Managing the Bright and Dark Sides of Status Endowment in Hierarchical Loyalty Programs

Abstract

In service industries, hierarchical loyalty programs are common relationship marketing instruments that award elevated status to customers who exceed a certain spending level (e.g., gold membership). In practice, service companies offer elevated status to some customers who do not meet the required spending level, in an attempt to profit from the profound allure of status. Relying on social psychology research and a mixed-method approach, this study analyzes the loyalty impact of status endowments, defined as awards of elevated status to customers who are not entitled to it. An exploratory qualitative study identifies customer gratitude and customer skepticism as positive and negative mediators, respectively, of customers’ attitudinal responses to endowed status. Quantitative studies—two experimental and one survey—substantiate these bright and dark sides of endowed status. The efficacy of status endowment is contingent on the context. To alleviate the dark-side effect, managers can allow target customers to actively choose whether to be endowed, especially those who are close to achieving the status already, and provide valuable preferential treatment to customers elevated by either endowment or achievement. These insights offer guidelines for whether and how to use status endowment in hierarchical loyalty programs.