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

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.