Walls have ears: Word-of-mouth diffusions in targeted promotions decrease targeted customer retention

Recent research suggests that targeted promotions have positive effects on targeted customers and negative effects on untargeted customers. However, the advent of market transparency increases the likelihood of untargeted customers' negative reactions reaching targeted customers. We examine this issue with four online experiments and find that for promotions targeted on infrequent customers, exposure (vs. no exposure) to negative word-of-mouth (WOM) from untargeted frequent customers does not affect targeted infrequent customers' current purchase intentions, but does reduce their intentions to remain with the marketer. Furthermore, we identify two moderators, such that when managers mention luck in the promotion delivery stage and when managers respond to negative online word-of mouth (eWOM) from untargeted frequent customers and mention promotions targeted on frequent customers, they mitigate this negative effect. Our findings offer a new direction for the undesired effect of targeted promotions and identify the possibility that WOM diffusion reduces targeted customers' retention. We also provide valuable managerial insights on how to mitigate the negative effects of targeted promotions by framing the promotion as a result of luck, and by responding to and mentioning promotions targeted on frequent customers to negative eWOM from untargeted customers.