Impact Of Loyalty Programs In The Hospitality Industry Marketing Essay

First it will establish the hospitality industry situation and the definition of loyalty programs and the connection between both the topics under analysis.

Will proceed after to discuss the real effectiveness of the loyalty programs, the problems that came from these programs and the benefits that these programs bring to the hotels and how they help them to improve property results.

A conclusion will follow regarding the findings.

Today’s more aggressive market is focusing their objectives no longer merely on gaining new customers. Instead, in many industries, the importance of marketing objective has shifted from customer acquisition to customer loyalty (Shoemaker and Lewis, 1998). Reichheld in his research from 1990, points out that the benefits of retaining customers have direct impacts on company’s success. The costs associated with taking care of loyal customers decline over time, while at the same time, sales from loyal buyers increase as a consequence of their loyal patronage behavior. Further, loyal customers will also present partnership actions such as spread a positive word of mouth to their friends and relatives (Bowen and Shoemaker, 1998).

Loyalty programs are an integrated system of marketing procedures that has as main objective to turn customers more loyal (Sharp & Sharp, 1997). Customer loyalty is a significant strategic purpose of managers all over the world. Loyalty programs are important tools for motivating customer maintenance in many industries, including airlines, and hotel chains. Loyalty customers are reported to have superior customer maintenance rates, commit a higher share of their group spending to the firm, and are more likely to advise others to become consumers of the firm (Zeithaml, 2000).There are a number of likely benefits to a effective loyalty program beyond increased loyalty, lower price sensitivity, and stronger attitudes towards brand and retailers. These include access to important information on consumers and customer trends, higher regular sales, larger capability to mark special consumer segments, and improved success in implementing product recalls.

Lately, due to information technological expansion, the consumer loyalty program should contain the subsequent three factors: Information know-how and database consumption, customer details, as well as direct and adapted client communication.

It was initially introduced by Holliday Inn in 1983. However, despite the rapid growth of loyalty programs, many questions rise about the effectiveness of the programs to truly enhance customer loyalty. While it requires a huge amount of money to run the programs, facts indicate that many organizations have failed to increase customer loyalty through the implementation of the programs. O’Brien and Jones (2000) urge that in practice, loyalty programs are widely misunderstood and often misapplied. Many companies treat loyalty programs as short-term promotional tools for their customers. As a result, customers become loyal to the programs rather than to the company.

Loyalty is a commitment to re purchase an ideal product/service frequently in the future, in that way causing recurring same brand, even though situational influences (Oliver, 1999, p. 34) this purchase attitude can be highly experienced in the hospitality industry.

As the hospitality industry changes from a conventional and restricted industry into a worldwide industry, electronic technology turns of additional importance to consumers (Lee et al., 2003). Hotels for example, organize the Internet to give customers websites in various languages, online customer support and online bookings (Murphy, Olaru, Schegg, & Frey, 2003). Customers can have 24 hours bookings from the convenience of their own time and space. As well numerous hotel websites enclose photographs showing the rooms and other property amenities as well as information on nearby attractions and directions. Such electronic facilities give consumers a better entire service experience starting from the booking stage to the concrete stay in the hotels, therefore leading to competitive advantage, better customer support, and better fidelity (Reichheld & Schefter, 2000).

Loyalty programs support in building financial and emotional tactics to prevent the clients from moving to other brand (Bowen et al., 2001; Cranage, 2004; Skogland et al., 2004). However issues still exist, such as the efficiency of frequent guest programs to catch the attention, preserve and build customer loyalty, and the successful management of costly information technology resources (O’Connor et al., 2004).

A positive association between customer fidelity and productivity can be seen in research done by Reichheld & Sasser, 1990 .Since the 1990s, a large amount of the main hotel chains have introduced frequent guests programs such Hyatt’s Gold Passport, Marriott’s Honored Guest, Sheraton’s Club International, Holiday Inn’s Priority Club, and Hilton’s Honours that reward regular guests with complimentary stays (Kim, Shi, & Srinivasan, 2004).

Further common loyalty programs include points, reductions, and customer association cards, which recompense customers for getting a certain amount of points or spending certain amounts at participating hotels (Noordhoff, Pauwels, & Schroder, 2004; Palmer et al., 2000). These loyalty programs have double functions. Firstly, they persuade customers to come back by offering incentives for a repurchase. Secondly, they permit hotels to track customer habit patterns, thus structuring customer databases for following marketing (Palmer et al., 2000).

Suggested by several researchers face acknowledgment and name remind help create a sense of part of the organization from the costumer side (Magnini et al., 2005). This wisdom of belonging, in turn, fosters quicker customer- property relations and leads to improved fidelity. Straightforward customer welcoming conveniences such as non-smoking rooms upon demand and flexible arrival and departure times, additionally add importance to customer loyalty (Bowen et al., 2001).

Even with these many loyalty program actions, customers still switch hotels (Cranage, 2004; Tepeci,1999). For some customers, flexibility and facilities are the most important. For others, availability and fidelity programs could turn into repeat visits. Even though, remains uncertain which components increase loyalty, as not all aspects of hotel services are equally important to particular customers (Kandampully et al., 2003).

Next we are going to be writing about the real effectiveness of the loyalty programs.

Inspired by the airlines success, most major hotel and restaurant chains have developed frequent-guest programs (e.g. Holiday Inn’s Priority Club) that reward customers for repeat business (McCleary and Weaver, 1991, 1992; Toh et al., 1991). These programs aim to enhance the customer’s sense of membership in a unique club with benefits from this membership (e.g. free hotel rooms and gifts). For the company, the goal is to thank customers for their business and show them that the company is interested in building and maintaining a relationship with them (Sparks, 1993). However, frequent-guest programs (FGP) are costly for hotel firms; initiation and maintenance of such a program requires investment, and free rooms or upgrades, newspapers, and other perks are expensive. It is estimated that hotel companies may spend about $35 million to $50 million annually for FGPs but only get in return $60 million to $80 million in revenues (Bond, 1995). Although FGPs are costly, they do work. Hilton questioned its 10,000 HHonors members and found that 19 per cent of them would not stay at a Hilton without such a membership program. Marriott also reported that its FGP members spend two-and a- half times more at Marriott than they did before joining the program (Seacord, 1996).

Frequent-guest programs provide a variety of information that can be used to segment firms’ customers and to establish relationship marketing. Customers’ needs and desires can be identified with these programs and given special attention (Sparks, 1993).

Offering FGPs tells customers they are special. Previous studies found that consumers like to interact with employees and enjoy the personal attention a representative provides (Raymond and Tanner, 1994). A loyalty program allows firms to create a relationship with their customers. Through this relationship, hospitality firms can offer products and services beyond the basics to add value to the customers by continually understanding their needs and anticipating their future desires (Connell, 1992). Previous studies that investigated whether FGPs were effective in increasing customer loyalty concluded that these programs are “too expensive to operate” and “hoteliers would be happy to drop these programs” (McCleary and Weaver, 1991, 1992; Toh et al., 1991). However, unless the industry altogether drops FGPs, the individual chains will be forced to maintain their programs to neutralize a competitor’s program. Although FGPs are expensive to maintain, McCleary and Weaver (1992) found that “business travelers who belong to FGPs were willing to pay more than non-members for a hotel room and FGP members were more likely to bring their families along to stay in the hotel” (p. 60). However, in case of competitors’ price cuts or promotions, these customers may switch to competitors.

Previous research showed that an immediate reward (e.g. discounts) might be more motivating than the delayed reward (Aaker, 1991).

One measure used to assess the achievement of a brand’s fidelity program is called “loyalty program efficiency”. This assesses the proportion of persons saying that their loyalty program affection was very important in the decision of deciding hotel for the stay. 

In the year of 2002, 32% of guests assumed that the loyalty program was an important aspect in choosing where to stay. That number has developed progressively to 37% in 2007 but has decrease in the first 9 months of 2008.  Amongst the most important chains, the most efficient programs in the hotel industry are Marriott Rewards, Hilton HHonors and the Starwood Preferred Guest program.  Starwood’s Preferred Guest has seen the largest enhancement (+6) in the past three years (2006-2008) compared to previous years (2002-2005).  Around one of each three guests at these properties states that the loyalty program membership was significant in the hotel selection for their stays.

Loyalty Program Effectiveness: 2002-2008

Company

2002

2003

2004

2005

2006

2007

2008

Marriott

37%

37%

37%

38%

38%

43%

36%

Hilton

34%

35%

36%

39%

39%

39%

34%

Starwood

29%

29%

31%

29%

39%

36%

32%

Figure 1 – Results based on average performance of all brands within each company from (Barsky,2008)

While the customer understanding of loyalty programs along with the business main concern accorded to them are both increasing, the success of this programs, and the subsequent revenue that a industry creates out of them keeps on to be an important test. Some areas that deserve special attention when running these programs: 7 out of 10 loyalty card owners have several loyalty card memberships. The problem out of this uncontrolled loyalty card and loyalty program propagation is that unexpectedly few customers know which hotels are enclosed by the frequent cards membership they hold, in that way misplacing the earn of big amounts of points, being this fact responsibility of the companies that lack on reduced communication when providing the service.

Conventionally, customer relationship management has as focal point in hospitality has always started and ended in the designation: customer satisfaction. The belief is simple: Customers will be grateful for high-quality service so much that they would not choose the opponents. In other words: Customer satisfaction in addition to quality of services means customer loyalty. 

The reality is that customer approval does not always equal customer fidelity. Even for the finest service supplier hotels there is a huge need for close and continuing relationship structure and relationship deepening movements with their key customers. 

Electronic customer relationship management (e-CRM), in the background of the sudden increase Internet allocation and promotion in hospitality, is a business approach supported by electronic techniques allowing hoteliers to connect customers in well-built, adapted and equally helpful associations, increase conversions and sell more efficiently. This means that approximately every time an Internet user gets on a hotel Web site a branding communication occurs, in that way creating either a chance, or a risk, for the hotel. This branding contact can be constructive (brand building) or negative (brand-eroding). The benefits of these programs are in a large scale: Identifies the most important customers with best lifetime value point of view, Allows guest information mining: Guest record, guest profiles, preferences. Enables up to date decisions in real time, allows quick reaction times, Offers immediate guest lifetime value, and delivers business insight to executives, marketers, and sales.

In conclusion joined with other initiatives such as service standards and client fidelity programs, this helps hotels enlarge various wide-ranging approaches in order to improve customer loyalty. To hotels, and questionably to most enterprises, improved customer loyalty raises income.

In saturated and highly competitive industries such as hospitality, the key to increasing and preserving market share is not just winning customers but keeping them. Brand loyalty is crucial in the hospitality industry because repeat business constitutes a large percentage of room and food sales. Brand loyal customers resist competitors’ price cuts and help hospitality firms maintain high occupancy rates. Since product (and service) knowledge is an important factor in the hotel selection process (Lewis et al., 1995), hoteliers should make their customers aware of their offerings. New customers will try the product based on an initial notion of perceived quality and if their trials result in satisfaction, the perceived value of the product will increase, leading to further purchases. The brand will survive and fulfill its intention if it continuously creates new ideas and attractive choices (innovation). Over time, as familiarity and expertise with the brand escalates, the customer begins to develop a sense of brand loyalty. Although building and maintaining a brand loyal customer base is vital for competitiveness in the hospitality industry, it is hard to say that hospitality managers are successful in ensuring customers return to their properties (Lewis et al., 1995). For some customers brand image may be important, for others availability or frequent-guest programs.

Offering added value features and consistently providing high quality service: Today’s customers are generally more price conscious and are on the search for a better deal. Thus they are knowledgeable of the competitors’ products and services. Therefore, the offerings should live up to their expectations. Additionally, consumers trust and confidence in hoteliers’ promises can play key roles in starting the long-term relationship between firms and customers, staying in touch with the customers, to develop customer loyalty to a hotel or restaurant brand, firms must learn their customer’s wishes and needs, and make certain that they meet or exceed their specific requirements. Hospitality firms should keep in touch with customers and provide satisfaction and reinforcement to current and past customers as well, appreciation of customers’ business and acting on what customers’ desire can contribute repeat business and word-of mouth advertisements, segmenting customers by their buying habits: Hospitality firms cannot offer a services that fits all guest requirements to their varied customer demands. Managers should determine buying behaviors across segments (e.g. business and leisure) and provide products (and services) that best match customers’ needs and wants.

Many hospitality firms enjoy widespread recognition of brand names (Lewis et al., 1995); however, because of brands’ rigid standards, hospitality companies may face difficulties in responding to changing customer demands. Therefore, building a brand-loyal customer base for a hospitality firm is not just the marketing department’s job; it requires concerted effort throughout the organization. Managers should build a system that facilitates organization-wide planning and implementation to respond to market changes. Such a system requires a mix of strategic management, marketing, motivation, innovation, training, financial techniques, customer satisfaction, and so on.

Brand loyalty is one of the most important competitive survival tools because loyal customers provide repeat business, higher market shares and profits, referrals, and competitive advantage. Loyal customers are a continuous source of income. Since keeping old customers requires much less money than acquiring new customers, and since serving old customers is significantly cheaper than serving new ones, hospitality companies that want to improve their market share and profitability must give more attention to current customers.

Loyalty programs can serve diverse objectives, such as keeping consumers, rising expenses, and gaining client insights. Therefore, each program should have his individual set of accomplishment actions depending on its planned goals. Consequently when the loyalty program is prepared, cannot only think the substance of programs, but needs also to review the present level of customer satisfaction, and review brand equity. When put together the content of the loyalty program, client fulfillment and the brand impartiality, can have the whole clarification to the success of the program. It is impracticable that only implements loyalty program with no consumer satisfaction and product impartiality in long-term attempt.

Building customer loyalty will never be an easy task for promotion managers. Customers are very vulnerable and easily switch to other brands or companies as they have a lot of options to choose. Managers should fully understand that making customers loyal to the company means not only to encourage them to make repeat purchases, but also to build customers emotional attachment to the company. The programs are able to persuade customers to repeatedly purchase the products and services, but this is not the real customer loyalty pursued. Customers make repeat purchases without having an emotional attachment and personal relationship to the companies. Most customers even belong to more than one loyalty programs membership.