Quality and value network marketing travel clubs

Annals of Tourism Research, Vol. 34, No. 3, pp. 588–609, 2007 0160-7383/$ - see front matter  2007 Elsevier Ltd. All rights reserved. Printed in Great Britain

www.elsevier.com/locate/atoures

doi:10.1016/j.annals.2007.01.006

QUALITY AND VALUE NETWORK Marketing Travel Clubs Ruomei Feng FedEx Services, USA Alastair M. Morrison Purdue University, USA Abstract: Membership programs are important business modes and marketing tools among tourism and hospitality organizations. With a paid vacation travel club as the empirical environment, the study found that perceived quality and value for the organization have more than one dimension in a membership setting. Based on this different structure and mainly mediated by membership value, both product and membership quality positively affected value for the organization; and the latter exhibited much stronger power. As a result, it is easier for these programs to increase commitment and cooperation than to increase retention by managing membership quality. Keywords: membership, relationship marketing, perceived quality, value network, vacation clubs.  2007 Elsevier Ltd. All rights reserved. Re´sume´: Re´seaux de qualite´ et valeur: commercialisation des clubs de voyages. Les programmes d’adhe´sion sont des outils commerciaux importants pour les organisations du tourisme et de l’hospitalite´ . Pour un club de voyages et de vacances avec cotisation, l’e´tude trouve que la qualite´ et la valeur perc¸ues pour l’organisation ont plusieurs dimensions dans un contexte d’adhe´sion. Base´s sur cette structure diffe´rente, et influence´s principalement par la valeur de l’adhe´sion, le produit et la qualite´ de l’affiliation affectent positivement la valeur pour l’organisation, qui se montre beaucoup plus forte. Il est donc plus facile pour ces programmes d’augmenter l’engagement et la coope´ration que de garder plus de membres en ge´rant la qualite´ de l’adhe´sion. Mots-cle´s: adhe´sion, commercialisation des relations, perception de qualite´, re´seau de valeur, clubs de vacances.  2007 Elsevier Ltd. All rights reserved.

INTRODUCTION As an important marketing tool or business mode in tourism and hospitality, membership relationship programs germinated in the airline sector approximately in the 70s, and later turned into frequentflyer programs (Gilbert 1996). The success of the latter stimulated the emergence of similar programs in other tourism and hospitality sectors, such as hotel frequent-guest programs (Palmer, Beattie and Beggs 2000), and the customer preference schemes of car rental

Ruomei Feng, PhD, is Senior Analyst of Corporate Strategy and Marketing Research, FedEx Services (Collierville TN 38017, USA. Email ). Her research focuses on market research, and tourism and destination marketing. Alastair Morrison, PhD, is Distinguished Professor of Hospitality and Tourism Management in the College of Consumer and Family Sciences, Purdue University. His marketing research interests include international tourism, destination, and Internet. 588

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companies (Chadee and Mattsson 1996), travel clubs (Ferreira 1996), and even destination tourist relationship programs (Fyall, Callod and Edwards 2003). These all provide members with privileged treatments and rewards for repeat purchases. After success in the early stages, the programs received some serious criticisms, and marketers realized that good relationships with customers and in marketing practice meant much more than a simple reward program based on purchases. Quality, a traditional criterion in evaluating products and services, again began to be appreciated. Gilbert (1996) suggested that quality should act as the chief facilitator to achieve the objectives of relationship marketing, such as commitment to the brand, emotional involvement, and active interaction. From a cost-benefit perspective, instead of a perceptual or processing perspective, Bhattacharya and Bolton (2000) modeled quality as one of the major relationship marketing factors in customer decisions to maintain, build, or withdraw from a relationship. Gruen also stated that ‘‘a membership program designed to create enduring customer relationship is based on a core product or service to which the member can be loyal’’ (2000:362). Moreover, researchers have suggested that in relationship marketing quality should be the concern of not only production but all staff (Hennig-Thurau and Hansen 2000). Relational interaction is a basic social phenomenon, including the interaction between business organizations and their customers. Emerging in the early 80s, relationship marketing obtained wide acceptance, but does not have a fully developed conceptual foundation (Parvatiyar and Sheth 2000). However, the extant definitions of and literature on it commonly suggest that mutual value of the parties engaging in the relationship, is certainly the key concept and component of theories dealing with this subject (Parvatiyar and Sheth 2000; Payne and Holt 2001). The word ‘‘mutual’’ implies a ‘‘symbiosis’’ of value for an organization and its end customers. In fact, some social psychologists have gone so far as to suggest that mutual cooperation is inherently more productive (Kohn 1986). Specifically, due to the conversational reciprocity, reciprocal empathy and vulnerability of an enduring customer-organization relationship, it is not enough to satisfy only one party in it (either the customers/members or the organization) (Wolfe 1998). In fact, in both relationship and tourism marketing research domains, creating customer value has been gradually more regarded as the next source of competitive advantage (Woodruff 1997), where customer perceived quality (hereafter referred to in the short form, quality) is commonly recognized as a significant and positive antecedent (Kashyap and Bojanic 2000; Petrick 2004a; Sweeney, Soutar and Johnson 1999). However, limited research exists on how customer quality influences value for the organization engaging in the relationship (Payne and Holt 2001). This leaves a critical gap in understanding the resulting ‘‘symbiosis’’. Using a paid vacation travel club as a case, this study investigated the influence of member quality on the creation of value for the club with the mediating effect of member value.

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QUALITY AND VALUE NETWORK To date, the research topics of quality, value, and satisfaction have been dominant issues in the marketing literature (Cronin, Brady and Hult 2000). One theme for these discussions has been their conceptual development. Although quality and satisfaction both derive from the same theoretical notion—the disconfirmation of the expectancy paradigm (Oliver 1980; Parasuraman, Zeithaml and Berry 1985, 1988)— researchers have tried to differentiate them. In marketing, quality and satisfaction were distinguished by the standard of comparison employed in the disconfirmation of expectancy. The former was defined as a gestalt attitude toward the multiple attributes associated with a service procedure, whereas the latter was defined as an overall attitude toward specific service transactions, purchasing products, or quality (Oliver 1980; Parasuraman et al 1985). In tourism, they have been differentiated as quality of opportunity/performance versus satisfaction/ quality of experience (Baker and Crompton 2000). Based upon this distinction, customer satisfaction has interested researchers and practitioners as a consequence of quality and has long functioned as a main mechanism for listening to customers (Baker and Crompton 2000). However, some studies pointed out problems with customer satisfaction measurement and its dominant theoretical foundation, the expectancy/disconfirmation or customer (dis)satisfaction models. The major argument was that people use values and desires instead of satisfaction based on expectation to make judgments and decisions (Cronin et al 2000; Payne and Holt 2001). Many researchers thus shifted to and have been concentrating on this extended concept of customer value (Anderson and Narus 1998; Parasuraman 1997; Slater 1997). In tourism, the related research began to receive more attention in recent years, most based on the concept developed by Zeithaml in 1988 (Kashyap and Bojanic 2000; Petrick 2004a, 2004b; Petrick and Backman 2002). Value in social science is understood in the human values such as the instrumental and terminal ones suggested by Rokeach (1973). In marketing, it is typically defined from the consumer’s perspective. As Zeithaml suggested, this is ‘‘the consumer’s overall assessment of the utility of a product based on perception of what is received and what is given’’(1988:14). Meanwhile, others have proposed various definitions with a distinct emphasis (Anderson, Jain and Chintagunta 1993; Monroe 1990). They share some commonalities: customer value is linked through or inherent in the use of some products or services; it is perceived by customers instead of independently determined by the one who offers the products and services; and customer’s perceptions typically involve a trade-off between what one receives and what he or she correspondingly sacrifices. The distinctions of these definitions exist in the different terms used (utility, worth, benefits, quality, etc.) and the different points of time when the perception of value is created: at the moment of making purchase decision or after use (Woodruff 1997). The perceptions of value are not limited to the functional aspects but may include social, emotional, and even epistemic

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components (Sheth, Newman and Gross 1991). After reviewing the extant definitions, Woodruff further proposed a more comprehensive one: ‘‘[the] customer’s perceived preference for and evaluation of those product attributes, attribute performances, and consequences arising from use that facilitate (or block) achieving the customer’s goal and purposes in use situations’’ (1997:142). This definition integrates both desired and received value and stresses that they arise from customers’ learned perceptions, preferences, and evaluations. In addition, in the definition, products are linked together to use situations and the consequences experienced by goal-driven customers. The development of this conceptualization implies that quality is a positive antecedent of customer value. This linkage was also empirically addressed and proven in general marketing and tourism marketing (Kashyap and Bojanic 2000; Petrick 2004a; Sweeney et al 1999). Further, Woodruff (1997) admitted that, similar to the definition developed by Zeithaml (1988), his definition of customer value stood on a conceptual framework of the means-end chain model, which further theoretically supported the proposition of the linkage between quality and value. Introduced by Gutman and Reynolds in the late 70s (Gutman 1978, 1982; Gutman and Reynolds 1979), the roots of the means-end chain model went back much further to the classic framework of utility maximization. In tourism settings, the model has been employed to explore customer preferences and decisionmaking. For example, it was used to identify the factors involved in selecting a ski destination (Klenosky, Gengler and Mulvey 1993), visiting a museum (Jansen-Verbeke and van Rekom 1996), using a state park interpretive service program (Frauman, Norman and Klenosky 1998; Klenosky, Frauman, Norman and Gengler 1998), to investigate price perception of business and leisure tourists (Kashyap and Bojanic 2000), and to examine the push-pull relationship in spring break destination choice (Klenosky 2002). The basic means-end chain model has three levels or stages: product attributes, the consequences or outcomes of using a product, and the broad values that may be satisfied by using that product, which are linked to form a simple, hierarchical chain: Attributes fi Consequences fi Value (Olson and Reynolds 2001). This set of linkages is called a means-end chain because customers regard the product and its attributes as a means to an end, where the desired end refers to values of self-relevant consequence. This adjective implies that product attributes per se have little or no relevance or importance to customers. Instead, the meaning and values of product attributes are largely based upon the consequences customers are perceived to bring about, such as quality perception. It is suggested that the consequences can be classified into two types: functional and psychological, where the formerl stand for immediate and tangible consequences experienced by customers (Gutman 1982; Olson and Reynolds 1983). From the cognitive structure view, quality, as a gestalt and postpurchase-based evaluation toward the multiple attributes associated with a product or a service procedure, is one type of functional consequence and subsequently

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influences customers’ perception of value received from the product or service procedure. Duality of Member Quality and Value Membership relationship marketing, as an important and popular type of marketing, has some unique features as well as some commonalities with other types. One of these unique features, especially in a fee-paying situation, is the structure of products and services offered by programs. For instance, after paying fees, members become the only or major customers of a program and are allowed to receive or access the goods or services provided by it. Hence, Gruen (1994) suggested that the structure used to study memberships must integrate two levels of decisionmaking. The first concerns the consumers’ desire for a membership (Should I buy it or not?). At this level, membership is an offering in its own right. The second level is the actual consumption that involves the decisionmaking toward the associated goods (‘‘Now I have the membership, how am I going to use it?’’). This two-level structure creates the duality of quality and value. The above discussion led to the first two research hypotheses: H1: There is a direct relationship between product quality and product value. H2: There is a direct relationship between quality and value of membership.

A person pays a fee in order to earn a level of utility higher than would be achievable without this payment. Some may expect the first level of purchase should not influence the second level of customer behavior because the utility-maximizing customers should only rely on the marginal costs and benefits of alternatives involved in the second level of consumption. However, Dick and Lord (1998) found that the short-term benefits of fees in overcoming competitive utility equalization shortly after making the payment should lead to a persistent positive attitude-difference advantage and to a greater propensity to continue patronage. Gruen (2000) proposed that membership is used to drive the initial and primary relationship of individuals and the program. Therefore, the process of managing the quality offerings impacts the perception of the core services/products. More generally, based on prospect theory and the theory of escalation of commitment, Staw (1981) suggested that a motivation to justify a previous decision leads to the distortion of values. Applying this logic to the two-level structure of customer decisionmaking in memberships, the next two research hypotheses were proposed: H3: There is a direct relationship between product quality and membership value. H4: There is a direct relationship between membership quality and product value.

Value Network The other linkage proposed in this study was between member value and that for the organization. The value network concept was adopted

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to support this proposition. McKinsey and Co. outlined a value delivery system or sequence, which was later referred to as the ‘‘value proposition’’ (Bower and Garda 1985a:40). This notion emphasized that companies should shift from a traditional view of regarding the business as a series of functional activities to an external-oriented view regarding the business as a form of value delivery (Bower and Garda 1985b). Porter (1985) further introduced the idea of the creation of competitive advantages through the management of internal activities to form the organization’s value chain. Despite being derived from the same notion, the concept of value constellation was introduced by Normann and Ramirez (1993) as a criticism of the early work on value chains. The concept stressed that the focus of strategic analysis should be on a value-creating system instead of the strategic activities of the company or the industry. Within the system, such economic parties as suppliers, business partners, and customers work together to co-produce value (Normann and Ramirez 1994). Similarly, DeRose proposed a notion of the value network, ‘‘an interconnecting web of value-creating and value-adding processes’’ for customers. He further suggested that ‘‘the driving determinant for supplying value is. . .what is provided to satisfy customer requirements, at least cost of ownership and use’’ (1994:16). This implied that, in a membership setting, value for the program is a consequence of customer value, which in other words, is viewed as an output of, instead of an input to, value creation (Payne and Holt 2001). Value for the Program Value for the organization means the outcome derived from providing and delivering superior customer value, which has received some attention. A major concept of its research stream is customer lifetime value. This concept stemmed from the early work by Reichheld and Sasser (1990), where they looked at the net-present-value profit improvement of repeat customers. For a lifelong span, economic value may be a direct and efficient measurement. However, from a cross-sectional perspective, a quality membership program relationship should consist of not only positive financial bonds but also positive social, customization, and structural bonds between the two parties (Zeithaml and Bitner 2000). Recent research has applied a term of social capital to a broad range of social phenomena, including the organization-market interface (Baker 1990). Social capital includes many aspects of a social context and relationship, such as social connections, trusting relations, and value system that facilitate actions of individuals and/ or parties located within the relationship (Tsai and Ghoshal 1998). Accordingly, a broader approach should be adopted to operationalize value for the organization. In practice, many of these offerings are also called loyalty programs, implying that loyalty is the key output of these programs and suggesting some implicit connections between customer loyalty and value for the program. Loyalty refers to a tendency that customers keep

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purchasing the same brands of products or services rather than switching to alternatives. Although there is no consensus on defining loyalty, three types of approaches have been employed to measure it: attitudinal, behavioral, and composite, which refers to the combination of attitude and behavior (Jacoby and Chestnut 1978). The behavioral approach measures loyalty with actual or reported purchasing behavior. The attitudinal concept relies on purely attitudinal measures reflecting the psychological attachment inherent in loyalty, which has similar implications to commitment, an often-used construct in relationship marketing (Morgan and Hunt 1994). Day (1969) suggested that the use of the composite approach increases the predictive power of the loyalty construct since each dimension cross-validates the nature of true loyalty. Dick and Basu (1994) further proposed a four-cluster loyalty typology founded on the composite approach, including true, spurious, latent, and low loyals. Oppermann (2000) argued that the two-dimension approach is not efficient in tourism due to the limitation of measurement development in this field. But recently, more researchers have agreed that the two-dimension approach delineates a more realistic picture (Petrick 2004c), and employed this in developing segmentation approaches (Pritchard and Howard 1997). For membership relationship programs, the target should be to create and maintain multiple positive bonds with truly loyal customers, who show both high behavioral patronage and attitudinal attachment. In this setting, retention denotes behavioral loyalty of members, more specifically, their repeat purchases of both memberships and associated core offerings. Further, as one of the objectives of relationship marketing, commitment concerns members’ long-term psychological attachment (Scheer and Stern 1992), and implicit or explicit promise/desire for relational continuity with the program (Dwyer, Schurr and Oh 1987; Morgan and Hunt 1994). Moreover, it is expected that customers take coordinated and cooperative actions in order to create value, such as word-of-mouth referral, making suggestions for the improvement of products and/or services, being flexible when necessary, and proactively communicating about anticipated problems (Gruen 2000). These coordinated actions were called cooperation by Lewin and Johnston (1997), and co-production or participation by Gruen (2000). In summary, this study proposed that retention, commitment, and cooperation as the three key dimensions to measure value for the program. On the bases of the above discussion, six additional hypotheses were developed (Figure 1): H5: Product value and member retention. H6: Product value and member commitment. H7: Product value and member cooperation. H8: Membership value and member retention. H9: Membership value and member commitment. H10: Membership value and member cooperation.

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H5

Product quality

H1

Product value H4

H6

Retention H8

Commitment

H3

Membership quality

H2

Membership value

H9 H7 H10

Cooperation

Figure 1. Proposed Conceptual Model

Empirical Environment and Measurement This study used a paid vacation travel club located in the Midwest United States as a case. The club is an access program, which means membership is required to obtain entrance to the program’s goods and privileges. Therefore, by joining the club, members are allowed to enjoy the vacation packages and other member privileges. In the hypothesized model, there were two quality-related exogenous constructs (product and membership qualities) were the exogenous constructs. Although quality has been conceptually defined with the notion of the disconfirmation of expectancy paradigm, the measurement approach based on discrepancy referring to the gap between respondents’ expectation and perception scores has received criticism mainly because of its psychometric properties (Brown, Churchill and Peter 1993; Teas 1993) and its inferior predictive validity (Crompton and Love 1995). Simultaneously, the criticism suggested a superior alternative approach to directly measure respondents’ perception of quality performance against an expectation standard. This study adopted the alternative approach by requiring respondents to evaluate quality performance against their expectations with a single score. With vacation packages as the core product, a travel club was the empirical environment. The product quality measured respondents’ perception of the quality of the packages. In tourism and recreation, quality has been conceptualized as that of opportunity or performance, which implies that people’s perceptions of products are based on their attributes which are controlled by the providers (Baker and Crompton 2000; Crompton and Love 1995). Moreover, a vacation package brings a tourist an overall experience with the individual products and services (Mill and Morrison 2002). Hence, a decision was made in this study that, besides the perceptions of attributes, product quality also measured the perception of packages as wholes. Eight items were used to gauge the quality: ‘‘Vacations of the travel club offer a variety of activities’’ (PQ1); ‘‘Accommodations included meet my needs’’ (PQ2); ‘‘Flights are comfortable’’ (PQ3); ’’On vacations of the club, my privacy is assured if I want it’’ (PQ4); ’’The packages are of

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consistently high quality’’ (PQ5); ‘‘I feel safe and secure on vacations of the club’’ (PQ6); ‘‘Vacations are hassle-free’’ (PQ7); and ‘‘Vacations are well designed’’ (PQ8). The attributes used to measure membership quality perception were based on both, SERVQUAL, developed by Parasuraman et al (1988), and the nature of membership services. The theoretical framework of SERVQUAL consists of five dimensions: tangibles, reliability, responsiveness, assurance, and empathy. Considering the fact that the member-travel club communication is mainly through telephone and email, this study deleted the tangibles dimension and concentrated on the rest. Furthermore, Gruen (2000) suggested that it is an important element of quality whether the program provides timely updates to members on the available products and services. Seven items were adopted to measure membership quality perception: ‘‘The travel club and its staff are honest and reliable’’ (MQ1); ‘‘Service at the club is not efficient’’ (MQ2); ‘‘The club and its staff are always accessible and respond to my requests when I need it’’ (MQ3); ‘‘Service staff are friendly’’ (MQ4); ‘‘Service staff are courteous’’ (MQ5); ‘‘I am kept posted on the new vacation products and membership benefits’’ (MQ6); and ‘‘When the club and its staff promise to do something by a certain time, they will definitely do so’’ (MQ7). Product value was measured with four items: ‘‘Vacations of the club are reasonably priced’’ (PV1); ‘‘Vacations offer good value for the dollar’’ (PV2); ‘‘Vacations are good for the prices charged’’ (PV3); and ‘‘Vacations are not economical’’ (PV4). Membership value is not only related to fees, but also to member privileges and the efficiency of taking advantage of the privileges, which will bring members extra financial benefit. Hence, three items were adopted to measure perception of it: ‘‘Membership fees of the club are reasonable’’ (MV1); ‘‘Membership privileges are valuable to me’’ (MV2); and ‘‘I use my membership privileges quite effectively (I received good value by using membership privileges)’’ (MV3). These constructs were measured with 5-point Likert scales (1 for ‘‘strongly disagree’’ and 5 ‘‘strongly agree’’). Given the duality of consumption, retention should concern purchases of both vacation packages and of memberships. Therefore, two items were used to measure retention: ‘‘Total value in dollars spent in buying vacations of the club’’ , and ‘‘Total value in dollars spent in membership fees at the club’’. These two items were measured at an ordinal level, where the brackets with increasing dollar-spent ranges were labeled with ascending numbers from 1 to 19. In some sense, this variable can be regarded as a ‘‘pseudo’’ continuous variable. Three items were used to measure commitment addressing the duality of consumption: ‘‘I expect my relationship with the club to last a long time’’ (CM1); ‘‘I will not renew my membership when the current term expires’’ (CM2); and ‘‘I would buy a quality vacation package from the club even though I was not getting the lowest rates’’ (CM3). Cooperation was gauged with five items: ‘‘I have no hesitation in recommending the club to friends and family’’ (CP1); ‘‘I would not hesitate to make purchase decisions based on suggestions of the club’’ (CP2); ‘‘I will proactively communicate with the club when I anticipate

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problems with their products and services’’ (CP3); ‘‘I love to share my ideas on product and service improvements with the club’’ (CP4); and ‘‘I will be flexible if the club requires’’ (CP5). Commitment and cooperation were also measured with 5-point Likert scales.

Data Collection An online questionnaire survey was designed, which contained all the above key questions and sociodemographics and member characteristics. In November 2003, an email invitation was sent to all 13,986 current members whose email addresses could be found in the club records, which asked them to complete the survey. A follow-up email was sent out in February 2004. Finally, a total of 1,546 responses were received, among which 1,233 were from the first stage and 313 from the second. The overall response rate was 11.1%. Online surveying is an emerging method. Although many merits of this technique have stimulated and accelerated its application, for instance standardized software, user-friendly interfaces, and low access cost, low response rates have been a problem of it (Vehovar, Batagelj, Manfreda and Zaletel 2002). Generally, 50%–60% is considered acceptable response rate. However, a more important criterion of a good sample is how representative are the respondents of the target population, which will affect how valid the results are (Lohr 1999). Diem (2002) and Moore and Tarnai (2002) suggested some strategies to deal with a relatively high nonresponse rate, such as using follow-up invitations, comparing respondents to the population, comparing early to late participants, ‘‘double-dipping’’ nonrespondents etc. This study employed a combination of following-up with nonrespondents and comparing early to late participants. Evidence has shown that late- and nonrespondents are often similar (Moore and Tarnai 2002). If a statistical comparison shows no difference between early and late respondents, then data can be generalized to the population (Diem 2002). Hence, this study compared the basic sociodemographics of the first-stage participants, who completed the survey before the follow-up email, to the second-stage group, who acted after the follow-up, including gender, age, education, occupation, ethnicity, household income, and martial status. The chi-square test results indicated no significant differences between first- and second-stage respondents. Consequently, it could be inferred that the sample was a good representation of the target population. The profile of the sampled vacation club members is given in Table 1.

Statistical Analysis and Results To test the hypothesized model and estimate the coefficients, after data screening, a two-step approach with an initial measurement model and a subsequent structural model for structural equation modeling was employed (Anderson and Gerbing 1988). The LISREL 8.54

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Table 1. Vacation Club Member Sample Profile (N = 1546) Characteristics

%

Gender Male Female

41.0 59.1

Age Less than 18 years old 19-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65 or older

0.4 0.4 1.6 4.2 5.9 9.9 16.3 20.1 16.9 12.0 12.4

Marital status Single Married Living with a partner Separated/divorced Widowed Prefer not to say

9.3 77.6 2.7 5.8 2.8 1.7

Characteristics

%

Education High School Some College but No Degree Associate Degree Bachelor Degree Postgraduate Degree

8.3 19.7 7.6 33.4 30.9

Occupation Administrative Educator Executive Managerial Professional Sales/marketing Self-employed Retired Other

9.9 7.5 5.3 10.9 21.1 6.0 14.4 15.1 9.9

Ethnic African-American Caucasian Native American Other Prefer not to answer

1.3 92.5 0.8 2.0 3.5

structural equation analysis package originally by Joreskog and Sorbom (1993) was used to conduct the analysis. When estimating the measurement and structural models, the maximum likelihood procedure was employed, in which a chi-square test is the most common model goodness-of-fit test. However, many researchers have suggested that there are three ways in which the test may be misleading: the complex model, large sample size, and violation of the assumption of multivariate normality (Byrne 2001; Joreskog 1993; Kline 1998). In addition, many newly developed fit indices are found in the literature, consisting of indices of goodness-of-fit tests based on hypothesized versus saturated models, indices of the tests comparing the hypothesized model with an alternative model, indices based on hypothesized vs. saturated models but penalizing for lack of parsimony, and those based on information theory (Byrne 2001; Hu and Bentler 1995). These newly developed model fit indices were critical in this study due to the large sample size (n = 1546) and the relatively complex hypothesized model. PRELIS in LISREL 8.54 was used to conduct data screening. This process included missing value handling and variable normality checking and treatment. The expectation maximization (EM) approach was employed to treat the missing values. Each variable was examined on normality. Among the 32 variables, only the two variables of retention were slightly non-normally distributed. They were ‘‘total value in

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Table 2. Construct Reliability and Validity Variable

Label

Standardized Loading

T-value

Product Quality Variety of activities in vacation Accommodations meet needs Comfortable flights Privacy is assured in vacation Consistently high quality of vacation Safety and security during vacation Hassle-free vacation Well designed vacation

PQ1 PQ2 PQ3 PQ4 PQ5 PQ6 PQ7 PQ8

0.42 0.56 0.48 0.47 0.55 0.52 0.56 0.50

27.63 33.32 22.85 29.01 34.37 34.08 30.59 35.53

MQ1 MQ2 MQ3 MQ4 MQ5 MQ6

0.42 0.50 0.44 0.42 0.42 0.35

29.76 25.07 26.60 25.58 26.05 22.25

Membership Quality Honest and reliable staff Efficient service (-) Accessibility and responsiveness Friendly staff Courteous staff Updated information about membership Promise fulfillment

0.89

0.86

MQ7

0.46

27.09

Product Value Reasonably priced Good value for the dollar Good for the prices charged Economical (-)

PV1 PV2 PV3 PV4

0.84 0.81 0.75 0.73

47.02 50.44 46.49 33.15

Membership Value Reasonable fees Valuable privileges Value from privileges

MV1 MV2 MV3

0.51 0.60 0.54

26.07 29.22 21.17

SQRT1

0.82

24.87

SQRT2

0.60

22.46

CM1 CM2 CM3

0.64 0.62 0.53

33.05 24.87 22.34

CP1 CP2

0.56 0.44

33.32 27.05

CP3 CP4 CP5

0.27 0.24 0.35

15.28 12.51 19.19

Retention Total value in dollar spent in buying vacations (Squared) Total value in dollars spent in membership fees (Squared) Commitment Long-time relationship Membership renewal (-) Purchase while not getting the lowest rates Cooperation Word-of-mouth referral Purchase based on staff’s suggestions Proactively communication Idea sharing Being flexible (-) denotes reverse-coded items.

Cronbach a

0.93

0.74

0.74

0.74

0.70

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600

dollars spent in buying vacations of the travel club’’ and ‘‘total value in dollars spent in membership fees at the travel club’’. To decrease the non-normality, square transformations were conducted on each of these two variables. After the transformation, the skewness of all variables ranged from 0.94 to 0.12 and the kurtosis ranged from 0.37 to 2.25. Cronbach’s alphas (a) were calculated to verify the reliability of construct measurements. The level of internal consistency of items within each construct was acceptable, with Cronbach’s alphas ranging from 0.70–0.93 (Table 2). These greater than 0.70 Cronbach’s alphas indicated good measurement reliability of the constructs (Hair, Anderson, Tatham and Black 1998). SIMPLS in LISREL 8.54 was used to estimate the measurement model with confirmatory factor analysis. Due to the large sample size, the chi-square model appeared rather high (X2 = 1441.95) with p = 0.00. However, all the other model fit indexes indicated a very good fit of the measurement model (Table 3). Based on the good-fitting measurement model, each variable’s loading on its corresponding construct in it was significant at the t-value level of 1.96, showing construct convergent validity (Table 2). The discriminant validity of constructs was also examined. SIMPLS in LISREL 8.54 was also used to estimate the structural model with the maximum likelihood procedure. Similar to the measurement test, the chi-square model was high (chi-square = 1604.24) with p-value = 0.00 because of the large sample size and the relatively complex model. However, a strong goodness-of-fit of the structural model was indicated by all the other indexes: standardized RMR = 0.04, GFI = 0.94, AGFI = 0.92, PGFI = 0.77, NFI = 0.98, NNFI = 0.99, CFI = 0.99, RFI = 0.98, IFI =0.99, RMSEA = 0.043, and critical N = 486 (Table 3). Table 3. Results of Model Goodness-of-Fit Tests Index

Model v2 P-value Standardized RMR GFI AGFI PGFI NFI NNFI CFI RFI IFI RMSEA Critical N

Cutoff Value

N/A > 0.10 <0.05 >0.90 >0.90 >0.50 >0.90 >0.90 >0.95 >0.95 >0.95 <0.05: good fit 0.05–0.08: mediocre fit >200

Observed Statistics Measurement Model

Structural Model

1441.95 0.00 0.032 0.94 0.92 0.75 0.99 0.99 0.99 0.98 0.99 0.042 515

1604.24 0.00 0.040 0.94 0.92 0.77 0.98 0.99 0.99 0.98 0.99 0.043 486

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Based on the good-fitting structural model, significant paths (hypotheses) were identified with the criterion of t-value > 1.96. Eight of the 10 hypotheses were supported. Table 4 summarizes the significant paths with their standardized coefficient estimations and corresponding t-values. Hypotheses 1 and 3 were supported, which suggested that product quality influenced both product value (standardized coefficient = 0.44, t = 5.63) and membership value (standardized coefficient = 0.28, t = 3.39). Hypotheses 2 and 4 were supported, indicating that membership quality influenced its value (standardized coefficient = 0.49, t = 5.76) as well as product value (standardized coefficient = 0.18, t = 2.29). Regarding the impact on value for the membership program, product value only significantly influenced commitment (standardized coefficient = 0.15, t = 6.47), while membership value affected all the three dimensions: retention (standardized coefficient = 0.35, t = 9.88), commitment (standardized coefficient = 0.86, t = 20.33), and cooperation (standardized coefficient = 0.85, t = 2.95). Indicated by t-values lower than the 1.96 level, the two unsupported hypotheses were the relationship between product value and retention, as well as cooperation. Figure 2 pictorially presents the resulting causal model, in which the numbers show the standardized coefficients between each pair of two variables. In addition, in order to understand the total effect of each quality variable on each value for the program variable (retention, commitment, and cooperation), a series of calculations was conducted, with results reported in Table 5. As presented, the total effect of product quality on retention was the lowest (0.10), while its influences on commitment and cooperation were 0.31 and 0.24 respectively. As regards membership quality, its total effect on commitment was highest (0.45), while its influences on retention and cooperation were 0.17 and 0.42 respectively. In summary, the results of measurement scale testing indicated the reliability and validity of all the proposed measurement scales. The Table 4. Key Parameters of the Structural Model

H1: H2: H3: H4: H5: H6: H7: H8: H9: H10: a

Hypothesis

Standardized Coefficient

T-valuea

Sig.

Product quality fi Product value Membership quality fi Membership value Product quality fi Membership value Membership quality fi Product value Product value fi Retention Product value fi Commitment Product value fi Cooperation Membership value fi Retention Membership value fi Commitment Membership value fi Cooperation

0.44 0.49 0.28 0.18 – 0.15 – 0.35 0.86 0.85

5.63 5.76 3.39 2.29 1.00 6.47 1.30 9.88 20.33 2.95

Supported Supported Supported Supported – Supported – Supported Supported Supported

Cutoff of t-value is 1.96.

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eight supported hypotheses proved the proposed relationship of the two levels of consumer decisionmaking in membership setting, as well as the relationship of two-level customer and three-component values for the program. Membership value was demonstrated a more significant factor than product value in increasing value for the organization. Regarding the indirect impacts from quality perception to value for the program, although both product quality and membership quality were influential, the latter was more significant, especially in its influence on the commitment and cooperation components. CONCLUSION Membership relationship programs are widely-used marketing tools in tourism and hospitality. Many programs providing privileged treatments and financial rewards for repeat purchases have achieved remarkable success. After their early introductory stages, however, marketers once again realized the importance of quality as a chief facilitator of enduring and healthy relationships with members. The purpose of this study was to investigate the influence of quality on the creation of value for the program with the mediating effect of member perception of value. To achieve this purpose, two major steps were followed. One was discussion and development of its three dimensions of value for the program and duality in understanding the quality and customer value in the membership setting. The second was the proposition and investigation of a structural model based on the means-end chain theory (Olson and Reynolds 2001) and value network notion (DeRose 1994). The research results indicated that the magnitude of the effects of product quality to product value (0.44) and membership quality to membership value (0.49) was greater than that of product quality to membership value (0.28) and membership quality to product value

PQ1 PQ2 PQ3 PQ4 PQ5 PQ6 PQ7 PQ8 MQ1 MQ2 MQ3 MQ4 MQ5 MQ6 MQ7

PV1

PV2

PV3

PV4 SQRT1

Retention Product quality

0.44

Product value

0.15

0.18

Membership quality

0.49

0.35 CM1

Commitment

0.28

Membership value

MV1

MV2

CM2 CM3

0.86

0.85

SQRT2

Cooperation

MV3

Figure 2. Estimated Structural Model

CP1 CP2 CP3 CP4 CP5

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Table 5. Indirect Effects of Quality on Value for the Organization Indirect Relationship Product quality fi Retention Product quality fi Commitment Product quality fi Cooperation Membership quality fi Retention Membership quality fi Commitment Membership quality fi Cooperation

Coefficient 0.10 0.31 0.24 0.17 0.45 0.42

(0.18). Further, product value only significantly influenced commitment; and membership value affected all the three dimensions of value for the program (retention, commitment, and cooperation) while its influences of its perception on commitment and cooperation were much stronger than on retention. Considering the indirect effects, both product quality and membership quality were proven to significantly and positively influence the establishment and development of the member program value network. However, the latter seemed to play a more important role according to the greater effect estimations. Among the three dimensions of value for the program, retention denoted members’ repeat purchases of both memberships and core products and associated services. Hence, high purchase retention, in some sense, brings high sale volume and revenue to the program. Commitment concerns members’ long-term psychological attachment and promise/desire for a continuing relationship with the program. Allen and Meyer (1990) and Gruen (1997) suggested that due to different reasons for keeping relational continuity, there are three types of commitment: continuance (based on a member’s assessment of the cost to terminate a membership), affective (rooted in overall positive feelings of a member about the relationship and the program), and normative (due to a member’s felt obligation to the membership). Irrespective of type, long-term commitment is less volatile (Gruen 1995) than satisfaction; it decreases the possibility of a member’s leaving and subsequently decreases the cost of maintaining the membership assets. Cooperation refers to coordinated actions taken by members to achieve mutual outcomes (Gruen 2000); it also facilitates cost reduction, but focuses more on cutting down the cost in attracting new members, operating memberships, and better understanding the needs and demands of members. The findings suggest that a program that practices relationship marketing should consider quality management as a strategy for both cost reduction and revenue increases. Moreover, based upon the magnitude of the effects of quality on retention, commitment, and cooperation, two major conclusions can be drawn. First, by managing quality, it is easier for a program to control marketing and operational costs than to increase sales revenues; and second, comparing product quality and membership quality, the latter has more power in increasing value for the program.

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The findings bring more good news to those membership programs that rely heavily on external product elements. For example, a travel club provides vacation packages comprising a variety of product elements such as flights, accommodation, attractions, and activities. Although the club may try to increase the quality of the vacation packages with different designs and combinations, it is beyond their scope to manage the quality of the product elements involved in the vacation packages. Thus, to a certain extent, the overall product quality is beyond the control of the travel club. Fortunately, member quality perception is of 2 levels, and membership quality, the part of quality that can be controlled by the travel club, shows a stronger impact on value for the program. This implies that management efforts to enhance membership quality will be paid off more and accordingly lead to higher value results for the travel club. Meanwhile, for those programs using frequent purchase rewards as a major strategy, while the financial rewards possibly increase retention and revenue, good quality, especially good membership quality, will supplement low operational costs. To achieve that, a system of calculating purchase volume is not enough and more effort should be put on developing peoplebased and member-interactive service modes and procedures. In addition, product quality should not be ignored because its effects were still significant. However, as suggested in the means-end chain model, similar product attributes may have dissimilar and customer self-relevant consequences, such as different perceptions on product quality and membership quality. In other words, although a program tries to enhance quality, the results are subject to differences among individual members; that is, members have dissimilar perceptions on quality and consequently have dissimilar perceptions on value received. Therefore, another concern of membership programs is how to distinguish the members who perceive quality in different ways. For example, price sensitivity and member status were two significant factors differentiating members in terms of both product quality and membership quality perceptions (Feng 2004). More specifically, repeat members and priceinsensitive members have more positive perceptions of both product and membership qualities. Hence, while a program is trying to improve quality, it remains necessary to customize marketing strategies to influence members’ perceptions. Relationship is a critical social phenomenon related to interaction among social units and social capital formation. Membership programs build some type of social relationship between members and the programs via purchasing and product consumption. There are many ways to foster and maintain this association. Relationship marketing takes the relational and socialized approach as a catalyst and provides a sense of partnership, trust, and commitment between parties involved in a relationship. The partnership-like situation will create a stable environment necessary for long-term development that benefits the involved parties. While this study tried to examine the relationship of member perceptions to value for the membership organization with a vacation travel club as the empirical environment, the sample population was

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Submitted 25 January 2005. Resubmitted 18 February 2006. Final version 30 October 2006. Accepted 16 December 2006. Refereed anonymously. Coordinating Editor: Alan Fyall