Purchasing the senator status for 2000 Euro? : the effect of a payment option in hierarchical loyalty programs

In an effort to reward their most loyal customers, many companies have introduced hierarchical loyalty programs. While the positive effects of upgrading customers in such programs have been shown in relatively many studies, the negative effects of downgrading customers in such programs have been investigated in relatively few studies. Some companies (e.g., Lufthansa) have introduced a payment option when downgrading customers (e.g., purchasing the Senator status for 2000 Euro). We conduct an online experiment with n=112 airline travelers. Based on prospect theory and based on mental accounting, we show that downgrading with a payment option leads to lower loyalty intentions than downgrading with no payment option. Moreover, we show that downgrading with a pre-announcement leads to higher loyalty intentions than downgrading with no pre-announcement. We discuss implications for managers of hierarchical loyalty programs and give recommendations for further research