Investigating status demotion in hierarchical loyalty programs

Abstract

Purpose The purpose of this paper is to extend research on customer loyalty status and customer demotion by investigating if the effect of demotion on customer attitudinal and behavioral responses is the same for top-tier and low-tier customers in the context of airlines. Design/methodology/approach A survey was conducted with travelers intercepted at large airport terminals in Australia. Multivariate analyses examined group differences across status change (no change vs demoted) and status level (high status vs low status). Multi-group moderation structural equation modeling (SEM) analysis tested the moderating role of status (high status vs low status) on the effects of demotion on the relationship between customers’ attitudes and loyalty intention, and between loyalty intention and share of wallet. Findings This study shows that the detrimental effects of demotion on the relationship between customer satisfaction/commitment/perceived betrayal on loyalty intentions, and on the relationship between loyalty intentions and share of wallet are stronger for “high status” than “low status” customers. Research limitations/implications A cross-sectional design was employed to investigate customer demotion in the airline industry. Future studies could investigate different types of demotions in other industries by employing a longitudinal design. Practical implications The study provides new insight about the effects of status demotion and highlights that service firms could be jeopardizing the loyalty of numerous valuable customers, especially among the “high status” customer group. Originality/value This study reveals loyalty status moderates the effect of demotion on customer attitudinal responses and loyalty behaviors. It draws on social identity, social comparison, emotion and equity theories to explain the different effects of demotion on customers from different status level groups.

Spillover Effects of Status Demotion on Customer Reactions to Loyalty Reward Promotions: The Role of Need for Status and Exclusivity

“…Research on status demotion has grown since Wagner, Hennig-Thurau, and Rudolph’s (2009) seminal work. Recent research has examined various factors such as program involvement (e.g., Hwang and Kwon 2016; Mathies and Gudergan 2012; Shin and Park 2014), magnitude of demotion (e.g., Mutter and Kundisch 2014), cause of demotion (e.g., Hwang and Kwon 2016; Lepthien et al 2017; van Berlo, Bloemer, and Blazevic 2014; Wagner, Hennig-Thurau, and Rudolph 2009), payment source (e.g., Ramaseshan, Stein, and Rabbanee 2016), monetary compensation (e.g., Lepthien et al 2017; Wagner, Hennig-Thurau, and Rudolph 2009), and pre-demotion tier level (e.g., Ramaseshan and Ouschan 2017; Shin and Park 2014; Wang et al 2016).…”

Different status reevaluation period and communication styles for top-tier and bottom-tier customers in multi-tier loyalty programs

“…Their main findings are that: customer demotion causes detrimental impacts such as decreased customer satisfaction, trust and commitment and increased switching intentions and demoted customers decrease their loyalty intentions lower than customers who have never been awarded an elevated status, implying a backfire effect of customer demotion (van Berlo et al, 2014;Wagner et al, 2009). Moreover, customers in the top tier have been found to respond more negatively to customer demotion than those in lower tiers (Banik and Gao, 2018;Ramaseshan and Ouschan, 2017). Despite the possibility of these backfire effects, the literature on customer relationship management concurs that divesting from unprofitable customers (e.g.…”

“…Researchers have investigated the effects of customer demotion on customer satisfaction (Ramaseshan and Ouschan, 2017), trust and commitment toward the firm (van Berlo et al, 2014), loyalty intentions (Banik and Gao, 2018;Wagner et al, 2009) and switching intentions (Banik et al, 2019;Hwang and Kwon, 2016). Their main findings are that: customer demotion causes detrimental impacts such as decreased customer satisfaction, trust and commitment and increased switching intentions and demoted customers decrease their loyalty intentions lower than customers who have never been awarded an elevated status, implying a backfire effect of customer demotion (van Berlo et al, 2014;Wagner et al, 2009).…”

“…To provide managers with relevant guidance, the purpose of this research is to investigate how to design and execute a firm's demotion policy to mitigate the detrimental impacts of customer demotion and effectively maintain degraded customers who can be valuable to the firm. Given that top-tier customers respond differently to customer demotion from bottom-tier customers (Banik and Gao, 2018;Ramaseshan and Ouschan, 2017), the focus of this research is on examining the effectiveness of applying different reevaluation EJM 54,12 period policies of customer demotion and communicating differently with top-tier and bottom-tier customers in promoting degraded customers' willingness to restore their lost status and loyalty intentions.…”

“…Second, the current study expands the existing literature by uncovering the approach mechanism by which demoted customers are more willing to restore their lost status and, in turn, loyalty intentions rather than withdrawing their relationship with the firm. Extant studies have concentrated on identifying the withdrawal process by which demoted customers decrease their relationship with the firm (Banik et al, 2019;Ramaseshan and Ouschan, 2017;Wagner et al, 2009). This paper attempts to explain the approach process with a focus on customers' willingness to restore their lost status.…”