Negative Fallout from Demoting Is Worse Than Positive Impact of Elevating Customers
The May 2009 issue of Journal of Marketing features a research study by Tillmann Wagner, Thorsten Hennig-Thurau, and Thomas Rudolph (“Does Customer Demotion Jeopardize Loyalty?”) that raises thoughtful questions about the wisdom of blindly pursuing hierarchical loyalty programs that elevate customer status according to preset criteria.
Using prospect theory and emotions theory, the authors argue that any demotion of customers has a negative asymmetric effect on customer loyalty intentions; that is, the decrease in loyalty engendered by a customer status reduction is greater in magnitude than the increase in loyalty caused by a customer status elevation. Overall, the change in loyalty intention following a customer status reduction is manifested through reduced perceptions of benefits provided and higher levels of negative affect. These hypotheses are supported by experimental investigations and a field study that analyzed proprietary company data.
The authors also report a study that focuses on strategies that service firms can use to mitigate the harmful effects of customer status reduction in loyalty programs. The results indicate that only two design factors/mechanisms in loyalty programs—those that increase perceptions of an internal locus of control or involve personal apologies offered to customers—mitigate these harmful effects. The authors find that the design variables can only partially compensate for the negative consequences stemming from customer demotion in loyalty programs.
An exciting aspect of this research is that it addresses an important problem on which prior research is nonexistent. I welcome the authors’ empirical contributions on this new, managerially relevant, and exciting research area. I request JM readers to take a moment now to comment on their insights.
Siva K. Balasubramanian, Journal of Marketing Web site Editor
