Happy to see your benefit go: the impact of reductions in peers’ benefits on consumers’ loyalty program satisfaction

Purpose Loyalty programs have become increasingly popular with marketers. Many loyalty programs use a tiered structure whereby some members receive more or better benefits than others. Unfortunately, marketers sometimes have to reduce the benefits of some of the tiers. While consumers clearly do not like it when their own tier’s benefits worsen, it is unclear how they react to worsened benefits for another tier when their own benefits remain intact. This study aims to examine this topic. Design/methodology/approach Five experimental studies test the hypotheses. Findings Consumers become more satisfied with a loyalty program when the benefits granted to another tier are reduced (vs remain constant). This is jointly driven by counterfactual thinking (considering the possibility that one’s own benefits could have been reduced as well) and relative value considerations (comparing the value of one’s own benefits to the value of others’ reduced benefits). Research limitations/implications This research demonstrates that benefit reductions can actually increase loyalty program satisfaction for a segment of consumers. This study documents counterfactual thinking and relative value as two psychological mechanisms driving loyalty program satisfaction. Practical implications This research sheds light on a novel way firms can spend less money but make some of their consumers more satisfied. Of course, marketers must tread carefully, as the loyalty program members who have their benefits cut will likely become less satisfied. Originality/value This research studies a marketing mix action that is quite common but has not received much attention in the literature: a firm’s reduction of loyalty program benefits. In addition, this work introduces the construct of counterfactual thinking to the loyalty program literature and sheds new light on the importance of relative value in loyalty programs. Furthermore, this work enriches research on bystander effects in the loyalty program context by studying the effect of a negative event (i.e. a firm reducing benefits for some tiers) on observing members.