Watching Others Win: How the Ambiguous Benefits of Loyalty Programs and Members’ Social Observations Shape Their Coping Strategies

Abstract

Terms and conditions (T&Cs) in tourism loyalty programs are increasingly ambiguous, yet loyal members actively negotiate for preferential treatment. This research extends the firm-centric paradigm by examining how social observations of customer-initiated preferential treatment outcomes shape members’ coping responses to ambiguous T&Cs. Grounded in psychological contract theory, three experiments demonstrate that T&Cs ambiguity is associated with brand-switching, benefit-negotiation, and reduced tier-upgrade intentions via psychological contract violation. Besides, the association between ambiguity and psychological contract violation, and the indirect link between ambiguity and behavioral intention (except benefit-negotiation), are stronger following the observation of others’ granted (vs. denied) benefit negotiations. By introducing the social observation of customer-initiated preferential treatment outcomes as the boundary condition, this research uncovers how T&Cs ambiguity ruptures members’ loyalty through the lens of psychological contract violation. We urge loyalty program managers to specify ambiguous T&Cs and enforce strict frontline boundaries against negotiations to protect members’ psychological contracts.