An empirical study on the impact of penalty charges to customer repurchase behaviour – airlines penalty cases in South Korea

Abstract

Even though penalty policies have been adopted as airlines marketing strategies, little academic literature is found. Popular industries which were investigated for penalty policies include cell phone, credit card, hotel, airlines, bank, college, retail store, restaurant, and day care service companies. Notwithstanding the penalty policies commonly adopted in the airline industry, literature for airlines penalty policies is difficult to find and no literature exists to examine the impact of penalties based upon actual data from airlines. This study is the first research to investigate the impact of the penalty policy of airlines concerning the re-purchase behaviour of penalized customers by the actual data collected in the airline company. In this study, a total of 200 cases of data were collected from the airport authority and an international airline company in South Korea. The collected data were reviewed and categorized by demographic factors of customers including gender, and age; by the relationship with the airlines such as customer membership status of the airline loyalty programme; and by the results of the penalty resolution process such as whether the penalty was waived, the reasons for complaints concerning penalty charges, and the results of customers’ repurchase behaviour. To identify the reasons for customer complaints concerning imposing a penalty, all cases of complaints were reviewed and categorized. Attributes of the penalty and concept of perceived justice theory composed of distributive, procedural, and interactional justice were used to understand which factors play a key influential role in customer re-purchase behaviour. According to coding the table, the categorized data were coded and tested by parametric analysis (logistic regression model) in SPSS 20 program and ANOVA. As a result of the research, the customers’ loyalty programme membership status has been shown to positively influenced the re-purchase behaviour. The factors concerning penalty amount and severity (related to distribution justice) negatively affect customer re-purchase behaviour. The other factors are indicated as not significant to customer re-purchase behaviour. This study suggests that the valuable idea from the impact of penalty for the re-purchase behaviour should be considered by airline executives who should build more effective penalty policies. Especially, imposing a penalty amount is considered as one of the most significant factors affecting the perception of fairness and customer intention to raise complaints. In addition to the penalty amount, the airline loyalty programme membership status has to be considered as a key factor to maintain customer loyalty where penalties have been imposed.