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'Sweethearting' deals cost retailers billions

Jim Dailakis, a comedian and actor, got a free day on his rental car last year thanks to a generous company employee who was flirting with him.

“Not only was she sweet, she had the best smile and a wonderful personality,” said Dailakis, who lives in New York. “I was very grateful.”

Executives of the unidentified company probably would not be so grateful.

The freebie Dailakis enjoyed has a name in business lingo. It's called "sweethearting," and it costs companies billions of dollars in losses, according to a new study to be published in The Journal of Marketing.

While there are some companies that encourage perks for favored customers, the new study focuses on “unauthorized discounts to customers, thus not embraced by management,” said Clay Voorhees, assistant professor of marketing at Michigan State University and a co-author of the report.

Voorhees and his colleagues surveyed about 800 customers and employees  of restaurants, hotels, car washes and other services, and some 67 percent said they had participated in sweethearting in the past two months, according to a summary of the study. Some employees said they were motivated by the potential prospect of receiving better tips.

Voorhees said the freebies translate to $80 billion in losses for the retail industry annually.

“For some firms,” Voorhees said, “if their employees hook up one out of 20 of their customers with completely free goods and services, this means the profitability of this employee can approach zero.”

But there is another side to the sweetheart deals: Close customer–employee relationships are key to building customer satisfaction and loyalty the researchers note.

Still, they suggest that employers do better pre-employment screening, training and supervision to limit "the potential damaging effects of deviant acts such as sweethearting,” they wrote.

It is not clear that everyone views the sweetheart deals as deviant.

“Restaurants, of course, have their own internal policies for these things, and some do allow for discretionary comped items, especially to regular customers,” said Annika Stensson, a spokeswoman for the National Restaurant Association.

For Dailakis, the deal he got motivated him to want to return to the same rental counter. “My ego enjoyed the massage, and I enjoyed the vehicle,” he said.

Have you ever been sweethearted, or have you sweethearted customers against your boss’ will? Weigh in on our Facebook page.