Do you know what the customer you penalized yesterday is doing today? A pilot analysis

Given the growing and widespread use of consumer penalties, there is little doubt business considers them an effective way to get customers to follow through on commitments. Yet no one really knows how people, as individuals, respond when they are penalized by banks, airlines, cell phone companies or other vendors. What types of behavioral reactions do penalties elicit from consumers? What is the impact on the businesses that charged them? The authors turn a spotlight on these previously unexamined issues by analyzing the reactions of 44 randomly selected consumers who faced 66 different consumer penalties. Key findings, from a pilot analysis, include the fact that in 38 of the 66 penalty cases examined, study participants thought that the penalties that they incurred were both unfair charges and the amounts unjustified. Overall, a third of all penalties resulted in customers changing vendors. Additional findings show word‐of‐mouth communication to others was significant, and that over half of penalized consumers challenged their penalties, with 50 percent of them having some success. Study results strongly indicate companies should be taking a closer look at their penalty policies in light of building long‐term customer relationships.