Exploring the effects of status demotion in hierarchical loyalty programs

Service industries practice hierarchical loyalty programs (HLP) to enhance the relationship with customers. However, little is known about the negative effects of HLP status demotion and under what condition such effects vary among the demoted customers. This study thus aims to examine the effects of HLP status demotion on customers’ satisfaction, word-of-mouth, and share-of-wallet. This study further explores the moderating role of the cause of demotion (spending-based vs. policy-based) of such effects. Two studies were conducted in the context of hotel and airlines industries in Bangladesh. PROCESS Macro was used to test the moderated mediation model, and the results of both studies show that status demotion significantly influences customers’ satisfaction, word-of-mouth, and share-of-wallet. Further, customers who perceive firms’ policy changes as the cause of their status demotion show lower level of satisfaction, word-of-mouth, and share-of-wallet.