Do Customer Discounts Affect Frontline Employees?

Abstract

Customer discounts continue to be one of the most central promotional tools. While discounts effectively serve important corporate objectives, they may also exhibit additional unanticipated effects on internal stakeholders involved in the value creation process. This research examines the impact of customer discounts on frontline service employees. One experimental study and two field investigations are presented. The findings underline that customer discounts made salient by their redemption, frequency, and depth (i.e., magnitude) reduce frontline employees’ experienced task significance as well as their perceived appreciation by the firm. Discounts also exert destructive indirect effects on frontline employees’ workplace responses including their intrinsic motivation, ambivalent identification, and turnover intentions as mediated by task significance and appreciation. These indirect effects are for the most part driven by perceived appreciation, serving as a key mechanism in employees’ cognitive processing of customer discounts. The present findings provide first evidence that customer discounts can provoke undesired effects upon firms’ service workforce in tandem with fulfilling promotional objectives and stimulate the need for a better coordination between firms’ service and promotional activities.