Loyal customers' tipping points of spending for services: a reciprocity perspective

Purpose Controversy exists about the shape of the relationship between loyalty and profitability. This paper aims to address the possibly nonlinear effects of behavioral loyalty (BLOY) on customer spending (as a proxy for profitability). Building on social exchange theory and the norm of reciprocity, it examines the asymmetries between BLOY and customer spending and the moderating influence of personal communication (PCOMM) as a social reward and dispositional positive reciprocity as process evidence. Design/methodology/approach Study 1a (n = 309) gathered customer data from four restaurants and Study 1b (n = 252) data from hotel guests after they checked out. Study 2 is an experimental study with two manipulated factors BLOY and PCOMM). In total, 295 participants from a large German online panel completed the study. Findings The results indicate an inverted-U shaped relationship between BLOY and customer spending: after reaching a turning point, customers gradually curb spending as their BLOY further increases. High PCOMM acts as a reciprocal response while triggering additional customer spending particularly at higher levels of behavioral loyalty; positive reciprocity adjusts the differences in customer spending when social rewards such as PCOMM are present. Research limitations/implications The asymmetric relationship between BLOY and customer spending is tested only for hedonic service settings. Practical implications Not all loyal customers spend more - companies need to meet their reciprocal obligations before they can benefit from increased customer spending. Originality/value The present research re-considers the nature of the relationship between BLOY and customer spending and reveals an inverted-U shaped relationship, with a turning point beyond which greater customer loyalty decreases customer spending. It finds converging process evidence for the mechanism of reciprocity underlying this relationship. This study also details the financial impact of BLOY on the firm by investigating actual customer spending.