Loyalty programmes as a predictor of customer retention in retail banking sector : a multiple mediation analysis of brand association and customer satisfaction

Abstract

Loyalty programmes have made significant inroads in the retail banking sector and companies have reported spending billions of rands on these programmes since inception. Despite this popularity, their effectiveness in driving customer behaviour, such as customer retention, remains divergent among both academics and practitioners. Studies are being pursued to discover what differentiates successful ones from unsuccessful ones. Purpose This study aimed to determine whether loyalty programme perceived benefits predict/drive customer retention and assess the mediation effect of overall customer satisfaction and brand association in South Africa’s retail banking sector. Design/Methodology/Approach The study used a descripto-explanatory research approach where data was collected using electronic self-administered surveys comprising a sample of 205 banked, adult individuals who are using loyalty programmes. Structural equation modelling (SEM) through IBM SPSS AMOS29 was used to analyse the data in the hypothesis testing. Findings The empirical analysis using SEM confirmed that only exploration and recognition of perceived benefits of loyalty programmes have a significant impact on customer retention. However, the impact of both these perceived benefits were negative with a very small correlation to customer retention, indicating that the impact can is negligible. Moreover, monetary savings, social benefits, and entertainment were found not to have any significant predictive power on customer retention. Furthermore, mediation analysis was performed and established that only brand association fully mediates the relationship between loyalty programmes’ perceived benefits and customer retention.