Unintended negative consequences of loyalty programs: endowed vs earned loyalty

Abstract

Purpose Loyalty programs are pervasive across service industries. However, the examination of cross-customer effects represents a critical gap in the loyalty literature. To address this gap, this research conducts two between-subjects experimental design studies to examine traditional versus endowed loyalty status earner attitudinal loyalty intention toward the company, switching intentions and perceived unfairness. Design/methodology/approach Study 1 conducts a 2 (self: earned vs endowed) × 2 (others: earned vs endowed) between-subjects experimental design on the direct effects of attitudinal loyalty intention toward the company and switching intentions. Study 2 builds upon these findings by examining the mediation effect of perceived unfairness on the attitudinal loyalty intention toward the company and switching intentions. Findings Results from Study 1 find that cross-customer comparisons exist, and traditional loyalty members have negative attitudinal loyalty intention toward the company and switching intentions when comparing their rewards to endowed earner rewards. Study 2 examines an airline context and finds that unfairness mediates the relationship. Originality/value The research builds upon the literature surrounding cross-customer comparisons, loyalty programs, equity theory and endowed status and discusses the unintended negative consequences related to endowed loyalty rewards on other customer intentions that have critical managerial implications.