Does Customer Demotion Jeopardize Loyalty?

Journal of Marketing, 2009

Posted: 25 Jun 2013

See all articles by Tillmann Wagner

Tillmann Wagner

Independent

Thorsten Hennig-Thurau

University of Muenster

Thomas Rudolph

University of St. Gallen

Date Written: May 2009

Abstract

Hierarchical loyalty programs award elevated customer status (e.g., “elite membership”) to consumers who meet a predefined spending level. However, if a customer subsequently falls short of the required spending level, firms commonly revoke that status. The authors investigate the impact of such customer demotion on loyalty intentions toward the firm. Building on prospect theory and emotions theory, the authors hypothesize that changes in customer status have an asymmetric negative effect, such that the negative impact of customer demotion is stronger than the positive impact of status increases. An experimental scenario study provides evidence that loyalty intentions are indeed lower for demoted customers than for those who have never been awarded a preferred status, meaning that hierarchical loyalty programs can drive otherwise loyal customers away from a firm. A field study using proprietary sales data from a different industry context demonstrates the robustness of the negative impact of customer demotion. The authors test the extent to which design variables of hierarchical loyalty programs may attenuate the negative consequences of status demotions with a second experimental scenario study and present an analytical model that links status demotion to customer equity to aid managerial decision making.

Keywords: customer demotion, customer loyalty, loyalty programs, prospect theory, relationship marketing

JEL Classification: L81, M31

Suggested Citation

Wagner, Tillmann and Hennig-Thurau, Thorsten and Rudolph, Thomas, Does Customer Demotion Jeopardize Loyalty? (May 2009). Journal of Marketing, 2009, Available at SSRN: https://ssrn.com/abstract=2284036

Tillmann Wagner

Independent ( email )

Thorsten Hennig-Thurau

University of Muenster ( email )

Am Stadtgraben 13-15
Muenster, D-48143
Germany

HOME PAGE: http://www.marketingcenter.de/mm/en/index.php

Thomas Rudolph (Contact Author)

University of St. Gallen ( email )

University of St. Gallen
Dufourstrasse 50
St Gallen, St. Gallen CH-9000
Switzerland

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