, it implies that the company is meeting customer expectations and the loyalty program is working effectively. It is also an indication that the company’s marketing team has done a good job and that such programs can be utilized further in targeting more customers.

Credit card issuers across the world are now increasingly seeking to make credit cards more attractive for customers by implementing customer loyalty programs. Credit cards are now being increasingly portrayed as bringing enhanced values for customers and loyalty programs assist banks in enhancing revenues. Although loyalty programs have been used for almost a century and a great deal of research has been done in the area of credit card loyalty programs, most of such efforts have been made at global levels. Within Malaysia there have not been much research efforts in the context of investigating and ascertaining the factors that influence customer loyalty programs for credit cards. The prime reason for a laxity in this regard has been the peculiar nature of the financial markets in the country in terms of being characterized with Islamic culture and the mix of ethnic populations and reluctance of people to use credit cards due to the orthodox attitudes. If an exhaustive investigation is done into the customer opinions about the utility, and satisfaction they perceive from credit cards, the study will be of much help to card issuing companies and marketers of financial products. It is in this context that this research will investigate the different opinions of present and potential credit card customers in Malaysia in the context of customer loyalty programs pertaining to credit cards. This study will add immense value to the current literature on financial services marketing as also enable important information about the consumer aspirations and perceptions relating to the credit card industry in Malaysia. The results of this study can be meaningfully used in improving the effectiveness of loyalty programs so as to increase the sale of credit cards and to enhance customer satisfaction at all levels.

In order to make the marketing efforts of financial institutions successful in the context of credit card sales in Malaysia, it is important to first determine the expectations and view points of customers about the loyalty programs that exist for credit cards in the country. After having collected the required data it will become possible to arrive at a conclusion about consumer perceptions that can impact choices about credit cards. Such efforts will also enable credit card issuing companies to ascertain the effectiveness of loyalty programs that are introduced by them to improve customer experiences. By implementing the strategies effectively, financial institutions can eventually enhance profits emanating from card operations. In getting to know of consumer perceptions about credit cards it is important to know of the opinion of credit card users in Malaysia about the existing loyalty programs that are available on credit cards. Local and other related factors have to be ascertained that influence the opinion of credit card holders so as to conclude about the preferences of card users in the country. It is also important to determine the kind of gains that will accrue from this study in regard to the enhancement of customer satisfaction and profitability for card issuers.

Efforts have been made in this research to examine the role of rewards programs and how they impact behavioral loyalties. In the context of the credit card sector, the relationship between customers and firms are considered to be non contractual while customers make purchases on the cards. Therefore lot of difficulties are faced by marketers in ensuring consistent use of cards, especially since switching costs are very negligible in the face of several cards being carried by customers. Therefore it s required that further research should focus upon behavioral and attitudinal loyalties for services that are characteristic of a contractual setting, such as in health clubs and insurance companies. Further research should explore varies aspects in the context of loyalty programs related costs of switching, especially in terms of psychological and financial costs of switching. This way a better understanding can be gained of the effect of rewards programs on customer loyalty. The appeal carried by loyalty programs should be researched from different perceptions such as for example the instant gratification of rewards against their cumulative attraction. In addition future research efforts can be directed in examining the relationship between attitudinal and behavioral loyalty. This research paper assumed that attitudinal loyalty is in the nature moderating the impact of the features of loyalty program on behavioral loyalty.

Credit Card Loyalty Programs

Credit card loyalty programs have now become very popular because they give added incentives in choosing one brand over the other. But the real issue in this regard is whether loyalty programs actually provide added benefits to customers. Most credit card loyalty programs work in giving customers extra points for every unit of money spent and then allowing them the facility to redeem the points for travel, electronic equipment, gifts, hotel accommodations and several other goods and services. The scheme is quite intricate in providing for a minimum number of points before the gifts can be redeemed and every scheme has a time frame within which points have to be redeemed. Such provisions vary amongst institutions and often prove to be a deciding factor for customers in shifting from one credit card issuer to another. Loyalty programs are very beneficial for customers who make large and frequent purchases. Majority of the loyalty programs do not entail extra financial burden on customers although some banks impose added interest rates in recouping the extra costs. Customers understand that if they pay their entire bill every month they have nothing to lose in using the credit card extensively and getting added financial benefits in the process by way of free rewards. But customers that choose to carry forward the outstanding balance stand to eventually loose in view of the high interest burden that is created over time. Customers that do not use their credit card frequently also stand to lose in being unable to accumulate reward points.

Credit cards are increasingly sought to be made more attractive to consumers by card issuers by adopting customer loyalty programs. Loyalty programs help improve product revenues for the card issuer through increased use of the cards and enhanced value perception of the cards by the customers. While loyalty programs have been around for a hundred years and credit card loyalty programs have been comprehensively studied, most such studies have been at the global or corporate level, rather than on a local or national level and researchers have rarely attempted to investigate the consumer preferences for loyalty programs offered on credit cards in Malaysia. In particular, the key factors in credit card loyalty programs that may contribute to increased credit card use in the Malaysian market, characterized by its own peculiarities like Islamic culture, multiple ethnic population mix and inherent customer disinclination to credit card use owing to an orthodox attitude, appears to have been rarely studied. Hence, an investigation of the opinions of the local Malaysian credit card customers on loyalty programs offered on the cards appears novel and also holds much promise both for the card issuing company and marketing professionals, particularly marketers of financial services. It is therefore proposed to investigate the opinions of the Malaysian credit card consumers on the loyalty programs offered on the cards. Such a study could add to the existing literature on services marketing and also provide vital information on the consumer preferences in the Malaysian credit card industry in general. The results of study may also be successfully used to improve the efficacy of loyalty programs for increasing sales of credit cards and enhancing customer satisfaction levels for a win-win situation for all.

A Brief History

Loyalty programs, also known as customer rewards programs, have been there for over a century or so. But one of the earliest known customer loyalty programs was the S&H Green Stamps program which began in 1930 (Drèze and Nunes, 2004). The customers received stamps that when accumulated to reach a stated value could be traded or redeemed for buying more products. Drèze and Nunes (2004) also observe that such an attempt was an effort to encourage repeat buying. However, today, loyalty programs have become a common feature offered in various product and service industries. This is also true of financial services and products like the credit card. Essentially an alternative option for availing easy credit as also an easy payment option, credit cards have grown to include features like loyalty reward points, discounts on purchases, free joining fee, etc in order to retain and increase customer bases and also tackle increased competition among card issuers.

Essentially all loyalty programs attempt to retain more customers through improving customer loyalty to the firm. Obviously firms hope to improve profitability by such programs. One study by Reichheld and Sasser (1990) found that firms were increasingly profitable, the more their customers were retained. This could explain why more and more firms are adopting the loyalty programs in their marketing strategy today. Sharp and Sharp (1997) have even stated: “loyalty programs are structured marketing efforts which reward, and therefore encourage, loyal behaviour” (Sharp and Sharp, 1997). Obviously, the primary objective of loyalty or reward programs is to encourage repeat-purchase behaviour among customers. Elsewhere in their article, the Sharps also state that loyalty programs also enhance the average frequency of purchase and other aspects of repeat buying behaviour. They aver that increased repeat buying by customers could help the firm get into a closer relationship with its customers, help the firm gain better knowledge of customers requirements which could ultimately help in decreasing cost of products or services, decrease the marketing costs, and also help in raising barriers to market competition in the given line of product or service. This is also true of the credit card industry. Bolton, et al (2004) as also Lewis (2004) have clearly determined from a study of the credit card industry that “loyalty programs do enhance customer perceptions of value proposition and also lead to increased revenues owing to fewer defections and higher usage levels” (Lewis, 2004).

In the light of the above, it appears that loyalty programs do enhance value for the customer and also help in improving profitability for the card issuer. But, what needs to be examined in context is the role that consumer perceptions play in deciding the efficacy or success of loyalty programs, where success implies the improved firm profitability and enhanced value proposition for the customers. However, there have been few studies to understand the consumer behaviour behind the choice of a credit card based on the loyalty program that it offers. On the contrary, it appears that innumerable researchers have studied the general impact of loyalty programs on consumer purchase and consumer behaviour. For instance, Liu (2007) has studied the long-term impact of such programs on consumer behaviour and loyalty. Most other studies examine whether loyalty programs influence consumer patronage levels or improve loyalty exclusively to the firm. Bolton, Kannan, and Bramlett (2000) studied the efficacy of long-term impact of loyalty programs and suggested, “The Company must quantify the program’s influence on future purchase behaviour”. Others like Lewis, (2004) and Verhoef (2003) also studied the “positive impact of loyalty programs on consumer re-patronage decisions and their share of the wallet” (Verhoef, 2003).

Reward Programs

Before credit card companies introduced rewards programs they competed with each other on the basis of charges and interest rates. Competition was restricted to yearly membership fees and interest charges pertaining to late payment and banks continued to reduce such rates and charges in order to grab larger shares in the market. But with increasing competition markets became excessively concentrated and card issuers began searching for new ways to lure customers and motivate the current ones in using their credit cards more frequently. Rewards programs came as an important solution and card issuers began developing the best programs to lure and attract customers. Such programs have now become extremely popular and are no longer considered as being a bonus for card customers. Rather, they have transformed into becoming a necessity and a major criteria during the choice making process for credit cards. There is now an increasing expectation for rewards programs and card issuers have begun to initiate measures whereby they not only provide attractive rewards but also customize the programs in suiting the requirements of every section of credit card customer. Card issuers now need to implement a market oriented plan in understanding customer preferences and needs and in capturing them to provide the specific rewards in keeping with customer aspirations and expectations.

Types of credit cards in Malaysia

Credit cards in Malaysia are available in three classes in catering to the diverse requirement of different age and income groups. They are:

• Classic card is for individuals with regular income or with lower credit rating
• Gold card is for individuals that have good incomes or robust credit rating. Such cards incorporate travel insurance and provide wide array of rewards programs.
• Platinum card is for affluent people and is mostly provided through special invitation. These cards provide special services and give unique benefits and rewards by way of hotel discounts and airline tickets.

Credit cards in Malaysia are available with specific features and incentives that include:

• Co-branded credit cards are provided by credit card companies in collaboration with specific service providers and retail brands and include unique discounts and special offers on goods and services of the collaborating brands.
• Reward credit cards provide rewards by way of cash back facilities, points and shopping discounts on purchase and payment through credit card. Such cards also provide rewards by way of airline miles.
• Some credit cards come with facilities of balance transfer with low balance transfer fees.
• Business credit cards are personalized and depict the name of the company. Business credit cards enable easy and convenient access to a large network of business events and conferences and usually provide the option of taking supplementary cards for managers in catering to their expenses while they are on business tours.
• Islamic credit cards are those that have transactions made on them to be administered on the principles of Islamic banking. Such cards also provide the facility of direct zakat payment.
• Student credit cards are for college and school students with lower credit limits and lesser incentives, with the primary objective of keeping their spending in limit.

Credit cards in Malaysia are issued by more than fifteen banks. The major credit card issuers in the country are Bank Simpanan National, Standard Chartered, Maybank, HSBC, Bank Islam, Alliance bank, AEON and Affin bank. All the credit cards in Malaysia are offered in partnership with MasterCard, Visa and American Express. It is quite usual for Malaysians to hold multiple credit cards although they may not be using all the cards equally. Most Malaysians tend to accumulate their spending on a single credit card for specific preferences, while the others are held for other purposes. By diverting most of their spending on one card they find it convenient to pay bills and can maximize their rewards points so as to get the highest values of redemption. Credit cards are gradually becoming a significant source of revenues for banks, particularly in the consumer credit sectors. Because of excessive competition, card issuing companies stand to immensely benefit by grasping the pattern and procedure of the consumer decision making process in the context of why customers chose a particular card as a preferred means for purchase and other transactions. Past research efforts have not focused much on the behavioral patterns of credit card users in Malaysia, but it is known through experience by banks in Malaysia that rewards programs are important considerations for credit card customers. This research will take initiatives in moving further ahead in complementing the past research by examining the preferences of customers in the context of varied demographic parameters in relation to the kinds of rewards programs offered in Malaysia. In getting such information, banks will be able to implement efficient strategies in attracting more card users and motivating them to spend on their credit cards and thus to grab a bigger market segment and larger revenues.

Credit cards rewards programs in Malaysia

Some of the common rewards programs offered for credit card customers in Malaysia are as under:

1. Point Accumulation Programs pertain to points being given for purchases made by using the credit card. Once a minimum number of points are accumulated by making frequent purchases on the credit card, the customer will be eligible to get a voucher or to redeem the points to get products from the card issuer catalogue. Such redemptions can be made as per convenience of credit card customers at any time within the prescribed time limits, on the phone or internet.
2. Air Miles Accumulation Programs allow credit card customers to earn air miles on different purchases made by using their credit cards. After accumulating a minimum number of such air miles, the credit card customer can redeem them for free air tickets, right of entry to first class lounges at airports, discounted upgrade for air tickets and other privileged services. However such redemptions are accompanied with a number of route and date limitations, which usually dissuade card holders from availing of them.
3. Cash Rebates are given as credits on the card against purchases and depending upon the terms and conditions of the credit card, they can be utilized in repaying outstanding on the card or can be sent checks at the end of a specified time period which is usually at the end of the quarter. Sometimes the rebate amount is credited to the credit card account and can be utilized while making the next purchase on the card.
4. Instant Benefits represent instant incentives such as discounts and promotions. Credit card customers are eligible to get discounts while making purchases. For instance card holders may get special incentives by way of getting a certain percentage off the billed amount or by way of other promotions such as to buy three items of a product and get a fourth one free in the participating store.
5. Other privileges include preferred seating, priority queues and privileged entry to special events.

Most of the credit cards issuing companies in Malaysia have introduced rewards programs for their credit card customers without any additional charges. This is perhaps the main reason for the increasing popularity and significance of credit card loyalty programs while making choices about credit cards in Malaysia.

Objective of the Research

The basic aim of the proposed research would be to understand the viewpoints of Malaysian customers on loyalty programs offered on credit cards and upon analysis of the data, arrive at possible consumer considerations that may influence choice of credit card with add-on loyalty programs and which could be used by credit card companies in improving customer satisfaction levels and increasing profits on card operations. This basic aim can be represented by means of a few research questions as follows:

1. What are the opinions of Malaysian credit card users on loyalty programs offered on the cards?
2. What are the local and other factors that determine such opinions of the credit card customers?
3. What conclusions can be drawn from the study as to the preferences of the card users in Malaysia?
4. What are the gains to be obtained from such study by way of enhanced consumer satisfaction and increased corporate profitability?

The objective of this research is to examine the customer opinions of credit card loyalty programs in Malaysia. The research will be conducted in the light of some hypothesis which are pertinent to and have a strong bearing on the credit card market in the country. The following hypothesis will be made the basis of the research in getting to thoroughly know of customer opinions about credit card loyalty programs in Malaysia.

• Hypothesis One: Female credit card customers are more motivated by rewards programs than male customers.
• Hypothesis Two: Male customers look out for immediate rewards in credit card customer loyalty programs.
• Hypothesis Three: There is a strong relationship amongst age group and point accumulation programs as also amongst income levels and point accumulation programs.
• Hypothesis Four: Amongst the four different rewards programs; cash rebates, instant benefits, point accumulation and air miles accumulation, air miles accumulation is the least popular.
• Hypothesis Five: Credit card customers are more motivated towards monetary rewards as compared to non monetary rewards.

Literature Review

Introduction

The credit card market in Malaysia is now quite concentrated with a number of local and foreign players, all vying for a larger share of the credit card market. Credit card issuing companies are on the constant look out for new opportunities to lure new customers and to entice existing ones in using their cards more frequently. At the same time, credit card customers are expecting more utility from their cards. It is now understood that under such circumstances it is not enough for banks to compete with each other solely on the basis of interest rates and other charges that they impose for their services. Reward programs are now considered as a major solution to enhance customer value and have become so widespread that they are no longer considered to be a bonus for credit card holders. Rather, customer loyalty programs or reward programs have now become a very important consideration in making choices about credit cards. There are now increasing expectations from reward programs and card issuing companies have to take further initiatives in not only providing attractive rewards but will have to also customize the rewards programs in making them suitable to customers. Card issuers have to adopt a strategy that is market oriented in understanding customer expectations. Such expectations will have to be captured by way of providing rewards and incentives to credit card customers.

Several studies have been conducted across the world in the field of credit card selection criteria. The topic of rewards program has also been given considerable importance as an important tool of customer loyalty, while discussing the issue in varied industry contexts. However, very little has been researched in the context of the credit card market within Malaysia. This chapter will make a review of the significance of the reward programs in the choice making process of credit cards. The meaning and main objectives of reward programs will be considered along with the classification and evaluation of reward programs. A conceptual model needs to be developed on the basis of insights acquired in the literature review and the main rationale behind the conceptual models will be explained.

Customer Loyalty

Customer loyalty is not understood very easily and there are different definitions proposed by different scholars. Prus and Randall (1995) have described customer loyalty as:

“Customer loyalty is a composite of a number of qualities. It is driven by customer satisfaction, yet it also involves a commitment on the part of the customer to make a sustained investment in an ongoing relationship with a brand or company. Finally, customer loyalty is reflected by a combination of attitudes (intention to buy again and/or buy additional products or services from the same company, willingness to recommend the company to others, commitment to the company demonstrated by a resistance to switching to a competitor) and behaviors (repeat purchasing, purchasing more and different products or services from the same company, recommending the company to others)” (Prus and Randall, 1995).

According to Sharp and Sharp (1997), “loyalty programs are structured marketing efforts that reward, and therefore, encourage, loyal buying behaviour” (Sharp and Sharp, 1997). Promotional strategies are used by companies in enhancing customer loyalty by providing incentives to customers that make repeated purchases (Kim et al, 2001). The importance of loyalty programs or reward programs in the context of credit cards cannot be ignored. If a card issuer has a superior reward program it can occupy a superior position in the market because such programs play a vital role in the choice making process for a credit card in addition to being the deciding factor for being the preferred card if the card holder is having multiple cards. In fact, the main reason for people to hold multiple cards is to take advantage of the varied discounts and benefits that are offered by different credit card companies. It has been found by Gan et al, (2008) that the main reason why people use credit cards is to take advantage of the rewards and rebates offered by credit card companies on card usage. Sharp and Sharp (1997) have concluded in this regard that:

“we can legitimately examine the relationships between observable phenomena, such as attitudinal statements, observed purchase behaviours, brand share, brand contribution, etc. This is an empirical matter. We can even choose to refer to one of these phenomena as brand loyalty, so long as we are clear exactly what empirical referent we are describing by this term. However, to suggest that one approach captures the ‘true’ meaning of brand loyalty, while another (by implication) does not, is bad philosophy, and bad science. There is no place for essentialism in marketing science. The only real questions that should be asked are empirical ones,” (Sharp and Sharp, 1997).

Johnson (1998) defined loyalty programs as “any marketing program that is designed to increase the lifetime value of current customers through a long-term interactive relationship” (Johnson, 1998). Most theorists are in agreement that loyalty programs are promotional avenues for firms in enhancing customer loyalty by providing for varied incentives and benefits on a given basis of their purchasing patterns. Kivetz and Simonson (2000) have defined the programs as forms of “marketing tools to retain customers and increasing their level of usage of product and services” (Kivetz and Simonson, 2000). However, Kivetz and Simonson (2000) have also cautioned in saying that “a fundamental trade-off that consumers must often make is between spending money on (what they perceive as) necessities, such as savings, ordinary food, and medical care, or on items representing indulgences or nonessential luxuries, such as a cruise, fancy food, or an expensive watch” (Kivetz and Simonson, 2000). Reichheld (1996) developed a model whereby the main focus is not on profits but on creating value for customers. He focuses on the three forces of loyalty that include customers, investors and employees. He established that there is definite link between loyalty, value and profitability which can be measured in terms of cash flows.

Researchers mostly differentiate amongst two kinds of loyalty; attitudinal loyalty and behavioral loyalty. Attitudinal loyalty concerns attitudes that result in a consistently long term relationship with the product. A strong positive attitude towards a product implies attitudinal loyalty and is considered a necessary condition for the building of true loyalty for the product (Uncles, Dowling and Hammond, 2003). The concept of attitudinal loyalty has been considered by many researchers in showing that attitudinally loyal customers were strongly impacted by negative information about the product as compared to customers that were not loyal. The concept of behavioral loyalty explains that products are analyzed by customers only after considering the pattern of past purchases and the utility that is derived from them. Research has shown that most customers are loyal to a line of product categories and very few customers actually patronize a single product or brand. Behavioral loyalty is formed after a number of purchases of the product have been made by the customer and he remains contented with the product attributes. According to Ball et al (2004), both the behavioral and attitudinal loyalty models are significantly interlinked.

Bali et al (2004) have explained that loyalty is integrity in the context of brand satisfaction, trust, communication and image of company. They have emphasized that in the case of business to customer and business to business market conditions, loyalty is primarily understood in the context of mentioned constructs. The antecedents of loyalty have been divided by researchers into four core group:

• characteristics of the environments
• characteristics of relationship
• characteristics of the consumer
• consumer perception of the company

Ball et al (2004) have held that the credit card sector is quite specific because considerable value is placed upon long term relationship with customers who are always encouraged to remain loyal by being given a host of discounts and value added schemes. Beerli et al (2004) have argued that retaining customers is one of the most important factors that result in enhanced incomes for credit card companies in Malaysia. According to Baumann et al (2007), though the quality of service is an important parameter in the credit card sector for developing customer loyalty, the main focus should be on improving over all customer satisfaction in order to increase the number of loyal customers. In this sector, satisfaction as well as switching costs is considered as antecedents of loyalty, but the impact that satisfaction levels have on loyalty is greater than what is created by costs of switching. Researchers have established a definite link amongst over all satisfaction and customer intentions of recommending a company in terms of levels of satisfaction. Although financial products are not differentiated, customers in this sector are unable to make objective judgments of services, which is the reason why the element of trust assumes immense significance in this sector (Heffernan, O’Neill, Travaglione and Droulers, 2008).

According to Unipede (1998), “customer loyalty is often calculated in terms of satisfaction, repurchase, but none of these rates give the results retention rate has. Second, by creating a data base on the reasons expressed by your customers for leaving, you give your company the means to correct the mistakes done while processing with customers. The reasons a customer invokes could lead other customers to defect too. View it a warning signal and take advantage of it” (Unipede 1998).

It is quite difficult to measure the determinants of customer value. In this context it is vital to recognize the cause and effect relationship amongst value creation and loyalty. Missions that comprise of providing superior values can be measured in terms of customer loyalty, which is better understood from the rate of retention, purchase of shares, or a combination of both. Indirect influences can also be depicted with indications pertaining to revenue growth, costs in terms of serving customers and retention of employees.

Relative Attractiveness of Loyalty programs

Credit card customers mainly take part in loyalty programs in order to derive economic benefits such as discounts, emotional advantages relating to a sense of belonging, recognition and prestige and the right to use unique services and treatments. If the customers view specific loyalty programs as being more beneficial than other available programs, it can be reasonably assumed that they are more likely to take part in those programs, even though they may be participating in other loyalty rewards programs. Most of the rewards programs are based on volumes, thereby encouraging larger number of users to continue remaining loyal to the card issuing company (Shugan, 2005). However it is argued by O’Malley (1998) that a customer’s psychological relation with a particular credit card may moderate the relationships amongst the comparative attraction of a reward programs and his share of wallet. Previous research studies have indicated that rewards programs are usually more attractive for customers that have a relatively low psychological relationship with a given brand. Conversely, customers that are highly committed are likely to be more loyal to their service providers irrespective of the advantages provided by the rewards program.

Although there may be attraction in the rewards programs, the perceived costs of switching are associated with participation of customers in the given programs. In this context, switching costs are defined as effort, money and time related to shifting service providers. According to Wirtz and Matilla (2003), costs increase for individuals when loyalty programs are switched. This is because switching implies that points have to be foregone and more time has to be used in time and effort to sign up with new providers. The customer has to learn how points and rewards have to be redeemed and how PIN numbers have to be customized. Switching between credit cards also result in psychological costs in terms of losing a sense of belonging that is directly associated with the rewards programs. Consequently credit cards issuers stand to gain by increasing the barriers to switching by offering beneficial loyalty programs.

It is thus true that attitudinal loyalty moderates the effect of perceived cost of switching on behavioral patterns of loyalty. When there is low level of attitudinal loyalty, customers have the tendency to reveal low levels of behavioral loyalties. But the higher costs of switching related with a particular rewards program encourages customers to remain with the given brand in spite of the low level of attitudinal loyalty, thus leading to enhanced share of wallet. In contrast, in the case of high level of attitudinal loyalty, emotional attachment with brands plays a larger function in enabling the understanding of behaviors instead of costs of switching related with the given rewards program.

Customer Satisfaction

Customer satisfaction is not the same as customer loyalty because satisfaction pertains to emotional feelings and is the result of a complicated procedure that needs to be understood from the psychology perspective of customers (Westbrook, Newman, Taylor, 1978). Emotions can be wide ranging in emanating from feelings of relief, surprise and happiness. Eventually, satisfaction is impacted by aspirations and the gaps between the quality that is perceived and the quality that is expected. Products that meet quality standards and the related services will result in customer satisfaction. Such levels of satisfaction will in turn result in enhanced customer loyalty. There is however no spontaneous link between satisfaction and loyalty. In effect the relationship is different in varied circumstances and unless customers are completely satisfied they often tend to shift away to other options or products.

In this regard Chebat and Amor (2010) have held that “Consumers’ choice between loyalty and exit stems from the sentiment attached to their own identity. For example, consumers stay loyal after a service failure as long as his/her self-identity is not affected by the service recovery proposed by the service provider” (Chebat and Amor, 2010). It is believed by theorists that overall customer satisfaction leads to larger number of loyal customers. In this business the costs of switching and satisfaction levels are considered as antecedents of loyalty. But the impact of satisfaction on loyalty is much more as compared to the impact of switching cost. Research scholars have established that relationships exist between over all satisfaction on the one hand and intentions of clients to recommend a particular bank and to continue remaining a customer, on the other. In spite of the fact that credit cards continue being not much differentiated, customers in this sector are not able to make objective judgments about the quality of service, which is why the element of trust attains immense significance.

Some studies like that of Hsee et al (2003), and Van Osselaer, Alba, and Manchanda (2004) have observed the psychological impact of loyalty programs on consumers. But few have attempted to understand the psychology behind the decision to choose loyally programs. However, De Wulf et al (2003) in their paper observed that, “Consumers perceive loyalty program as an organized marketing activity which offers (some of) the customers additional rewards or benefits”. Also, “Loyalty programs principally prevail in consumer markets and supposedly result in customer commitment and retention” (Sopanen, 1996). These provide some hints as to the consumer behaviour in relation to loyalty programs but none throw light on the specific industry of credit cards.

Loyalty Model

Most of the current strategies aim at profit targets and make efforts in a backward direction in arriving at the desired levels of revenue and cost reduction. Reichheld (1996) developed a model whereby the main focus is not on profits but on creating value for customers. He focuses on the three forces of loyalty that include customers, investors and employees. He established that there is definite link between loyalty, value and profitability which can be measured in terms of cash flows. Reichheld holds that “loyalty is inextricably linked to the creation of value both as a cause and an effect” (Reichhled, 1996). In being an effect loyalty can be measured on a permanent basis even if the firm has not delivered value to customers. Reichhled has explained how defects result due to lack of value derived by customers and in being a cause, loyalty can create a chain reaction. The market share and revenue of a given company increase as the best customers are lured in buying the company’s products and they build upon the pattern of repeat sales and referral sales. In having a strong value proposition the company can afford to be selective in acquiring new clients and can focus on investing in prospects that are potentially loyal and profitable thus paving the way for sustained growth.

With sustained growth the firm can attract and retain good workers and by consistently delivering superior values to customers it can enhance loyalty of employees by providing them with avenues to have pride and contentment at work. Moreover, long term workers are able to understand their customers and can thus deliver enhanced values that further strengthen both customer and employee loyalties. Long term employees are able to learn and reduce costs while improving quality, which further leads to enriching customers’ value propositions and generating higher levels of productivity. This enables the company to use the surplus production to finance better compensation, tools and training facilities, which further add to loyalty, salary increases and productivity.

Enhanced productivity and the increasing efficiency in handling loyal customers result in cost advantages that are difficult for competing firms to match. Sustained cost advantages along with the consistent growth in the numbers of loyal clients will generate high profits that will attract more investors, thus making it very convenient for companies to retain long term investors. Businesses are aware that loyal investors prove to be very good partners. They make the systems steady, lower capital costs and become committed to putting back cash into the business so as to provide for new investments. Such actions eventually enhance the value creation potential of the company. Neringa and Vilte (2009) have researched in the context of upcoming models and found that:

“New participants in the financial services market such as on-line brokers, retailers, telecommunication companies have had a huge impact on competitive strategies of market incumbents and forced them to change their strategy, to invest in banking technologies. On the other hand, the introduction of new technologies may not always have a positive impact on relationships between customer and service provider, and such kind of negative effect is seen in banking sector as well” (Neringa and Vilte, 2009)

Customer Loyalty for Credit Cards

According to Ball et al (2004), the credit cards business is characterized by long term relationships with customers in the sectors that are given considerable value and customers are motivated to be loyal by being offered a variety of value added benefits and discounts. Beerli et al (2004) highlighted the fact that retaining customers is amongst the major strategies that enhance the revenues of banks. They argue that the quality of service in the credit cards business must be considered a vital factor while building towards customer loyalty. Overall customer satisfaction leads to larger number of loyal customers. In this business the costs of switching and satisfaction levels are considered as antecedents of loyalty. But the impact of satisfaction on loyalty is much more as compared to the impact of switching cost. Research scholars have established that relationships exist between over all satisfaction on the one hand and intentions of clients to recommend a particular bank and to continue remaining a customer, on the other. In spite of the fact that credit cards continue being not much differentiated, customers in this sector are not able to make objective judgments about the quality of service, which is the main reason for the element of trust attaining immense significance.

New entrants in the credit cards business have hade a massive influence on the competitive strategy in the context of the market entrants in forcing them to alter their strategies by investing in new banking technologies (Holland and Westwood, 2001). Conversely, the initiation of new techniques has not necessarily impacted relationships positively amongst customers and service providers and the same impact has been experienced in the credit cards business as well. According to Petersen and Nysveen (2001), there are chances of receiving financial service from agents as well, which significantly altered the attitude of credit card customers and they began to make choices of financial services thus enhancing their loyalty towards card issuers. Competition within the sector and comparatively low levels of differentiation amongst financial services of credit cards, as also the innumerable reasons that lead to permanent changes in the business and marketing strategies, have forced the expanded use of loyalty programs and rewards programs to enhance the quality of relationship with customers (Ferguson and Hlavinka, 2007)

Attitudinal and Behavioral Loyalty

Attitudinal loyalty is related to attitude that leads to a long term relationship on a consistent basis with the credit card. Attitudinal commitment relates to a strong positive attitude, which is a necessary condition in building actual loyalty towards a given brand. The concept of attitudinal loyalty was first used in different research studies in showing that attitudinally loyal customers proved to be much strongly influenced by negative feedback about the brand as compared to the impact on customers that were disloyal. The strongly impacted customers were ready to recommend the brand to other users. In this context, strong and positive perspectives about a given brand can be ascertained by conducting a survey in asking how much the brand is liked by users and how the respondents wish to recommend the same to others (Beerli et al, 2004).

Behavioral loyalty is better understood by observing the past pattern of purchases after motivation and commitment towards the brand is investigated and thoroughly analyzed. Research has revealed that majority of the customers in any market are polygamous; meaning that they are loyal to a number of brands in the same category. Very few customers are monogamous customers; implying that most consumers do not patronize a single brand. This kind of behavioral loyalty model is best recognized as loyalty that is created only after some product purchases have been made and utilized. The consumer is likely to be satisfied with the attributes of different brands in discovering that all products in the category are more or less the same. According to Ball et al (2004), both the attitudinal and behavioral models are significantly inter-related. The credit card business too is much characterized by this model and customers never display a permanent loyalty for a particular credit card over a long period. As the loyalty programs offered by credit card companies change, so do the preferences of customers, in the context of keeping with the extent to which their aspirations are met by the available credit cards in the market.

Impact of Customer Loyalty

Companies that achieve high levels of customer loyalty are able to get excellent financial results. Buchanan and Gillies (1991), have identified six main reasons that explain why long term clients prove to be more profitable:

• Regular customers buy frequently and thus cost less in servicing.
• Regular customers will have the tendency to buy more.
• Customers that are contented will be ready to pay better prices.
• If customers are retained competitors will find it difficult to enter the market or enhance their market shares.
• Contended customers will refer new customers at almost no cost to the company.
• There are substantial costs involved in acquiring and servicing new clients. High level of customer retention means that lesser number of customers need to be attracted and that new customers can be acquired at lesser costs. Businesses are aware that the cost of acquiring new clients is three to five times in excess of retaining present customers.

It is well established that all loyalty programs aim at retaining greater number of customers by enhancing their loyalty towards the company. Firms are hopeful about improving their profitability by implementing such programs. A study conducted by Reichheld and Sasser (1990) found that companies succeeded and increased their profits if more and more customers were retained. This is the main reason why an increasing number of companies have started to adopt loyalty programs as part of their marketing strategies. The main objective of loyalty programs as adopted by credit card companies is to make customers to repeat purchases and to increase the frequency of purchases made by them on their credit cards. They believe that in making repeat purchases, customers come closer to the firm thus enabling a thorough knowledge of their consuming behavior. Firms are thus able to reduce marketing costs and are able to have barriers raised for other competing firms. Bolton (2000) and Lewis (2000) have clearly established through their research in the credit card sector that “loyalty programs do enhance customer perceptions of value proposition and also lead to increased revenues owing to fewer defections and higher usage levels” (Lewis, 2004).

Noordhoff, Pauwels and Odekerken-Schro¨der (2004) observed through one study of store loyalty in two countries that “store loyalty-card programs impact upon behavioural as well as affective loyalty” (Noordhoff, Pauwels and Odekerken-Schro¨der, 2004). They also stated that, “the efficacy of store loyalty-card programs appear to diminish with an increasing number of alternative card programs in the market, as well as with the habituation of customers with these cards” (Noordhoff, Pauwels and Odekerken-Schro¨der, 2004). Roehm et al (2002) also studied the loyalty programs in general and stated of such programs in retail environment thus, “loyalty programs offer customers free products, percentage/price reductions, savings, credit facilities, a feeling of belonging, extra information, or any other special treatment sponsored by the retailer” (Roehm et al, 2002). There are still other studies of loyalty programs, which examine the barriers that prevent customers from participating in card loyalty or rewards programs. Thus, Graeff and Harmon (2002) observe that “loss of privacy, loss of control over personal information, cumulative amount of money spent and possible subscription fees” (Graeff and Harmon, 2002) act as major barriers to customer participation in such loyalty-card programs. However the underlying consumer tendencies that contribute to such perceived barriers are yet to be studied in detail or satisfactorily explained through empirical studies. Also, Noordhoff, Pauwels and Odekerken-Schro¨der (2004) argue, “loyalty programs do not qualify as real loyalty programs unless they enhance the attitudinal component” (Noordhoff, Pauwels and Odekerken-Schro¨der, 2004).

Objectives of Reward Programs

Rewards programs are initiated for a number of objectives. Dowling and Uncles (1997) held that there are three basic objectives of rewards programs. Reward programs are viewed as a defensive strategy for marketing in order to maintain the present levels of sales and to prevent customers from switching to other brands so as to prevent their market share from getting eroded. Rewards programs are used for enhancing the cost for customers to switch to other brands because in doing so they will have to forego the rewards that stand accumulated. Thus a reward program aims at locking in current customers. Reward programs are also viewed as being offensive marketing strategies to enhance the firm’s market share. In enhancing customer loyalty, companies that use reward programs can enhance profitability by way of increased and repeat purchase patterns amongst current customers. Rewards programs are seen as a strategy that results in cross selling to present clients. According to O’Malley (1998), reward programs are used as tools to garner information about the buying patterns, life styles and preferences of customers. This kind of information assists companies in segmenting their target markets so that they can customize offers in serving their valued customers in a better way.

Although the main objective of reward programs is to provide benefits to customers that are loyal, the main motive often relates to manipulating the buying patterns of customers. O’Malley (1998) felt that reward programs are also used as defensive strategies in combating the moves of competitors. Dowling and Uncles (1997) have opined that “loyalty programs that seek to bond customers to a company or its products and services by offering an additional incentive pose an interesting dilemma. Although these schemes often attract widespread customer interest, they are difficult to support, using our current knowledge of competition and buyer behavior. This research suggests that most schemes do not fundamentally alter market structure. They might help to protect incumbents and might be regarded as a legitimate part of the marketer’s armory, but at the cost of increasing marketing expenditures,” (Dowling and Uncles, 1997).

Organization of Rewards and Reward Programs

According to Gillies (2005), there are six varieties of loyalty programs:

• Service programs provide VIP services to valuable customers such as priority queues and services of luxury lounges at airports.
• Many companies provide information and advice programs that enhance the experience of a product.
• Discount programs are offered only to members.
• Community programs enable customers to interact amongst themselves.
• Access programs enable customers to have access to special events.
• Points program gives points to customers when they make purchases, which can be accumulate and redeemed in future.

Downing and Uncles (1997) have advocated that the attraction of reward programs lies in not only the value of rewards but also on the time that they are awarded and implemented. The rewards can be given immediately at the time of purchase or can be delayed also. When rewards are added to the credit card account of a customer they can be redeemed only after a certain number of points have accumulated on purchases made on the credit card. Mostly customers prefer an immediate reward which is supported by Jang and Mattila (2005) in suggesting that if redemptions are delayed, the motivation expected to result from loyalty programs is reduced. Downing and Uncles (1997) classified rewards on the basis of the extent to which they supported the value proposition of the product. They consider that rewards that are associated with supporting the value proposition of products are able to enhance loyalty of customers more specifically towards the brand than just the rewards programs.

Research was conducted by Kivetz and Simonson (2002) who found that customers were more prone to get luxury rewards than ones that were viewed as necessities. Benavent and Meyer-Waarden (2001) differentiated rewards in terms of soft and hard benefits; where hard benefits are purely financial and tangible in nature while soft benefits are tangible rewards pertaining to privileged services, priority queues and private sales. They defined hard benefits as being monetary rewards while soft benefits pertained to non monetary incentives. Jang and Mattila (2005) made classification on the same criteria by conducting interviews with two groups of graduates in the hospitality management sector and they found that monetary rewards are more preferred in view of convenience and the higher satisfaction levels that they entail. They also studied the preference of respondents in terms of immediate or delayed benefits as related to necessity and luxury benefits and the results were clear in indicating that customers were in favor of immediate rewards. Most respondents opted to go for necessity rewards as compared to luxury rewards and as the level of efforts increased respondents preferred more of luxury rewards. Kim et al (2001) have referred to two varied kinds of rewards; efficient and inefficient. Rewards are thought to be efficient if a product is offered free of charge such as hotel accommodations or air tickets, while they are inefficient if they result in higher per unit costs for the company offering the benefits.

Conceptual Models

In the context of issues examined in this paper, rewards have been classified by Dowling and Uncles (1997) as also by Benavent and Meyer-Waarden (2001) as given in the following table.

The different credit card rewards programs offered by credit card companies in Malaysia are bifurcated and classified on the basis of Immediate Vs Delayed Rewards and Monetary Vs Non-Monetary Rewards in the above table. For the purpose of this research paper monetary rewards have been understood as benefits that can be expressed reliably and precisely in financial values with some level of flexibility in management. They can comprise of cash vouchers, cash discounts, rebates and lucky draws that have monetary rewards. Non monetary rewards can be understood as benefits that do not have any reliable and accurate financial values such as preferred seating, priority queues and advantaged services pertaining to product redemptions, first class lounges at airports and gifts to lucky winners of draws.

Since this paper deals with the customer opinions of loyalty programs for credit cards in Malaysia, the use of a customer oriented approach in classifying reward programs is helpful. The success of any rewards program is dependent upon the cost of rewards schemes to credit card issuing firms. If the cost incurred for rewards are high, the reward scheme is considered as inefficient. However since this aspect is directly related to the card issuer, the customer is not much concerned whether the reward scheme is efficient or inefficient. Firms can develop efficient loyalty programs with rewards programs that support the value proposition of the product and firms stand to gain by focusing upon the development of loyalty amongst customers towards the product rather than towards the programs. As long as the customer benefits from the rewards programs it does not matter even if it is in supporting the value proposition of the product. Kivetz and Simonson (2002) have classified rewards as being necessities or luxuries. They defined luxury as a non essential product or service that results in luxurious life style and necessities as products or services which one cannot do without. However the terms cannot be defined conclusively since people have different perceptions about what constitutes luxury and necessity in view of the difference in standards of living and income levels.

Researchers such as Dowling and Uncles (1997) have considered discounts and promotions as reward programs but Yi and Jeon (2003) think differently in not regarding immediate discounts and promotions as being part of rewards programs because they argue that such programs have a long term perspective. For them discounts and promotion activities can at best enhance profitability only in the short term and should therefore be excluded from the concept of rewards programs. The decision whether to include instant benefits as forming part of the rewards programs depends to a great extent upon the specific context in which they are applicable. In the context of the credit card business such benefits may be considered as being part of the rewards program only because the industry is characteristic of undifferentiated offering and low costs of switching. While making purchases customers have the convenience of switching purchase from one card to another, which is also characteristic of the Malaysian card holders given their propensity to keep multiple credit cards. It is in this context that credit card companies are constantly faced with the issue of motivating customers to use their cards on a consistent basis for making repeated purchases. With increasing use of rewards programs by credit card companies, the issue becomes more pertinent in the context of such companies being able to actually create the loyalty that they desire to have. Customers do not specifically use a particular card out of the spirit of loyalty towards the card or the card issuing company but because of rationalizing their purchasing patterns in reaping the maximum advantages from the rewards programs.

Size and Structure of Credit card market in Malaysia

Official statistics reveal that although cash continues to be the main mode of transacting in Malaysia, credit cards have begun to gain importance as alternative modes of payment. The population in the country is quite reliant on banking and every addressable citizen in the country possess between two and three credit cards. The merchant base that accepts credit cards is growing consistently and people have begun to increasingly use credit cards in paying for high value retail buying. Small transactions continue to be done in cash while debit cards have not taken off in the country primarily due to lack of consumer awareness and adequate merchant acceptance. Credit cards issued by MasterCard and Visa are gaining ground and attracting higher levels of usage, primarily due to efforts of the card issuing companies that have tied up with these two international credit card companies.

The credit card environment in the country has become highly competitive and banks and non banking companies have begun attempting to capture bigger chunks of the market as more and more people are being attracted in opting for credit cards. The year 2007 witnessed large scale proliferation of credit cards as hitherto untapped customer segments were tapped in making them eligible to apply for credit cards. Banks were able to tap a lot of opportunities during the Visit Malaysia Year 2007 and Bank Islam got an opportunity to introduce MasterCard to tourists that looked for alternatives for cash payments. Other companies also emerged in the country during 2007, such as Tune Money Sdn Bhd with offers of pre paid cards and credit cards to specific segments of target customers including youth between the ages of 15 and 17 years. Although banks have to be careful in issuing credit cards to this segment, there are a number of other opportunities with different consumer segments that are concerned with managing their debt and using the services provided by credit card companies.

Malaysia has taken a number of initiatives in increasing financial security in the face of security threats emerging from internet transactions. Malaysia is the first nation to achieve complete EMV compliance and has implemented the use of chip based smart cards to curb the high incidence of counterfeit frauds and to remove consumer apprehensions about card security. Such initiatives have significantly lessened the incidents of counterfeit frauds and enhanced the confidence amongst people to use credit cards as methods of payment. However, the increasing use of internet for financial transactions and the corresponding increase in ecommerce, along with the up gradation of the nation’s broadband networks has increased the risks associated with internet frauds and the problem will continue to become more serious if strict preventive measures are not taken. Banks in the country have increased their commitment towards the enhancement of electronic payments and enforced the use of CVV while processing credit cards on the internet. Banks are also in the process of implementing measures that will compulsorily require the use of two factor authentication steps to further improve security.

Credit card issuers in Malaysia have been constantly engaged in improving internet capability and collaborations with ecommerce sites in recognition of the increasing importance of online transactions. For instance, Malayan Banking Bhd and CIMB bank have added the number of services that can be used online on their respective internet banking websites. A new non banking financial company, Tune Money, commenced operations in 2007 as an internet based utilitarian source of financial services with the objective of providing secure internet transactions. AEON Credit Service is a subsidiary company of AEON financial services group, which has collaborated with RedHot Media, an ecommerce portal, in efforts to provide cheap financial services to a customer base of over 600,000 people.

Research Methodology

Introduction

This research will take initiatives in moving further ahead in complementing the past research by examining the preferences of customers in the context of varied demographic parameters in relation to the kinds of rewards programs that are offered in Malaysia. In making use of such information, banks will be able to implement efficient strategies in attracting more card users and motivating them to spend on their credit cards and thus to grab a bigger market segment and larger revenues. On a preliminary survey of available literature on the Malaysian credit card industry, it appears that the loyalty programs offered with credit cards have not been subjected to any significant study. In fact, the majority of studies in Malaysia on consumer behaviour have been in relation to the culture of the people, the multiple ethnic populations and the Islamic religion. Moreover, studies on loyalty programs have been few and far between in the country. Those that have been attempted have considered the general and retail marketing fields and have not been concerned with credit card loyalty programs.

Among the factors that could influence the choice of loyalty programs on credit cards, culture has tremendous significance. In fact, in all countries, studies have been made on national culture by linking consumer behaviour to national culture. According to several scholars, loyalty as a subject of research is highly dependent upon the cultures of people of the given region.

Research Design

There are innumerable methods of research and it is imperative to choose the most suitable amongst them that meaningfully serve the purpose of the research. This chapter will examine the kinds of research methods that have been used and justification will be given as to why they have been chosen in the context of this research and in determining the customer opinion about loyalty programs for credit cards in Malaysia. According to Ghauri and Gronhaug (2005) research design pertains to the over all plans in relating conceptual problems of research to empirical research that is practical and of relevance to the objective of the study. Research design can be classified into three main classes; exploratory, descriptive and causal. The basic objective of exploratory research activities is to have a superior comprehension of the research problems. It is mostly resorted to under conditions when the research problems are not structured and clearly defined. This process allows immense flexibility and is applicable for researchers that are not having clearly focused and formulated research problems and that desire to extract additional information to assist them in determining the directions of the research. Descriptive designs refer to research problems that are structured and in the knowledge prior to undertaking the research. Researchers are able to get a thorough grasp of what is required to be measured. Causal design is used when researchers intend searching for cause and effect relationship existing amongst two or more variables.

Data Collection

For the purpose of this research paper the descriptive research design is most appropriate and will be used in coming to concrete conclusions about the customer opinions on credit card loyalty programs in Malaysia. It is evident from the literature review of the previous chapter that loyalty programs play an important function in ascertaining the choices pertaining to preferred credit cards in Malaysia. Therefore, clear research objectives were established with the purpose of ascertaining the preferences for rewards programs amongst the varied demographic groups. It is hence believed that the most efficient design in this context will be the descriptive research design. Ghauri and Gronhaug (2005) have held that the particular choice of methods chosen for data collection depend upon the over all judgment in the context of the types of data that are required for addressing and researching specific problems. Data collection can be done by using either quantitative or qualitative techniques. There are significant differences between the two methods. Qualitative methods are subjective, have a holistic view, they are explorative oriented, they focus on understanding, have a reasoning and rational approach and deal with probing into the reasons for given situations. Quantitative method is objective with pluralistic views, has a hypothetical-deductive approach, focuses on testing and verification, adopts factual and logical approach and deals with the quantitative aspects of the questions.

Quantitative research is concerned with the examination of specific issues and is based on testing given theories along with numbers and analysis by utilizing statistical methods. Creswell (1994) has explained, “At this moment in the development of research approaches, the educational researcher needs a large toolkit of methods and designs to address complex, interdisciplinary research problems. This researcher may be part of a team of researchers with individuals bringing to the table different research skills and training; most likely skills in both quantitative and qualitative research” (Creswell, 1994).

Quantitative research methods are used to verify if the purported hypothesis holds true. In contrast, qualitative research enables the understanding of people’s behavior. It is comparatively more subjective and portrays a holistic view of the subject being researched (Reichardt and Cook, 1979). Qualitative methods are employed under situations when the available information on the subject is limited. However, quantitative approaches are used in the present research because of the objective nature of the research. Since the purpose of the research is to ascertain the opinion of customers about credit card loyalty programs in Malaysia, the quantitative approach gives a more realistic picture about the attitudes and behaviors of card holders in the country. The approach has been used in ascertaining the reasons and rationale behind the given attitudes and opinions. Although the quantitative methods aim at ascertaining the number of card holders that have specific opinions, qualitative methods aim at ascertaining the reasons for their given behaviors and attitudes. The different hypothesis about consumer preferences in the context of loyalty programs has been analyzed and the data has been statistically examined.

Sources of Data

Sources of data can be divided into two parts; primary sources and secondary sources. Secondary sources are those that are compiled by people other than the researchers. Most research studies commence with analyzing the secondary data so that a literature review about the previous studies can be prepared. A literature review was conducted for this paper in order to thoroughly understand all aspects of the research problems and to devise appropriate directions on the research. Secondary data are obtained from different sources such as journal articles, internet websites of varied companies, statutory bodies and financial institutions, varied reports of different institutions, text books, news commentaries and dissertations and thesis written by researchers of different institutions. Secondary data can be compiled for a purpose that may not necessarily be the same as the present research. Hence its relevancy and use may be restricted, which is why primary data has to be collected in compiling information that is directly not available through secondary data. Primary data can be collected by using different methods. The methods in this regard may include surveys, observations, experiments and interviews and for the purpose of this paper information will be gathered through questionnaires to compile the needed primary data sources.

Survey

Surveys are methods of data collection that make use of questionnaires and interviews to record the verbal responses of customers. This research paper includes five self administered questionnaires to obtain the required primary data. Self administered questionnaires are used for a number of purposes; firstly they allow several customers to be approached in less time and at ease. Questionnaires are administered in different ways to get responses from diversified groups. To start with they will be sent by email to contacts that include relatives, colleagues and friends. Social networking sites such as face-book will also be used to reach a larger base of respondents. The questionnaires will also be printed and sent to colleagues and friends to be distributed to their contacts. This way it will be helpful in gathering responses of people from diverse backgrounds, age and profession.

A self administered questionnaire includes standard questions and is comparatively devoid of errors such as interviewer prejudice. The interviewer’s tone and the varied ways in which the same question can be phrased in different ways in a survey that is researcher administered often leads to incorrect responses. Further, the desire of respondents to influence the interviewer with their answers and their reluctance to provide sensitive answers to strangers can prevent effective collection of data. There is lack of face to face interactions in a self administered questionnaire which encourages respondents to provide sensitive data at comfort. Self administered questionnaires can also be examined statistically.

Design of Questionnaires

The questionnaire was designed into the following five sections:

• Demographic profile
• Perceptions of reward programs
• Types of reward programs
• Monetary/Non monetary rewards
• Order of preference

The first section aims at getting to know the demographics of respondents and solicits information about gender, age group and annual income. The second section aims to know the perceptions of reward programs amongst credit customers. The main idea is to collect primary data in the context of the first hypothesis of the research which is:

Hypothesis 1: Female credit card customers are more motivated by rewards programs than male customers.

The third section aims to test and to enhance the knowledge of customers in knowing of the four different kinds of rewards programs. This section is presented in four sub sections that represent the four reward programs. A short explanation of each of the programs is provided and the questions are presented in a manner that respondents will have to express the degree to which they are in agreement with them. A thorough understanding of all the four reward programs will enable higher level of correctness in responding to the last section in the questionnaire that expects customers to grade all rewards programs in order of their preference. The third section is also helpful in providing an ideal understanding about indicators that can test hypothesis two and five.

Hypothesis 2: Male customers look out for immediate rewards in credit card customer loyalty programs.

The fourth section serves in determining the preference of credit card customers in terms of monetary and non monetary rewards. The objective is to give support towards evaluating the fifth hypothesis:

Hypothesis 5: Amongst the four different rewards programs; cash rebates, instant benefits, point accumulation and air miles accumulation, air miles accumulation is the least popular.

The last section of the questionnaire aims at revealing the order of preferences amongst the four reward programs. The second, third, fourth and fifth hypothesis will be addressed with the data collected in this section. Hypothesis two and five have already been presented above and hypotheses three is as under:

Hypothesis 3: There is a strong relationship amongst age group and point accumulation programs as also amongst income levels and point accumulation programs.

Measurement

A varied set of questions and formats were devised for this questionnaire. In the entire questionnaire close ended questions have been used since they require the respondent to choose answers from different options as against the open ended questions that require respondents to write their own answers. The following close ended questions were used:

1. Token levels of measurement. Majority of the questions in Section 1 and 2 in the questionnaire use small levels of measurement. Respondents should choose amongst the options that are not inter-related.
2. Dimensional levels of measurement. The other sections in the questionnaire have employed nominal levels of measurement that comprise of ranking orders and Likert scales.
3. In the context of ranking orders respondents should grade the provided options in their respective orders of preference
4. In the context of Likert scales respondents should chose amongst the seven scale range choices from 1 to 7 which provide for responses relating to strongly disagree to strongly agree.

Indicators

Different indicators are used in measuring a construct to enable researchers to cover the entire area of the construct to which it relates to in every possible way so as to measure the results efficiently. This research paper has used multiple indicators which are evident from the varied questions that have been asked in all sections of the questionnaire. In taking the example of the first hypothesis, it is evident that its objective is to ascertain whether females are more motivated from rewards programs as compared to males. In measuring this construct four indicators have been employed:

1. if the attraction of the rewards programs is amongst the reasons for making choice about the given credit card
2. If the respondents are in the knowledge about the kinds of rewards programs that are available for credit cards
3. If the respondents are making use of the rewards programs for their credit cards
4. If the different rewards programs have any impact on their pattern of card usage while making purchases.

Respondents that consider the appeal of rewards programs while acquiring and using credit cards are considered as having been positively impacted by the rewards programs. Those that are in the knowledge about the kinds of rewards programs provided by the credit cards and those that have utilized them are also believed to have been positively impacted by the rewards programs. In similar vein a number of questions were put before respondents in the case of all rewards programs which served to improve the knowledge and understanding of credit card customers as also in forming a varied set of indicators. In considering point accumulation programs as examples, the respondents were asked six questions to which they had to consider their extent of agreement to the given information. Respondents that were keeping a consistent track of the points earned by them and that knew the process of redeeming such points and have been redeeming the points during the last six months are considered to have ranked the rewards program in successfully meeting their aspirations. Respondents that felt that the redemption procedure is very complicated and do not use their credit card while making purchases and have not been redeeming accumulated points are considered to have not ranked the rewards programs as successful or appealing.

In using multiple indicators the chances of random errors are considerably lessened during the research process. It is possible for respondents to make mistakes while answering the questions in the questionnaires. When multiple indicators are used in measuring every construct, mistakes in a particular indicator is offset by the responses to other indicators. If researchers utilize just a single indicator, a response that is answered incorrectly will in all probability lead to the research results being inaccurate (Bryman, 1989)

Questionnaire Construction

The following guidelines have been adopted while constructing the questionnaire:

• Since the objective of the questionnaire is to target Malaysian credit card customers of different age groups and income levels, the questions asked were to the point, simple and presented in an explicit manner in considering that respondents have varied backgrounds. Respondents were provided with detailed instructions at the end of each section of the questionnaires.
• In making sure that all respondents grasp the terms and vocabulary of the questionnaires, simple descriptions were provided in every section of terminologies such as instant benefits, monetary rewards, point accumulation and cash rebates.
• All questions in the questionnaires deal with just a single aspect of the query. This was done in order to avoid confusion in the case of questions with double meanings.
• In asking questions, different formats have been used to make the questionnaire appear attractive and to create interest amongst the respondents.

After drafting the questionnaire it was handed over to six people for a pretest who were part of the target customers and were asked to answer the questions. A short discussion was organized amongst them after they completed the questionnaires and all six respondents gave their feedback in regard to the perceived clarity of questions and the extent to which they interpreted the questions similarly with each other. Such an exercise helped in the provision of a more valid and reliable data that was to be collected from respondents. A copy of the questionnaire is attached as Appendix A.

Sampling

The sampling procedure has to begin with defining the population that is of relevance. In the context of this research, the population comprises of permanent residents and citizens of Malaysia that hold a minimum of one credit card. The sampling procedure can be categorized into two broad parts; probability sampling implies that all units of the populations stand chances of being selected. Probability sampling processes include random sampling, cluster sampling, stratified sampling and systematic sampling. Non probability sampling includes procedures in which the probability of selection is not determined precisely. Hence some of such samples are likely to be non-representative of the concerned population. Examples of non probability sampling are judgment sampling, quota sampling and convenience sampling. For the purpose of this research paper the use of convenience sampling has been made. Convenience sampling is also called accidental sampling and makes use of samples from amongst the population that can be conveniently reached and is available easily.

Response Collation

The survey was conducted from _______ to _______ and a sample size of 150 was employed. It was conveyed to respondents that only questionnaires that were completed in all respects would be accepted but despite such conditions a number of respondents had not provided information about income levels perhaps due to the sensitivity of the issue. Such samples were not included for the research. Some of the respondents could not interpret the last question correctly in the context of the grading the rewards programs as per their preference. Rather than give ranks to all the four rewards programs from one to four, they gave similar ranking to more than one reward programs. For example one of the respondents graded instant benefits and cash rebates as his choice of priority although they were both to be given different ranks. Such respondents were spoken to and requested to make the required changes or corrections. Responses of such respondents that could not be contacted were ignored. About 135 completed questionnaires were found to be useful which implied a response rate of ninety percent.

Limitations of Methodology

Convenience sampling is used mostly during times when the researcher faces restraints in terms of resources and availability of time. However in being non-probability sampling there are some limitations with this method. As was indicated earlier, the samples that are chosen may not be truly representing the entire population. Therefore it is not proper to make a generalization of the outcomes to the entire population. Collection of data and self administered questionnaires may also pose a number of restraints. Errors may arise because of non responsive behavior of some respondents. Individuals responding in the survey may be having significantly diverse opinions and preferences compared to individuals that do not respond and such behavior can adversely prejudice the data compiled. Moreover a sample size of 150 respondents may not be a true reflection of the views of the entire population. Because of unavailability of exhaustive data from all sources there has been consideration of some indirect sources pertaining to secondary data, which may influence to some extent the reliance that can be placed on the data.

Another limitation related to the study pertains to the non availability of data about financial performance of the credit card issuing companies because of which the profitability and cost effectiveness of the programs have not been discussed. There is inadequate information available about the drivers of customer loyalty in the banking sector because of which further investigation could not be carried out in regard to the components analysis, measures of customer loyalty, profitability and customer attraction, including the costs and designs of loyalty programs.

Findings and Analysis

Introduction

This chapter will include the research findings emanating from the outcomes of the questionnaires, which will be analyzed, discussed and tabulated. Initially the demographic profile of the participants will be examined and the discussion will then move on to the direction taken by the research hypothesis. The credit card stipulation in Malaysia as set by consensus amongst financial institutions is that a credit card holder should have a minimum yearly income of 70,000 ringgits (RM) for those that are less that 55 years of age. It is evident that normally an average graduate is about 22 years of age and to reach that level of income he has to work for a few years and this explains why the data does not reveal any respondent below the age of 22 years. Most of the respondents were in the age group of 22 to 40 years, which forms the majority working group in Malaysia.

The income levels in Malaysia are quite evenly distributed. About 77 percent of the respondents have annual earnings exceeding RM 94,000 while a minority (8 percent) of the respondents had annual earnings of less than RM 70,000. This minority group comprises of senior citizens that are over 55 years of age and a small proportion of supplementary card holders. All the 150 respondents are Malaysian citizens or permanent residents and each of them holds a minimum of one credit card in the country. Such facts are incorporated in the questionnaires.

Hypothesis One

The objective of the first hypothesis of the research is to ascertain if females are more prone to being attracted by the rewards programs in the credit cards business in Malaysia as compared to males. In order to test this hypothesis the questions given in the section II of the questionnaire dealing with “Perceptions of Reward Programs” were utilized in testing this hypothesis. The initial questions put forth to respondents related to their perceived attraction towards the rewards programs as being the main criteria for the choice making process in favor of the given credit card. Responses received from both male and female customers were bifurcated into stacking columns. A column that was completely stacked enabled a convenient percentage comparison resulting from every value to the total of all categories. It was found from the data in this context that a major proportion (81 percent) of the females gave positive answers as against the male respondents (37 percent).

Respondents were then required to respond if they were in the knowledge about the different kinds of rewards programs introduced by their credit card companies to which 82 percent of the females responded in having been aware of the same while only 58 percent males responded in the same context. Respondents were next asked to respond in telling whether they had been making use of the rewards programs. Here again 71 percent of the females replied in the affirmative in confirming that they had been making use of the rewards programs introduced by their credit card companies while only 60 percent males responded in the affirmative in this regard. Lastly enquiries were made from respondents in asking if the rewards programs played an important influence upon their choice making process in deciding the card to be used while making a purchase. About 85 percent of female respondents responded positively to the query as against 44 percent males in the same context. It can thus be concluded that females in Malaysia are more inclined and motivated by credit card rewards programs as compared to males in the same circumstances. It is also established that females feel that rewards programs in the context of credit cards, while making applications for them and while making purchases, are the deciding factors in their choice for specific credit cards. Females in Malaysia are better aware of the kinds of rewards programs that are introduced by credit card companies in Malaysia and display a higher pattern of utililizing such rewards programs.

Hypothesis Two

The second hypothesis seeks to ascertain if males in Malaysia are in favor of immediate rewards programs such as instant benefits and cash rebates as compared to the delayed rewards programs such as accumulation of air miles and points. The last section of the questionnaire relates to ranking the four distinct rewards programs in their graded orders of preference. For the purpose of this hypothesis responses given by male respondents were singled out and it was found that cash rebates were ranked the highest by majority of the male credit card customers. In contrast, air mile and point accumulation were ranked lower at third and fourth place respectively. It is evident that 95 percent of the male respondents favored cash rebates and instant benefits in comparison to other choices. This is also in variance to the meager 5 percent of respondents that graded air miles and point accumulation as their favored options. Such results are also supported and elaborated by the information enabled from responses to section three of the questionnaires.

In the case of cash rebate programs, customers were expected to express their opinions in the context of the question Cash rebate appeals to me because it is hassle free as rebates will be automatically credited into my card. The responses of all male customers indicated that 83 percent amongst them agreed about cash rebates being very appealing because they are comparatively hassle free in comparison to the accumulation programs. Rebates are credited to the card account as a matter of routine and can be utilized while making future purchases at authorized outlets. In some cases they are also dispatched to customers in the form of checks. This way the credit card customer is saved from the hassle of being required to keep record of the number of points earned by him as also from the inconvenient procedure of getting accumulated points redeemed.

In attempts to further authenticate the obtained results, respondent customers were put forth with an opposing situation such as I don’t prefer cash rebates programs as I can not figure out how they work. The responses were in the nature of being in disagreement to the given situation since about 76 percent responses indicated disagreement with the given statement. Most of the male credit card customers are aware of how cash rebate programs function. Sixty percent of the respondents reacted positively in agreeing to the statement, Cash Rebates appeal to me because they are free of hassles, thus implying that most of the male credit card customers are of the opinion that consumer loyalty programs such as cash rebates are appealing because they are less complicated to benefit from. In this context, only 30 percent of the respondents responded positively to the situation, I don’t like cash rebates programs because I cannot figure out how they work, which implies that most male respondents do not agree with such a statement. In the context of instant benefits, situations were placed before respondents asking if the appealing discounts given at retail outlets were the main reason that make them to apply for a specific credit card. Questions about point accumulation rewards programs resulted in consistent outcomes. About 66 percent of male respondents do not redeem their rewards points on a regular basis and about 62 percent of males agreed that they have not been redeeming the points gathered in their credit card accounts. This pattern is suggestive of the belief amongst male respondents that the value of the redemptions is not justified in making them to spend time on redeeming them. It is thus clear from the analysis that male credit card holders in Malaysia prefer immediate gains from customer loyalty programs instead of delayed gains.

Hypothesis Three

The third hypothesis aims at determining whether there is a relationship amongst age groups and preferences for point accumulation programs. From analyzing the available data there was basis to conclude that there is no strong correlation in this regard. There is also no relationship amongst income levels and preferences for point accumulation. Here again there was a weak relationship found between the two parameters.

Hypothesis Four

The fifth hypothesis aims at measuring the preference levels of air miles accumulation programs in comparison with the other three kinds of programs; point accumulation programs, cash rebates programs and instant benefits programs. It can be seen that the last section of the questionnaire has questions that requires respondents to grade the varied kinds of rewards programs by ranking them as per their preferences. It is evident that almost 88 percent of the respondents expressed that air miles were the least preferred of the rewards programs with only one of the respondents stating that it was the most preferred. Only ten percent of the respondents ranked it in the third most preferred option which clearly implies that air miles accumulation as a choice for reward programs in the credit card sector in Malaysia is the least preferred amongst the other available choices for rewards programs. It is also clear that the most popular rewards program for credit cards in Malaysia is the cash rebate program, followed by facilities of instant benefits, point accumulation and at the last is air miles accumulation.

Section three of the questionnaire has questions that pertain to the attitude of respondents about air miles accumulation rewards programs. From an analysis of the responses to such questions a better understanding is enabled about why air miles accumulation program is not popular amongst credit card holders in Malaysia. Respondents had to express the degree to which they agreed with such contentions. The findings indicate that about 76 percent respondents indicated they had not redeemed their air miles previously primarily because they spent very less on their credit cards. 83 percent of the respondents considered it extremely inconvenient in undergoing the process of redeeming air miles because of the time consuming and complex procedures. 78 percent of the respondents were in agreement that the diversity in dates and restrictions on routes were the main reasons for reducing the appeal and attraction of the air miles program. It is thus evident that on an average respondents somewhat agreed to most of the statements that were put before them via the questionnaires. Credit card customers perceive the redemption process and the inflexibility in the air mile program as making it less attractive and appealing.

Hypothesis Five

This hypothesis seeks to ascertain if monetary rewards are more appealing to customers as compared to non monetary reward programs. The respondents were made to confront three situations and then to relate their preferences. At first they were questioned whether they would prefer cash redemption vouchers as compared to product redemption vouchers. The responses indicated that customers preferred to have cash redemption in comparison to product redemption or non monetary rewards. Amongst all respondents 75 percent agreed to the statement that they would prefer cash redemptions, nine percent disagreed and the remaining seventeen percent chose not to respond. The second situation pertained to ensuring if respondents clearly understood the meaning of the term monetary rewards and non monetary rewards. Respondents were provided specific examples of non monetary rewards which included preferred seating and priority queues. In this case also results were similar to the first situation and about 84 percent agreed while about six percent were not in agreement. The third situation pertained to determining the logic behind the patterns of customer preferences. Flexibility was the biggest reason given in the context of preference for monetary rewards and 75 percent of the respondents were in agreement to the statement.

Discussion

Customer loyalty programs are now considered a very significant strategy in customer relationship management. As a major part of the marketing battles are now being fought in the areas of rewards programs, this research has enabled the provision of an empirical basis for the effective use of such strategies in the context of credit cards loyalty programs. In order to have a better understanding of loyalty programs in the credit card industry and the association amongst customer loyalty and rewards programs, the current research has outlined the differences between the usage of credit card and the psychological attachment towards the brand. The findings of this research reveal that the comparative appeal of the rewards programs considerably influences behavioral loyalties of customers and such findings are considered valid for the complete research and the circumstances outlined therein irrespective of the extent of attitudinal loyalties. Therefore, if the loyalty program is more appealing, there will be higher levels of perceived rewards as achieved from participating in them.

As per research carried out by several scholars, rewards programs are initiated for a number of objectives, there are three core objectives of rewards programs. Reward programs are viewed as a defensive strategy for marketing in order to maintain the present levels of sales and to prevent customers from switching to other brands so as to prevent their market share from getting eroded. Rewards programs are used for enhancing the cost for customers to switch to other brands because in doing so they will have to forego the rewards that stand accumulated. Thus a reward program aims at locking in current customers. Reward programs are also viewed as being offensive marketing strategies to enhance the firm’s market share. In enhancing customer loyalty, companies that use reward programs can enhance profitability by way of increased and repeat purchase patterns amongst current customers. Rewards programs are seen as a strategy that results in cross selling to present clients.

The findings of this research are also indicative about switching costs being related to rewards programs that have a positive impact on satisfaction levels of customers although only if attitudinal loyalties are clubbed with appealing rewards programs. Previous research has established that rewards programs have a major role in enhancing switching costs. When customers use their credit cards frequently they are rewarded with accrued points, incentives and better service options that would have otherwise been forgone if the customer had switched to another credit card company. This research has clearly established that the effects of perceptions about switching costs on behavioral loyalties are diluted by the joint impacts of attitudinal loyalties and the comparative appeal of the rewards program. This implies that the perception of switching cost amongst appealing loyalty programs have a stronger effect on satisfaction levels at lower levels than higher levels of attitudinal loyalties. When customers are committed, cost of switching appears to become less important in impacting realistic purchase behaviors, primarily because loyal customers are less likely to intend switching their card usage. Additionally, if loyalty programs are not viewed as being appealing, the costs of switching will appear to have negligible effect, perhaps because not much can be gained by rewards that are not attractive.

Loyalty programs were introduced in the credit cards sector after financial institutions realized that in the absence of an efficient means for customer identification, they were not able to comprehend individual customers in order to reward them for behaviors that were directed towards purchasing the goods and services produced or provided by them. For the banking industry, this was an extremely advantageous proposition since they are in possession of a huge customer data base as a part of their normal functioning procedure. Businesses are now in agreement that, consumers get motivated with loyalty programs and that some customers are consistently loyal to a single service provider. Such customers account for a significant percentage of the entire sales of a given company. Mostly loyalty programs are introduced with positive intentions although their objectives are not always very clear. For businesses the biggest objective of loyalty programs is to relate with their customers and to recognize their behaviors under different situations.

The credit card industry is characteristic of a large number of diversified facilities and an established pattern of multiple card holdings for most customers. Therefore customers do not have problems in switching from one credit card to another at the point of sale. Under such circumstances card issuing companies can consider the implementation of rewards programs to portray themselves as being different from other companies and as offering better services and rewards than others. Companies have the choice to increase the cost of switching in order to dissuade customers. The main objective of customer loyalty programs for credit cards is to give customers incentives so that they continue with the same credit card and so that competition is prevented in switching customers. The credit card industry has now become considerably commoditized and customers mostly do not have much psychological attachment with any specific credit card company.

However, as is evident from this research, by providing attractive loyalty rewards programs on credit cards, behavioral loyalties usually improve. Credit card issuing companies can examine possibilities of providing a blend of psychologically appealing rewards to enhance the sense of belonging in terms of giving special treatments, appreciation and recognition. Solid rewards in the form of point accruals, discounts, and waiver of annual credit card fees go a long way in winning over customers psychologically. Companies also have the option of improving the appeal of their rewards programs by giving customization and higher tier service levels. Such strategies have immense potential in raising the cost of switching for customers at points of sale, thus resulting in increased usage of credit cards. It is a better option to allow customers to choose from different reward programs so that they can account for their own distinctive preferences and considerably enhance customer utility through the offered rewards.

This research paper analyzed the role of rewards programs and how they impact behavioral loyalties. In the context of the credit card sector, the relationship between customers and firms are considered to be non contractual while customers make purchases on the cards. Therefore lot of difficulties are faced by marketers in ensuring consistent use of cards, especially since switching costs are very negligible in the face of several cards being carried by customers. Therefore it s required that further research should focus upon behavioral and attitudinal loyalties for services that are characteristic of a contractual setting, such as in health clubs and insurance companies. Further research should explore varies aspects in the context of loyalty programs related costs of switching, especially in terms of psychological and financial costs of switching. This way a better understanding can be gained of the effect of rewards programs on customer loyalty. The appeal carried by loyalty programs should be researched from different perceptions such as for example the instant gratification of rewards against their cumulative attraction. In addition future research efforts can be directed in examining the relationship between attitudinal and behavioral loyalty. This research paper assumed that attitudinal loyalty is in the nature moderating the impact of the features of loyalty program on behavioral loyalty.

It must be recognized that customer satisfaction is not the same as customer loyalty because satisfaction pertains to emotional feelings and is the result of a complicated procedure that needs to be understood from the psychology perspective of customers (Westbrook, Newman, Taylor, 1978). Emotions can be wide ranging in emanating from feelings of relief, surprise and happiness. Eventually, satisfaction is impacted by aspirations and the gaps between the quality that is perceived and the quality that is expected. Products that meet quality standards and the related services will result in customer satisfaction. Such levels of satisfaction will in turn result in enhanced customer loyalty. There is however no spontaneous link between satisfaction and loyalty. In effect the relationship is different in varied circumstances and unless customers are completely satisfied they often tend to shift away to other options or products.

Conclusion

Summary and Findings

The total numbers of credit cards issued in Malaysia have been increasing consistently primarily because of the global strides in banking and financial services. There has been a growing global trend towards a cashless society as the world entered the twenty first century. Malaysia is no exception and with the rapid advancements in technology, the country has begun to develop and occupy a prime economic position in the region. People can now use the latest banking facilities sitting at home without being required to wait in long queues at the bank. Credit cards enable the purchase of goods and services online and such a move towards a cashless society is gradually increasing the number of credit card customers in the country. An important reason for such a move is the immense convenience that goes with credit card usage. In having a credit card in one’s wallet it is possible to make purchases with minimum botheration. People do not need to carry wads of currency notes and loose change in the pocket. It is for these reasons that there is increase in demand for credit cards.

Spending patterns involving credit card usage are characteristic of the diversion of all expenses being routed through one card because it is convenient to pay bills and customers can maximize their rewards points so as to get the highest values of redemption. Credit cards are gradually becoming a significant source of revenues for banks, particularly in the consumer credit sectors. Because of excessive competition, card issuing companies stand to immensely benefit by grasping the pattern and procedure of the consumer decision making process in the context of why customers chose a particular card as a preferred means for purchase and other transactions. Past research efforts have not focused much on the behavioral patterns of credit card users in Malaysia, but it is known through experience by banks in Malaysia that rewards programs are important considerations for credit card customers. This research will take initiatives in moving further ahead in complementing the past research by examining the preferences of customers in the context of varied demographic parameters in relation to the kinds of rewards programs offered in Malaysia. In getting such information, banks will be able to implement efficient strategies in attracting more card users and motivating them to spend on their credit cards and thus to grab a bigger market segment and larger revenues.

The present research on credit card loyalty programs in Malaysia has clearly found that for credit card customers, immediate rewards that include cash rebates and immediate benefits are more important in the context of being motivated to enhance their spending on the cards. This is primarily because of the trouble free procedure in which immediate rewards are given. In variance to accumulation of air miles and points, immediate benefits enable card holders to save themselves from the travails of maintaining a record of the points earned by them and then going through the cumbersome process of getting them redeemed. As a result card holders were clear in responding that accumulation of air miles as rewards for the use of credit cards was found to be least preferred amongst the loyalty programs for credit card holders. The hassles related with the tedious redemption process and the restrictions on travel routes makes accumulation of air miles the least preferred rewards program.

Monetary rewards that include cash vouchers and discounts are more appealing for credit card customers in Malaysia as compared to the non monetary options. Monetary rewards are more flexible and easy to redeem, which serve as the main reason for their preference. Demographic analysis has indicated that females reveal higher level of attraction towards rewards programs in comparison to male customers. Bu there is a distinct relationship amongst age groups and preferences for point accumulation programs as also the income levels of customers. The patterns of credit card customers in Malaysia are a little similar to those in America in the context of cash back rewards emerging as the most popular rewards programs for credit card customers. In other parts of the world instant benefits are not much preferred while in Malaysia they have been preferred on a larger scale.

Loyalty programs for credit cards have now become very popular because they give added incentives in choosing one brand over the other. But the real issue in this regard is whether loyalty programs actually provide added benefits to customers. Most credit card loyalty programs work in giving customers extra points for every unit of money spent and then allowing them the facility to redeem the points for travel, electronic equipment, gifts, hotel accommodations and several other goods and services. The scheme is quite intricate in providing for a minimum number of points before the gifts can be redeemed and every scheme has a time frame within which points have to be redeemed. Such provisions vary amongst institutions and often prove to be a deciding factor for customers in shifting from one credit card issuer to another. Loyalty programs are very beneficial for customers who make large and frequent purchases.

Majority of the loyalty programs do not entail extra financial burden on customers although some banks impose added interest rates in recouping the extra costs. Customers understand that if they pay their entire bill every month they have nothing to lose in using the credit card extensively and getting added financial benefits in the process by way of free rewards. But customers that choose to carry forward the outstanding balance stand to eventually loose in view of the high interest burden that is created over time. Customers that do not use their credit card frequently also stand to lose in being unable to accumulate reward points.

The findings in this paper are suggestive of majority of the considered loyalty programs as forming patterns of repeat purchasing by customers. What happens is that the banks spontaneously make a record of the transactions and other details which enable opportunities to marketing teams in banks to pursue with targeting and segmentation strategies as also to introduce strategies of individual marketing propositions for clients. The research has revealed that banks mainly focus upon two customer fragments; those that reveal the potential of being profitable clients and those that are ready to have cash balances in their banking accounts. Majority of the credit card loyalty programs provide card holders with discounts mostly on the costs of transactions. Such measures can be understood as an indirect policy of cutting prices that often results in a consistent struggle for prices. The most crucial aspect f majority of the rewards programs in Malaysia is to strengthen the value propositions provided by banks and to improve loyalty for the brand; not merely for the offered rewards. Relationship marketing strategies and loyalty programs are vital for the success of retail banking operations since that is the most appropriate method to build upon loyalty and relationships.

Recommendations

It is evident from this research that card holders in Malaysia are more inclined towards immediate rewards than rewards that are realized after a waiting period. For credit card issuers to enhance their market shares they must reframe and restructure the customer strategies in considering such preferences of customers. Instead of focusing on consumer loyalty programs by offering rewards programs by way of accumulation of air miles, they should make efforts in providing rewards that are more preferred by them. This can be done by enhancing their partnerships with retail chains in order to give credit card customers larger number of discounts on purchase of goods and services at these stores. Card issuers can research upon patterns of consumer spending in retail outlets and then tie up with stores that have the maximum patronization from card holders. In collaborating with such retailers card issuers can attract credit card customers to use their cards in these stores. Card issuers can also consider focusing their efforts away from non monetary rewards programs towards providing monetary rewards. In strengthening the cash rebate programs by increasing consumer awareness credit card issuers can benefit a great deal in terms of larger number of customers using their credit cards for making purchases.

Further Research Areas

The credit card market in Malaysia is now quite concentrated with a number of local and foreign players, all vying for a larger share of the credit card market. Credit card issuing companies are on the constant look out for new opportunities to lure new customers and to entice existing ones in using their cards more frequently. At the same time, credit card customers are expecting more utility from their cards. It is now understood that under such circumstances it is not enough for banks to compete with each other solely on the basis of interest rates and other charges that they impose for their services. Reward programs are now considered as a major solution to enhance customer value and have become so widespread that they are no longer considered to be a bonus for credit card holders. Rather, customer loyalty programs or reward programs have now become a very important consideration in making choices about credit cards. There are now increasing expectations from reward programs and card issuing companies have to take further initiatives in not only providing attractive rewards but will have to also customize the rewards programs in making them suitable to customers. Card issuers have to adopt a strategy that is market oriented in understanding customer expectations. Such expectations will have to be captured and further met in better ways by getting to know through research, the perceptions of credit card customers. Eventually what is most significant is the provision of rewards and incentives that bring maximum utility to credit card customers.

This research has been conducted primarily in the context of the Malaysian credit card market. Hence the research findings cannot be held as being applicable to other countries and regions. Further research can aim to investigate customer preferences in different nations and continents to ascertain the impact of cultural differences in the choice making process of customers in regard to rewards programs. Such efforts will assist global card issuers in adopting varied rewards strategies in every diversified market. Further research can also focus upon intensified qualitative approaches in further understanding the reasoning and logic behind preference patterns of credit card customers. Researchers can also examine the reasons for specific rewards programs being not adequately accepted by customers. After enabling a thorough understanding for card holders, credit card issuers can motivate them to increase their patronization of rewards programs. The present research has focused on the preferences and opinions of existing credit card holders but it will be more beneficial if new rewards programs can be introduced to attract new customers in addition to the existing ones.

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