Nari Yoon, Jenny G. Olson, and Adam Duhacheck
Imagine that you just entered a local coffee shop which you are a loyal customer of.
Then, you see the sign on the left.
What would be your response?
Abstract
Companies invest significant resources into acquiring new customers via promotions and discounts. However, these recruitment efforts may have a negative impact on existing customers. Drawing upon equity theory and the consumer-brand relationship literature, the current research examines how existing customers react to “their” companies offering new customers special promotions. This article proposes that existing customers may perceive inequity when new customers’ “outputs” (e.g., benefits, rewards) are incommensurate with their perceived “inputs” (e.g., time and financial investment). Five experiments demonstrate that when new customers receive (vs. do not receive) exclusive benefits, existing customers show greater switching intentions. These effects are driven (at least in part) by increased feelings of betrayal. Existing customers’ switching intentions in response to new-customer promotions are dampened when existing customers received a new-customer benefit in the past, new customers’ inputs in previous commercial relationships are high (i.e., they were loyal), or new customers are seen as needing company outputs. This research has important implications for both theory and practice, providing some guidance when navigating the delicate balance between customer acquisition and retention.
Keywords: equity theory, new customer promotions, switching, customer retention, loyalty, perceived betrayal
This research project received a data funding grant from Kelley School of Business, Indiana University.
Nari Yoon | Assistant Professor of Marketing 