Use it or lose it: point expiration and status demotion

Abstract

Purpose In managing hierarchical loyalty programs (HLP), firms often use a reward point expiration and status demotion policy to reduce financial liability and to encourage repeat purchases. This study aims to examine how point expiration and status demotion policies affect customer patronage, the role of extension strategies in mitigating the negative effects of these policies on customers and the moderating role of status endowment in the effect of point expiration on customers patronage following status demotion experience. Design/methodology/approach Three experiments were conducted using the hotel industry as the context. The hypothesized relationships were tested using ANOVA and a serial moderated mediation analysis using SPSS PROCESS Macro. Findings Customers subjected to reward point expiration exhibited a higher level of anger and perceived severity of the problem than those subjected to status demotion in HLP. Consequently, when customers experienced both point expiration and status demotion, the point extension strategy rather than the status extension strategy was found to be a more effective remedy for reducing perceived unfairness, although there was no change in the level of patronage reduction between the two extension strategies. Importantly, the effect of point expiration on patronage reduction was stronger among endowed-status customers than earned-status customers, serially driven by heightened feelings of embarrassment and perceived unfairness. Originality/value The study adds to the existing literature on HLP by comparing the effects of point expiration and status demotion on customer patronage with practical insights for HLP managers.