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Hotel brands have sought numerous ways to build the relationship with their customers. Inspired by the airlines’ success, most major hotel chains have developed loyalty programs that reward customers for repeat business. However, the effectiveness of reward programs has been questioned. To explore reward programs’ potential to alter normal patterns to behavior, this research investigates how the timing of rewards affects customer loyalty for hotels and whether the effectiveness of these reward structures is moderated by customer satisfaction. This research also examines whether customer's value perception of loyalty program truly affect brand loyalty or program loyalty. In order to test the research framework, a 2 × 2 full-factorial, randomized, between-subject experimental design was conducted. In total, 209 respondents participated in the study. The results indicate that immediate rewards are more effective in building a program value than delayed rewards. Moreover, the value of loyalty program affects customer loyalty only through program loyalty to the extent that the program provides value to the customer. Finally, satisfaction plays an important moderating role on reward timing. Delayed rewards work better than immediate rewards only if customers are satisfied with hotel experience. In contrast, the immediate rewards in the dissatisfied experience become effective in their capacity to invoke customer loyalty.

Hospitality brands have sought numerous ways to build the relationship with their customers. Inspired by the airlines’ success, most major hotel chains have developed loyalty programs that reward customer repeat business (McCleary and Weaver, 1991). For instance, Marriott spent $54 million in 1996 on its Honored Guest program, while Hyatt invested $25 million in its loyalty program that same year (Skogland and Siguaw, 2004). These programs aim to enhance the customer's sense of membership in a unique club with benefits from this membership. However, reward programs are costly for hotel firms; initiation and maintenance of such a program requires investment, and free rooms or upgrades, newspapers, and other perks are expensive. As rewards improve, guests often seek the best deal—whether that means the best prices or the richest rewards. A typical traveler holds membership cards to several hotel chains’ rewards programs. A recent study by J.D. Power and Associates found that only a third of the 13,335 travelers surveyed showed strong loyalty to a specific hotel brand (as cited in Mattila, 2006). Given the managerial relevance of reward programs, academics have also recently begun to show interest in this topic (e.g., Mattila, 2006, Tideswell and Fredline, 2004, Shoemaker and Lewis, 1999 and Tepeci, 1999). Hotel companies are investing millions of dollars each year on their reward programs. These programs have been designed with the goal of fulfilling guests’ needs and desires on the premise that customer satisfaction will ensure guest loyalty. However, the effectiveness of reward programs has been questioned. In this study, to explore reward programs’ potential to alter normal patterns to behavior, this research investigates how the timing of rewards affects customer loyalty for hotels and whether the effectiveness of these reward structures is moderated by customer satisfaction. This research also examines whether customer's value perception of loyalty program truly affect brand loyalty or program loyalty.

The objective of this study is to develop a model used to illustrate the process of customer loyalty. The process of developing an effective program loyalty to satisfy customer and build customer loyalty needs to understand what types of reward program can generate value perception of loyalty program. This study extends the previous researches of Keh and Lee (2006) and Yi and Jeon (2003), taking into account factors that build customer loyalty. In this paper, we examined the relationships among timing of reward programs, value perception of loyalty program, program loyalty, satisfaction, and customer loyalty in hotel firms. Firstly, our study finds that the strength of reward timing can build customer's value perception of loyalty program. The finding of this study is consistent with recent work that explains the role of reward timing (Zhang et al., 2000 and Yi and Jeon, 2003). The findings support that the effectiveness of reward programs is highly fluid and dependent on the interplay among reward timing. The results indicate that processes underlying the effects of the loyalty program on customer loyalty are different depending on reward timing. This means that immediate rewards are more effective in building a program's value than delayed rewards. Immediate rewards such as lotteries or instantly redeemable coupons are recommended because customers may purchase to receive incentives. However, delayed rewards such as a mileage program can be justified as long as they are linked with value-enhancing rewards. The findings imply that hotel managers need to consider the timing of reward as an important factor in designing a loyalty program. Thus, it is advisable for hotel to enhance greater value of loyalty program by intensifying the delayed rewards and at the same time emphasizing the provision of immediate rewards. In general, our findings provide valuable insights to help hotel managers design their reward programs to meet customer's need and want, ultimately true loyalty behavior. Secondly, the current study also tests causal relationships between value perception, program loyalty, and customer loyalty. This study deepens the understanding of how value perception of the loyalty program affects program loyalty and customer loyalty. We have found that the value perception and customer loyalty link could be divided into two different paths. The loyalty program's value affects customer loyalty only through program loyalty to the extent that the program provides value to the customer. There is no direct route between value perception and customer loyalty. That is, value of loyalty program affects customer loyalty only through program loyalty to the extent that the program provides value to the customer. This finding implies that customers may want a long-term relationship as long as the loyalty program is valuable to them. Given that the loyalty program is employed to instill or maintain customer loyalty, hotel managers should pay their attention to the process by which the loyalty program works. They should consider designing a loyalty scheme that can improve the value chain of products or services, positing their target customers, because many competitors may provide the same loyalty program. In addition, although the loyalty program is costly to initiate and maintain and often requires a hotel firm's long-term commitment, hotel managers should not considered it as a defensive strategy. The results from the current research suggest a need for hotel managers to expand their mentality toward loyalty program as a more active marketing tool. It becomes clear that loyalty scheme can succeed where customer get the loyalty program right and perceived good value of loyalty program. A hotel firm also must assess the suitability of loyalty program and then carefully plan, evaluate, and constantly revise the program. The success of a loyalty program needs to reflect value contribution and program loyalty. Thus, a better understanding of how to increase program loyalty by great value perception of loyalty program might enable the hotel to build customer loyalty. Thirdly, this study investigates the relationship of customer satisfaction and customer loyalty, supporting the central tenet that satisfaction with hotel did positively affect customer loyalty. The finding implies that hotel managers should strive to provide a positive experience whenever possible and continue to focus on their employees. Well-trained staff members who exude the appropriate attitude toward hotel service are invaluable in keeping guests involved in the purchase decision so that they are actively pursuing information that will showcase the hotel's benefits over those of alternative properties. Finally, this study also finds that delayed rewards work better than immediate rewards only if customers are satisfied with hotel experience. In contrast, the immediate rewards in the dissatisfied experience become effective in their capacity to invoke customer loyalty. It is evident that satisfaction plays an important moderating role on reward timing. Building loyalty should be viewed as a long-term process (Oliver, 1997), and our findings imply that delayed rewards would be effective when customers are satisfied. However, if the experience is dissatisfactory, then most forms of rewards are not effective. Our results suggest that, at best, immediate rewards have a modest effect. Nevertheless, hotel marketers should coordinate both approaches into different situation. This study demonstrates the importance of loyalty program based on the timing of reward, value perception, program loyalty, satisfaction, and customer loyalty. The research findings pointed out that there is a need to first understand the customer hotel experience. Whenever possible, the hotel organization thus should strive to offer best value of loyalty program via timing of reward program to form program loyalty and provide a positive satisfied experience to win customer loyalty. Any preliminary attempt will involve a number of limitations. However, acknowledgement of these limitations also suggests new directions for future studies. Firstly, the findings were generated from the experiment. The experiment is not designed to provide empirical generalizations to a larger population. Also, data collection is not randomly selected from a population. Hence, research findings learned about these subjects cannot be used to describe parameters for the population. These findings may need to be tested in field study. Moreover, this research examines only timing of redemption. Future studies may investigate how other factors affect the choice of reward programs such as type of reward. Furthermore, investigation on preference of reward programs for different types of customers such as first-time and frequent customers may help hotel reach their specific needs. Also, our experiments are constrained to hotel organizations. It is possible that the type of organization could have a moderating effect; thus, future research can replicate the study over a broader range of different types of restaurants such as fast-food, casual, theme and fine-dining.