Do loyal customers really pay more for services?

Service firms are encouraged by historic evidence that loyal customers are less price sensitive. Yet, some research has challenged the assertion while others have demonstrated considerable heterogeneity within loyal segments. Aiming to reconcile this debate, we investigate the relationship between customers’ behavioral loyalty and the importance they place on price relative to two managerially relevant service attributes: rewards and convenience. We also assess the moderating role of attitudinal loyalty resulting from superior service experience. Results from a longitudinal survey and transaction data from an airline carrier show that as customers’ behavioral loyalty increases, they place more importance on price and less importance on rewards and convenience, revealing that behavioral loyalty causes a shift in emphasis toward price. As a result, behaviorally loyal customers spend less and revenue decreases. However, by improving attitudinal loyalty, firms achieve the desired outcome of reducing price sensitivity and increasing revenue. Specifically, after experiencing better service, behaviorally loyal customers focus less on price and instead shift their focus toward rewards and convenience, and this results in revenue gains for the firm. Overall, attitudinal loyalty from better service experience acts as a key mitigator of the positive link between behavioral loyalty and price sensitivity.