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An exploratory investigation of customer penalties: assessment of efficacy, consequences, and fairness perceptions

Michael S. McCarthy (Assistant Professor of Marketing, Richard T. Farmer School of Business, Miami University, Oxford, Ohio, USA)
Eugene H. Fram (J. Warren McClure Research Professor of Marketing, College of Business, Rochester Institute of Technology, Rochester, New York, USA)

Journal of Services Marketing

ISSN: 0887-6045

Article publication date: 1 November 2000

1474

Abstract

As organizations are striving to increase customer loyalty through relationship marketing programs, more firms are implementing customer penalty policies that impose fees or charges (e.g. airline reticketing fees) on customers that fail to comply with purchase agreements. While penalties are intended to increase customer compliance with purchase agreements, they may also reduce customer loyalty and increase negative word‐of‐mouth communications. Owing to a paucity of available research, the authors conducted a national consumer survey to determine, first, if penalties increase customer compliance, reduce customer loyalty, and/or increase negative word‐of‐mouth communications, and second, what factors may influence customer perceptions of penalty fairness. The results indicate that while penalties may increase customer compliance, some customer conflict and other negative consequences are likely to follow the imposition of a penalty. Also, the effects of a number of demographic and situational factors on customer perceptions of penalty fairness are presented and discussed. Considers the implications of the findings for management practice and discusses directions for future research.

Keywords

Citation

McCarthy, M.S. and Fram, E.H. (2000), "An exploratory investigation of customer penalties: assessment of efficacy, consequences, and fairness perceptions", Journal of Services Marketing, Vol. 14 No. 6, pp. 479-501. https://doi.org/10.1108/08876040010347606

Publisher

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MCB UP Ltd

Copyright © 2000, MCB UP Limited

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