Abstract
Emotions pervade work groups and shape employee-customer interactions, yet little is known about how differentiated leader–member relationships shape affective experiences within work groups and beyond. Drawing on the integrated social comparison and emotion contagion framework, we examine the role of LMX differentiation on both employee and customer affective and service-related outcomes. Using multi-level data from 1,608 hair salon employees nested within 165 salons and 3,139 customers, we test a model linking LMX differentiation to group positive affective tone and positive affective variation within the salon. We further examine trickle–out effects on customers by testing the indirect effects of LMX differentiation on customer positive affective experiences and customer perceptions of service quality. Our results show that LMX differentiation is negatively related to work group positive affective tone, whereas positively related to work group positive affective variation. We further find support for a serial mediation effect of LMX differentiation on customer perceptions of service quality via group positive affective tone (but not group affective variation) and customer positive affective experience. Our findings underscore the pivotal role of LMX differentiation in shaping collective affect within the leader’s work group and beyond group boundaries, influencing customer experiences.