This study aims to answer the question of how service firms’ practice of unearned preferential treatment, where non-loyalty-based free upgrades are given at random, may be negatively affecting the firm’s loyalty program customers who have earned such preferential treatments through past efforts (e.g., time, money, or repeat purchase) and to identify potential underlying psychological mechanisms. To do so, this dissertation consists of three experiment studies that examine how loyalty program customer’s witnessing unearned preferential treatment towards non-program customers in the social servicescape influences their perceptions and subsequent behaviors, based on psychological contract theory as a fundamental theoretical background.