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Journal of Quality Assurance in Hospitality & Tourism


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Co-Branding and Brand Loyalty


Woo Gon Kima; Soojin Leeb; Hae Young Leec
a
Dedman School of Hospitality, Florida State University, College of Business, Tallahassee, FL, USA b
Department of Recreation, Texas A&M University, Park and Tourism Sciences College Station, TX,
USA c School of Hospitality and Tourism Management, Kyungsung University, Nam-gu Busan, South
Korea

To cite this Article Kim, Woo Gon , Lee, Soojin and Lee, Hae Young(2007) 'Co-Branding and Brand Loyalty', Journal of
Quality Assurance in Hospitality & Tourism, 8: 2, 1 — 23
To link to this Article: DOI: 10.1300/J162v08n02_01
URL: http://dx.doi.org/10.1300/J162v08n02_01

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Co-Branding and Brand Loyalty
Woo Gon Kim
Soojin Lee
Hae Young Lee

ABSTRACT. Co-branding can be a win-win strategy to help drive


sales, develop brand images, and save marketing or advertising cost in
the restaurant industry. Despite the increasing attention in co-branding,
the relationship between co-branding, consumer satisfaction, and brand
loyalty remains largely unexplored. Therefore, this study aims to exam-
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ine the effect of co-branding on customer satisfaction, which in turn


leads to brand loyalty in restaurants in Korea. The result indicates that
some types of co-branding (i.e., price benefits and post-purchase ser-
vices) can be an effective marketing strategy that allows restaurants to con-
struct customer satisfaction and brand loyalty. doi:10.1300/J162v08n02_01
[Article copies available for a fee from The Haworth Document Delivery Ser-
vice: 1-800-HAWORTH. E-mail address: <docdelivery@haworthpress.com>
Website: <http://www.HaworthPress.com> Ó 2007 by The Haworth Press, Inc.
All rights reserved.]

KEYWORDS. Co-branding, customer satisfaction, brand loyalty, res-


taurant industry

Woo Gon Kim is Associate Professor, Florida State University, College of Busi-
ness, Dedman School of Hospitality, One Champions Way, Suite 4116, Tallahassee,
FL 32306 (E-mail: wkim@cob.fsu.edu).
Soojin Lee is Doctoral Student, Texas A&M University, Department of Recreation,
Park and Tourism Sciences College Station TX 77843-2261 (E-mail: sjlee73@tamu.edu).
Hae Young Lee is Assistant Professor, Kyungsung University, School of Hospital-
ity and Tourism Management, 314-79 Daeyeon-3dong, Nam-gu Busan, 608-736 South
Korea (E-mail: hylee1228@ks.ac.kr).
Journal of Quality Assurance in Hospitality & Tourism, Vol. 8(2) 2007
Available online at http://jqaht.haworthpress.com
Ó 2007 by The Haworth Press, Inc. All rights reserved.
doi:10.1300/J162v08n02_01 1
2 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM

INTRODUCTION

The chain restaurant has become a typical form of global business


that interconnects diverse cultures and nations. In recent years, the
chain restaurant industry has grown dramatically, and numerous for-
eign chain restaurants have been established in Korea. Namely, TGI
Friday’s arrived in 1991, Ponderosa in 1992, Sizzler in 1993, Popeyes
in 1994, Tony Roma’s in 1995, Bennigan’s in 1995, Planet Hollywood
in 1995, Chili’s in 1996, Hard Rock Cafe in 1996, Outback Steak-
house in 1997, and Starbucks in 1999 (Kim & Chon, 2003). A rapidly
increasing number of chain restaurants have certainly brought severe
competition among the restaurants in terms of unique menus, interior
design development, and customer-service differentiation.
In 2004, the Korean restaurant industry suffered due to unexpected
events such as the breakout of mad cow and bird flu scare. The crisis has
induced the mistrust of eating-out and consumption contraction. In ad-
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dition, some adverse economic situations such as the huge growth of


family debt and the number of bad credit personals also brought serious
challenges to the Korean restaurant industry. Under these bad circum-
stances, the restaurant operators are trying to work out brand differenti-
ation strategies for keeping the preceding level of market share to
continue to exist (Kim, Han, & Lee, 2001). For this reason, it has be-
come an urgent issue for them to implement effective marketing and
promotional tools.
Co-branding is increasingly becoming a trendy technique to sell both
service and products and has been mainly used by the chain restaurant
industry in Korea (Jung, 1998). In general, co-branding means that
more than two companies co-involve in marketing/advertising and
share risks, while maintaining their independence as separate business
entities (Hahm & Khan, 2001). It can be a win-win strategy to help
drive sales, develop brand images, and save marketing or advertising
cost in the chain restaurant industry. This is why more and more chain
restaurants are venturing into co-branding. Despite the increasing atten-
tion in co-branding, the relationship between co-branding, consumer
satisfaction, and brand loyalty remains largely unexplored. Therefore,
this study aims to examine the impact of co-branding on customer satis-
faction, which in turn leads to brand loyalty in restaurants.
In the present study, the literature on co-branding, customer satisfac-
tion, and brand loyalty was reviewed. Next, the practice of co-branding
in the Korean chain restaurant industry was discussed mainly based on
information from the interviews with restaurant managers. Finally, an
Kim, Lee, and Lee 3

on-site survey was conducted to the customers who have visited chain
restaurants in Seoul, Korea in order to investigate the effects of co-
branding on customer satisfaction and brand loyalty. This study offers
useful information to both marketing managers in restaurant industry
and academics concerning the crucial determinants of customer satis-
faction and brand loyalty linked to co-branding.

LITERATURE REVIEW

Co-Branding

Stewart (1995) defines co-branding as multiple business alliances


cooperating in marketing, space sharing, and production while maintain-
ing their independence as a separate brand. Lately, hotel and restaurant
companies have recognized the importance of co-branding strategies
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(Lee, Kim, & Kim, 2006). A larger number of chain restaurants, hotels,
and theme parks have together implemented co-branding strategies to
accomplish synergy (e.g., Country Inns with T.G.I. Friday’s, Ramada
with Bennigan’s, T.G.I. Friday’s with Holiday Inn, Starbucks with both
Marriott and Hyatt, Pizza Hut with Marriott, McDonald’s with Walt-
Disney, and Sofitel with Dorint) (Young, Hoggatt, & Paswan, 2001).
Paul Kirwin, President, Country Inns & Suites, stated that “co-
branding works especially well for limited-service hotels and mid-
priced hotels, and casual-dining restaurants because they serve a similar
customer” (Ryan, 1999). Country Inns’ co-branding partnering with a
T.G.I. Friday’s was a win-win strategy for both brands. TGIF generated
additional 15-20% revenue from hotel guests during their lunch and
dinner business. On the other hand, the benefits of hotel were derived
from (1) meeting hotel guests’ dining needs and (2) savings from the
construction costs of building and operating a decent restaurant in the
hotel (or on premise) (Ryan, 1999).
Yip (2005) summarizes the advantages of implementing a co-
branding strategy as follows: “From the viewpoint of both the operator
and the partner, the ability to access a broader customer base and form
new relationships with clients is one of the most important and benefi-
cial advantages. The revenue generated by the partnership can gener-
ally outweigh the expense of forming the alliance; as a result, budgeted
expenditures can be concentrated in other areas. In addition, co-brand-
ing enhances the credibility of the hotel’s brand by borrowing credibil-
ity from other brands.”
4 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM

Customer Satisfaction

One of the major tasks that confront food-service managers is related


to customer satisfaction in one way or another (e.g., maintenance, en-
hancement, and evaluation). Customer satisfaction often serves as an
indicator that reflects customers’ revisit intentions to a given restaurant.
The term “customer satisfaction” has been conceptualized in various
ways along the different contextual situations. The most widely ac-
cepted definition is cognitive and emotional responses by the consumer
to the most recent transactional experience with a party (Oliver, 1993).
As implied in this definition, the customer satisfaction indicates one’s
subjective evaluation of the provided products/services.
How can we effectively measure customer satisfaction? It has been
measured in many ways. Since the 1970s, the most widely used mea-
surement method may be the expectation-disconfirmation method.
According to this perspective, customer satisfaction is the degree to
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which perceived performance of service/products matches a cus-


tomer’s expectations. If the customer’s expectations of service/prod-
ucts’ quality and price are exceeded, they are likely to be satisfied
with the restaurants. Conversely, if the perceived performance does
not exceed the expectation about the restaurant, then, dissatisfaction is
likely to occur. In most cases, the level of satisfaction is positively as-
sociated with the degree of repeat visits. As evidenced by many litera-
tures (Ellinger, Daugherty, & Plair, 1999; Kim, Park, & Jeong, 2004;
Newman & Werbel, 1973), the level of customer satisfaction acts as a
strong determinant of behavioral aspect of customer loyalty. Besides,
one of the major measurement methods is equity view. This theory
considers the ratio of the consumer’s outcome/input to the ratio of the
provider’s outcome/input (Oliver & DeSarbo, 1988). Equity refers to
estimation of what is “fair” or “justice” for the perceived cost (e.g.,
monetary payments, time consumption, and stress experienced by
consumers) of the providing (Bolton & Lemon, 1999). Customers are
likeable to an equitably treated experience if they believe the ratio of
their outcome to inputs is equivalent to the ratio of outcome to inputs
felt by the restaurant. From this perspective, customer satisfaction re-
sults from an estimation of the sacrifices and rewards received by res-
taurants to an exchange.
In recent years, considerable attention has been focused on customer
satisfaction in food-service industries since an examination of the fac-
tors of customer satisfaction can offer clues concerning actions restau-
rant managers must take to grow the chances that customers will repeat
Kim, Lee, and Lee 5

visit. However, service quality issues have been stated about the exces-
sive emphasis on customer satisfaction and whether or not it connects to
their performance (Lam & Zhang, 1999; Su, 2004). Few researchers
have examined the linkage between co-branding and customer satisfac-
tion as one of the effective marketing strategies.

Brand Loyalty

The maintenance and enhancement of brand loyalty stands for a


fundamental marketing method for attaining advantage under high
market pressure (Reichheld, 1996). The previous idea of loyalty fo-
cused on repeat purchase behavior (Brown, 1952). However, a signifi-
cant difference was noticed between loyal customers and frequent
visitors (Day, 1969; Jacoby, Chestnut, & Fisher, 1978). Accordingly,
“true” loyalty has been defined as a long-term commitment to repeat
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purchase involving both repeated patronage and an emotional attach-


ment (Dick & Basu, 1994). A simplistic behavioral approach is not an
adequate measure of loyalty, even though there may be a high level of
correlation between repeat purchase behavior and “true” loyalty. Spu-
rious/artificial loyal customers can make frequent purchases even
when the customers are not emotionally or psychologically involved
with the companies because there are a number of conditional barriers
(e.g., accessibility of the service/product and diversity-seeking man-
ners) that may affect repeated purchases. For this reason, several re-
searchers have suggested that both behavioral (e.g., repeat patronage
and word-of-mouth recommendations) and attitudinal (e.g., trust, emo-
tional attachment or commitment, and switching cost) aspects should
be taken into consideration to measure “true” loyalty concept (Baloglu,
2002; Dick & Basu, 1994; Mattila, 2001; Shoemaker & Lewis, 1999;
Tidewell & Fredline, 2004).
Brand loyalty has emerged as a significant marketing concept for
many consumer driven businesses. It is likely that customers with a high
level of loyalty spend more money on the products/services that pro-
vide a simpler decision-making process than others. Also, it has been
known that the level of loyalty is closely related to several purchase
behaviors such as sensitivity to price, positive word-of-mouth public-
ity, and increased tolerance to the quality of products/services. For
such reasons, loyal customers are often considered as a crucial compo-
nent that ensures the prosperity of many businesses.
6 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM

RESEARCH HYPOTHESES DEVELOPMENT

Customers’ perceived benefits on the chain restaurants’ co-branding


strategies can be classified into three different categories (i.e., price
benefits, premium promotion, and post-purchase services). From this
perspective, this study views the price benefits, premium promotion,
and post-purchase services as the three main benefits of chain restau-
rants’ co-branding efforts. This study also postulates that three types of
perceived benefits offered by co-branding efforts are positively related
to customer satisfaction and brand loyalty. The detailed logic behind
each hypothesis is explained below.
As briefly described, chain restaurants adopting co-branding strate-
gies actively utilize price benefits (e.g., offering low price or discount-
ing price) to ensure customer satisfaction and loyalty as a way to gain a
competitive edge over other competing restaurants. Smart pricing has
become a crucial tool to achieve customer satisfaction and the bottom
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line profit (Bhattacharya & Friedman, 2001). From the perspective of


utility theory (Thaler, 1985), people always select the one for which
the expected value of the expected utility is maximum. Within the con-
text of this study, customers at the restaurants utilizing co-branding
strategies can have the same quality of service and product (e.g., foods
and drinks) with lower price. Although the utility theory does not neces-
sarily argue for the relationship between the maximized value choice
and satisfaction, it is reasonable to infer that the perceived optimal (or
maximized) values such as receiving price benefits leads to increased
satisfaction for the customers. Hence, the first hypothesis states:

H1a: Price benefits are positively related to customer satisfaction.

Since people are inclined to behave in a way that maximize the ex-
pected utility value, customers who perceive that they can receive bene-
fits are likely to be attached to the brand offering psychological and
behavioral benefits (Woodside & Walser, 2007). It is, therefore, logical
to suggest that the perceived price benefits enable customers to develop
a degree of brand loyalty. The second hypothesis is:

H1b: Price benefits are positively related to brand loyalty.

One of the strengths in co-branding may be related to increased pro-


motional effects. As demonstrated previously, the co-branding strategy
(e.g., joint advertising and event programs) can produce significant
Kim, Lee, and Lee 7

synergic effects for both parties (restaurants and other industries). Par-
ticularly, such co-branding can provide customers with more diverse
choices of samples, catalogues, and gifts. The increased diversity of
promotional materials available to customers can enhance the perceived
value of services and products at the restaurants. The perceived value, in
turn, may significantly affect customer satisfaction (Cronin, Brady, &
Hult, 2000; Eggert & Ulaga, 2002; Parasuraman, 1997; Parasuraman &
Grewal,, 2000). It can be inferred that the perceived premium promo-
tion such as samples and gifts increases the level of customer satisfac-
tion and brand loyalty. These conjectures help generate two other
hypotheses that are related to the effects of premium promotion:

H2a: Premium promotion is positively related to customer satis-


faction.
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H2b: Premium promotion is positively related to brand loyalty.

The third category of co-branding strategy is post-purchase services


that include mileages accumulation and electronic newsletter. The joint-
promotion strategy can help enhance the quality of services and prod-
ucts through more diverse strategies of maintaining positive relation-
ship with the customers. Much literature has demonstrated the positive
impacts of relationship marketing efforts on customer satisfaction and
brand loyalty (Tadayuki & Nexhmi, 2004; Ping Jr., 1999). The post-
purchase services can help customers shape positive expectation of ser-
vices and products related to the certain brand. The future incentives
that they are expected to receive may act as a catalyst to enhance the
perceived value of the services and products at the present stage. The
increased value, in turn, can lead to increase customer satisfaction.
Therefore, the next hypothesis states:

H3a: Post-purchase services are positively related to customer


satisfaction.

As discussed above, the increased perceived value of services and


products may also lead to increased brand loyalty. The expectation of
future benefits enables the customers to develop a certain loyalty to the
brand that provides such benefits. Hence, another hypothesis is sug-
gested:
8 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM

H3b: Post-purchase services are positively related to brand loy-


alty.

There is a plethora of literature that demonstrates a positive associa-


tion between customer satisfaction and customer loyalty (Cronin &
Taylor, 1992; LaBarbera & Mazursky, 1983). Mittal and Lassar (1998)
showed the positive relationship between customer satisfaction and
loyalty. Skogland and Siguaw (2004) reported that satisfaction with a
product or service offered is a key antecedent of hotel guest loyalty,
which in turn is directly related to an organization’s profitability. The
development of loyalty (e.g., revisit intentions and recommendations)
to a certain brand results from consistent positive evaluation of diverse
performance attributes (Oliver, 1999). In this study, the performance
evaluation of restaurants is equated with satisfaction. Thus, it is reason-
able to suggest that customer satisfaction significantly positively affects
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customer loyalty. The last hypothesis is proposed as following:

H4: Customer satisfaction is positively related to customers’ brand


loyalty.

The conceptual model for this study is shown in Figure 1. Given that
the impact of three types of perceived benefits (i.e., price, premium pro-
motion, and post-purchase services) on brand loyalty can be mediated
by customer satisfaction, this study posits customer satisfaction par-

FIGURE 1. A Proposed Research Model


Kim, Lee, and Lee 9

tially mediates the relationship between three types of perceived bene-


fits offered by joint promotion efforts and brand loyalty.

METHODS

A convenience sampling method was used to select customers of


chain restaurants in this study. The survey was conducted from Septem-
ber 9-25 in 2003. For data collection, a self-administered questionnaire
was distributed to 350 customers at main exit of each ten chain restau-
rants (e.g., T.G.I. Friday’s, Bennigan’s, Outback Steakhouse, Tony
Roma’s, Coco’s, Sky Lark, Sizzler, Ponderosa Steakhouse, Marché and
VIP’s) in Korea. A total of 223 questionnaires were collected from the
survey, but after a thorough inspection, 16 questionnaires were elimi-
nated from the analysis due to some incomplete answers, which results
in 207 usable questionnaires.
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As Table 1 shown, the questionnaire consisted of a total of 22 ques-


tions. The questionnaire composed of four subsections: (1) joint-pro-
motion, (2) customer satisfaction, (3) brand loyalty, and (4) demo-
graphic characteristics. The first part (9 questions) was employed to
measure types of joint-promotion in chain restaurants and was mea-
sured by asking customers about nine advantages obtained from joint-
promotion by five-point Likert scales, where 1 = strongly disagree; 2 =
disagree; 3 = neutral; 4 = agree; 5 = strongly agree. The second part (3
questions) was applied to measure the customers’ satisfaction level

TABLE 1. Structure of Survey


10 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM

when they visited chain restaurants during co-branding. To measure


customer satisfaction in the full-service casual dining restaurants three
items were used: satisfaction with employees’ service; satisfaction with
physical environment; and satisfaction with location and accessibility.
The third part (5 questions) was used to examine the level of brand loy-
alty in chain restaurants. The survey instrument to measure brand loy-
alty was adapted from Mols (1998). Items in the scales were measured
on a five-point, Likert-type scale ranging from 1 (strongly disagree) to 5
(strongly agree). Finally, demographic characteristics (5 questions)
were intended to analyze the profile of selected customers.
Structural equation modeling (SEM) was used for hypotheses testing
in this study. Following the two-stage approach suggested by Anderson
and Gerbing (1988), the measurement model was first estimated using
confirmatory factor analysis to test whether the constructs possess suffi-
cient validation and reliability. The structural model that best fit the data
was then demonstrated.
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RESULTS

Sample Characteristics

A profile of participants (see Table 2) in this study is summarized.


Females represented 65.7% of the sample and males 34.3%. The ma-
jority of respondents (85.5%) were single. The samples ranged in age
from 19 to 49. The educational levels were high–about 90% of sub-
jects had two-year college degrees or above. Slightly less than half
(45.9%) respondents had an income between US$ 35,000 and US$
50,000. An average Korean annual household income of city residents
was approximately US$ 44,000 in 2004 (Korea National Statistical Of-
fice, 2004). Since almost one-half of the respondents fell into the range
of an average Korean household income, we surmise that this sample
represents the overall restaurant guests in Korea.

Co-Branding Practices of Chain Restaurants in Korea

In recent years, a chain restaurant industry has started to utilize nu-


merous marketing techniques to attract new customers as well as to
maintain the existing loyal customers (Jung, 1998). Although simply is-
suing membership cards or coupons was considered as an effective mar-
keting strategy until recently, the rapidly changing market conditions
Kim, Lee, and Lee 11

TABLE 2. Demographic Characteristic Data of Respondents


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(e.g., a decreased customer base and increasing competition within the


industry) in Korea started to challenge the effectiveness of such conven-
tional marketing tools (Kim et al., 2001). In response to this, co-brand-
ing has emerged as an alternative marketing strategy.
The chain restaurants in cooperation with big companies (e.g., mo-
bile communication, credit-card companies, department stores, and
rival chain restaurants), in many cases, are in an advantageous posi-
tion to increase a market share by providing multiple benefits such as
price benefits, premium promotion, and post-purchase services to
their customers. A price benefit is one of the most popular strategies in
co-branding among Korean chain restaurants. The chain restaurants of-
ten provide a discount price for their visitors through a co-branding.
Other representative types of co-branding include premium promotion
(e.g., gifts, catalogues, and samples) and post-purchase services (e.g.,
mileage accumulation and electronic newsletters). The co-branding
strategy among chain restaurants is a type of strategic alliance that aims
to develop joint advertising or event programs by exchanging their own
techniques and know-how with each other. It often produces various
synergistic effects such as improving mutual brand images and sales,
which could lead to a win-win situation.
Over the last several years, the credit card companies have become
the most active partners of co-branding with chain restaurants. An in-
12 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM

crease in the rate of credit card usage and card service charges prompts
the joint action between chain restaurants and credit card companies.
Since chain restaurants cannot explicitly force their customers to use
specific credit cards, they give a variety of benefits (e.g., discount bene-
fits and promotion gifts) to the customers through a co-branding with
credit-card companies that charge the lowest service fee. In Korea, LG
Card is considered as the most successful credit card company in estab-
lishing cooperation with chain restaurants. The collaborated chain res-
taurants offered a 5% discount to their customers who made their
payment by LG Card. As a result, several chain restaurants such as
T.G.I.F., Sizzler, Tony Roma’s, Marché, and Outback Steak House has
experienced a sharp growth, and the market share of LG card has
increased to nearly 13%.
A mobile communication company is another partner that has been
vigorously engaged in co-branding with chain restaurants over the last
several years. As the communication market reached its ceiling, the mo-
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bile communication companies started to aim to maintain their existing


customers rather than create new customers. In contrast to the goal of
mobile companies, chain restaurants attempt to attract new customers,
increase sales, and reduce marketing expenses. In Korea, T.G.I. Fri-
day’s (T.G.I.F.) may be the first chain restaurant that implemented a
co-branding strategy with different types of business. T.G.I.F. allied
with SK-telecom’s TTL program that is designed to fit perfectly into the
life style of young people by offering several benefits (e.g., various dis-
count rate plans and entertainment programs for those in their twenties).
TTL customers receive a 25% discount when they visit T.G.I.F. As a re-
sult, the proportion of TTL customers in T.G.I.F.’s total sales increased
up to approximately 10% in six months. This shows that T.G.I.F.’s
co-branding with SK-telecom significantly affected its sales revenue
(http://www.tgif.co.kr). As the cooperation between T.G.I.F. and TTL
became a huge success, rival family restaurants such as Bennigan’s,
Vip’s, Outback Steak House, and Marché began to make co-branding
with other mobile communication companies (e.g., Bennigan’s & KTF
and Outback Steak House & KTF).
Chain restaurants also make alliances with the companies whose
main customers are women (e.g. beauty salons, department stores, and
cosmetic companies). First case is co-branding with hair salons. T.G.I.F.
became allied with a beauty salon, named ‘Juno Hair.’ T.G.I.F. card-
holders get 20% discount off hairdressing price in Juno Hair. In return,
T.G.I.F. gives free soft drinks to Juno Hair cardholders (http://www.
tgif.co.kr). Also, co-branding with department stores is other type of ex-
Kim, Lee, and Lee 13

ample. In Korea, a branch of Bennigan’s puts coupons in DM (direct


mail) of Lotte department store, called ‘Happy World,’ and gives free
drinks along with gifts (i.e., teddy bears) to the customers who bring the
coupon. A branch of T.G.I.F. provides coupons to those who carry spe-
cific department store cards and 10% discount to those who are enrolled
in the Lotte woman center. The alliance with department stores has en-
abled chain restaurants to create new customers.
Moreover, chain restaurants actively cooperate with rival restaurants
as well as companies in other industries. There is a good practice called
‘Big Family.’ The five family restaurants (i.e. T.G.I.Friday’s, Sizzler,
Tony Roma’s, Marché, and Outback Steak House) of different con-
cepts have cooperated with each other to promote competitiveness
and efficiency. Customers can save up points through the card (i.e.
LG Big Family Card) that is interchangeably used within the circle of
the five chain restaurants and are provided various benefits (e.g. a
gift, a meal certificate, a discount coupon, and electronic newsletters)
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when mileages of the card reached a certain point. Co-branding with ri-
val chain restaurants can help improve their reputation, cut marketing
costs, and increase sales. However, one can also expect some negative
consequences that may result from the excessive use of this co-branding
strategy. First of all, the co-branding strategy may keep one from devel-
oping an independent image. Also, there is a problem for the possible
down reputation of a restaurant if the co-branding fails.

Measurement Model

Table 3 reports means, standard deviations, and bivariate correla-


tions for the constructs included in the theoretical model. As shown in
Table 1, bivarate correlations ranged from r = .13 to r = .60, indicating
no multicollinearity problems among the variables (Hair, Anderson,
Tatham, & Black, 1992). The results of measurement model (Ù2 [65] =
171.57, p < .05; CFI = .92, GFI = .90, AGFI = .84, RMSEA = .08) indi-

TABLE 3. The Results of Correlation Matrix (⌽)


14 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM

cates that the confirmatory factor model fits the data well, and all load-
ings of the items exceed .3 and each indicator t-value exceeds 3.45 (p <
.01) (see Table 4). The findings indicates that the Cronbach’s alpha ex-
ceed .6 for each scale. One item for post-purchase services and two
items for brand loyalty were dropped because of the weak contributions
to coefficient alpha and low item-to-total correlations (see Table 4). Ad-
ditionally, the composite reliability (␳C) for each construct is accept-
able, exceeding the minimum value of .6 (Diamantopoulos & Siguaw,
2000). The composite reliability indicates whether the individual indi-
cators of each construct provide reliable measurement of the construct.

Structural Model and Hypotheses Testing

The structural equation model (SEM) was performed using LISREL


8.52. Table 5 presents standardized path coefficients resulting from
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TABLE 4. Summary Results of Measurement Models Using Confirmatory Fac-


tor Analysis
Kim, Lee, and Lee 15

TABLE 5. The Results of Hypothesized Tests a b

testing the proposed structural model. The fit of structural model was
good (Ù2 [67] = 185.94, p < .05; CFI = .91, GFI = .89, AGFI = .83,
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RMSEA = .08) and support was found for four of the seven hypothe-
sized paths. Overall, the model accounted for 49% of the variance in
customer satisfaction (SMC = .49) and 38% of the variance in brand
loyalty (SMC = .38).
The first two hypotheses concerned the relationship the price benefits
and two outcomes of customer satisfaction and restaurant brand loyalty.
The relationship between price benefits and customer satisfaction (H1a)
is supported by the positive path coefficient (standardized ␥11 = .55, t =
5.26, p < .001), while the relationship between price benefits and brand
loyalty (H1b) is not supported (standardized ␥21 = -.06, t = -.46, n.s.).
The role of price benefits as a strong antecedent of customer satisfaction
has been confirmed in the previous literatures (Voss, Parasuraman, &
Grewal, 1998). However, the result was shown that price benefits were
not likely to develop brand loyalty to the chain restaurants. In compari-
son with consumer learning theory, consumer-behavior theorists who
argue that discount benefit may not effect on brand loyalty. Customers
who visit chain restaurants in response to price benefits (e.g., free bev-
erages, free entrées, and free desserts) would be less likely to visit the
chain restaurant in the post-promotion period without the benefits
(Bawa & Shoemaker, 1987; Taylor, 2001). The result of hypothesis
testing, therefore, corroborates the existing literature.
Hypothesis 2 postulated that premium promotion is positively related
to customer satisfaction and brand loyalty. As not expected, no relation-
ship between the premium promotion and customer satisfaction (stan-
dardized ␥12 = -.11, t = -1.16, n.s.) and brand loyalty (standardized ␥22
16 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM

= .00, t = .01, n.s.) were discovered, thus H2a and H2b are not sup-
ported.
Hypothesis 3 suggested that the post-purchase services positively re-
lated to customer satisfaction and brand loyalty. H3a and H3b are sup-
ported by significant and positive path coefficients (standardized ␥13 =
.38, t = 4.00, p < .001; standardized ␥23 = .36, t = 3.19, p < .001; respec-
tively).
Lastly, the path coefficients between satisfaction and loyalty were
examined for Hypothesis 4. As theorized, satisfaction was found to
have significantly, positively effect on brand loyalty (standardized ß21 =
.38, t = 2.81, p < .01). Thus H4 is supported. The role of customer satis-
faction as a strong antecedent of brand loyalty has been confirmed in the
previous literatures (Ellinger et al., 1999; Fornell, 1992; Kim et al.,
2004; Newman & Werbel, 1973; Yoon & Uysal, 2005). The results of
hypotheses testing are also shown in Figure 2.
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DISCUSSIONS AND MANAGERIAL IMPLICATIONS

With a reduced customer base due to continuous deteriorating eco-


nomic situations following Korea’s currency devaluation in 1998 and
escalating food safety concerns (e.g., bird flu and mad cow disease),

FIGURE 2. Estimates of the Proposed Model


Kim, Lee, and Lee 17

most chain restaurants have been struggling to work out brand differen-
tiation strategies for keeping the preceding level of market share to
continue to exist. For this reason, it has become an urgent issue for
them to implement successful marketing strategies. Nowadays, joint-
promotion has increasingly risen as one of the alternative methods
among restaurant marketers in Korea. However, the relationship be-
tween joint-promotion, consumer satisfaction, and brand loyalty remains
largely unexplored. Therefore, this study investigates the effects of
joint-promotion on customer satisfaction and brand loyalty.
In Korea, most chain restaurants do joint-promotion with uniform
benefits to the customers. Disregarding their customers’ perceptions/
preferences toward joint-promotion may result in a large waste of re-
sources by the companies. Among the three joint-promotional strategies
(i.e., price benefits, premium promotion, and post-purchase services)
shown previously, the price benefits related promotional strategy seems
to be the most effective method to attract customers to the chain restau-
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rants in Korea. Besides, it was shown that the customers who receive
the benefits of discount prices tend to be more satisfied with the restau-
rant than those who do not get the price benefits; the present study
showed that the attainment of price benefits (e.g., free meals, free bever-
ages, and free desserts) was positively associated with the customer sat-
isfaction. However, it was also shown that those who received the price
benefits did not tend to develop brand loyalty to the chain restaurants.
They seem to develop a loyalty to the price benefits but not to the chain
restaurants that provide such benefits. Thus, if other competing restau-
rants offer more competitive prices, then they are likely to visit the res-
taurants with a better price offer. This suggests that the joint-promotion
method that does not contribute to developing brand loyalty to the given
restaurant is not a desirable strategy. Plus, the price benefit strategy may
generate a bad margin for the restaurant, although it helps increase the
number of customers and the total revenue. That is, the increased num-
ber of customers, driven by the price joint-promotion, requires more op-
erating costs (labor cost, facility maintenance, and etc.), and the profit
for each customer is likely to decrease. For this reason, price benefits
seem to be a better promotional method for new opening restaurants to
attract new customers as a short term marketing strategy than for the
established restaurants.
Post-purchase services (e.g., mileages accumulation and electronic
newsletter), on the other hand, significantly affected the level of satis-
faction and brand loyalty to the chain restaurants, although it was a
much less powerful factor in restaurant selection processes than the
18 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM

price benefits. This result shows that the post-purchase services that
helps familiarize the customers to the restaurants in a long-term period
are effective ways of promotion.
Premium promotion (e.g. samples, catalogues, and gifts) did not sig-
nificantly affect the level of both customer satisfaction and brand loyalty
to the chain restaurants. This study may have produced somewhat differ-
ent results if the restaurants had provided the customers with more attrac-
tive gifts. However, since it appears to be virtually impossible to satisfy
all the customers’ tastes for gifts, marketers of the restaurants need to take
some effective measure to adopt a premium promotion strategy. It seems
to be appropriate that marketers recognize the characteristics of their res-
taurants and major target market and provide the gifts that could best
match the identified characteristics. A good combination between the
types of joint-promotion and the profiles of customers in chain restau-
rants can help enhance the level of both customer satisfaction and brand
loyalty, which finally leads to more numbers of visits.
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In addition, customer satisfaction was found to have a significant ef-


fect on restaurants brand loyalty. Numerous empirical evidences have
pointed toward a positive causal association between customer satisfac-
tion and loyalty in previous literature. That is, it has been suggested that
satisfaction serves as an important determinant of the brand loyalty (i.e.,
repurchase patronage and favorable attitudes) (Dube, Renaghan, &
Miller, 1994; Oh, 2000). The results from the present study corrobo-
rated this positive causal relationship between satisfaction and brand
loyalty particularly within the context of chain restaurants.
In sum, joint-promotion can be an effective marketing tool that en-
ables chain restaurants to enhance customer satisfaction as well as to
build switching barriers. In recent years, most chain restaurants in Ko-
rea have begun to adopt a joint-promotion strategy and have provided
numerous benefits to their customers without any differentiation among
themselves. Regardless of the type of benefits, many restaurant manag-
ers view joint-promotion as a necessary evil. However, this study found
that the effects of joint-promotion on customer’s attitudes such as satis-
faction and loyalty were strongly related to the types of benefits. Only
the benefits that customer wants can help increase the level of customer
satisfaction and build their brand loyalty.

Limitations and Suggestions for Future Research

The limitations of this study and future research agenda are as fol-
lows. There are several limitations to this study. The first limitation
Kim, Lee, and Lee 19

arises from the sampling method. Because this research employed a


convenience sampling method, the greatest care should be exercised in
interpreting and generalizing the results. Second, this study utilized sev-
eral performance items of restaurants as a measure of customer satisfac-
tion. Three items used to measure customer satisfaction in this study are
based on the unique characteristics of Korean casual dining restaurants,
but these measures need improvement to represent the overall satisfac-
tion of full-service restaurants. Although there is still on-going debate
about the accurate measure of satisfaction concept (Oliver, 1997), this
study represents only a partial aspect of the concept instead of capturing
overall evaluation of the concept. In a future endeavor, both behavioral
and evaluative aspects should be included to better capture the essence
of customer satisfaction. Third, this study was limited to respondents
from a chain family restaurant segment in Korea and the result may not
be generalized for other segments of the restaurant industry (e.g., quick
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service, luxury restaurants). Future researchers may extend this study


into different segments of restaurant and hotel industry. This study was
conducted in Korea; the results may be cautiously applied to other
international foodservice industry.

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SUBMITTED: February 20, 2006


FIRST REVISION SUBMITTED: April 2, 2007
SECOND REVISION SUBMITTED: April 17, 2007
ACCEPTED: May 15, 2007
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REFEREED ANONYMOUSLY

doi:10.1300/J162v08n02_01
Kim, Lee, and Lee 23

APPENDIX

Customer satisfaction: (1-5 Likert-type scale)


How would you rate your level of satisfaction with the employees’ service?
How would you rate your level of satisfaction with the restaurant’s physical environ-
ment?
How would you rate your level of satisfaction with location and accessibility?
Brand loyalty: (1-5 Likert-type scale)
I usually think this chain restaurant as my first choice compared to other restaurants.
I intend to continue to visit this chain restaurant.
I think I am very loyal to this chain restaurant.
I would recommend this chain restaurant to others.
I always visit this chain restaurant, although chain restaurants are available in a number
of options.
Price benefits: (1-5 Likert-type scale)
The restaurant offers free beverages
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The restaurant offers free entrées


The restaurant offers free desserts
Premium promotion: (1-5 Likert-type scale)
The restaurant provides various samples/products
The restaurant provides catalogues
The restaurant provides various presents (free gifts)
Post-purchase services: (1-5 Likert-type scale)
The restaurant offers mileage (point) accumulation
The restaurant offers e-news
The restaurant offers discount price