Offering discretionary preferential treatments (DPTs) to selected customers is a prevalent practice in hospitality services, yet its nature and effects on nonbeneficiaries are unclear. Drawing from social comparison and appraisal theories and relationship marketing literature, this study examines how nonbeneficiaries appraise and respond to witnessing service employees offering DPTs to others through the separate emotions of malicious and benign envy, that drive their respective contrasting reactions. Nonbeneficiaries’ relationship strength with the firm and their perceived continuity of the preferential treatment (PT) further alter the proposed effects on experiences of envy. A customer survey and three experiments (laboratory and field) consistently affirm the distinctiveness of DPT and support a dual pathway model of the mediating processes of malicious and benign envy on nonbeneficiaries’ behavioral outcomes (e.g., derogating the beneficiary, cooperating with the employee, loyalty to the service company). The findings also uncover a double-edged sword effect of a strong nonbeneficiary-firm relationship: It enhances the effects of DPT on both malicious and benign envy. Interestingly, this enhancing effect of relationship strength for eliciting malicious (benign) envy can be reduced (strengthened) if the PT is perceived to be available on an ongoing basis.
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