Imagine you are going to a restaurant where you know the owner. Because it’s your birthday, you are seated at a central table, lavished with attentive service and given special foods that aren’t on the menu. How do you feel? Delighted, or embarrassed? Many companies offer their customers discretionary preferential treatments (DPTs). DPTs are not incentives offered according to publicly stated rules, like loyalty scheme rewards, but selective, flexible bonuses that front-line employees can give as and when they see fit. They are easy to target and customize, and can make customers feel special without placing any future obligation on the firm. The problem is that not everyone responds to DPTs in the same way. Being allowed to jump a long queue might mean pleasure for one customer but shame for another. If companies offer the wrong kinds of DPT, they risk wasting marketing resource and adding little value for customers – or even irritating them.
Four key dimensions of DPTs
We wanted to look more deeply into how people evaluate DPTs, and which types of DPT different people prefer. First, we identified four key dimensions along which customers evaluate DPTs. Justification is the degree to which the existing relationship between the firm and the customer warrants a DPT. If the customer feels the DPT isn’t justified, they may feel indebted to the firm, or suspect manipulation. So we expect that the most justified a DPT is, the more customers will like it. Secondly, imposition is how far a DPT is bad for other customers, as well as being good for the recipient. Customers’ access to limited resources can be a ‘zero-sum game’ – for example, if someone jumps a queue, everyone else must wait longer to be served. The anger of non-privileged customers can make the recipient of the DPT feel embarrassed or guilty for being over-rewarded. So all else being equal, we expect that the more imposing a DPT, the less customers will like it. The third dimension, visibility, is about social comparison. If a DPT is granted to one customer in a public setting such as a restaurant, privileged and non-privileged customers can each see what the other is getting. The more visible the privilege, the more likely it is to cause resentment, and therefore distress for the recipient. So we expect that the more visible the DPT, the less customers will like it. Finally, surprise reflects the fact that DPTs do not rely on publicly stated rules and conditions, so they can be given unexpectedly. This ‘surprise gift’ aspect has the potential to delight the customer, particularly in a culture of entitlement where people expect special privileges. So we expect that the more surprising the DPT, the more people will like it.
Distinction and negotiation
The nature of the DPT itself is not the whole story. People have different characters, and they differ in the way they respond to DPTs in two important ways. Firstly, because DPTs are selective, they make a distinction between customers. This makes them more attractive to those with narcissistic tendencies, who draw self-affirmation from ‘downward’ comparisons with others. We expect that the more customers need distinction, the more they will value imposing and visible DPTs, which allow this sort of comparison. Secondly, DPTs are flexible and discretionary, so they are open to negotiation. This appeals to people who like to negotiate a good deal – and be seen doing so. Unjustified DPTs are difficult to negotiate, because they are not based on loyalty or the existing relationship, and this challenge stimulates those who like to negotiate. So we expect that the more prone customers are to negotiate, they less they will like justified DPTs. We also expect that they will like surprising DPTs less, because they are less able to take the initiative or control the process.
In the restaurant
We tested our ideas in two settings, a hotel restaurant and a specialty store. In the restaurant, 120 guests of all ages and backgrounds were asked to rank four hypothetical DPTs, each of which was described by two of our four dimensions. They also completed a test to gauge their preference for distinction and negotiation. As expected, we found that people preferred justified and surprising DPTs – but, unexpectedly, they also preferred imposing DPTs. In hindsight, we realised that the imposing scenario we had offered – getting a table in a fully booked restaurant – offered a practical benefit that must have outweighed any guilt. On a more general level, it may also be that customers like to see a firm sacrificing others’ wellbeing just to delight them. Our theory on visibility was not supported by the data, but that doesn’t mean people are indifferent to it – in fact, their preferences varied wildly. Customers who liked distinction valued imposing and visible DPTs, as we expected. They also valued surprising DPTs, which makes sense in a culture where customers receive many preferential treatments – the rareness of surprising DPTs enhances their value. Keen negotiators tended to dislike justified and surprising DPTs, in line with our theories. They also valued visibility, indicating that they liked others to see them getting a better deal for themselves.
Cutting the line
While the hotel-restaurant data confirmed most of our ideas, customers’ responses were still very variable, showing that firms need to think very carefully about how to make their DPTs appealing. But how can frontline staff know whether the person in front of them values distinction, or likes to negotiate? In the specialty store, we asked 110 people to imagine they were buying a computer, and the sales clerk allowed them to skip ahead in line. We then questioned them in a similar way to the hotel guests, and the results were highly consistent with our first study. This time, however, we also split respondents by gender and age. We found that younger men were twice as prone to negotiate as older women. Younger women valued distinction more than anyone, with the effect decreasing with age. Older men strongly disliked visible DPTs. Our research shows that offering the same DPTs to all customers will bring limited success. Using our insights, firms can target their DPTs towards the individual customers most likely to value them. Ideally, they would track their customers’ individual preferences for distinction and negotiation. But even if they can’t, frontline staff can use age and gender as rough guides to who will prefer what.
"So you want to delight your customers: The perils of ignoring heterogeneity in customer evaluations of discretionary preferential treatments", published in International Journal of Research in Marketing