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Customer frustration in loyalty programs

Bernd Stauss, Maxie Schmidt and Andreas Schoeler
Department of Services Management, Catholic University of Eichstaett-Ingolstadt, Ingolstadt, Germany
Abstract
Purpose This article aims to examine the negative effects of loyalty programs from the perspective of frustration theory. It seeks to develop a model of customer frustration on the basis of frustration theory and an exploratory qualitative study. Design/methodology/approach First, frustration is dened as a special form of dissatisfaction and a general model of frustration in business relationships is developed by evaluating the literature on frustration theory. Second, an explorative and qualitative focus group study among participants of a loyalty program for frequent travelers is conducted. A multi-level iterative content analysis of the participants statements reveals the existence of different categories of frustration incidents. Third, the ndings of the study are used to develop a system of propositions that generate a specic model of customer frustration in loyalty programs. Findings Seven categories of frustration incidents that were triggered by the loyalty program and lead to frustration sensation and subsequent frustration behavior, like protest or avoidance, could be identied. With four categories of incidents inaccessibility, worthlessness, qualication barrier and redemption costs customers frustration sensation and behavior are directed on the program itself (program-related frustration incidents). For the other three discrimination, economization and defocusing frustration sensation and behavior also affect the perception of the relationship with the rm (relationship-related incidents). Research limitations/implications The exact differentiation of frustration from related constructs should be the topic of further research. The ndings of the empirical study are of limited generalizability because the object of investigation was a single companys loyalty program in a special industry sector. Hence, the introduced propositions should be further specied and tested in a large-scale quantitative study in different sectors and with a number of companies and programs. Further work is necessary to allow deeper insights into the relationships between the elements in the customer frustration model. Practical implications Several implications for planning and implication arise from the results of the study. Management has to make sure that program-related and relationship-related negative effects are avoided. That calls for offering only those benets that represent genuine additional value to customers and for ensuring that the benets can be claimed at any time and without any additional effort by the customer. Furthermore, the perceived quality of the program should be monitored to obtain prompt information about possible customer frustration and indications of protest (i.e. customer complaints) should be viewed with particular attention. Originality/value This paper provides new insights into the so far highly neglected negative side effects of loyalty programs. Also, innovative is the rst-time application of the frustration construct to the analysis of customer behavior in the context of loyalty programs. The contribution is of high value for all who research in the eld of customer relationship management and customer loyalty. Keywords Customer loyalty, Customer relations Paper type Research paper

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Received 14 September 2004 Revised 3 February 2005 Accepted 3 February 2005

The authors wish to thank the participating company and students involved in the empirical research project for their assistance and support.

International Journal of Service Industry Management Vol. 16 No. 3, 2005 pp. 229-252 q Emerald Group Publishing Limited 0956-4233 DOI 10.1108/09564230510601387

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Introduction Loyalty programs recently gained considerable practical and academic attention in the context of customer retention and customer relationship management. The fundamental managerial objective of these programs is to reward loyal customer behavior with special services or rebates and thereby at the same time to promote this loyal behavior in order to realize the economic benet of long-term business relationships (Reichheld, 1993, p. 64; Sharp and Sharp, 1997, p. 474). The extent to which loyalty programs actually achieve this objective has become increasingly the subject of scientic study (Stauss et al., 2001; Bolton et al. (2000); Verhoef, 2003; Yi and Jeon, 2003; Noordhoff et al., 2004). Usually, such studies have focused on the question of how strong the supposed connection between participation in a loyalty program and increased customer satisfaction and loyalty actually is. Supplementation of this perspective appears to be necessary. Everyday observation and media reports on problems that customers experience in loyalty programs suggest that these programs may also cause negative emotional and/or cognitive effects. If these effects do occur, it is possible that the loyalty programs are not only falling short of their goal of increasing customer retention, but may even be leading to a reduction in loyalty. In view of the considerable investment required to set up and maintain loyalty programs, it appears especially relevant, both scientically and practically, to examine the type and extent of negative effects of loyalty programs. This examination is conducted on the basis of the frustration construct. Frustration involves a highly negative emotion that occurs when a potentially rewarding act or sequence of behavior is blocked (Colman, 2001, p. 291). Loyalty programs explicitly promise customers rewards for certain loyal behavior patterns. This makes the relevance of the frustration concept in this context evident: if the customer does not receive the promised reward or if the indicated benet proves worthless to him, customer frustration may arise. It is, therefore, the goal of the present study to examine the negative effects of loyalty programs from the perspective of frustration theory. To this end, the main features of loyalty programs are presented and initial indicators of negative effects described. A basic model of frustration will subsequently be developed by evaluating the literature on frustration theory. This model is then applied to loyalty programs by using the ndings of an explorative and qualitative study. The paper ends with a summarizing conclusion, a discussion of limitations of the study and research questions that remain to be answered, as well as managerial implications. Loyalty programs Loyalty programs are marketing efforts which reward and, therefore, encourage loyal customer behavior in order to increase the protability of stable customer relationships (Sharp and Sharp, 1997, p. 474). Firms aim at increasing customer-specic turnover and prot margins by intensifying customer dialog, developing customized service packages and thereby stimulating repurchase and cross-buying behavior. At the same time, they strive to increase the efciency of marketing by carefully targeting customer communication (Dowling and Uncles, 1997; Palmer et al., 2000; Rapp and Decker, 2003). It is characteristic of all loyalty programs that they grant benets to customers, depending upon the volume of sales that they generate. These benets can consist in monetary or non-monetary incentives like rebates, bonuses or services. In practice,

loyalty programs differ with respect to the importance which they attach to the various types of benets and whether they grant them exclusively their most valuable customers (Rapp and Decker, 2003). Research on loyalty programs has increased in the last years. The effect of loyalty programs on loyalty and their critical success factors were investigated in the context of various industry settings such as automotive industry (Stauss et al., 2001), packaged goods (Roehm et al., 2002), nancial services (Bolton et al., 2000), airlines (Whyte, 2002), retail stores (Noordhoff et al., 2004) or telecommunication (Gustafsson et al., 2004). The results of an empirical study of Stauss et al. (2001) indicate that the membership in an automotive customer club has a remarkable impact on the customers relationship satisfaction and retention. Bolton et al. (2000) show that participants of a loyalty program of a nancial service provider actually tend to realize increased revenues and higher service usage levels and to overlook negative service experiences. Several studies reveal the importance of a careful program design. Roehm et al. (2002) demonstrate that the loyalty of customers of packaged goods brands increases when the incentives are closely connected to the brand. The study of Hallberg (2004) yields similar results. Another aspect of successful program design is elaborated by Kivetz and Simonson (2003). They provide evidence that by heightening the level of effort required to receive benets, the attractiveness of loyalty programs can be increased. Yi and Jeon (2003) investigate how different program rewards inuence the perceived value of a program and show that customer involvement has an important moderating role on the programs success. Noordhoff et al. (2004) nd out that a small number of alternative loyalty programs in a market and only little familiarity of customers with these programs positively affect the success of the program. This is in accordance with the results of the study of Whyte (2002) who nds an especially high level of spurious loyalty among members of frequent yer programs who are participating in several different programs.

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Indications of negative effects of loyalty programs The aim of loyalty programs is to create a win-win situation for the initiating company and its customers. The customers receive monetary and non-monetary benets for proven loyalty, which is supposed to increase their satisfaction and their inclination to engage in further loyal customer behavior (Sharp and Sharp, 1997). The providers benet from positive effects on turnover and prots of loyal business relationships. These supposed benets for both market partners result only when customers nd participation in the program to be rewarding and have no negative experiences. There is, however, evidence to indicate that this is not always the case. An analysis of CRM activities has already shown that the use of certain instruments of customer retention may have quite a negative effect that weakens customers commitment (Stauss and Seidel, 2002). Hansen (2000, p. 429) demonstrates that customer-value-oriented differentiation in loyalty programs may be perceived by customers as discriminatory and unfair. In a recent study Gustafsson et al. (2004) provide some indications that operational problems in collecting promised incentives for loyal behavior and complicated operational procedures of a telecom companys customer club are perceived negatively by customers.

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Further evidence of negative effects is found in practice. Critical customer voices about loyalty programs can be found in internet chat rooms. The American web site eopinions.com, for instance, has established a separate category for customer opinions regarding mileage programs or frequent yer programs; and in Germany, ciao.com allows customers to share their experiences with loyalty programs in various industries. The critical statements made by customers in these forums show that participants in loyalty programs experience problems that evoke great emotional annoyance. Customers complain, for example, . that rms do not keep their promises because they do not provide a sufcient supply of the products advertised as rewards, so that customers are turned away or put off; . that the rewards can only be obtained with some difculty or not at all because the required number of loyalty points is very high, because rewards are associated with a disproportionately high purchase volume or because accumulated points expire after a certain period of time; . that the promised rewards prove to be of little value; and . that provisions for privacy protection are violated. In view of these observations, it seems sensible to focus intensively on the negative effects of loyalty programs. For this a frustration-theoretical perspective is adopted. Reasons for choosing the frustration construct In general, when negative affective and/or cognitive effects are discussed, one is faced with the problem of the underlying construct for these effects. In accordance with conventional research into customer behavior, it seems reasonable to choose the dissatisfaction construct, since dissatisfaction is the result of a negative assessment of a customer experience. Furthermore, it can be assumed that dissatisfaction leads to a reduction of customer loyalty in terms of decreased willingness to engage in repeat purchases and word-of-mouth recommendations. Consequently, it seems obvious to analyze aspects of customer dissatisfaction with loyalty programs and its inuence on the reduction of customer loyalty. However, both practical experiences and scientic empirical insights have raised doubts about the legitimacy of the conceptual dominance of the satisfaction construct. In particular, it turns out that the correlation between customer satisfaction and customer retention on one hand, and between customer dissatisfaction and customer defection on the other hand, is not always as close as is traditionally supposed (Stauss and Neuhaus, 1997; Oliver, 1999; Anderson and Mittal, 2000). This leads to the conclusion that the correlation between customer satisfaction and loyalty behavior should be looked at in a more differentiated fashion. Among the results of such analyses is the nding that, along with other factors, it is strong customer emotions in particular that induce loyal customer behavior in positive cases and defections in negative cases. With respect to positive emotions, this nding has resulted in the fact that an independent construct in the form of delight has increasingly become the focus of interest in practice and research (Oliver et al., 1997; Schneider and Bowen, 1999, p. 36; Rust and Oliver, 2000; Keiningham and Vavra, 2001). With regard to highly negative emotions associated with pronounced customer dissatisfaction, the above discussion has rarely had an equivalent. This is astonishing,

as it is specically those customers with highly negative emotions that tend to defect (Schneider and Bowen, 1999, p. 36). Among them a higher percentage of terrorists (Heskett et al., 1997, p. 85) can be expected, who take advantage of every opportunity to express their dissatisfaction within their social environment and thus can have a particularly damaging effect on business. Only rather few contributions discuss the relevance of specic negative emotions like frustration, anger, fear, or rage for disloyal customer behavior. Nguyen and McColl-Kennedy (2003), for instance, analyze the role of customer anger provoked by service failures. Soderlund (2003) shows that the explanation of repatronage intentions can be substantially improved by taking customer frustration into account. Mattsson et al. (2004) investigate the inuence of anger, sadness, and fear of complainants on loyalty. All these contributions show that specic and highly negative emotions from customer experiences may represent an alternative or special case of dissatisfaction and possess a stronger predictive power with respect to the negative loyalty effect. In the context of loyalty programs the construct of customer frustration seems to be of particular relevance. Frustration involves a highly negative emotion that occurs when a potentially rewarding act or sequence of behavior is blocked (Colman, 2001, p. 291). Loyalty programs explicitly promise customers rewards for loyal behavior. If the customers do not receive the promised reward or if the indicated benets prove worthless to them, customer frustration may arise. Denition and theoretical foundation of frustration Frustration is a concept from psychoanalysis in the Freudian tradition. Freud focuses originally on explaining aggression, which he conceptualizes in his early works by the occurrence of frustration. He uses the term frustration to describe unpleasant inner conditions, which primarily emerge when expected rewards are lacking or targeted goals are missed (Freud, 2000a,b). Later Freud gives up his early theories and puts aggression in the context of his dualistic instinct theory (Freud, 1933; 2000c). Building on Freuds early works Dollard et al. (also known as the Yale Group) in 1939 published their monograph Frustration and Aggression to explain the origin and consequences of human aggression and develop the frustration-aggression hypothesis, identifying aggression as a consequence of frustration (Dollard et al., 1939, S. 1). They relate to frustration as an external instigating condition and attribute it to the interference with the occurrence of an instigated goal-response at its proper time in the behavior sequence (Dollard et al., 1939, p. 7). In accordance with this understanding, many authors dene frustration as the blocking or prevention of a potentially rewarding or satisfying act or sequence of behaviour (Colman, 2001, p. 291; Britt and Janus, 1940, p. 455; Popplestone and McPherson, 1988, p. 137; Anderson and ` Bushman, 2002, p. 37; Bessiere et al., 2004). Frustration sensation is thus triggered by frustrating incidents which are the negative experiences of not achieving a goal aimed at or to miss an expected and anticipated reward (Berkowitz, 1989, p. 60). This frustration sensation leads to subsequent behavior such as aggressive protest or avoidance designed to prevent the recurrence of the frustration. Frustration as a special form of dissatisfaction Facing the fact that frustration is dened as a negative customer emotion following from unfullled expectations, the question comes up where to draw the line between

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frustration and the customer satisfaction construct, which mostly is dened as disconrmation of expectations and, therefore, includes similar denition components. The differentiation between the two constructs can be made considering the following ve aspects (Stauss, 2004): (1) The satisfaction construct regards both positive and negative expectation disconrmations (satisfaction/dissatisfaction). In contrast to this, frustration is exclusively the result of a negative expectation discrepancy. (2) Dissatisfaction may refer to the whole spectrum of unaccomplished expectations. But frustration only refers to the negative consumer events in which the expected goal or reward is not reached. (3) Frustration is dened as a strongly negative emotion. In this respect there is a difference to dissatisfaction, where the arousal can also be weak. (4) Dissatisfaction may appear ex post, without the customers being aware of their expectations before the consumption. In contrast, frustration postulates ex ante an explicit goal, i.e. the customers have a denite idea about the aspired situation or the expected rewards. (5) A necessary precondition of frustration but not of dissatisfaction is that the customers assume that they will reach the aspired goal because of their previous experiences or explicit promises by the company. Thus, frustration is the special case of a strongly felt dissatisfaction, which appears if individuals do not reach goals that were thought as feasible or do not get rewards that were pledged. General frustration model Model elements According to the denition above, the following three elements of frustration may be differentiated (Britt and Janus, 1940, p. 453; Stacker, 1977, p. 7): frustration incident, frustration sensation and frustration behavior. A frustration incident is understood to be the withdrawal of a positive afrmation or a non-afrmation following an afrmation that occurred previously. Frustration thus implies the expectation of a reward based on a preceding reward experience or at least the antecedent promise of a reward (Stacker, 1977, p. 15; Smith and Ellsworth, 1985, p. 833). A number of frustration incidents have been differentiated in frustration research (Stacker, 1977, p. 17). In business relationships primarily the following forms of frustration are involved: refusal of reward, reduction of reward and postponement of reward. In the case of a refusal of reward, the expected reward is completely withheld from the person in question; in the case of a reduction of reward, a part of the reward is withdrawn or withheld; and in the case of a postponement of reward, the reward is made available later than promised before. In the frustration-aggression hypothesis it was assumed that frustrating incidents lead directly to aggressive behavior. But as Berkowitz (1989, p. 68) argues, frustration is an aversive event which does not instantaneously lead to an (aggressive) behavior but in an intermediate step evokes negative affect in the sense of a frustration sensation. The frustration sensation triggered by frustration incidents is a negative emotion and is described as very unpleasant (Smith and Ellsworth, 1985, p. 833).

This negative emotion is associated with a high degree of arousal and particular attentiveness toward the causing incidents and the person who can be made responsible (Janis, 1971, p. 152). This is conrmed in the study by Smith and Ellsworth (1985), who determine in their comparative empirical analysis of 15 different emotions that frustration was accompanied by a stronger desire to attend to the situation than for any other negative emotion (Smith and Ellsworth, 1985, p. 833). Frustration behavior involves the actions following the frustration sensation, seeking to lessen or eliminate the negative feeling (Berkowitz, 1989, p. 68). These subsequent actions may be basically classied as protest, intensication of effort and avoidance. Protest is a form of aggressive behavior that has been the main topic of psychological frustration research for a long time. Aggressions as the consequence of frustration have attracted a great deal of attention, primarily in the context of the frustration-aggression hypothesis (Dollard et al., 1939; Miller et al., 1941; Alcock, 1994). According to this theory, an aggressive activity designed to remove or to break through the frustrating barrier is carried out as the consequence of the aversive emotion. Such activities include not only physical violence, but also thoughts of revenge and verbal punishment and protests. Frustration behavior is primarily directed against the person (or even thing) that is regarded as being responsible for the fact that the target was missed (Harriman, 1961, p. 143). Alternatively, however, this behavior may also be directed toward persons or objects that cannot be made responsible for the problem at all (Anderson and Bushman, 2002, p. 37). Originally, it was assumed that the existence of frustration always leads to some form of aggression and aggression is always a consequence of frustration (Dollard et al., 1939, S. 1). Based on empirical studies, however, this assumption was revised and nowadays it is acknowledged that other behavioral reactions are possible (Miller et al., 1941, p. 339; Berkowitz, 1989). Frustration behavior may also involve actions that can be interpreted as constructive in the sense of an intensication of effort toward coping with the problem. As a result of the emotional activation, energy is produced that is then used to overcome the frustrating barrier. In this case, the failure in the expected performance leads to compensatory reactions that make achievement of the goal seem possible (Stacker, 1977, p. 67). Avoidance is a collective term for various forms of withdrawal behavior. Individuals display avoidance tendencies in order to evade situations that lead to frustration incidents and hence to frustration. This avoidance behavior may have a passive character in the form of evasion, withdrawal and refusal (Stacker, 1977, p. 69) and, therefore, be of a resigned type. However, active avoidance is also conceivable. In this case, individuals develop a strategy in order to achieve their goal, preferably while eliminating or reducing the frustrating conditions. Figure 1 shows an overview of the general frustration model.

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Relationships of model elements The relationships between the model elements that is, the relationships between frustration incidents and frustration sensation on one hand, and between frustration

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Figure 1. General frustration model

sensation and frustration behavior on the other hand will be examined more closely in the following section. The relationship between frustration incidents and frustration sensation is primarily a matter of which types of frustration incidents lead to a stronger or weaker frustration sensation. Frustration research has chiey emphasized four aspects: (1) the extent of the (withheld) reward; (2) the time of the withdrawal; (3) the perceived deliberateness or arbitrariness of the reward withdrawal; and (4) the expectation of the reward withdrawal (Stacker, 1977). Extent of the reward withdrawal. The intensity of the negative arousal that is, the intensity of the frustration sensation tends to be greater, the larger the anticipated (and then withheld) reward (Alcock, 1994, p. 42). Time of the reward withdrawal. The time of the reward withdrawal also plays a major role. Empirical frustration research shows that the intensity of the frustration sensation grows when the withdrawal happens at a time shortly before realization is to occur that is, shortly before the goal is achieved. The sensation is less intense, on the other hand, when the withdrawal occurs long before the intended goal is to be achieved. The later the frustration incident occurs, therefore, the longer the aversive feeling can be expected to last (Stacker, 1977). Perceived deliberateness or arbitrariness of the reward withdrawal. The perceived deliberateness or arbitrariness of the reward withdrawal is also of fundamental importance in determining the intensity of the frustration sensation. Stronger arousal can be expected if the withdrawal is perceived to be deliberate/arbitrary (Janis, 1971, p. 156; Berkowitz, 1989). This perception inuences the frustration behavior in such a way that protest behavior becomes more likely and intensication of efforts, in terms of a constructive search for solutions, decreases. It is also likely that there is a direct effect on frustration behavior that is to say, aggressive behavior is encouraged by perceived deliberateness or arbitrariness (Stacker, 1977, p. 53). Expectation of the reward withdrawal. The intensity of frustration also depends on whether individuals expect that they will be frustrated when trying to achieve their goals. Insofar as frustration incidents have already been anticipated, the situation becomes less unpleasant, the arousal is less intense when the frustrating incident occurs, and a change in the frustration behavior takes place (Berkowitz, 1989). If

individuals assume, based on their experiences, that their expectations will be frustrated and that protests will change nothing about the situation, a high tendency toward avoidance can be expected as these individuals attempt to evade situations that lead to frustrating incidents and thus to frustration sensation (Stacker, 1977, p. 58). As far as the relationship between frustration sensation and frustration behavior is concerned, there are established ndings that the intensity of activation/arousal determines the frustration behavior. In general, this means that greater arousal leads to an intensication of the subsequent behavior. As Berkowitz states: It is not the exact nature of the aversive incident that is important but how intense the resulting negative affect is (Berkowitz, 1989, S. 68). The type of the frustration behavior is further determined by a number of inuencing factors (such as situational conditions) (Stacker, 1977, p. 60). Some general statements are, however, possible. The probability of aggressive behavior increases as the arousal intensies. The greater the arousal, the more likely is protest behavior. Accordingly, efforts toward nding constructive solutions decrease when large rewards are withdrawn from individuals or when the deliberateness/arbitrariness of the reward withdrawal leads to greater arousal. In considering the relationships between the model elements, frustration tolerance should be considered the primary moderating variable. The assessment and processing of frustration incidents are dependent upon the personality characteristics and the conditioning of the individual, which are reected in the frustration tolerance (Rosenzweig, 1938). Frustration tolerance is the ability of an individual to tolerate a frustrating situation for a longer period of time without distorting the objective factors of the situation (Rosenzweig, 1938, p. 153; Rutishauser, 1994, p. 36), without making efforts either to resolve the tensions indirectly or to satisfy the motive directly (Harriman, 1961, p. 144) or without disruption or disordering of ones behaviour (English and English, 1974, p. 217). The more pronounced the frustration tolerance, the fewer aggressive forms of behavior are found. Individuals with high frustration tolerance will thus tend to exhibit either a constructive intensication of efforts or avoidance behavior. Figure 2 shows the detailed general frustration model with its relationships, which will form the basis of the following examination of frustration in loyalty programs. Research questions and methodological approach In order to analyze the extent to which frustration incidents that lead to customer frustration and frustration behavior occur in loyalty programs, an exploratory qualitative study was conducted among participants of a loyalty program. The empirical study had a two-fold purpose. First, the existence and type of customer frustration in the specic loyalty program was examined from a descriptive perspective. To that effect the following research questions were dened: . Do customers experience frustration incidents? . What types of frustration incidents can be observed? . What subsequent effects do the triggered frustration sensations have with respect to the behavior of customers? Second, the ndings of the exploratory study were used to develop a system of propositions that generate a specic model of customer frustration.

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Figure 2. Detailed general frustration model

The research object was a loyalty program for frequent travelers of a transportation service provider. The program has a clear emphasis on status components aiming to identify, get to know and bind valuable customers to the rm. For each trip, participants in the program are credited a certain number of points, depending on the price of the ticket. Accumulated points expire one year after they are earned. If a certain number of points is exceeded during this year, the travelers are awarded a special status that remains in effect for at least 24 months and is associated with various exclusive services that are either not available for customers without this status or only upon payment of a fee. There is a highly explorative character to the research problem, since up to this point neither proposals for the operationalization of the frustration construct nor extensive knowledge about customer frustration in loyalty programs exist. For this reason, a qualitative research approach was selected (Flick, 1998). In order to obtain the most comprehensive and precise insight into the frustration experience of customers in their roles as participants in loyalty programs, the focus group method was adopted. Particularly for the exploration of so far unknown customer evaluations the focus group method has considerable advantages (Morgan, 1988; Frey and Fontana, 1991; Krueger, 1994; Flick, 1998; Fontana and Frey, 1998). The method allows participants to depict their experiences with the program in the content and language of their choice and to reect and analyze these experiences in the course of their conversation with the other participants (Krueger, 1994, p. 24; Fontana and Frey, 1998, p. 53). The communication situation largely corresponds to everyday discourse, which makes it possible to record opinions and attitudes as they would be expressed in private discussions. On one hand, this process prevents research-led directing of the test subjects. On the other hand, the moderator can ensure that participants precisely depict their experiences, their impressions and the resulting actions (Fontana and Frey, 1998, p. 53; Chrzanowska, 2002, p. 19; Imms and Ereault, 2002, p. 78). Deep insights could thus be expected in terms of which specic incidents triggered frustration, how strong the frustration sensation was in each case and which behavioral steps frustrated customers took. Since it was to be expected that the potential frustrating incidents would differ for varying customer groups, depending upon whether the customers had already qualied for the exclusive status or were still in the qualication phase of reaching the required point total, the customers were divided into groups. This division is based on the assumption that members of the groups differ in their expectations and experiences, especially with regard to the experienced frustrating incidents. Therefore, they might feel a different amount of frustration sensation or display different frustration behavior. The division into groups fullls the methodological requirement to establish reasonably homogeneous focus groups whose members share particular and similar experiences (Imms and Ereault, 2002, p. 77). For dividing the customers into groups, rst, customers who had already reached exclusive status as a result of having reached the required number of points (Qualied) were differentiated from those who were accumulating points but were not yet among the status customers because their point total was still too low (Non-Qualied). Second, the group of Non-Qualied was further divided into the sub-groups Just Missed and Bound to Fail, in terms of their chances of reaching Qualied status. The Just Missed group included all customers who traveled

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frequently and consequently were able to accumulate a large number of points, but fell short of the point limit, as they only had 50-99 percent of the necessary points. Customers in the Bound to Fail group also accumulated points, but had or have no real chance of ever reaching the status level, since their point accounts showed less than 50 percent of the necessary number of points. The Qualied group of customers and the two sub-segments of Non-Qualied (Just Missed and Bound to Fail) were examined separately. For each of the three sub-groups, two focus group discussions were conducted, in which on average six customers participated. The potential participants were selected from the program providers customer database based on their membership in the respective customer segments. The customers were contacted by telephone and the nal 36 participants were acquired after a total of 418 telephone contacts had been made. All group discussions were recorded on video and subsequently fully transcribed as a necessary base for a thorough qualitative analysis (King, 1995, p. 25). Afterwards, a qualitative content analysis of the discussions was conducted (Krueger, 1994). The goal of this qualitative content analysis was to nd out to what extent the members of the loyalty program experienced frustrating incidents, perceived a feeling of frustration and showed frustration behavior. Therefore, as a rst step, during a multi-level iterative content analysis customers statements in the different groups were analyzed for negative customer emotions that could be interpreted as frustration sensation. That was the case when the incidents causing the emotions could be interpreted as refusal, reduction or postponement of a reward. Then, in a second step, the frustration incidents were assigned to categories (Strauss and Corbin, 1998, p. 113). Afterwards, the results of the different customer groups were compared with respect to kinds and frequencies of the perceived frustration incidents and the occurrence of frustration behavior. A total of 169 participants statements contained depictions of experiences that were associated with negative customer emotions related to loyalty programs. Of these, 123 incidents were judged to be frustration incidents and a total of seven categories of frustration incidents could be identied. Furthermore, for each customer depiction of a frustration event, it was analyzed how pronounced the frustration sensation was (low medium high) and what type of frustration behavior resulted from it. The results of the content analysis are presented below in the context of developing the specic model of customer frustration in loyalty programs. Developing a model of customer frustration in loyalty programs The customer depictions of frustration incidents could be classied into seven categories. During the analysis it turned out that the customers statements differed regarding their point of reference. Some were directed mainly at the loyalty program while some were directed at the company itself. A total of 86 out of 123 customer statements related directly to the loyalty program and could be assigned to four categories. Directly related means that the frustration sensation in these 86 cases was not only triggered by experiences connected with the loyalty program but also that both the frustration sensation and the subsequent behavior of customers were directed towards the program. The four program-related categories are Inaccessibility, Worthlessness, Redemption Costs and Qualication Barrier. The remaining 37 frustration incidents were also directly triggered by participation in the loyalty

program; however, participants frustration sensation and frustration behavior were not focused simply on the program itself, but rather affected their perception of the relationship with the rm as well. These relationship-related frustration incidents can be assigned to the categories of Discrimination, Defocusing and Economization. The following presentation rst refers exclusively to the program-related categories of frustration incidents, after which the relationship-related categories will be addressed in detail in a separate section. Program-related frustration incidents The four categories derived from the content analysis can be characterized as follows: Qualication Barrier. Frustration incidents that belong in the category Qualication Barrier are related to circumstances in which the reward is tied to conditions that are difcult or impossible to fulll. Non-qualied program participants complain about the amount of required points that has been set, because they view it as an insurmountable barrier (example: . . . for me as a private customer it is simply impossible to collect the necessary number of points in 12 months that is something for the business customers; . . . it can be pretty difcult to collect the points and it is usually quite an effort). Inaccessibility. A different category of frustration incidents exists when customers in fact do overcome the qualication barrier, but cannot access the expected reward in the form of program benets e.g. because the provided capacity is insufcient, or because employees are poorly trained and hence do not or cannot perform the promised service (example: . . . when I wanted to actually use the preferred support, I found out that in my hometown there just is no such exclusive counter). Worthlessness. Frustration incidents fall into the category Worthlessness when customers do not see the program benet they receive as being a reward because they nd the additional value to be too low (i.e. worthless). Participants report their disappointment about the fact that the benets either prove not to be exclusive or that the value of the benets bears no relationship to the volume of sales the customer must generate in order to receive them (example: . . . there are no real advantages because the benets are totally irrelevant to me . . . ). Redemption Costs. It is also frustrating to customers when they can only access the reward by investing additional material or mental costs. With respect to the loyalty program investigated, qualied participants of the program reported situations that overtaxed them because they had to make their demands during the presence or even at the expense of the Non-Qualied participants, which partly deterred the qualied from claiming the benets at all (example: The system is designed in a way that I have to overcome certain inhibitions to come to my right. It was really embarrassing that I had to ask other customers to leave their seat and make room for me, so I waived my privilege). All customer depictions included in the analysis are rightly designated frustration incidents, since each represents a form of reward refusal, reward reduction and/or reward postponement, and since each triggered strong negative emotions. Clearly, inaccessibility is to be classied as reward refusal. A qualication barrier can also be interpreted as a reward refusal, provided that the reward proves to be unattainable, in spite of loyal behavior. Should the required number of points and, therefore, the reward be actually acquired, but later than expected, this incident can be classied as

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postponement of reward. Worthlessness and redemption costs represent reductions in the expected amount of the reward from the customers perspective. Based on these results, we may make the following proposition: P1. Program-related frustration incidents do occur in loyalty programs. A comparison of the various customer segments (Qualied, Just Missed and Bound to Fail) showed that the different categories of frustration incidents occur with differing frequencies. In the group of qualied customers, most of the frustration incidents are attributed to a perceived worthlessness of the program. Next are the perceived redemption costs and the inaccessibility. Worthlessness also clearly dominates among non-qualied customers. In view of the fact that they are not yet able to claim the benets, however, this perceived worthlessness may also be regarded, at least to some extent, as the result of a dissonance reduction, in that the services that cannot be or have not been procured are devalued. For non-qualied customers, frustration about the height of the qualication barrier ranks second. In light of this division between the two groups, the following proposition may be formulated: P2. Different frustration incidents occur, depending upon the possibility of claiming the reward.

242

Program-related frustration sensation Considerations in frustration theory have indicated that the level of the frustration sensation is dependent upon the extent of the reward withdrawal, upon the time of the reward withdrawal, upon the perceived deliberateness/arbitrariness and upon the expectation of the onset of frustration. Participants of the Qualied group primarily displayed highly negative emotions in the case of frustration incidents of the Inaccessibility and Redemption Costs categories. With reference to the theoretically ascertained determinants of the frustration sensation, this result would appear to be quite plausible. When the promised benet is refused or high material or mental costs must unexpectedly be paid by the customer in order to claim the reward, then the extent of the reward withdrawal is judged to be high. Moreover, the withdrawal occurs only after what is sometimes a long qualication phase and when the actual claim is made; that means the time of the reward withdrawal is late. In addition, the results from the Inaccessibility and Redemption Costs categories cannot be interpreted as random or temporary occurrences from the customer point of view, but rather as the intentional results of a concept that was planned by the provider. Furthermore, occurrence of inaccessibility or redemption costs was not anticipated, meaning that no reduction of the frustration sensation could occur for this reason. Also in the case of the numerous frustration incidents in the Worthlessness category, many program participants experienced a strong frustration sensation, because they viewed the reward withdrawal as serious in view of the great effort they had expended in accumulating points, because the reward withdrawal occurred late and because the incident was clearly the result of a purposeful decision on the part of the company. The frustration sensation was, however, less clearly pronounced in the case of some participants, since these participants had already scrutinized the

promised reward before making their claim, had determined its value to be low and thus had also expected the onset of frustration (Table I). The following proposition can thus be phrased: P3A. The frustration sensation of participants in loyalty programs is greater, the more intensely they experience the extent of the reward withdrawal, the later the reward is withdrawn and the more the reward withdrawal is seen as deliberate or arbitrary. In terms of the Qualication Barrier category, the empirical ndings for the Non-Qualied group are especially insightful in illustrating the reducing inuence of expecting the frustration on the frustration sensation, as is implied in proposition P3B (see below). The ndings provide clear indications that the problem of falling short of the high number of points required led to a high frustration sensation among the members of the Just Missed segment, whereas this was not the case to the same extent among the Bound to Fail group. This result appears to be likely when taking into consideration the determinants of the frustration sensation. For the Just Missed group, the reward withdrawal occurs late that is, shortly before the minimum number of points is reached and the frustration is unexpected, as long as overcoming the barrier is still seen as a possibility. The reward withdrawal for those Bound to Fail, by contrast, is recognized early on, and the frustration is thus to be expected and therefore frustration sensation is lower. On the basis of these ndings, the following proposition may be formulated: P3B. The frustration sensation of participants in loyalty programs is lower when the participants expect that they will be frustrated.

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Program-related frustration behavior Findings in frustration theory suggest that differing types of frustration incidents or varying degrees of the intensity of frustration sensation also lead to varying expressions of frustration behavior (protest, intensication of efforts or avoidance). According to the general frustration model, protest behavior can particularly be expected, when the reward withdrawal is perceived to be deliberate/arbitrary and when the frustration sensation is intense, whereas avoidance behavior tends to occur when the onset of frustration is expected. A corresponding relationship can also be observed in the exploratory study. Those Qualied participants, that were especially frustrated by incidents in the categories of Inaccessibility, Redemption Costs and Worthlessness respond with protest behavior that is to say, complaints against employees of the rm or intense negative word-of-mouth in their social environment. Concerning the frustration behavior of the Non-Qualied, a clear distinction can be observed between the Bound to Fail and Just Missed groups. For customers in the Just Missed group, barely falling short of the required number of points is especially frustrating. Therefore, those customers who still believed that they could reach the required number of points responded with an intensication of their efforts that is, an increased accumulation intensity whereas the others were disappointed and exhibited protest behavior. Participants in the Bound to Fail group indeed

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Categories of program-related frustration incidents Extent of the reward withdrawal Time of the reward withdrawal

Inaccessibility

Redemption Costs

Worthlessness

Table I. Characteristics of the frustration sensation of Qualied participants with program-related frustration incidents Perceived deliberateness/arbitrariness Expectation of the onset of the reward withdrawal of frustration Low, as event not foreseeable beforehand High, as the responsibility for the result can be clearly Low, as event not attributed foreseeable beforehand Medium to high, depending upon customer-specic assessment Resulting frustration sensation High, as the benet was promised High High Medium to high Late, as only occurred when benet was claimed Late, as only occurred High, as the benet has when benet was already been payed for claimed Medium to high, Late, as only occurred depending upon when benet was customer-specic claimed assessment

experienced the deliberateness/arbitrariness of the reward postponement in an intense way, but they had been expecting the onset of this frustration for a long time. Consequently, they exhibited heightened avoidance behavior by abandoning further attempts to accumulate points. Therefore, we can formulate the following propositions: P4A. Highly frustrating frustration incidents tend to lead to protest behavior among qualied participants of loyalty programs, less frustrating frustration incidents to avoidance behavior. P4B. Highly frustrating frustration incidents lead to an intensication of efforts among non-qualied participants of loyalty programs, provided that they expect to overcome the qualication barrier; otherwise, such incidents lead to protest behavior. P4C. Non-qualied participants with no prospect of overcoming the qualication barrier respond with avoidance behavior.

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Relationship-related frustration incidents The results of the focus-group discussions led to the conclusion that frustration incidents occurred that differed from the program-related incidents in their relevance to the customer relationship. Indeed, these frustration incidents also stemmed from the loyalty program, but the frustration sensation was not primarily focused on the program itself, but rather on the rm and the customers perceived relationship with this rm. These frustration incidents will be referred to here as relationship-related frustration incidents. From the focus-group participants statements 37 could be attributed to three categories of relationship-related frustration incidents whose reference point is the company or the overall customer relationship. Those categories are Discrimination, Defocusing and Economization. Discrimination. Frustration incidents in this category occur when less valuable customers are disadvantaged by the company treating the valuable status customers favorably. The customers that are less valuable from the rms perspective may still demonstrate a strong commitment to the rm and perceive themselves to be valuable customers. As Non-Qualied customers, they see the denial of equal treatment as discrimination. Interestingly, participants in the Qualied group, who were not affected by the discrimination themselves, also criticized other customers unfavorable treatment as being discriminatory (example: I dont like superior treatment of certain groups. They cant do that (Non-Qualied), Everybody should be treated equally, nobody should feel discriminated (Qualied), How unimportant must I be for the company that I do not even get this advantage (Non-Qualied)). Defocusing. Many customers rate the core service of the provider as only somewhat satisfactory. This impression leads to a perception that the rm has wrongly focused its priorities on the loyalty program instead of on the core service. The participants in the focus groups thus see the program as a reduction of the possible value, in terms of

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service quality that the rm could in fact offer to them, provided that the rm would have directed the resources used for the loyalty program toward measures designed to improve the core service (example: What do I need points for when I arrive unpunctually or receive wrong information. In the rst place they should improve the core service). Economization. Loyalty programs move the economic character of the relationship to the forefront of customers consciousness. For some customers who had strong emotional ties to the rm, this development led to a re-evaluation of the business relationship, as there was no reciprocity on the part of the rm for the customers emotional commitment (example: For every point I receive I have to spend one Euro, making me realize how much I really spend for the company to become a valued customer). These three categories of relationship-related customer statements are frustration incidents because each of them was a form of reward refusal or reward reduction and because they triggered highly negative emotions. The discrimination is a willful refusal of a possible reward. The defocusing can be understood as a reward reduction because the service received in return for the price paid by the customer is diminished by supposedly incorrect corporate investments in the loyalty program. Economization may also be taken as a reward reduction, as the emotional reward for the customers emotional ties is withdrawn. In the case of these relationship-related incidents participants cannot intensify their efforts as a possible reaction to the strong frustration sensation. Thus, the affected customers chose either protest or avoidance as alternative actions. For instance, they complained to the rm about the discrimination they experienced or decided to use the core service less often in the future. Accordingly, propositions P5A and P5B are as follows: P5A. In loyalty programs frustration incidents occur that have negative effects on the customers perception of the relationship with the rm. P5B. Highly frustrating relationship-related frustration incidents lead to protest or avoidance behavior with respect to the loyalty program and/or the core service.

Discussion Conclusion More and more companies are implementing loyalty programs in order to enhance their knowledge of their customers, to identify the valuable customers, to differentiate and give personal attention to these valuable customers and especially to raise prots by increasing customer retention and by a more efcient use of marketing tools. Few rms, however, systematically verify whether the programs they implement actually achieve these goals. An even more neglected question is whether customers as participants of loyalty programs have negative experiences that frustrate them. The consequence could be that the programs do not achieve the retention effect aimed at, or even that the overall relationship with the rm is weakened.

Discussions in internet forums provide initial indications that participating customers are annoyed with loyalty programs. The present exploratory study rmly supports this impression. Customers do in fact experience a number of different incidents that greatly frustrate them. Chief among frustration incidents directly related to the loyalty program are difculty of access (qualication barrier), impossibility of claiming the reward (inaccessibility), low value of the reward (worthlessness) and being required to invest additional material and mental costs in order to enjoy the benets (redemption costs). In addition, customers experience frustrating incidents that directly affect their relationship with the rm. They feel disadvantaged by the favorable treatment of other customers (discrimination), believe that the rm has wrongly focused its priorities on the loyalty program, in light of a perceived deciency in the core service (defocusing) and are offended by the exclusive focus on the economic aspects of the relationship (economization). The frustration incidents lead to highly negative emotions the frustration sensation that leads to frustration behavior in the form of an intensication of efforts, protest behavior or avoidance behavior. It is in the interest of the rm if customers intensify their efforts in order to be able to enjoy the benets offered in the loyalty program. This effect only sets in, however, if customers actually achieve their goal and are not left with negative emotions. Protest behavior as a sign of intense customer frustration must certainly be taken seriously by the rm as evidence of undesirable developments in the program. The most problematic situation arises when the participants choose avoidance behavior without providing feedback, particularly when the behavior is directed not only to the use of the loyalty program, but also extends to the use of the actual core service or to the assessment of the overall relationship.

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Limitations and research implications This research contributes to theory by revealing new research perspectives in two regards. First, the general frustration-theoretical model presented offers an important starting point for further research. Second, the study on frustration effects in loyalty programs directs the attention toward the previously highly neglected area of unintended negative side effects associated with customer-retention and customer-relationship management measures. So far, very few articles address the construct of customer frustration (Soderlund, 2003; Stauss, 2004). This paper moves beyond the existing discussion by developing a general frustration model and examining its adequacy for explaining the specic behavior of frustrated customers. As this succeeds, it seems reasonable to expand the thought and, for example, to reect the suitability of using the frustration construct to explain the behavior of customers who experience other frustrating situations. Among cases to be considered in this context would be, when customers complain unsuccessfully or when customers have to encounter breach of companies guarantees. However, the limitations of the theoretical perspective have to be considered. The discussion as to the exact differentiation of frustration from related constructs (such as dissatisfaction) is by no means concluded. Above all, further work is necessary that would allow deeper insights into the relationships between the model elements: the relationship between frustration incident and frustration sensation, the relationship

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between frustration sensation and frustration behavior and the inuence of frustration tolerance. Concerning the possible negative effects of loyalty programs, the qualitative empirical study shows that participants of such programs in fact get considerable negative impressions that unfavorably affect the success of the program or even the relationship with the rm. This is a remarkable result. Nevertheless, the limitations of the empirical study need to be taken into account. The object of the investigation was a single companys loyalty program in a special industry sector, which limits the generalizability of the results. Furthermore, the ndings were derived from a qualitative, exploratory study, which underlines their preliminary character. Of research interest is thus the further specication of the propositions and their formulation as hypotheses that can be tested in a large-scale quantitative study in different sectors and with a number of companies and programs. In this context, there are a number of individual questions that are yet to be claried, such as how the different relationship types can be differentiated from one another in an exact and practical manner, and how the intensity of the frustration sensation or the forms of frustration behavior can be operationalized and measured. Only based on such a larger study will more exact information about the effects of frustration incidents in loyalty programs on customer loyalty become available, which will also provide important details as to the protability of these instruments for practice. Managerial implications Specic implications for the planning and implementation of loyalty programs arise from the results of the study. In the strategic planning of loyalty programs particular relevance should be given to the question of target-group orientation (Rapp and Decker, 2003, p. 211). In doing so, the extent to which frustration incidents and sensation differ according to target groups should be a primary focus of analysis. Here, differentiating customers as relational and transactional according to their type of relationship may be important (Gronroos, 2000, p. 35). It is to be expected that relational customersthat is, those more interested in a real relationship may be more sensitive to discrimination and economization. Loyalty programs with a strong economic focus and distinct customer-value differentiation would only appear to be appropriate when there is a high percentage of transactional customers for whom the search for an acceptably priced solution, not an emotional connection with the provider, is the primary focus. In addition, when planning the implementation of loyalty programs it is imperative to keep in mind that customers need to perceive the core service as satisfactory. If, however, dissatisfaction with the core service is prevailing, the rms concentration on loyalty programs may be largely seen as defocusing and produce intense frustration effects. As far as operative program planning is concerned, what is important is to preventively ensure that program-related frustration effects are avoided to the greatest extent possible. This calls for: . using customer-based marketing research to establish a level of points required for qualication that is regarded as appropriate by the majority of the concerned target group in order to avoid frustration resulting from a qualication barrier;

offering only those service benets that represent genuine additional value to customers so as to avoid perceived worthlessness; making sure that the rewards can be claimed by customers at any time and in any place in order to avoid inaccessibility; and making sure that customers are not overburdened by being required to invest additional material or mental costs in order to claim benets so as to avoid redemption costs.

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If loyalty programs have already been implemented, it is important that the quality of the program perceived by the customer is constantly monitored on a customer segment-specic basis, thus allowing the rm to obtain prompt information about possible customer frustration. Furthermore, the behavior customers exhibit when accumulating points and claiming benets should also be monitored continuously, so that the rm can recognize the rst signs of avoidance behavior by customers in a timely manner. Moreover, indications of protest such as customer complaints should be viewed with particular attention. In this regard, not only must employees having contact with customers be empowered to answer these complaints and to conduct a dialog with the complainants, but also to forward the complaints, so that the critical aspects and proposals contained in customers protests are also used to improve the program on an ongoing basis.
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