J. of the Acad. Mark. Sci.
(2014) 42:596–618
DOI 10.1007/s11747-014-0374-9
ORIGINAL EMPIRICAL RESEARCH
Consumer decision to upgrade or downgrade
a service membership
Detelina Marinova & Jagdip Singh
Received: 3 March 2013 / Accepted: 24 January 2014 / Published online: 11 March 2014
# Academy of Marketing Science 2014
Abstract Service memberships are commonly used to sup-
port consumer relationships, yet the mechanisms for con-
sumers’ membership decisions are poorly understood. This
paper develops a model of consumers’ decision to modify
(upgrade or downgrade) a service membership conditional on
their decision to renew. Bridging insights from relationship
marketing and consumer behavior, the proposed model con-
ceptualizes how relational drivers differentially influence the
upgrade/downgrade decision while also modeling the effect of
transactional, membership and socio-demographic variables.
The posited hypotheses are tested with a multinomial logit
model with selection using multi-source (archival and survey)
consumer-level data related to renewable service member-
ships in a not-for-profit context. Results suggest that modifi-
cation decisions are driven by relational payoffs from ongoing
experiences such that upgrade decisions evidence a “motiva-
tor” effect of consumer trust (quadratic), while downgrade
decisions indicate a negative influence of consumer trust
conditional on perceived knowledge. Managerially, the study
indicates that, while membership modification and renewal
are disparate decisions with remarkably divergent mecha-
nisms, to examine and analyze them as independent decisions
is to risk misjudgments about their determinants and waste
resources in investments that are unlikely to yield desired
return.
The authors contributed equally to the development of this article.
D. Marinova (*)
Robert J. Trulaske Sr. College of Business, University of
Missouri-Columbia, Columbia, MO, USA
e-mail: marinovad@missouri.edu
J. Singh
Weatherhead School of Management, Case Western Reserve
University, Cleveland, OH, USA
e-mail: jagdip.singh@case.edu
Keywords Service relationships . Renewal . Modification .
Upgrade . Downgrade . Service contract
You should think of [Microsoft] in the future primarily
as a subscription service company: delivering experi-
ences that… consumers value enough to enter into long
term [service] contracts. This is an incredible opportu-
nity that is far bigger than the market we used to call
“software.” (Financial Times, September 18, 2013).
Although service membership is a common business model
in a large swath of not-for-profit consumer services (e.g.,
museums, fine arts, issue-focused societies), they are gaining
wider popularity with for-profit service firms due to their
potential to promote sticky consumer relationships. Common
features of service memberships include: (a) lock-ins for spec-
ified duration (e.g., annual), (b) option to renew at or before the
time of membership expiration, and (c) conditional on renewal,
a choice to continue at the same service level, or modify the
membership by upgrading or downgrading the service level.1
Service membership upgrade is a form of relationship
expansion in which the consumer commits to an expanded
offering—a higher priced, higher service level option from the
same supplier for a renewed membership period. In contrast,
service membership downgrade is a form of relationship
contraction in which the consumer commits to a reduced
offering—a lower priced, limited service option—from the
same supplier for a renewed membership period. For instance,
1
Note that upgrade is conceptually distinct from cross-buying behavior
where consumers may purchase different products and services indepen-
dently of the focal service. Further, when a customer cross-buys, s/he may
also decide to drop the original or focal service. Thus, cross-buying
behavior involves separate mechanisms from service upgrade, and is
not considered in the present study.
J. of the Acad. Mark. Sci. (2014) 42:596–618
the Museum of Fine Arts in Boston offers five different mem-
bership levels that range in annual subscription from $75 to
$2,999 with commensurate variation in benefits offered
(e.g., free admission to special event invitations; see
www.mfa.org/membership/levels-and-benefits). Such
service memberships are common for leisure services (e.g.,
Marriott Leisure club), fitness clubs (e.g., LA fitness),
wholesale centers (e.g. Sam’s club, Costco), concierge
medical plans (e.g., www.pinnaclecare.com/), vacation
exchanges (e.g. Interval International), and issue-focused
societies (e.g., historical society, zoological society).
Recently, firms that traditionally utilized a “one-time-fee”
model for their services, such as Microsoft, are moving
toward a service membership model presumably because
of its superior advantages in expanding market coverage
and promoting consumer retention. For instance, as indica-
ted by the headnote, Microsoft launched Office 365 as a
subscription product that competes with its traditional “one-
time-fee” Office 2013 product, and comes in two subscrip-
tion levels ($100 and $150/year) with commensurate bene-
fits. Because a subscription model does not require heavy
upfront fees and allows consumers to upgrade to the most
current version of the product during the subscription peri-
od without additional costs, service memberships often
offer a win-win situation for consumers and service
firms alike.
Service memberships have been examined in past studies;
however, most research to date has focused on the renewal
decision (e.g. Bhattacharya 1998; Paswan and Troy 2004) and
largely overlooked the modification decision. For both theory
and practice, renewal and modification are qualitatively dif-
ferent decisions with disparate implications and conse-
quences. Renewal is a consumer’s signal of continuance com-
mitment such that a consumer agrees to continue with the
current decision with no change in the level of commitment.
By contrast, a modification decision is a tangible change in the
level of commitment—that is, a upgrade (downgrade) deci-
sion signals consumer’s decision to increase (decrease) her/his
level of commitment to the provider’s services. Why do con-
sumers’ change their level of commitment? Two questions are
central to understanding consumers’ modification decision:
& What are the key drivers of consumer’s decision to modify a
service membership, and do these drivers represent different
mechanisms for upgrade versus downgrade decision?
& What is an appropriate model for the interdependence
among renewal, upgrade and downgrade decisions, and
what is the theoretical and pragmatic “cost” for ignoring
this interdependence?
Despite their importance for theory and practice, the pre-
ceding questions remain largely unaddressed. This paper aims
to fill this gap by making several contributions.
597
First, building on the relationship marketing and con-
sumer decision making literature, we theorize a concep-
tual model that addresses three questions: (1) do rela-
tional variables have a differential or asymmetric mech-
anism of impact on upgrade versus downgrade deci-
sion?, (2) are the drivers of upgrade/downgrade decision
different from those of membership renewal?, and (3) do the
hypothesized relational drivers of upgrade/downgrade deci-
sion have incremental effects over and above the effects of
socio-demographic (e.g., income, distance), transactional
(e.g., prior use, last visit satisfaction) and membership vari-
ables (e.g., member communications)?
Second, we employ a multinomial logit model with selec-
tion (MLM-S) to examine drivers of consumer decision to
upgrade or downgrade contingent on membership renewal
(Greene 2008). From a methodological perspective, this mod-
el constitutes a novel application in marketing for simulta-
neous estimation of multiple outcomes (i.e., upgrade, down-
grade, no change) that are conditional on another decision
(i.e., renewal) such that it (a) corrects for sample selection
bias, and (b) provides consistent and efficient estimates. We
show that failure to account for the contingent decision pro-
cess of membership upgrade and downgrade confounds our
ability to accurately identify unique drivers/mechanisms for
each decision, and produces biased, potentially misleading
estimates.
Third, we empirically test the proposed model using
multi-source data on consumer service memberships
involving a not-for-profit organization (i.e. Zoological
society) that offers annually renewable memberships
with benefits at different levels and commensurate fee
structure. Empirical data include: (a) consumer surveys
at the time of renewal opportunity to secure data on
drivers of the focal decisions, and (b) behavioral data
from organizational archives indicating actual consumer
decisions to renew, upgrade or downgrade the service
membership. We find that socio-demographic and trans-
actional variables provide guidance regarding which cur-
rent members are more likely to upgrade and less likely
to downgrade, while relational variables provide direction
on how to induce upgrading and reduce downgrading.
Managerially, our study is particularly useful under condi-
tions of limited budgets and constrained resources.
Managers will find our results useful in deciding where to
invest more, where to hold investments, and where to pull-
back.
Fourth, and more broadly, our study addresses continued
calls for redressing the paucity of research on fundamental
behavioral marketing objectives in the not-for-profit sector
(Andreasen 2012; Wilkie and Moore 1999), and to develop
robust frameworks that transcend for-profit and not-for-profit
domains of inquiry. In a recent call, Andreasen (2012, p. 40)
asserts:
598
A fundamental question is to determine whether the
behaviors relevant to the social sector are conceptually
similar to those in the private sector…To what extent can
private-sector approaches to stopping or switching a
purchase behavior be applied to a social sector behavior?
Our study takes the first step in addressing Andreasen’s
call by focusing on three of the identified fundamental
behavioral objectives—increase a behavior (consumer up-
grade decision) or decrease a behavior (consumer down-
grade decision), contingent on consumer decision to con-
tinue a behavior (consumer renewal decision). Our theoriz-
ing draws from the B2C literature on consumer decisions in
relational exchanges that are largely conducted in the con-
text of for-profit services. While we adapt the extant liter-
ature to include drivers that may be relevant to the not-for-
profit context (e.g., perceived knowledge, identity sa-
lience), our basic framework is modeled on mechanisms
found to be prominent in the for-profit contexts. Thus, our
study both extends the extant framework to not-for-profit
contexts and empirically examines its robustness across
contexts. Below, we first outline the guiding framework
and hypotheses, followed by the research method and re-
sults, and then conclude with discussion and implications
of our findings.
Conceptual framework and hypotheses
Before an existing service membership expires, service
providers usually initiate promotional reminders encour-
aging consumers to renew and modify their service
membership. Renewal reminders prompt consumers to
assess and evaluate their relationship with the service
provider as they press for a decision at a discrete point
in time. Membership termination (with or without pen-
alties or sunk costs2) frees the consumer to explore
other competitors and closes the option to use benefits
provided by the current service provider. Consumers
engage in the decision to renew or terminate, and there-
after modify a service membership over a short window
of time around renewal points. Thus, renewal points are
naturally occurring critical events that are well suited to
examining consumers’ decision process of membership
2
In service relationships with sunk costs (e.g., non-transportable frequent
flyer accounts), termination is costly and consumers may choose to
continue more so to avoid costs than to enjoy desired benefits.
However, when sunk costs are minimal or absent as is in the case of this
study, renewal is an affirmation of relational benefits and preference for
the service provider.
J. of the Acad. Mark. Sci. (2014) 42:596–618
renewal and modification (i.e., upgrade or downgrade).
Our study focuses on these renewal points. Figure 1
depicts a conceptual framework of service membership
upgrade and downgrade conditional on membership re-
newal, including drivers and mechanisms for the indi-
vidual choice alternatives (e.g., upgrade or downgrade).
Review of past research (see Appendix A) shows a robust
body of work on service relationship/contract renewal in
general, and service membership renewal in particular. As
noted, most extant studies involve a for-profit service context
including airlines, banking, computer support, insurance and
telecom, although a few studies have utilized the not-for-profit
context (e.g., museums, professional association). A review of
past research suggests that membership upgrade and down-
grade are likely to engage a prominent role of relational
variables (e.g., trust). In a classic study, Garbarino and
Johnson’s (1999) found that (a) overall satisfaction predicts
consumer commitment for individual ticket buyers and occa-
sional subscribes of theatre performances, but (b) not for
consistent subscribers, for whom trust is a key predictor of
commitment. Likewise, in banking services context, Aurier
and N’Goala (2010, p. 319) found that, “in a contractual
service setting, evaluations such as overall satisfaction appear
as necessary but not sufficient conditions for relationship
maintenance and development. These service evaluations
must be efficiently converted into trust…before providing
business results.” Thus, we develop hypotheses about the
differential impact of relational variables on consumer deci-
sions to upgrade versus downgrade a service membership. To
further explicate the consumer decision-making process and
address potential alternative explanations, we also investigate,
but not hypothesize, the role of socio-demographic, transac-
tional, and membership variables. Finally, as noted, although
we do not claim incremental contribution for understanding
mechanisms of membership renewal (and accordingly do not
posit renewal hypotheses), we empirically model the renewal
decision and all identified variables as its drivers to allow us
to: (a) examine upgrade or downgrade decision conditional on
renewal decision within a simultaneous modeling, (b) isolate
the effect of renewal drivers from those for membership
upgrade or downgrade, and (c) avoid bias in the estimation
of membership upgrade/downgrade drivers (cf. Thomas et al.
2004).
Service membership upgrade decision
At membership renewal points, service providers invari-
ably entice consumers to upgrade their benefits to a higher
service level; however, consumers are not easily swayed by
promotional materials. Rather, consumers use the promo-
tional material as situational cues to reflect on accessible
information from past experiences with the service provid-
er. Processing and reflecting on this information allows
J. of the Acad. Mark. Sci. (2014) 42:596–618
Competing variables included in estimation:
Socio-demographic:
Age
Education
Gender
Number of children < 11yrs
Distance from home (of Zoo)
Income
Transactional:
Usage frequency (prior visits)
Attendance of special events
Memberships in competing
service organizations
Transactional Satisfaction (last visit)
Membership:
Membership communications
mailed by marketing (#)
Membership Level
Service Membership
Renewal Decision
Renewal Drivers included in the analysis to
estimate incremental effects of modification
drivers (in addition to competing variables
above):
Identity salience
Perceived value
Perceived benefits
Perceived costs TERMINATE
Fig. 1 Conceptual model of service membership upgrade and downgrade decisions
consumers to evaluate the incremental benefits of continu-
ing the ongoing relationship and assess where the relation-
ship is going. When consumers’ accounting indicates that
relational payoffs from a service provider are positive, we
theorize that an upgrade decision is likely. Expectations of
positive payoffs are associated with reduced relational
risk and fears of provider opportunism, and increased
motivation to grow the relationship. Past research in
relationship marketing has often utilized the consumer
trust construct to conceptualize such positive expecta-
tions (Garbarino and Johnson 1999; Morgan and Hunt
1994). Researchers define consumer trust as expecta-
tions held by the consumer that the service provider
can be relied on to deliver on its promises and to
protect her/his interests (Lemon et al. 2002;
Sirdeshmukh et al. 2002). Relationships that engender
high trust are likely to evoke motivation for nurturance
(i.e., to nurture the relationship) and growth (i.e., grow-
ing the relational benefits) that are collectively indica-
tive of a promotion focus (Aaker and Lee 2006; Cesario
et al. 2007).
Agustin and Singh (2005) provide support for the
growth motivator effect of trust in relational exchanges.
They found that consumers’ trust in the service provider
599
Perceived
Knowledge Service Membership
Modification Decision
UPGRADE
Trust
DOWNGRADE
Trust*Trust
YES
RENEWAL
RENEW
DECISION
NO
fulfills a growth, higher-order need such that it is asso-
ciated with an increasing rate-of-return influence on loy-
alty intentions. By contrast, transactional satisfaction had
a significant decreasing rate of return effect on loyalty
intentions indicating that its effect declines beyond a
“hygiene” level of need fulfillment. Extending their
work, we posit that upgrading enlarges the scope of
continued interactions (e.g., by accessing additional ser-
vices), and advances the potential for building stronger
relationships (e.g., by permitting privileged engagement).
Thus, consumers with higher levels of trust in a service
provider are likely to be more promotion focused
resulting in an increased probability of upgrade decision.
More specifically, we reason that increasing consumer
trust will have an increasingly greater positive associa-
tion with a decision to upgrade, such that likelihood of
upgrade will be disproportionally greater at higher, relative
to lower, values of trust. This is likely because, under
promotion focus, consumers tend to engage in heuristic
modes of decision making consistent with their eager-
ness to grow the relationship and attain enhanced ben-
efits (Pham and Avnet 2009) and this eagerness is
posited to increase exponentially with increasing levels
of trust. Thus:
600
H1: Consumer trust will have an increasingly greater posi-
tive effect on the decision to upgrade a service member-
ship (i.e., positive quadratic effect).
Moreover, under high growth need orientation, con-
sumers are more likely to rely on perceived knowledge of
the service provider as additional heuristic input in their
upgrade decision. Pham and Avnet (2009) demonstrate that
consumers under promotion focus use heuristic inputs not
only because of peripheral cue information processing but
also because these inputs are more diagnostic of potential
payoffs. For non-profits, consumer knowledge of the orga-
nization’s mission and goals is especially salient because it
usually addresses larger societal needs (Bhattacharya et al.
1995). For instance, Zoological society mission often goes
beyond facilitating member access to the Zoo to include
preserving wildlife and endangered species, conserving and
restoring natural habitats, and promoting sustainable and
animal-friendly practices.3 That is, consumers who per-
ceive that they possess greater knowledge about service
provider’s mission and objectives are more likely to expect
higher payoffs in enlarging the scope of their ongoing
relationship and upgrade their membership. In discussing
consumer learning from experience, Hoch and Deighton
(1989) note that consumers usually give more weight to
information supporting their current knowledge rather than
to information that contradicts it. This concurs with Beyth-
Marom and Fischhoff (1983) who demonstrate that, when
consumers’ knowledge is dominated by positive expecta-
tions, they selectively seek information that is consistent
with their knowledge and often do not consider information
showing positive outcomes associated with competing al-
ternatives. Thus, consumers under promotion focus are
more likely to rely on their perceived positive knowledge
of the service provider goals as diagnostic input in their
decision to upgrade. We hypothesize:
H2: The higher the perceived knowledge of the service
provider, the greater the likelihood of upgrading the
service membership.
Service membership downgrade decision
Despite the singular focus of renewal promotional materials
to entice upgrade, consumers may access and process in-
formation from past experiences that orients them toward a
downgrade decision. This may occur when ongoing rela-
tionships are associated with lowered expectations of future
3
For illustration, see San Diego Zoological society goals at http://www.
sandiegozooglobal.org/what_we_do.
J. of the Acad. Mark. Sci. (2014) 42:596–618
payoffs including lack of confidence in the service provider
to deliver promised benefits, vigilance for opportunistic
moves by the provider such as add-on charges for ancillary
services and limited possibilities for expanding the scope of
positive payoffs. Past research has captured decreased ex-
pectations of future payoffs as decline in consumer’s trust
in the service provider (Morgan and Hunt 1994;
Sirdeshmukh et al. 2002).4 Declining trust does not imply
service termination. Rather, it indicates that earlier expec-
tations of obtaining relational payoffs are diminished and
readjustment of service membership is needed.
We reason that downgrading allows consumers to preserve
necessary service benefits while reducing financial costs/risks
without exiting the relationship (Higgins and Spiegel 2004).
Dwyer et al. (1987, p. 22) note that downgrading allows
consumers to avoid foreclosing the possibility of positive
payoffs in the future when and if the provider improves its
offerings and services, while acting vigilantly to reduce the
scope of current engagement. Past research shows that when
consumers focus on avoiding negative outcomes and limiting
losses, they engage in more systematic processing of infor-
mation, pay attention to detail, and actively consider the pros
and cons of alternatives (Higgins and Spiegel 2004; Pham and
Avnet 2009).
Building on the preceding, we hypothesize that declining
consumer trust will increase the potential for a downgrade
decision, and that this influence will be bolstered (i.e., greater
likelihood of downgrading) with relatively lower levels of
perceived knowledge of the service provider. Alternatively,
the detrimental effects of declining consumer trust (leading
to downgrading) are likely to be mitigated for consumers
with greater perceived knowledge of the provider’s mission
and goals. As such, we posit perceived knowledge to mod-
erate the influence of consumer trust evaluations on
downgrading behavior. Research on consumer decision-
making shows that consumers use their knowledge of mar-
keters’ goals to refine their attitudes and guide future pur-
chase behavior. In addition, perceived knowledge is found
to affect the comprehension of product/service information
in a decision task (Park et al. 1988). Consumers with greater
perceived knowledge of the service provider are likely to be
less uncertain about the expected benefits from their ongo-
ing relationship thereby heightening the diagnosticity of
trust evaluations and associated probability that the
4
Some researchers favor using the construct consumer distrust to capture
negative expectations and to differentiate it from consumer trust construct
which they favor for positive expectations (Lewicki et al. 1998). Others
view the consumer trust construct as a continuum that spans negative to
positive expectations (Grayson et al. 2008). In this study, we follow the
latter researchers to keep the discussion from becoming overly complex
(i.e., trust/distrust distinctions) and focus on the different mechanisms as
the central contributions of the study. Future studies may keep this open
debate in mind in considering extensions.
J. of the Acad. Mark. Sci. (2014) 42:596–618
provider will deliver on its promises. Furthermore, when
consumers engage in more systematic information process-
ing motivated by limiting potential losses, we expect that
consumers with lower perceived knowledge will likely
process declining trust more intensely and give it more
prominence in their decision to downgrade.
The preceding moderating effect of perceived knowl-
edge is likely to be especially relevant for not-for-profit
contexts. As noted earlier, often the raison-d’etre for
many not-for-profits is to serve larger societal issues which
make knowledge of their mission and objectives especially
salient for consumers. When this knowledge is heightened, its
saliency ensures that it is likely to influence consumer deci-
sion making, and its positivity may compensate for less ful-
filling direct experiences with the organization. For instance,
in the example of Zoological society, we expect that con-
sumers’ positive knowledge about Zoological society’s con-
tributions toward its mission to preserve wildlife and restore
natural habitats will likely reduce (moderate) the negative
effect of declining consumer trust (on downgrading) that
may arise due to poor quality consumer experiences during
zoo visits. In proposing our hypothesis, we specify the effect
of increasing consumer trust on downgrade to maintain con-
sistency with H2. That is, we expect that consumer trust will
negatively influence downgrade decision, and that this nega-
tive effect will be bolstered by increasing level of perceived
knowledge. Thus:
H3: Consumer trust will have a negative effect on the down-
grade decision; the negative effect will increase with
increasing levels of perceived knowledge of the service
provider.
Socio-demographic, transactional, and membership variables
Although the preceding hypotheses focus on our incremental
contribution for the influence of relational variables on the
upgrade/downgrade decision, we model the role of several
socio-demographic, transactional and membership variables
that are relevant as indicated by past research and contextual
considerations. Inclusion of these variables and the renewal
decision allows us to mitigate possible alternative explana-
tions and demonstrate the effect of hypothesized variables
over and above competing influences. However, no formal
hypotheses are warranted for these effects since the proposed
relationships either have been well tested in past research
(albeit in different contexts) or represent intuitive influence
of context-relevant factors (e.g., Zoological society context).
In terms of socio-demographic variables, we model the role
of (a) age, (b) education (c) gender, (d) children in household,
(e) physical distance to the zoo, and (f) income. In a study
involving repurchase decisions of over 100,000 consumers,
601
Mittal and Kamakura (2001) found that (a) different con-
sumers have different thresholds or tolerance for repurchase,
(b) consumers with lower thresholds are more likely to repur-
chase the same product than those with higher thresholds, and
(c) differences in repurchase thresholds can, to some extent, be
attributed to consumers’ socio-demographic differences.
Specifically, older consumers are found to have lower thresh-
olds than younger consumers possibly because of greater
accumulated product experience and knowledge. Younger
consumers, by contrast, are more likely to search for informa-
tion and switch brands, thus exhibiting higher thresholds.
Similarly, less educated consumers display lower repurchase
thresholds and are less likely to switch brands because of
lower yield on information search and less variety seeking.
In the context of service membership, Bhattacharya et al.
(1995) show that, with increasing education, members’ iden-
tification with the service organization is diminished indicat-
ing higher repurchase threshold. Further, Mittal and
Kamakura (2001) find that females tend to be more tolerant
and have lower repurchase thresholds than men. Gender var-
iation can be expected since gender is a social structural
variable which drives consumer socialization and affects con-
sumer learning (Moschis and Churchill 1978). Also, con-
sumers with one or more children in the household tend to
have higher repurchase thresholds. In the context of zoo
experiences, the presence of young children in the household
(e.g., 11 years or less) may be especially important in reducing
re-visit threshold such that households with greater number of
young children are anticipated to have a proportionately lower
threshold for upgrade, and higher threshold for downgrade.
Similarly, customers who live physically close to the zoo will
likely have a lower threshold for upgrade and higher threshold
for downgrade because of convenience reasons. Finally, we
include income which has been a frequently studied variable,
albeit with varied and inconsistent effects on consumer mem-
bership behaviors (Paswan and Troy 2004). Although no prior
work has addressed upgrade and downgrade of consumer
membership services, we extend past research to anticipate
intuitive effects of socio-demographic variables for these de-
cisions. That is, we expect that older, less educated adults and
females will likely have lower thresholds for upgrade and
higher threshold for downgrade, in addition to the proposed
contextual effects of number of children ≤11 years and dis-
tance from home.
To account for transactional variations, we include con-
sumer differences in terms of (a) usage frequency, (b)
membership in competing organizations, and (c) satisfac-
tion with the last encounter. Prior research has shown that
consumers who use their member services more frequently
have stronger relationships with the organization
(Bhattacharya et al. 1995), indicating higher upgrade prob-
ability with increasing usage frequency. In contrast, con-
sumers with more memberships in other organizations that
602
offer competing services (e.g., theatre, orchestra, museums,
etc. in the context of Zoological Society membership) are
more likely to evidence lower likelihood of upgrade. This
may occur because with increasing number of competing
memberships, consumers may be primed to make more
stringent competitive evaluations. Finally, we included sat-
isfaction with last service experience (e.g., visit to zoo).
Sirdeshmukh et al. (2002) show that it is important to
include “encounter-specific” or transaction satisfaction to
obtain unbiased estimates for the effect of relational vari-
ables such as consumer trust since a “recent exchange
with service provider might … overemphasize (or under-
emphasize) the influence of trust” (p. 27). In addition,
satisfaction with the last visit allows control over halo
effects of recent experience.
Finally, we control for the membership communications
and level. Membership communication represents the fre-
quency of organizationally directed communications sent to
each individual member. These communications included
updates on happenings at the zoo, announcement of holiday
events, and offers to adopt an animal, among others. We
counted the number of communications to each member in
the organizational database, and included this variable in our
model estimation. We also included a dummy variable to
capture the variation in the actual membership level of each
individual member.
Method
Research setting
We sought a setting where: (1) consumers participate in an
ongoing relationship based on a service membership, with (2)
annual renewal, upgrading and downgrading choices, (3)
distinct price variations for different service levels, and where
(4) subsequent choice behavior is observable. Based on these
criteria, we utilized consumer membership in a zoological
society of a major metropolitan city in the United States as
the setting for this research. Past studies have employed
similar contexts for service research. As a few examples,
Benkenstein et al. (2003) examined determinants of customer
satisfaction using a sample of customers of Rostock Zoo,
while Siems et al. (2008) examined quality and price as
determinants of satisfaction and loyalty using a sample of
Basel Zoo patrons. Moreover, zoological society as a context
belongs to a broader category of not-for-profit leisure services
that have been successfully used for studying consumer
retention (e.g., Bhattacharya’s studies with art museums,
Voss and Voss studies of theatre members, and Oliver, Rust
and Varki’s work with symphony patrons) and noted as
suitable context for examining consumer decision-making
in service membership (Bharadwaj et al. 1993).
J. of the Acad. Mark. Sci. (2014) 42:596–618
The selected zoological society has approximately
45,000 members and offers a wide array of services
such as educational activities, recreational events, publi-
cation subscriptions, special exhibits, wild life preserva-
tion activities, free visits to the local Zoo and free/
discounted visits to most Zoos in the US as well as
other fee-based products and services. Members of this
zoological society fall into two categories: (a) service
members, and (b) donor members. These classes are
quite differentiated. Typically, a donation by the lowest
donor category is at least two times larger than the fee
for the most expensive service membership. Discussions
with focal organization’s managers revealed that an up-
grade from the highest membership class will place the
consumer out of the service membership category and
into a donor class. We specifically sampled consumers
from the service membership categories and excluded
donor classes because the mechanisms underlying ser-
vice membership upgrade do not appear to hold for
going from membership to donor category. The focal
organization’s experience and marketing/relationship
building model is radically different for service and
donor classes. Moreover, the lowest membership level
does not have a choice to downgrade but only to exit.
Renewal/exit decision has been addressed in the litera-
ture before, as noted above. Given that the focus of the
present study is downgrade (or upgrade) conditional on
renewal decision, the inclusion of downgrading from the
lowest category is not relevant and is excluded from the
analysis. For this reason, we excluded the lowest
category.
Service membership includes several levels; we focused on
three levels (“family,” “family plus,” and “sustaining”). The
included categories comprise 75% of the society’s constitu-
ents. Each membership level offers a distinct benefits–price
combination, and every year, members are mailed a renewal
request asking them to decide within a 45-day window: (1)
whether to renew or terminate the membership and, subse-
quently, (2) whether to maintain or modify the membership by
upgrading or downgrading. Sustaining members can upgrade
to lifetime membership, whereas family members can down-
grade to a basic membership.
Qualitative interviews
To gain insights into consumer decision processes of re-
newal and modification, we randomly selected 60 members
for qualitative interviews. About half were from a pool of
members who had recently upgraded and the remaining
from a member pool who had recently downgraded their
membership. Members were invited to participate in a 15–
20 minute personal interview using an open-ended protocol
via a support letter from the Zoological Society and a ticket
J. of the Acad. Mark. Sci. (2014) 42:596–618
to a popular zoo event. After follow-ups, 14 members who
upgraded and 13 members who downgraded their member-
ship agreed to participate.
Coding and tabulating the responses to our open-ended
protocol indicated that different goals direct consumers’
upgrade and downgrade decisions. Specifically, upgrade
decisions are directed by goals to expand relational benefits
such as educational and recreational experiences, access to
special events, and participation in the society’s efforts
toward wild life preservation. By contrast, downgrade de-
cision was generally motivated by avoiding financial ex-
penditures (due to higher service fees), ensuring that basic
needs are met, and addressing need changes (i.e., kids
grown up). All participants discussed the role of value,
positive experiences and desire “to help the society in a
small way,” since “they do a lot of research with the plants
and animals” in making decision to renew their membership in
the zoological society. Consumers’ perceived knowledge of
the zoological society varied from a general idea of society’s
objectives to a more rich and intricate understanding of the
ways in which this society pursues animal preservation,
awareness and endangered species causes.
Quantitative multi-source study
To empirically test the proposed model, we (1) conducted a
survey of consumers capturing hypothesized drivers of renew-
al and modification decisions, and (2) subsequently collected
behavioral data from society’s database to obtain the actual
decision of the individual consumer at the time of renewal.
Guided by the input from the qualitative interviews, we
designed a survey following Dillman’s (2007) tailored design
and multistage approach and pre-tested it with 25 consumers. We
used “think aloud” task to obtain input, wherein the participating
members verbalized their thoughts as they completed the survey
without much input from the interviewer. After completion, the
members were debriefed for substantive clarity and content to
supplement their verbal commentary. After every two “think
aloud” tasks, the survey was revised and subject to next round
of pretesting. We were able to weed out most of the concerns by
the 5th round. The Society executives also provided input in one-
to-one meetings, where they reviewed each section and provided
input for wording, structure and content.
Changes to the format and minor modifications to item
wording were made based on consumer input. Subsequently,
we drew a probability stratified sample of 2,951 consumers to
ensure representation across the targeted membership levels.
Each respondent (in each survey wave) received a packet
containing: (1) a letter from the researchers explaining the
objectives of the study and a cash lottery-based incentive
(three prizes of $100 and seven prizes of $50), (2) a three-
page confidential survey booklet with the society’s distinctive
603
colors and logo, (3) a business reply envelope, and (4) a lottery
entry card. The respondents were asked to return a completed
lottery entry separately from a completed survey instrument.
Following a 3-wave mailing, we obtained 1,298 usable re-
sponses, representing a 44% response rate. In all, 42% of the
respondents maintained the same service level, 27%
upgraded, 24% downgraded, and 7% did not renew.
Respondents had a median income of $75–84,000, 43.8%
were 45 years of age or older and 72.3% had at least a
bachelor’s degree. The respondent profile (Table 1) closely
reflected the profile of the Society’s members. Also, compar-
ison of the first, second and third wave respondents revealed
no significant differences in the means of the focal constructs:
consumer trust (F = .13, p < .88), perceived knowledge
(F=2.12, p<.12), identity salience (F=1.49, p<.27), transac-
tional satisfaction (F = 2.19, p <.11) and value (F =2.31,
p<.10).
Finally, since 7% of the respondents compared to 18% of
our non-respondents exited, we conducted an additional
analysis. We estimated a sample selection probit model
with the probability of renewing the service membership
(yes/no) contingent on the probability of being a respondent
versus a non-respondent (yes/no). This model accounts and
corrects for sample selection to estimate the drivers of
renewal after accounting for possible influence (bias) due
to the probability of being a respondent. We modeled the
same drivers as included in the main analysis for predicting
renewal, while also including the number of visits to the
zoo and membership variables as predictors of the proba-
bility of responding (the only available characteristics of
non-respondents). The results indicate that even after ex-
plicitly correcting for the probability of nonresponse, the
pattern of results remains similar.
Measurements
We used operational scales found to be reliable and valid in
past research to develop measures contextualized for our study
(see Appendix C). Perceived value was measured with a three-
item, seven-point scale, anchored at good/poor value,
good/poor deal and worthwhile/not worthwhile that has been
used to measure benefits relative to costs in service consump-
tion (Johnson et al. 2006; Sirdeshmukh et al. 2002).
Separately, we also measured perceived benefits and costs
using multiple item scales that were contextualized for
Zoological Society members based on the qualitative study
reported above. Consumer trust in the service provider
was assessed with a six-item measure using a five point
strongly disagree to strongly agree Likert scale adapted from
Sirdeshmukh et al. (2002) and Garbarino and Johnson (1999).
Some past studies have analyzed the effects of individual trust
dimensions. However, consistent with the theorizing here, we
604 J. of the Acad. Mark. Sci. (2014) 42:596–618

Table 1 Demographic profile of study respondents to strongly agree Likert scale. Transactional satisfaction was
Full Consumers who Consumers who measured with a two-item, seven-point scale anchored by
samplea upgradeda downgradeda highly satisfied/very unsatisfied, and delightful/terrible.
Consumers’ actual decision to renew, upgrade, and down-
Age
grade was captured with Yes/No (1/0) variable from the
18–24 0.5 1.0 0.0
society’s database. Socio-demographic variables were mea-
25–34 17.4 18.5 22.4
35–44 38.4 38.9 37.8 sured using appropriate categorical (e.g., gender), ordinal
45–54 22.8 20.1 20.1 (e.g., age: five categories) and ratio scales (number of children
54+ 21.0 21.5 19.7 ≤11 years) commonly used in past research (see Table 1).
Gender Usage frequency was measured by consumer’s total number
Male 28.9 31.9 23.5 of actual visits to the Zoo in the last 2 years derived from the
Female 71.1 68.1 76.5 organization’s archival database. We used a square root trans-
Education formation to normalize the “visit” variable, yielding skewness
High school 7.5 7.4 7.8 and kurtosis values of 0.634 and 0.472, respectively. The
Some college 20.1 21.5 18.4 conservative D’Agostino-Pearson test for normality (with a
College 39.3 38.6 45.5 tendency to reject normality) subsequently produced a
Graduate school 33.0 32.6 28.2 χ2(2d.f.)=0.625 (p>.97), suggesting that we cannot reject
Income the assumption of normality. Descriptive statistics of study
<35,000 5.7 6.8 4.8
variables appear in Table 2.
35,000–64,000 27.3 24.9 35.6
65,000–94,000 29.0 24.5 27.8
Model estimation
>=95,000 38.0 43.8 31.7
Household size
1 3.9 2.4 4.4 We utilize a multinomial logit model with selection (MLM-
2 21.6 21.5 20.7 S) to capture the proposed relationships and test hypotheses
3 15.4 17.2 17.9 (Greene 2006a, 2008). The MLM-S model offers several
4 34.0 33.0 34.7 advantages for analyzing two stage-decision processes with
5 15.9 14.8 15.1 more than two decision outcomes in the second stage. First,
6 9.3 11.1 7.2 it allows simultaneously modeling of consumer decision to
Total number of children or grandchildren upgrade, downgrade or make no change to the service
0 18.0 10.4 17.0 membership, conditional on the renewal decision. To obtain
1 17.3 18.2 19.8 unbiased estimates of the drivers of the second stage of the
2 30.5 33.0 32.0 decision process (upgrade, downgrade or no change), we
3 14.4 15.5 15.4 simultaneously model the preceding effects of service
4 8.3 8.4 7.5
membership renewal and its drivers (Thomas 2001).
5 3.9 5.4 2.8
Second, to rule out alternative explanations, the hypothe-
6 7.6 9.1 5.5
sized drivers of the second-stage upgrade and downgrade
Distance from home
decision, as well as all socio-demographic, transactional and
<10 min 4.9 3.0 5.1
10–20 min 26.2 26.4 28.0
membership variables are included as predictors of the first-
21–30 min 41.3 41.5 42.9 stage renewal decision. This controls for competing explana-
>30 min 27.6 29.1 24.0 tions and avoids bias in the estimation of upgrade/downgrade
drivers (Thomas 2001).
a
Column entries represent % of respondents Third, the MLM-S model allows accounting for unob-
served individual consumer heterogeneity due to unobserv-
analyze the higher order construct of consumer trust and, to able variables that are interdependent across the renewal and
ensure valid measurement, we included two items each from modification decisions. Prior research has addressed this con-
the trust dimensions of competence, benevolence, and prob- cern in customer acquisition and retention studies using selec-
lem solving as per Sirdeshmukh et al. (2002). Perceived tion models (Blattberg and Deighton 1996; Thomas et al.
knowledge of the service provider was assessed with a two- 2004; Thomas 2001). We build on these studies to specify a
item, five-point scale (Brucks 1985) evaluating consumers’ MLM-S multinomial logit model that incorporates unob-
familiarity with the objectives and mission of the society. The served individual consumer heterogeneity (Greene 2008).
measure of identity salience was adapted from Arnett et al. To model the modification decision choices, we express
(2003) and involves a four-item, five point strongly disagree consumer i’s utility of choosing a service membership decision
Table 2 Descriptive statistics and intercorrelations for the study constructs
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Mean SD

1. Consumer 1.00 2.24 0.87

trust
2. Perceived 0.30** 1.00 3.59 0.96
knowledge
J. of the Acad. Mark. Sci. (2014) 42:596–618

3. Age 0.08** 0.22** 1.00 35–54a 10.3

4. Education −0.03 −0.05 −0.06 1.00 2.98 0.91
5. Gender −0.02 −0.03 −0.24* −0.07* 1.00 71.1% 0.45
female
6. Number of −0.07 −0.18** −0.57** −0.05 0.19** 1.00 1–2a 1.70
children
a
7. Distance from 0.03 −0.07* 0.03 0.04 −0.01 0.10 1.00 20–30 8.5
home
8. Income −0.02 −0.04 −0.02 0.40** −0.07* 0.01 0.12** 1.00 56300.00 23700.00
9. Usage −0.08* 0.03 −0.17** −0.01 0.10** 0.11* −0.14** −0.02 1.00 2.29 3.63
frequency
10. Competing 0.02 −0.08** −0.18** −0.17** 0.10** 0.10 −0.02 −0.19** 0.01 1.00 1.61 0.49
memberships
11. Transactional 0.25** 0.23** 0.06 −0.04 0.14** −0.03 −0.07* −0.04 0.02 0.01 1.00 2.37 0.77
Satisfaction
12. Identity 0.37** 0.54** 0.14** −0.13** 0.06 −0.11* −0.05 −0.04 0.01 −0.06* 0.32** 1.00 3.99 0.80
salience
13. Perceived 0.23** 0.22** 0.06 0.02 0.06 −0.04 −0.03 0.02 0.07* −0.03 0.52** 0.34** 1.00 2.39 0.76
value
14. Benefits 0.32** 0.29** 0.06* −0.15** 0.11** −0.13* 0.07* −0.11** 0.07* 0.01 0.32** 0.45** 0.33** 1.00 4.30 0.62
15. Costs −0.16** −0.11** 0.08** −0.03 −0.05 −0.05 0.01 −0.05 −0.07* 0.06* −0.23** −0.14** −0.33** −0.14** 1.00 2.53 0.59
16. Membership 0.01 0.02 −0.13** 0.04 −0.01 0.09 −0.05 0.07* 0.09** −0.04 −0.04 −0.004 0.01 0.004 −0.06 1.00 5.86 4.85
communication
17. Renewal 0.23** 0.23** 0.21** 0.07* −0.05 −0.23** −0.01 0.11** 0.05 −0.08** 0.27** 0.22** 0.40** 0.21** −0.21** 0.02 1.00 0.93 0.26
18. Upgrade 0.09** 0.15** −0.01 −0.07* −0.05 −0.10* −0.05 0.02 −0.01 0.01 0.10** 0.18** 0.12** 0.11** −0.01 0.06 0.12** 1.00 0.28 0.45
19. Downgrade −0.17** −0.19** −0.16** −0.07* 0.06 0.21** −0.04 −0.12** −0.01 0.13** −0.23** −0.20** −0.32** −0.12** 0.29** 0.03 −0.42** 0.02 1.00 0.24 0.42

a
Mean range
*p<.05, **p<.01
605
606
option j=0, 1, 2 (no change, downgrade, upgrade), Uij, as:
Uij ¼ δj ′xi þ κ j ν i þ εij ; ð1Þ
where xi is a vector of variables (including controls) hypoth-
esized to influence the membership modification decision,
δ′j are coefficients to be estimated for j=1 (downgrade)
or j=2 (upgrade) with δ0 =0 and κ0 =0 (no change), κjνi
captures unobserved heterogeneity for each choice alter-
native j with νi~N(0,1); and εij~extreme value (0,1).
Thus, a separate set of parameters is estimated for (1)
downgrade (versus no change) and (2) upgrade (versus no
change) choice alternatives. The probability that consumer i
chooses decision option j is:


Probðyi ¼ j=xi ; vi Þ ¼ Prob U ij > U ik =ν i ð2Þ


exp δj ′xi þ κ j ν i
¼ X2
;
exp δj ′xi þ κ j ν i
j¼0
Further, we model the renewal decision for each consumer i
by utilizing a probit model to specify the likelihood of
renewing the service membership as a latent variable.
That is:
ProbðRenewalÞ ¼ θi such that
ð3Þ
θi ¼ 1 if θ*i ¼ β′zi þ ηi > 0; and θi ¼ 0 otherwise
where θ∗i is the latent dependent variable, β′izi is the
deterministic component, ηi ~N(0,1) is a stochastic com-
ponent, zi is a vector of variables hypothesized to drive
consumer’s renewal decision, and βi is the associated
parameter vector.
Fourth, the MLM-S links the preceding renewal and mod-
ification decisions such that modification is modeled as ob-
served conditional on renewal. This is represented mathemat-
ically by the values of Prob (yi = j/xi,νi) being observed only
when θi =1 (See Appendix B for technical details). This two-
stage simultaneous model is akin to other econometric models
in the marketing literature. For example, Thomas et al. (2004)
model the drivers of customer retention contingent on drivers
of customer acquisition using a two-stage tobit model with
selection. Likewise, Prins and Verhoef (2007) model the de-
terminants of e-service adoption timing contingent on adop-
tion probability using a two-stage, split hazard, survival
model.
Fifth, the MLM-S bears similarity to Heckman’s two-
step correction for sample selection (Heckman 1979;
Wooldridge 2002), in that it recognizes that unobservable
omitted variables may induce the error terms of the selec-
tion and outcome equations to correlate and, in turn, bias
the coefficient estimates of the outcome equation. In con-
trast to Heckman’s two-step procedure: (1) the error term in
J. of the Acad. Mark. Sci. (2014) 42:596–618
our outcome equation is extreme value, not normally dis-
tributed, resulting in a multinomial logit specification, (2)
the estimates of our model are both consistent and efficient
(rather than consistent but inefficient as in Heckman’s two
step approach), and (3) our estimation is simultaneous
rather than stepwise. In fact, Greene concludes that the
basic Heckman two-step procedure is inappropriate for this
data structure (Greene 2006b, page 10). Multinomial logit
models have been widely used previously (e.g. Guadagni
and Little 1983, 2008; Knott et al. 2002) and more recently
extended to incorporate random coefficients (Inman et al.
2009) and simulated maximum likelihood estimation for
aggregate data (Park and Gupta 2009). To our knowledge,
the extension discussed here involving individual consumer
analysis, a selection mechanism and unobserved consumer
heterogeneity has not yet been implemented to address
marketing problems.
Additional controls
Several additional controls were included to mitigate competing
explanations and provide robust estimates for the contribution of
hypothesized relational variables. Specifically we included: (a)
identity salience, (b) perceived value (c) perceived benefits, and
(d) perceived costs. Past research has shown that, for nonprofit
service contexts, consumers’ identification with the service pro-
vider’s mission and values appears significant in commitment
decisions (Arnett et al. 2003), necessitating the inclusion of
identity salience as a potential driver of membership decisions.
Likewise, it is well established that consumers carefully weigh
benefits relative to the costs incurred as reflected in the perceived
value of the service relationship to make loyalty decisions
(Sirdeshmukh et al. 2002). Aurier and N’Goala (2010) note that
perceived value provides a more complete accounting of the
service relationship since it incorporates both perceived service
quality and price information (cf. Ostrom and Iacobucci 1995;
Parasuraman et al. 1988). For this reason, we included perceived
value as a potential predictor in our model, along with perceived
benefits and costs to rule out extraneous explanatory effects.
Further, as noted, we conducted a conservative test of the pro-
posed relationships by including all controls in each decision
stage and interpreting the obtained magnitude of relative signif-
icance of relational variables after partialling out all included
(competing) predictors. Finally, an individual heterogeneity term
was explicitly modeled as discussed above.
Results
Measurement analysis
Psychometric properties of multiple-item constructs from con-
sumer survey data were examined by confirmatory factor
J. of the Acad. Mark. Sci. (2014) 42:596–618
analysis (CFA) procedures providing evidence of reliability
and convergent/discriminant validity. Specifically, construct
items corresponding to perceived value (three items), consum-
er trust (six items), perceived knowledge (two items), identity
salience (four items) and transactional satisfaction (two items)
were simultaneously analyzed in a confirmatory factor model
with items constrained to load on their hypothesized factors.
In addition, each item was modeled to load on a common
method factor to partial out the variance potentially attribut-
able to common method bias as per Podsakoff et al. (2012). As
recommended for proper estimation of common method, the
CFA included additional multi-item constructs that were mea-
sured using the same survey instrument but not relevant for
the present study. This ensures that the common method factor
is estimated by using full information from the survey data.
Using the estimated factor loadings and covariances, evidence
for convergent validity (i.e., composite reliability, average
variance extracted) and discriminant validity (e.g., variance
shared relative to variance extracted) was computed as per
Fornell and Larcker (1981).
Table 3 summarizes the results from measurement
analysis. Overall, the hypothesized measurement model
with common method factor fits the data well as evi-
denced by relative fit indices (NFI = .93, NNFI = .93,
CFI = .94) and absolute fit indicators (SRMR = .03,
RMSEA=.054 (90%CI=.052–.056)), although the good-
ness of fit statistic is significant possibly due to the
large sample size (χ 2 = 2308.5, df = 561, p < .01).
Moreover, the inclusion of common method significant-
ly improved fit suggesting that the common method
variance is meaningful and appropriately partialled out
(Δχ2diff = 582.6, Δdf = 38. p < .001).5 After partialling
out common method variance, the estimated loadings
for each construct are substantial and significant with
values exceeding 0.69 (t-values>24.1, p<.01). This sug-
gests that each measured construct is meaningfully esti-
mated in our study and not overly contaminated by
common method. We extracted factor scores for each
substantive construct from the above CFA model that
includes common method factor using the Bentler-Yuan
optimal GLS procedure in the EQS software. This
ensures that the obtained factor scores are corrected
for both measurement error and common method bias.
The factor scores were utilized for hypotheses testing as
detailed below.
5
The degrees of freedom associated with this test exceed 17 (the number
of construct items of interest) because several other constructs that were
measured on the same survey were included to provide a better estimate
of common method in accord with Lindell and Whitney (2001).
607
The evidence of convergent and discriminant validity fur-
ther substantiates the preceding assertions (see Table 3).
Regardless of construct, the estimated composite reliabilities
are 0.85 or higher and average variance extracted ex-
ceeds 0.50 providing robust support for convergent va-
lidity. In addition, the average variance extracted for
each construct is significantly higher than both the
maximal and average variance it shares with other con-
structs. This meets Fornell and Larcker’s criterion for
discriminant validity. Model comparisons by constraining
individual correlations to unity yield highly significant chi-
square values (p<.001). Together, the results indicate that the
study constructs satisfy convergent and discriminant validity
conditions, and are reasonable for examining consumer
decision processes.
Hypothesized model analysis
Model fit Using the extracted factor scores for each construct,
we estimated the MLM-S to test the proposed hypotheses.
Overall model fit comparisons based on likelihood ratio tests
indicate that the hypothesized model fits significantly better
than a restricted model which excludes the hypothesized
relationships (H1-H3) and relies on socio-demographic,
transactional, membership and additional control variables
(χ28 d.f. =42.32, p<.01). The hypothesized model also pro-
vides a superior fit to the data compared to a model that
ignores the drivers of renewal (χ219 d.f. =30.05, p<.05),
as well as relative to a model without the modeled
drivers of modification decision (χ 2 38 d.f. = 9256,
p<.001). This provides support for the contribution of
relational variables over and above socio-demographic,
transactional, membership and additional control vari-
ables. Finally, though the focus of the MLM-S is hypotheses
testing, the model prediction rate is 58.9% which is more
than one fourth greater than the conventional Cmax=46.3%
and Cpro=33.3%.
Hypotheses testing Table 4 provides the estimated coeffi-
cients for modeled drivers from a simultaneous analysis
of membership renewal and modification decision. In
regard to the upgrading decision, consumer trust has
both a significant positive simple effect (b=.50, p<.01)
and a positive quadratic effect (b = .18, p < .05). This
supports H1. The Wald test for the impact of consumer
trust on upgrading decision indicates that, as trust in the
service provider increases from low (−1.5std) to high
(+1.5std), its effect progresses from being nonsignificant
(at low levels) to 1.04, p<.05 at high levels. As such, low
levels of trust are inert to upgrading while high levels of
consumer trust are conducive to promotion of upgrade deci-
sion. The net effect of trust on the upgrade decision is depicted
608 J. of the Acad. Mark. Sci. (2014) 42:596–618

Table 3 Estimated coefficients from confirmatory factor analysis of study constructs (includes a common method factor which is not shown for clarity)

Loadinga t-value Reliabilityb Variance Average variance

extractedc shared (Maximum)d

Consumer trust 0.95 0.75 0.08 (0.15)

Trust1 0.89 36.9
Trust2 0.90 37.7
Trust3 0.91 38.5
Trust4 0.89 37.4
Trust5 0.80 31.4
Trust6 0.73 27.5
Perceived knowledge 0.9 0.83 0.12 (0.35)
Know1 0.88 32.7
Know2 0.86 31.9
Transactional satisfaction 0.93 0.87 0.12 (0.28)
Sat1 0.92 36.8
Sat2 0.92 36.7
Identity salience 0.85 0.59 0.18 (0.35)
Iden1 0.74 26.8
Iden2 0.79 29.1
Iden3 0.79 29.3
Iden4 0.68 24.1
Perceived value 0.92 0.79 0.15 (0.28)
Val1 0.88 35.5
Val2 0.87 34.6
Val3 0.75 27.4
a
The estimates are standardized coefficients (all p<.01) after controlling for common method, with corresponding t-values in the adjacent column from
maximum likelihood solution using EQS
b
Estimated composite reliability per Fornell and Larcker (1981)
c
Estimated variance extracted by the corresponding latent construct from its hypothesized indicators per Fornell and Larcker (1981)
d
Average of the variance shared between the corresponding latent construct and all other constructs of study. The maximum variance shared is in
parenthesis

in Fig. 2. Moreover, while perceived knowledge has a
significant and positive simple effect on upgrading
(b = .31, p < 0.1), its interactive effect with consumer
trust is nonsignificant and weak (b=.02, ns). This is in
agreement with H2.
In terms of downgrade decision, Table 4 shows that, of
the hypothesized drivers, only the interactive effect of per-
ceived knowledge and consumer trust is significant and
negative (b=−.46, p<.01). Both in direction and signifi-
cance, this result is consistent with H3. Apparently, high
levels of perceived knowledge and consumer trust effectively
diminish the probability of membership downgrading. Simple
effects for perceived knowledge (b=.21, ns) and consum-
er trust (b = .12, ns) are nonsignificant predictors of
downgrading decision. Figure 3 plots this interactive effect
and shows that: (a) the impact of trust on downgrading is
amplified (more negative) with increasing perceived knowl-
edge, and (b) although the conditional effect of consumer trust
on downgrading is positive for low levels of knowledge,
robust (significant) effect is tenable only for the lower range
trust (−3.3 to 0.6 std. of consumer trust; effect on downgrading
ranges from 1.01 to 1.17, p<0.05). In contrast, the marginal
effect of trust on downgrading is insignificant (p<0.16) if
perceived knowledge is lower than 1.8std, and significant
(p<0.05) if perceived knowledge is greater than 1.8 std and
consumer trust is positive. Taken together, our results suggest
that downgrading increases robustly when both trust and
knowledge are low (i.e., below the mean) and decreases when
perceived knowledge is high and consumer trust is positive.
We also find a differential pattern of effects for socio-
demographic and membership variables on upgrade and
downgrade decisions. Socio-demographic variables, age and
distance from home impact the probability of downgrading. In
contrast, membership communications, membership in com-
peting organizations, membership level and distance from
home influence the upgrade decisions.
Finally, to check our conceptual reasoning that lower
levels of trust generally trigger downgrading behavior
while higher levels of trust generally lead to upgrading,
we compared trust means for upgraders and downgraders.
J. of the Acad. Mark. Sci. (2014) 42:596–618 609

Table 4 Estimated coefficients

from the hypothesized model of Independent variables Consumer decision to:
upgrade and downgrade decisions
Renew Upgrade Downgrade

Coefficient St. error Coefficient St. error Coefficient St. error

Consumer trust 0.183 0.135 0.499*** 0.181 0.120 0.205

Trust × Trust −0.214 0.189 0.182** 0.102 .035 0.166
Perceived knowledge −0.277 0.210 0.309** 0.190 0.211 0.208
Knowledge × Trust −0.154 0.190 0.020 0.193 −0.458** 0.234

Age −0.008 0.026 −0.009 0.026 −0.028 0.025

Education 0.480 0.298 −0.033 0.177 0.157 0.189
Gender 0.268 0.325 −0.237 0.394 0.982** 0.461
Number of children 0.001 0.107 −0.214 0.189 −0.203 0.223
Distance from home .039 0.052 0.027* 0.016 0.027* 0.015
Income −0.033 0.177 0.039 0.051 0.019 0.060
Usage frequency −0.049 0.182 0.001 0.107 −0.152* 0.106
Competing memberships −0.012 0.282 −0.772* 0.387 −0.491 0.384

Transactional satisfaction −0.232 0.396 −0.242 0.184 −0.212 0.234

Identity salience 0.027** 0.016 −0.154 0.190 −0.105 0.185
Perceived value 0.301 0.217 −0.028 0.156 −0.014 0.157
Benefits 0.088** 0.043 0.480 0.298 0.301 0.327
Costs −0.517*** 0.172 0.268 0.325 0.137 0.342

Membership communication 0.267 0.208 0.088** 0.042 0.066 0.038

Membership level 0.154 0.120 −0.654*** 0.180 −0.066 0.284
*p<0.10, **p<0.05, ***p<0.01

As Table 5 shows that significant differences are observed Bias in competing models due to omission of contingent
between upgraders and downgraders in the predicted direc- process To assess the consequences of ignoring that the
tion for consumer trust (xupgrade ¼ :10; xdowngrade ¼ −:05 , modification decision is contingent on renewal decision,
p<.05). None of the other drivers including transactional we estimated: (1) a competing model of renewal decision
satisfaction, identity salience and perceived value varies that ignores the subsequent modification decision, and
significantly for upgraders and downgraders, as (2) a competing model of modification decision that
anticipated. ignores the preceding renewal decision. In addition to
model comparison tests indicating that both competing
models provide an inferior fit to the data compared to the
hypothesized model (χ220 =61.82, p<.001, χ220 =24.08,
0.5
0.45
Utility of Upgrade Decision

0.4 4

0.35 3

0.3 2
Downgrade

0.25 1

0.2 0

0.15 1

0.1 2

0.05 3
4
0
3.1 2.3 1.5 0.7 0.1 0.9 1.7 2.5 3.3
-1.2 -1 -0.8-0.6-0.4-0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 2.2 2.4
Consumer Trust Consumer Trust
Perceived knowledge = -2 std Perceived knowledge = +2 std
Fig. 2 Net effect of consumer trust on the decision to upgrade a service
membership (values estimated at the mean values of all other modeled Fig. 3 Interactive effect of consumer trust and perceived knowledge on
variables) the decision to downgrade
610
Table 5 Mean comparison of study constructs between upgraders and
downgraders
Independent variables Consumers decision to:
Upgrade Downgrade Mean Comparison
Mean valuea Mean value p-valueb
Consumer trust 0.100 −0.054 0.043
Perceived knowledge 0.081 −0.047 0.075
Transactional 0.020 −0.023 0.319
satisfaction
Identity salience 0.001 −0.065 0.250
Perceived value 0.086 0.009 0.179
a
Mean value of the factor score measure for each variable standardized in
the entire sample
b
p-value based on a t-test of variable means for upgraders and
downgraders
p < .01, respectively), the obtained estimates for the
effects of modeled drivers are biased for both upgrading
and renewal decisions, but not downgrade decisions.
Specifically, we fail to obtain a significant quadratic
effect of consumer trust on the upgrade decision leading
to the erroneous conclusion that, while trust affects
upgrade decisions, it does not have increasingly positive
effects consistent with the motivation to grow the rela-
tionship. Further, omitting the modification mechanism
in renewal decision leads to the misleading conclusion
that perceived knowledge and consumer trust shape the
renewal decision via a simple effect of perceived knowl-
edge and an interaction of perceived knowledge and
trust. In general, the econometric literature has docu-
mented similar biases in omitting selection mechanisms
from analysis incorporating contingent mechanisms
(Amemiya 1985).
Alternative model formulations We also explored the sen-
sitivity of our results to alternative empirical model
specifications. Consistent with the econometric litera-
ture (Greene 2008), we utilized a probit (vs. a logit)
specification (i.e. normal cdf for ηi) for renewal deci-
sion to account for unobserved heterogeneity across
renewal and modification decisions. As alternatives,
we estimated several model formulations including a
logit to model renewal and an ordered probit to model
modification decision. Note that the ordered probit
model does not differentiate drivers of decision to
upgrade vs. downgrade and, thus does not allow a
direct test of the proposed hypotheses. However, the
obtained pattern of results is similar to those obtained
from the proposed model. Finally, using logit (vs.
probit) to model renewal yields the same statistical
J. of the Acad. Mark. Sci. (2014) 42:596–618
inference, thereby supporting the robustness of our
findings.
Discussion
We theorized a model of consumer’s decision to up-
grade or downgrade a service membership and its
drivers, and simultaneously modeled the process of ser-
vice membership modification conditional on the deci-
sion to renew. No previous study has examined these
consumer decisions or drivers within a single, simulta-
neous analysis. In so doing, our study offers theoretical
and methodological advances over past research.
Theoretically, our model isolates drivers and mecha-
nisms that are unique to each consumer decision.
Methodologically, we utilize a MLM-S model that is
well suited to conditional decisions with multiple op-
tions, but has not been previously used in the marketing
literature. The empirical test of the proposed model
using multi-source data on service memberships in a
not-for-profit setting demonstrates that relational vari-
ables: (1) have an asymmetric effect on consumer up-
grade and downgrade decisions, (2) differ in their influ-
ence on the renewal decision compared to upgrade/
downgrade decision, and (3) exert an influence on these
decision outcomes over and above competing explana-
tions rooted in socio-demographic, transactional and
membership variables. The supplemental analysis and
robustness checks confirm our theoretical assertions
and support the advantages of MLM-S in terms of
methodological fit and less biased coefficients.
Limitations
Several limitations of this study need to be recognized
for a balanced assessment of its findings. First, empir-
ical testing of the proposed model is conducted in a
not-for-profit service setting that is representative of
leisure services. Although we used drivers and mecha-
nisms that have parallels to those proposed to model
similar decisions in for-profit context, generalizability
of the findings to other contexts is not known and
future research is needed to identify boundary condi-
tions and draw robust insights. Second, ideally it would
have been useful to include a more comprehensive set
of drivers for the modification decision. Limits of sur-
vey feasibility and the participating company’s require-
ment for a short survey directed us to focus on critical
drivers. Future research should consider studying vari-
ables such as expectations of future use (currently
J. of the Acad. Mark. Sci. (2014) 42:596–618
represented by number of children in the household),
and relationship satisfaction and distrust (a range of
distrust was not observable and relevant in our service
setting). Further, the focal organization did not keep
track of members who have migrated out of the service
area and, thus, it was not possible to account for this
effect in the study. Third, the proposed model does not
address service membership conditions with restrictions;
that is, where consumers in the top category are
restricted to only downgrade (or not change) and those
in the bottom category are restricted to only upgrade
(or not change) of service membership. An asymmetric
model that addresses this restraint at service member-
ship boundaries will be a useful extension of our
model. Fourth, our study provides the first step in
understanding consumers’ goal motivation for service
membership modification. Future experiments manipu-
lating the consumers’ goal orientation will ikely pro-
vide deeper insights into the underlying decision
processes.
Drivers have differential effects on upgrade and downgrade
decisions
Relational variables We find that consumer trust plays a
contrasting role in upgrade and downgrade decisions.
The increasingly positive influence of consumer trust
on upgrade decision is consistent with the goals of
relational advancement and growth, and indicative of
its heuristic value in evoking consumer eagerness for
relationship enhancement. Conversely, consumer trust
by itself is inert for downgrade decisions. Instead, the
influence of trust is contingent on consumers’ per-
ceived knowledge of service providers’ mission and
goals. The risk of downgrading is higher when past
exchanges with the service provider deplete consumers’
trust in the service provider and fail to advance con-
sumers’ knowledge about provider’s mission and ob-
jectives. In other words, greater perceived knowledge
is likely to insulate consumer’s downgrading decision
from declining levels of trust in the service provider, at
least in the short run. This contingent influence of trust
on the downgrade decision contrasts with the singular
and significant quadratic trust effect for the upgrade
decision. To our knowledge, this is the first study to uncover
the contrasting trust mechanisms in upgrade and downgrade
decisions.
In a recent study, Schweidel et al. (2011, p. 484)
conjecture that efforts to reinvigorate the relationship
with consumers “on life support” may “backfire, as it
611
can serve as the catalyst for a customer to reevaluate
his[her] portfolio and cancel all services.” Our study
provides an initial insight into how trust and perceived
knowledge mechanisms may explain why some cus-
tomers “on life support” might react negatively to up-
selling and promotional offers and downgrade or exit
the relationship altogether. According to our model,
promotional materials trigger consumers’ retrospective
assessment of the service relationship but do not deter-
mine its outcome. When this assessment indicates that
past service experiences fail to build trust and/or en-
hance perceived knowledge, consumers become
prevention-focused and downgrade. An implication from
our findings is that promotional materials that affirm the
mission and goals of the organization might be more
beneficial. Future research employing quasi-experiments
that specifically manipulate different forms of up-selling
materials (versus a singular promotion focus) will help
in designing successful campaigns in an increasingly
competitive marketplace for service memberships. In
general, the structuring of marketing tactics to optimize
service membership based on the anticipated role of
regulatory focus warrants attention.
Theoretically, an implication of our findings is that
upgrade and downgrade decisions may be consistent
with promotion-prevention mechanisms in regulatory
focus theory (Higgins and Spiegel 2004). Typically,
situational cues, such as the membership renewal
materials in this study, likely provoke consumers to
access relevant information and engage cognitive
resources by activating a regulatory goal with either a
promotion or prevention focus. Expectations of increas-
ing (decreasing) positive payoffs indicated by consumer
trust appear conducive to trigger promotion (prevention)
goal which would explain consumer eagerness
(vigilance) to grow (limit) the relationship resulting in
a positive quadratic (negative interactive) effect observed in
this study. Future research may find this theoretical direction a
fruitful avenue to pursue.
Socio-demographic, transactional and membership
variables This study also shows that socio-demographic,
transactional and membership variables exert asymmetric ef-
fects on upgrade versus downgrade decisions. Specifically,
gender and usage frequency have a significant influence
on downgrade likelihood, but do not affect the upgrade
decision. As expected, members who are male and have
higher usage frequency have a lower likelihood of
downgrade. By contrast, membership communications,
competing memberships and membership level
612
significantly impact upgrade decisions, but not down-
grade decision. As expected, number of competing
memberships depresses the likelihood of upgrade.
Frequency of membership communications stimulates
upgrade likelihood possibly suggesting that frequent
communications build relational bonds and reaffirm the
motivation for service membership. However, distance
from home positively impacts both decisions indicating
that members who live further away are more likely to
make changes to their service membership level al-
though these changes can go either way. Taken together,
the results suggest that, in our not-for profit setting,
relational variables and membership variables shape up-
grade decisions, whereas relational variables, socio-
demographic and transactional variables impact down-
grade decisions.
Disparate drivers impact service membership renewal
and modification decisions
Our study advances past work by demonstrating that renewal
and modification decisions engage disparate drivers.
Specifically, our study reveals that renewal decision is condi-
tioned by post-experience evaluations (e.g., perceived benefits
and costs) and existing attitudes (e.g., identity salience), while
modification decisions are driven by anticipated payoffs of
relational exchanges. This insight is consistent with the idea
that the renewal decision involves an accounting of the service
relationship that integrates across past experiences by asking,
does this service relationship provide value (benefits > costs)?
and do I derive social benefits in supporting this service
provider? Without an affirmative answer to these questions,
consumers are prone to terminate service memberships. In line
with past research, albeit mostly in for-profit contexts, our
study confirms that these questions address hygiene factors of
a service relationship. Future research may consider investi-
gating the antecedent drivers of perceived value (benefits vs.
costs) such as identity salience and threat from competing
options.
Going beyond past research, we find that the basic
or hygiene factors of service relationship do not figure
in consumer’s modification decision. Instead, consumer
trust in the service provider and perceived knowledge
of the service provider’s mission and goals play a
prominent role in modification decisions. We reasoned
that this occurs because renewal and modification deci-
sions engage different theoretical mechanisms.
Consistent with past research, consumers appear to rely
more on trust judgments than on post-purchase evalua-
tions (e.g., satisfaction) to develop a forward looking
J. of the Acad. Mark. Sci. (2014) 42:596–618
perspective in ongoing service relationships (Aurier and
N’Goala 2010). This does not imply that trust judg-
ments are not drawn from consumers’ past experiences
with the service provider. Rather, trust judgments
appear to focus consumers’ attention on considering
whether to expand or limit the scope of the relationship
based on past experiences. Likewise perceived knowl-
edge appears to go beyond assessments of identity
salience by shifting consumers’ focus from do I derive
social benefits from this service provider? to what do I
really know about the social priorities supported by this
service provider? In this sense, while the renewal deci-
sion is driven by hygiene-type factors, the modification
decision is influenced by a motivator-type calculus. We
have theorized that this forward-looking calculus leading
to relationship expansion or contraction is compatible
with consumers’ emphasis on growth (upgrade) or vig-
ilance (downgrade) in accord with promotion or prevention
focus, respectively, in regulatory focus theory (Higgins and
Spiegel 2004).
Methodologically, where past research has focused mostly
on binary choices (e.g., renew or terminate, upgrade or not),
our study models consumer decisions involving a multinomial
choice—upgrade, downgrade or continue unchanged, subse-
quent to a binary choice to renew or discontinue a service
membership. This modeling involves estimating a MLM-S
that is well suited to the proposed decision process but has
not been heretofore applied to a marketing context.
Omitting renewal processes in modeling modification
decision results in concluding that consumer trust exerts
only a linear rather than a curvilinear (increasingly
positive) influence on upgrade decision. Conversely,
omitting the modification mechanism in modeling re-
newal decision leads to erroneously concluding that
the underlying mechanism is similar to that involved
in downgrading decision. Both results are theoretically
misleading and pragmatically costly because they mask
the motivator effect of trust to promote upgrading and
erroneously suggest similarities where differences exist.
Overall, our study highlights and sharpens the risks of
disregarding the renewal-modification interdependence, and
provides robust methodology for modeling these decisions
while rigorously controlling for confounding effects.
Downgrade options stretch consumer relationships
Our study directs researchers and managers alike to shift
attention from up-selling to sustaining long-term relation-
ships with consumers by drawing tactical insights from
nuanced but clear differences between renewal and
J. of the Acad. Mark. Sci. (2014) 42:596–618
modification decisions. Undoubtedly consumer relation-
ships unfold over time; yet, the discrete points of mem-
bership renewal are critical thresholds in altering the
course of consumers’ future relational status. Our study
suggests that providing an option to downgrade retains
consumers who would otherwise terminate, thus
stretching the potential for a long-term term exchange.
Past research suggests that breakdowns in ongoing rela-
tionships trigger consumer action to exit the relationship;
however, exit may be a “long goodbye” where dissolu-
tion process is initiated but termination may not be
immediate (Coulter and Ligas 2000). When an option
to downgrade is not available, such consumers will likely
exit, resulting in lost customers. With a downgrade op-
tion, consumers can actively limit the scope of the rela-
tionship leaving open the option to terminate at a later
time. From a service provider perspective, a downgrade
option provides a reprieve and an opportunity for a
second chance to recover the customer from previous
service failures and breakdowns. Moreover, our results
suggest that not-for-profit service providers can mitigate
downgrading by making consumers more knowledgeable
about their mission and objectives. Such defensive moves
are unlikely to have sustained effects over the long run but
may offer windows of opportunity to rebuild consumer trust.
At any given time, the number of customers contemplating
dissolution can be nontrivial. For instance, in our context,
24% of the customers chose to downgrade. Thus, the down-
grade option opens the possibilities of continuing and rebuild-
ing relationship for a substantial segment that would have
likely exited.
Deploying downgrade options to stretch relationships is
beginning to attract attention from service companies. For
example, the fastest growing real-estate franchise, Help
U-Sell Real Estate, owes its success to offering consumers
not just a full service option but also a menu of limited-scope,
fee-for-service alternatives such as only Multiple Listing
Service (MLS) or marketing assistance. Consumers appear
to value the flexibility to choose a service level that matches
their current needs with the option to migrate to a different
level in the future commensurate with the ebbs and flows of
their needs.
Concluding notes
Our theory and results for drivers and mechanisms of service
membership decisions open new directions for research
and practice. The obtained differential effects of hygiene-
and motivator-type drivers when juxtaposed within the
frames of prevention and promotion focus offer rich
foundation for a theory based study of service member-
ships. While we await additional insights from future
research, our study suggests that (a) promotion focus
613
triggers different mechanisms than prevention focus,
and (b) a distinction between prevention and termination
is warranted. The trust-dominated promotion focus war-
rants attention in future research since consumers primed
to make decisions in this focus are likely to engage in
other pro-organizational behaviors including co-creation,
advocacy and activism. By contrast, our study of con-
sumers primed to make decisions under prevention focus
suggests that termination is not an obvious outcome
when organizations deliver consumer experiences that
fall short of (consumer) expectations. Continued engage-
ment with the organization under prevention focus may
make consumers more vigilant and attentive to organiza-
tional remedies but it also offers opportunities for recov-
ery that would otherwise be lost in termination. Little is
known about what primes consumers to develop a pro-
motion or prevention focus at the time of renewal decision,
and is a fertile ground for future theorizing.
Managers can use our results to infer practical guide-
lines for designing service membership renewal mate-
rials. Targeted data that outline specific benefits enjoyed
by the consumer, stand-out service occasions, and mis-
sion objectives accomplished by the organization to
enhance consumer knowledge may be especially helpful.
Mere provision of specific data rather than glossy testi-
monial and promotional materials may bolster consumer
trust if such data are perceived as helpful in making decisions
and triggering recovery of past experiences. This, in turn, may
enhance the subsequent likelihood of limiting relationship
contraction (downgrade), if not expanding the relationship
(upgrade), as evidenced by emerging research on reciprocity
(Palmatier et al. 2009).
Finally, as a cautionary note, our study shows that errone-
ous conclusions which misdirect costly investments are likely
when simultaneous consideration of service membership
modification (upgrade/downgrade) and renewal decisions is
either ignored or misspecified. To the extent that misunder-
standing of consumer decision processes are missed opportu-
nities for useful theorizing and meaningful insights, our study
suggests that researchers and managers alike are well advised
to account for the complexity of service membership and the
consumer decision processes they induce. We hope our re-
search provides the motivation and direction for future studies
that respond to this call and enhance our understanding for
theory and practice.
Acknowledgments The authors gratefully acknowledge the support
of Weatherhead School of Management for a research grant, and the
Zoological Society for data access. In addition, the authors appreciate
the generous input of several individuals to this research including Tara
Turner and Elizabeth Fowler for their help and insight during the data
collection process, Sanjukta Kusari and Bige Saatcioglu for assistance
with the qualitative data collection, and Ratti Ratneshwar for his theo-
retical suggestions.
 614

Appendix A

Review of the literature involving studies of service renewal, upgrade and/or downgrade
Study Topic Theoretical focus Decision Dependent variables Sample Analysis Results

Wagner et al. Influence of customer Prospect theory, emotions Firm—initiated Loyalty intentions (1) 359 student subjects ANOVA, PLS Firm-initiated customer
(2009) demotion on loyalty theory downgrade and responding to airline loyalty downgrading has a negative
upgrade program scenarios, (2) 1,423 effect on loyalty intentions by
consumers in a department inducing negative affect and
store loyalty program reduced perceived benefits.
Aurier and Trust and commitment in Relationship marketing, n/a Relationship maintenance Survey and patronage behavior SEM Relationship commitment
N’Goala (2010) relationship maintenance services quality (length and exclusivity) of 520 retail banking influences retention and
and development and development customers in Europe exclusivity, whereas trust is
(service usage and critical for relationship
cross-buying) development. Trust and
commitment mediate the
impact of satisfaction on
relationship maintenance and
development.
Bolton et al. (2008) Business customer decisions Market matching and Upgrade Business customer 2076 B-to-B service contracts Random parameters Satisfaction, service quality and
to upgrade service congruence, services decision to upgrade from 120 computer support binary logit price influence upgrade
contracts conditional on quality and satisfaction companies decisions. Price and satisfaction
decision to renew moderate the effect of service
quality on the upgrade
decisions.
Wagenheim and Consumer response to Fairness theory Firm- initiated Revenue, customer 3,675 airline customers who Conditional Firm-initiated downgrading and
Bayon (2007) overbooking service downgrade spending experienced service difference-in - denied boarding have strong
experiences, such as downgrade, upgrade or differences analysis negative effects on usage and
downgrading, denied denied boarding revenue, whereas upgrades
service and upgrading have a smaller positive effect on
usage.
Bolton et al. (2006) Dynamic model of service Services quality, loss Renew or discontinue Contract renewal or Time-series cross sectional data Binary choice model Few extremely favorable service
contract renewal in B-to- aversion terminate of 2,442 business contracts experiences have a positive
B markets recognizing for high technology system effect on renewal decisions.
interdependencies among support services Recent (rather than distant)
renewal decisions due to experiences are weighed more
multiple contracts from heavily in renewal decisions.
the same supplier
Gustafsson et al. Influence of satisfaction, Attitude theory, n/a Churn—number of months Archival data and survey of Regression Satisfaction, and calculative
(2005) relationship commitment relationship marketing that a customer was not 2,734 telecom consumers in commitment have a positive
and triggers on customer retained a large Swedish company effect on retention; prior churn
retention moderates the satisfaction-
retention relationship.
Thomas et al. Recapturing lost customers Relationship marketing, Decision to renew after To renew or not after 566 customers targeted for re- Split-hazard duration Pricing, lapse duration, and
(2004) dynamic pricing, defection defection acquisition by a newspaper model previous tenure impact
subscription company consumer decision to renew
following defection.
Verhoef (2003) Differential effects of Relationship marketing, Renew or discontinue Renew or discontinue; Archival and survey panel data Binary logit and Affective commitment and loyalty
customer relationship customer equity customer share from 1,677 insurance regression programs that provide
perceptions and customers of a Dutch economic incentives have a
relationship marketing financial services company positive effect on customer
renewal decisions and share
J. of the Acad. Mark. Sci. (2014) 42:596–618
 (continued)
Study Topic Theoretical focus Decision Dependent variables Sample Analysis Results

instruments on customer development. Direct mail

retention impacts only share
development.
Lemon et al. Consumer future orientation Regret anticipation in Renew or discontinue Contract renewal or (1) surveys of 490 subscribers Binary logit Expectation of future usage and
(2002) and service retention decision-making termination of a television entertainment anticipated regret influence
decision service, (2) experiment with consumer decision to renew the
170 student subjects service relationship.
responding to online grocery
store delivery service
Thomas (2001) Linking customer Truncation and censoring Renew or discontinue Length of membership in Archival data for 2,300 Tobit with selection Use of free and fee-based products
acquisition and retention theory the service organization randomly selected members and services, premium rewards
of a professional service and demographics influence
organization customer retention which is
J. of the Acad. Mark. Sci. (2014) 42:596–618

dependent on customer
acquisition dynamics.
Bolton et al. (2000) Influence of loyalty rewards Expectancy Renew or discontinue Program Renewal or Panel data from 405 customers Logistic regression Loyalty program membership is
programs on customer disconfirmation, regret service usage termination, service of financial services loyalty and tobit model conducive to discounting
repatronage behavior usage (number of program negative evaluations of service
(decision to repurchase a transactions) experiences, which influences
service and how much to renewal decisions and service
use it) usage.
Gruen et al. (2000) Influence of professional Relationship marketing n/a Percentage of members Survey of 2,545 association Structural equations Core service performance was the
associations’ who renewed members, 150 chapter model only variable found to affect
relationship-building presidents and archival data consumer/member retention.
efforts on members’
relationship behaviors
Bhattacharya Influence of customer Social identity theory Renew or discontinue Length of membership 7,798 renewal episodes (of Duration hazard Length of use, downgrading, inter-
(1998) characteristics on paid before lapsing 4,632 members) from a model renewal time, gift frequency,
membership renewal museum archival database and participation in special
interest groups impact
likelihood of renewal and
discontinuation.
Bolton (1998) Influence of customer Subjective utility theory, Renew or discontinue Duration of service Cross-sectional time—series Duration hazard Length of prior experience
satisfaction on service belief updating, relationship data of 650 cellular service model moderates the impact of
relationship duration anchoring and customers derived from satisfaction on relationship
adjustment surveys and company duration. Perceived losses and
database gains based on experienced
service transactions and failures
also affect relationship
duration.
Rust et al. (1995) Making investments in Services quality Renew or discontinue Renew or discontinue. Conceptual and analytical n/a n/a
service quality market share, revenue,
accountable profitability
615
616 J. of the Acad. Mark. Sci. (2014) 42:596–618

   pffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Appendix B Prob θi ¼ 0=zi ; vi ¼ Φ −½β ′zi þ ρν i Š= ð1−ρ2 Þ : ðA7Þ

Technical details of the MLM-S model used in study

Accordingly,
Following Greene (2008), the log-likelihood for the multino-
mial logit with selection (equations 1–4, pages 7–9) is the joint   Z ∞  pffiffiffiffiffiffiffiffiffiffiffiffiffiffi
density for the observed data which can be presented as Prob θi ¼ 0=zi ¼ Φ −½β ′zi þ ρν i Š= ð1−ρ2 Þ ϕðν i Þ∂ν i :
−∞
follows using the context of our study:
ðA8Þ
For consumers who renew the service membership (θi =1),
we need to obtain Combining Eqs. (A6) and (A8) based on the symmetry of
f(yi,θi =1/xi,zi), such that: the normal cdf:
Z ∞
f ðyi ; θi ¼ 1=xi ; zi Þ ¼ f ðyi ; θi ¼ 1=xi ; zi ; ν i Þf ðν i Þ∂ν i : 2 3
−∞   Z ∞
0
δj xi þκi ν i
6 e 7
ðA1Þ f yi ; θi =xi ; zi ¼ 4ð1−θi Þ þ θi X2 δj
0
xi þκi ν i
5Φ
−∞ e
j¼0
Conditioned on independence of νi, yi and zi:
h .pffiffiffiffiffiffiffiffiffiffii
      ð2θi −1Þð β′zi þ ρν i Þ 1−ρ2 ϕðν i Þ∂ν i
f yi ; θi ¼ 1=xi ; zi ; ν i ¼ f yi =xi ; ν i Prob θi ¼ 1=zi ; ν i : ðA9Þ
ðA2Þ
Maximum likelihood estimates of the model parame-
By assumption of joint normality: ters are obtained by maximizing the full likelihood
  function:


f ηi =ν i ¼ N ρν i ; 1−ρ2 ; and ðA3Þ
2 3
XN Z ∞ δj xi þκi νi
hpffiffiffiffiffiffiffiffiffiffiffiffiffiffii LL ¼ log 4ð1−θi Þ þ θi Xe 5Φ ðA10Þ
i¼1 2
ηi ¼ ρν i þ ð1−ρ2 Þ γ i where γ i e N ð0:1Þ; ðA4Þ −∞
j¼0
eδj xi þκi νi
h .pffiffiffiffiffiffiffiffiffiffii
ð2θi −1Þðβ ′zi þ ρνi Þ 1−ρ2 ϕðνi Þ∂νi :
Thus,
   pffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Prob θi ¼ 1=zi ; vi ¼ Φ ½β′zi þ ρν i Š= ð1−ρ2 Þ : ðA5Þ
with respect to model parameters [β,κ,δ,ρ].
This log-likelihood function is amenable to simulation
The unconditional joint density is obtained by integrating (Greene 2008). The simulated log-likelihood is:
νi out of the conditional density. Since νi ~N(0,1),f(νi) is ϕ(νi).
Consequently, 2 3
  X
N
1 XR δj xi þκi ν i
f yi ; θi ¼ 1=xi ; zi LLs ¼ log 4ð1− θi Þ þ θi Xe 5Φ
R r¼1 2
Z ∞  i¼1 eδj xi þκi ν i
pffiffiffiffiffiffiffiffiffiffiffiffiffiffi
0
eδj xi þκi νi " #
j¼0
¼ X2 Φ ½β 0 Zi þ ρν i Š= ð1−ρ2 Þ ϕðν i Þ∂ν i :
−∞
0
eδj xi þκi νi ð2θi −1Þðβ′zi þ ρν ir Þ ;
j¼0 pffiffiffiffiffiffiffiffiffiffi
ðA6Þ 1−ρ2

For consumers who do not renew the contract, θi =0. where νir is a set of R random draws from the standard normal
Utilizing the symmetry of the normal cdf: distribution.
J. of the Acad. Mark. Sci. (2014) 42:596–618
Appendix C
Operationalization and measures utilized for study constructs
Perceived valuea
Considering all the benefits you receive as a member of the ABC
Zoological Society and the costs you incur, would you say that your
membership is a…
1. Very good value/Extremely poor value
2. Very good deal/Very poor deal
3. Very worthwhile/Not at all worthwhile
Transactional satisfactiona
How did you feel about your last visit to the ABC Zoo?
1. Highly Satisfied/Very Unsatisfied
2. Delightful/Terrible
Identity salienceb
Below are some general statements about how you feel as a member of
the ABC Zoological Society. Please indicate the degree to which you
agree or disagree.
Being a member of the ABC Zoological Society…
1. Makes me feel that I am doing my part to support a good cause
2. Is a rewarding experience
3. Makes me feel that I am environmentally responsible
4. Is an important part of who I am
Consumer trustb
ABC Zoological Society:
1. Competently handles most inquiries from members like myself
2. Efficiently responds to most questions and requests for information
3. Cares about the needs/wants of its members
4. Can be relied upon to provide valued member benefits
5. Goes out of the way to address member concerns
6. Is flexible in resolving member complaints
Perceived knowledgeb
Below are some general statements about how you feel as a member of
the ABC Zoological Society. Please indicate the degree to which you
agree or disagree.
1. I am familiar with the mission and objectives of the ABC Zoological
Society
2. I am well informed about the causes supported by ABC
Perceived relational costsb
As members of ABC Zoological Society, we (my family and I):
1. Feel that we have to pay significant amount of money in membership
dues
2. Receive unwanted mailings/emails about special offers and events
3. Spend a lot of time and effort responding to the amount of
information requested by ABC
4. Have to give personal data that we would prefer not to give
Perceived relational benefitsb
As members of ABC Zoological Society, we (my family and I):
1. Benefit by visiting the zoo whenever we like
2. Avoid hassles when visiting (e.g. standing in line, buying tickets)
3. Use the benefit of 10% discount at the gift shop
4. Enjoy taking our guests to the zoo
5. Enjoy seeing animals in their natural habitat
a method. Hoboken: Wiley.
Seven-point semantic differential scale
b
Five-point Likert scale ranging from “Strongly Disagree” to “Strongly
Agree”
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