I Earn It, But They Just Get It: Loyalty Program Customer Reactions to Unearned Preferential Treatment in the Social Servicescape

Abstract

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.

Unintended negative consequences of loyalty programs: endowed vs earned loyalty

“…From a firm's perspective, loyalty programs foster greater customer acquisition and retention, higher purchase frequency and lower customer price sensitivity (Danaher et al, 2016). Traditionally, loyalty is earned through a customer's past history of purchase behavior with the firm's loyalty program where the more you buy, the better the treatment you earn (Kim and Baker, 2020b). Loyalty programs offer special benefits to loyal customers, including hard benefits (e.g.…”

“…First, the current discourse around loyalty programs is mainly positive, disregarding the negative consequences of loyalty programs to customers. Researchers warn that loyalty programs can be a double-edged sword (Ma et al, 2018) where multiple tier systems encourage intra-tier comparisons among customers and lead to negative attitudes (Kim and Baker, 2020b). However, negative consequences of the loyalty program have not yet been thoroughly investigated.…”

“…Taken together, this research addresses the current gaps in the literature and addresses the calls for research to investigate endowed versus earned loyalty status (Hwang and Mattila, 2018;Kim and Baker, 2020b), cross-customer comparisons (Colliander et al, 2016;Steinhoff and Palmatier, 2016) and social comparison theory (Sajtos and Chong, 2018). The research explores the phenomena by conducting two betweensubjects experimental design studies.…”

“…While little research compares loyalty program members' and bystanders' service encounter satisfaction in the context of delivering preferential treatment associated with different types of loyalty programs (Liu and Mattila, 2016), even less examines the potential negative effects associated with different methods of reward status among different customers in the same program. Only recently research has examined differences in perceptions of hierarchical programs (Chaabane and Pez, 2017), but research to date has not examined differences between endowed and earned customer attitudes (Hwang and Mattila, 2018;Kim and Baker, 2020b). The examination of cross-customer effects represents a noticeable gap in the loyalty program literature (Steinhoff and Palmatier, 2016) and customer's attitudes do not occur in a vacuum and thus future research should examine comparisons of customers (Barnes et al, 2016).…”

The Impact of Social Servicescape Factors on Customers’ Satisfaction and Repurchase Intentions in Mid-Range Restaurants in Baltic States

“…Line and Hanks [41] stress the importance of social servicescape factors in casual restaurant services by showing the moderating effect of crowding on the customer's perceptions on service quality. Kim and Baker [42] see social servicescape as a facilitator of customer emotions, both positive and negative, stressing the emotional nature of social servicescape attributes. The role of servicescape in encouraging the desired behavior of consumers is also revealed by Hanks and Line [43].…”