This is a true business tale that I heard a while back. A Japanese firm did not do very well one year and could not afford to give employees bonuses at the end of the year. The management thought of a clever way to reduce dissatisfaction among employees. First, news leaked out that there would be no end-of-the-year bonuses, and everyone started complaining. Soon it became known that the situation was worse and that not only there would be no yearly bonuses but there would be no regular yearly salary raises for next year. Later, another rumor broke out that the situation was even worse and that some people might have to be laid off to reduce cost. Can you imagine the employees’ reactions when the management finally announced that there simply would be no bonuses but yearly salary increases would still happen next year? Everyone was very relieved and happy! Why? Because after the three rounds of “rumors”, the employees were expecting much worse and were relieved to find that not only were they not going to lose their job but they would actually get a raise next year.
While I would not encourage manipulating employees’ mind like this, the story does demonstrate the power of expectations. In other words, as human beings, we do not perceive things in absolute terms. Rather, we interpret them in a relative light according to our expectations. Thus, when our expectations vary, how we feel about a situation can be interpreted and accepted under completely different lights. If we expect a full glass, we see half a glass as half-empty. But if we expect an empty glass, we see half a glass as half-full.
This aspect of human psychology has important implications for customer relationship management. When dealing with customers, firms need to be aware that not only is it necessary to provide superior service but it is also important to manage what customers expect to receive from the firm. For example, while it may be temporarily beneficial for a firm to pamper its best customers, such a tactic may also increase the expectation of these customers such that they can become easily disappointed.
To use a more concrete case to illustrate this point, consider airlines’ frequent flyer programs. Most of these programs are structured in tiers, such that consumers who fly over a certain number of miles per year are granted higher status and receive special treatments and privileges. This special treatment aspect is considered an important feature of a loyalty program (see this Colloquy article on the soft side of loyalty). While I acknowledge the usefulness of this tiered structure, firms do need to carefully balance the potential gain in loyalty via such a structure and the potential loss that can happen in setting up consumers’ expectations too high and subsequently disappoint them and lose their hard-earned loyalty.
I would like to conclude this discussion with another true story that actually happened to me personally. In my recent trip to Seattle, I flew for the first time as a Silver Medallion member of Delta Airline’s SkyMiles Program. Below is a log of my experiences and how I reacted to them in my mind. From these, you can see how an elevated expectation can set up a higher possibility of disappointment.
1. Prior to departure: I was successfully upgraded to first class for the longer leg of my flight. It made me feel very happy to receive the upgrade, especially for a four-hour flight. Prognosis: no prior expectation, high satisfaction.
2. Checking in for my flight: I waited in the Medallion member special line. But the agents were all dealing with other customers who were not Medallion members. Despite being the first person in line at the special check-in line, I did not receive immediate service. Normally I would have just patiently waited in line, but this time it created some irritation. Prognosis: some prior expectation, some dissatisfaction.
3. Flight from Norfolk –> Seattle: Being my first time flying first class, I was happy with the treatment that I received on board the airplane. I had a very decent dinner with real china and silverware rather than no meal or paid meal with plastic plates one would expect in coach. Prognosis: low/no expectation, high satisfaction.
4. Flight from Seattle –> Norfolk: Due to bad traffic to the airport, I arrived at the airport just past the 30-minute threshold and had to miss my flight. I was told that I had to either pay a substantial amount of several hundred dollars to be rebooked to another flight, or wait till three hours before the next available flight for the same-day call rule that would cost me only $50 for the change. Yes, I was the one responsible for the flight. But airlines miss my flights all the time, and they never pay me a few hundred dollars for my lost time. Well, normally I would have just blamed myself for missing the flight and creating the subsequent situation. But now that I am a Medallion member who actually flew first class once, I was expecting a much better response, something along the line of “I am sorry you missed your flight. We value your business as a Medallion member. Since this is your first offense, we will ignore that it is your responsibility, and we will book you onto the next flight right away so that you can be on your way” (of course costing me little to no money for doing that). The ending of the story was that I was not able to get onto the immediate following flight and had to wait for the next one. I ended up paying close to $250 extra (or about half of the price of the original ticket), and my return date was delayed till the next day. Prognosis: high expectation, high dissatisfaction.
In sum, managing customer loyalty is a science, and this science can be crystallized by a better understanding of consumer psychology. Understanding what consumers expect and properly managing that expectation should be part of every firm’s loyalty marketing strategy. For readers who would like to learn more about the effects of having tiered structures in a loyalty program, you may want to check out this MSI Working Paper entitled “Feeling Superior: The Importance of Loyalty Program Structure on Customers’ Perception of Status” by Nunes and Dreze.