Status demotion in loyalty programmes: the role of perceived unfairness

Hierarchical loyalty programmes are widely adopted by service companies to enhance their relationships with customers. However, its negative effect, especially when customers are demoted, is relatively less researched. Building on equity theory, this study explores the effect of status demotion on customers' loyalty intentions through the mediation of perceived unfairness. The moderating roles of status level and purpose of travel are also examined on the relationship between status demotion and perceived unfairness. Evidence from 220 airline customers in China shows that status demotion significantly influences customers' perceived unfairness, which eventually decreases their loyalty intentions. The detrimental effect of status demotion on perceived unfairness is found to be higher for members who are demoted from top tier to low tier than those demoted from other tiers (top to middle and middle to low) and for members who travel for business purposes than for leisure purposes.