Status demotion in hierarchical loyalty programs and customers’ revenge and avoidance intentions

Purpose: Status demotion in hierarchical loyalty programs (HLPs) has received considerable academic attention. However, little is known about whether status demotion engenders two widely recognised behavioural intentions: revenge and avoidance. This study aims to make up this gap by examining the effects of status demotion on customers’ revenge and avoidance intentions. The underlying mechanism and boundary conditions of these effects are also explored. Design/methodology/approach: Two studies were conducted to test the hypotheses. Study 1 was conducted using a structured survey from 347 active HLP members/customers of Chinese airlines. Study 2 used an online experiment amongst 268 active HLP airline customers in Australia. Partial least squares-based structural equation modelling and Hayes’ (2013) PROCESS macro were used for data analysis. Findings: The results of Study 1 show that status demotion increases customers’ revenge and avoidance intentions simultaneously. Meanwhile, these effects are more significant for demoted customers with an external locus of causality than those with an internal locus of causality and demoted customers with higher entitlement tend to possess more revenge intentions than avoidance intentions. Study 2 further identified perceived inequity as a mechanism, which links status demotion to revenge and avoidance intentions of demoted customers. Research limitations/implications: This study examines demoted customers’ revenge and avoidance intentions amongst Chinese and Australian airline travellers. Future research may focus on actual behaviour and test the current study’s model in cross-cultural and cross-industry settings. Practical implications: Managers should deal with demotion decisions carefully as the failure to manage outraged customers may weaken customer-company relationships. Originality/value: This study extends the existing literature on relationship marketing and HLPs by offering a better understanding of how and under what conditions status demotion elicits customers’ intentions for revenge and avoidance.