What recovery options to offer for loyalty reward program members: Dollars vs. Miles?

Abstract

Research shows that offering monetary compensation is effective in restoring customers’ equity perceptions following a service failure. However, little is known about loyalty reward program members’ responses to various types of recovery options. This study fills this important void by investigating two types of compensation: a discount coupon (in dollars) and bonus reward points (in miles) in the airline context. This study further investigates the boundary effect of controllability of a service failure. Our findings show that, when the flight delay is perceived as highly controllable by the airline company (i.e., scheduling error by flight crews, repatronage intention was higher in the 50-dollar discount vs. 2500 bonus miles condition. Conversely, repatronage intention did not differ between the two compensation options when the flight delay was perceived as uncontrollable i.e., inclement weather. Our findings help hospitality and tourism firms leverage service recovery initiatives for loyalty reward program members.