Hospitality and tourism firms use two different strategies in customer relationship management: rewarding loyalty program customers with earned rewards (earned preferential treatment) and delighting the nonprogram customers with surprise rewards (unearned preferential treatment). However, research overlooks the key impact of how these two customer relationship management strategies may negatively affect the observing loyalty program customers. To address these gaps, Study 1 finds that providing a nonprogram customer with a high-value unearned treatment significantly decreases perceptions of distributive justice, status, and loyalty among the observing loyalty program customers. No significant interaction effects of a firm’s explanation were found, suggesting that the practice of unearned preferential treatment cannot be justified simply by presenting a reason for the practice. Study 2 finds that compensating the affected program customers with tangible compensation is the only significant factor that enhances the observing loyalty program customers’ perceived trust, suggesting rebuilding customers’ trust as the key element in recovery. This research is grounded in social comparison and justice theory and builds upon the loyalty, social servicescape, and customer delight literature to explicitly examine the reward comparison stemming from the social presence of other customers.

Purpose -This study aims to examine the observing customer's reactions, namely, gratitude, loyalty to the employee and tipping intention while observing other customer incivility during another customer service failure and the frontline employee's emotional labor strategy.Design/methodology/approach -A 2 (emotional labor strategy: deep acting vs surface acting) by 2 (service consumption criticality: high vs low) experiment is used to test the hypotheses.Findings -The results reveal that observing an employee's deep acting emotional labor (vs surface acting) leads to a greater level of gratitude among the affected customers and promotes their tipping and loyalty to the employee. However, there is no significant interaction effect of service consumption criticality and emotional labor strategy on customer gratitude.Research limitations/implications -This research builds upon the social servicescape, customer misbehavior and emotional labor literature by examining previously untested relationships.Practical implications -In cases of other customer service failure, managers should effectively communicate to their employees how their emotional labor induces positive customer feedback. Currently, emotional labor is emphasized mostly regarding its negative effects on employees, but this research suggests that serving the recovery expectation of the affected customers, especially when it is served with authentic emotional displays, can promote increased tipping and loyalty behavior.Originality/value -No research investigates customers' emotional and behavioral reactions to employee emotional labor in the context of other customer service failure.

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