Purpose: Presently, loyalty programs often offer preferential treatment to the firm’s best customers, and recently, service firms started to incorporate corporate social responsibility (CSR) initiatives into the loyalty reward programs (e.g. Starwood’s “Make A Green Choice”). However, academic research advancing the understanding of the effectiveness of CSR-focused loyalty programs is lacking. To bridge that gap, this paper aims to examine the influence of a “green” loyalty program on members’ and bystanders’ service encounter satisfaction in light of preferential treatment. Furthermore, this paper investigates the psychological mechanisms (prosociality perceptions and status perceptions) that underlie these effects. Design/methodology/approach: This study used a 2 (loyalty program: green vs standard) × 2 (customer type: member vs bystander) × 2 (observability of preferential treatment: low vs high) between-subjects experimental design. Respondents were asked to read a hotel check-in scenario and then completed scales that measured their perceptions and evaluations of the service encounter. Findings: Results from this study suggest that a green loyalty program can buffer the negative effect of preferential treatment on bystanders’ service encounter satisfaction. An examination of the underlying mechanism reveals that prosociality perceptions of the firm mediate the impact of loyalty programs on bystanders’ satisfaction. As expected, the results show that a green loyalty program is as effective as a standard program in elevating members’ satisfaction. Furthermore, findings from a moderated mediation analysis indicate that status perceptions mediate the impact of customer type on satisfaction. However, status perceptions have a greater leveraging power in satisfaction when observability of preferential treatment is high. Originality/value: The results of this study have significant implications for service firms with loyalty programs and customer prioritization practices. By incorporating CSR into their loyalty programs, firms may be able to mitigate the negative bystander effect while maintaining the positive effects of preferential treatment on members’ service encounter satisfaction.
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