Spillover Effects of Service Failures in Coalition Loyalty Programs: The Buffering Effect of Special Treatment Benefits

•Service failures of partners in a coalition loyalty program have a negative effect on the responsible partner.•Service failures of partners in a coalition loyalty program also have direct and indirect effects on the program itself.•Perceived special treatment benefits of the coalition loyalty program can buffer these negative effects of service failures.•Service failures spill over to the coalition loyalty program if the perceived special treatment benefits are low.

Coalition loyalty programs are on the rise, yet few studies investigate the impact of service failures in such programs. Using data from a retail context, the authors show that a program partner deemed responsible for a service failure suffers negative customer responses. However, customers’ perceptions of the benefits of the coalition loyalty program buffer these consequences. Perhaps most importantly, when customers perceive the program's special treatment benefits as low, direct and indirect spillover effects occur, such that a service failure by one program partner has a negative effect on customer loyalty toward the program itself.