The effects of loyalty programs in services – a double-edged sword?

Abstract

Purpose This paper aims to demonstrate both the positive and negative effects of loyalty programs. The study proposes a model to demonstrate why and how loyalty program strategies can result in good customer relationships and customer entitlement behaviors. Various configurations of three different loyalty program strategies are analyzed – tangible rewards, preferential treatment and perceived status. Design/methodology/approach The authors’ hypotheses were tested by analyzing the survey data of 152 frequent flyer program members in China through partial least squares-structural equation modeling. Fuzzy-set qualitative comparative analysis (fsQCA) was used to test different configurations of the three loyalty program strategies. Findings A net effects analysis demonstrates that loyalty programs are a double-edged sword. While loyalty programs can improve customer relationships, strategies based on perceived status have a positive relationship to customer entitlement, which may lead customers to expect extraordinary efforts from companies, such as greater discounts and extra privileges. Using fsQCA, the authors determined four sufficient configurations of high level of relationship quality and high level of customer entitlement, which also support their findings. Originality/value First, this study expands the research on loyalty programs by providing an examination of their positive and negative consequences. Second, by proposing the configuration paths that lead to high level of relationship quality and high level of customer entitlement using fsQCA, this research enriches research on the net effects of loyalty programs, providing researchers and practitioners with a more comprehensive understanding of loyalty programs. Third, this research extends the concept of customer entitlement to the context of buyer–seller relationships by introducing perceived status as an important antecedent of customer entitlement and by identifying four sufficient configurations.

From Dataset to Qualitative Comparative Analysis (QCA)—Challenges and Tricky Points: A Research Note on Contrarian Case Analysis and Data Calibration

“…The conventional set (labelled the “crisp” set) is dichotomous; that is, a case can be “in” (present = 1) or ‘out’ (absent = 0), while the fuzzy-set membership scores specify membership in intervals between 0 and 1. Ragin (2008) reworked QCA for the use of fuzzy sets that significantly help social science research in all disciplines, such as organisation studies, management, marketing and recently supply chain management, to become more realistic and thus more fit for a business context that is not considered a mere agglomeration of dichotomies (Ma et al, 2018; Misangyi et al, 2017; Rihoux and Marx, 2013; Russo et al, 2018; Schneider and Wagemann, 2006; Wagemann et al, 2016; de Villiers and Tipgomut, 2018).…”

Harnessing the waiting experience: anticipation, expectations and WOM

“…According to complexity theory, single antecedents may not be sufficient to predict a desired outcome; therefore, multiple combinations of variables, also known as recipes or causal conditions, could affect it (Woodside, 2014). FsQCA has been successfully applied in many research domains including services (Ma et al , 2018; Olya et al , 2018), marketing and social networking (Berezan et al , 2018; Krishen et al , 2016a, 2016b) and tourism (Ferguson et al , 2017; Papatheodorou and Pappas, 2017), especially when dealing with high multicollinearity amongst the constructs of interest.…”

Unintended negative consequences of loyalty programs: endowed vs earned loyalty

“…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.…”

“…Although some researchers note that loyalty programs can trigger perceived unfairness and negative emotions (Wagner et al, 2009), an insufficient amount of empirical evidence hinders the theorization of loyalty effects. Moreover, the majority of the research on customer loyalty programs focuses on the benefits, personalization and segmentation related to strategy (Ma et al, 2018). Specifically, the results from two experiments indicate that earned loyalty customers perceived unfairness in firm strategies and have lower attitudinal loyalty and higher switching intentions.…”

“…Moreover, loyalty program research almost entirely focuses on the positive outcomes, and research that investigates the potential negative outcomes is almost nonexistent (Liu and Mattila, 2016;Ma et al, 2018) especially as it relates to customers who regularly make comparisons to one another. The negative effects of rewards on different customers suggest the need for more theoretical and empirical work focused on understanding the "dark side" of loyalty programs (Steinhoff and Palmatier, 2016).…”