Loyalty Marketing in the Hospitality Industry - Research Paper Example

?Running Head: LOYALTY MARKETING IN THE HOSPITALITY INDUSTRY Loyalty Marketing in the Hospitality Industry Research Brief Literature Review The Research Question and Importance of the Study It has been noted that the hospitality industry is highly competitive, with the need for firms to keep existing customers in order to gain repeat business, while attracting new customers. In spite of the amount of information regarding the hospitality industry and customer loyalty, very little has been done to establish a connection between the two. This study specifically attempts to establish the impact of a coalition-model program on customer loyalty in the hotel industry. The hospitality industry is a major industry in many economies across the world. In fact, it contributes a very significant share to national and local economies of different countries. The industry’s performance is however often impacted by numerous factors including political and social forces. Different players in the hospitality industry need to make new customers, while at the same time, maintaining current customers. The application of loyalty schemes is one means used by some hospitality industry players to fulfill this need. There however is little evidence to show the impact of these schemes on the performance of hospitality industry businesses. The results of this study will provide light into the nature of the hospitality industry and the impact of loyalty programs thereupon. Based on the results of this study, organization in the industry and even beyond may establish better ways to attract loyalty considering various factors. Customer Loyalty and how it is Measured “a deeply held commitment to rebuy or repatronize a preferred product/service consistently in the future thereby causing repetitive same brand or same brand set purchasing, despite situational influences and marketing efforts having the potential to cause switching behaviour” (Oliver, 1997; 392). Within this there are subjective aspects, for example, the purchase of a hotel room by a business traveller compared to a leisure traveller will have a very different level of frequency and as such, loyalty may not be measured by frequency of purchase in some goods and services. Therefore the measures of loyalty are variant depending not only on the type of product but also on the type of customer. Oliver (1997) takes the idea of loyalty and explains it further, arguing that loyalty occurs when a customer re-buys the product or services whatever the cost of re-buying that product or service, for this to occur the value of the product or service, which can include the loyalty scheme, must be perceived as giving better value than the competing products or substitutes (Oliver, 1997, Duffy, 1998). This loyalty will make the customer unreachable to the competitors, making their marketing efforts ineffective on the customer who is loyal to a competitor. O’Malley (1998) argues that there is a difference between repeat or consistent purchases and loyalty. Repeat or consistent purchases may be the result of convenience or coincidence. As such, it may be the best choice but not the preferred item; if the preferred item is not available, it may be the easiest to buy, the cheapest, or any other convenience factor. When defining loyalty using this narrow perspective, it must be noted that there will only be a few consumers who could be classified as 100% loyal (O’Malley, 1998). However, there is also the concept of polygamous loyalty, meaning that customers may not buy only one brand, but may be loyal to only a few brands in that product or service range (O’Malley, 1998). Robles and Leyva (2011) consider the way that the purchase decision is made, noting that each time a purchase is made there will be consideration of potential suppliers, where there is loyalty there will be a narrower supplier search, or a potential absence of a supplier search with a predefined decision. This is seen in the way that purchases are made with preferences given to hotel brands. Initial attraction and then loyalty is impacted by a number of factors in the hospitality industry. Word of mouth is a powerful tool, especially when it comes to attracting customers who either do not have a loyalty, or those who are not completely satisfied with their preferred brand. It is also noted that loyalty schemes will have an impact on decisions, with customers looking for value. Robles and Leyva (2011) note that with hotels there is often a pattern of multiple loyalties, with the decisions based on not only brand, but also location and cost and, for frequent users, the loyalty schemes do appear to have an impact. Taylor (2003) looks at loyalty and refers to the use of ‘duopoly’ where consumers are likely to have loyalty to two different suppliers. Fudenberg and Tirole (2000) also refer to a duopoly and apply this directly to the hotel industry. They also note that where a customer’s needs and the supplier’s service remain the same, assuming full information on the part of the customer, there is no need for a customer to make a switch. Switching takes place where there are incentives, changes in needs or perception, and changes in offerings (Fudenberg and Tirole, 2000). With the way in which loyalty programs have developed, it may be argued that the coalition model or the model of strategic alliances is a fairly recent addition, being leveraged to offer consumers more than in traditional models and attract customers. These alliances may be seen in terms of points collection or points redemptions (Parise and Casher, 2003). Using these definitions it is necessary to consider the way that they may be operationalized and assess the way that they may be measured. Coalition models of loyalty marketing are defined as those reward systems where there is more than a single firm giving the rewards for loyalty. The impact of these on loyalty may be measured against non-coalition models as well as loyalty in firms that do not offer loyalty schemes. Strategic Alliances and Loyalty Hertz and Mattson, (2004) have looked specifically at the role of strategic alliances and networking theory in the development and use of loyalty programs arguing that it can have a high degree of commercial success. Hertz and Mattson further argue that companies participating in loyalty schemes have a greater potential to attract a larger number of “members” compared to singular loyalty schemes. This is so since the members see it as easier to both collect and redeem the rewards that they gain (Retail Week, 2002). Shelton notes that strategic alliances also allow the firms to increase the size of their database that can be used for marketing due to the combining of customers, creating another source of value in the coalition model. Yet again, when the retailers work together, they have the potential of offering more than would be the case individually (Cigliano et al, 2000). One area which has seen strategic alliances for many years is the airlines. It may be argued that this was a natural development, due to the practice of code sharing, the airlines were already in a strategic alliance, so a coalition loyalty program was simply an extension of existing linkages. By working together there has been increased ability to keep the customers within the group of airlines, and customers have benefited from features such as the transfer of status recognition for those who have gained a status due to a high level of usage. Driver (1999) argues that this has become increasing important and the loyalty schemes themselves each become less distinct, and Gallacher (1999) argues that the use of the strategic alliance helps to differentiate between the different airline loyalty programs. This has spread to the hotel industry, as seen with Marriott Rewards as well as the IHG group with the Priority club membership. The aim may be to increase loyalty by offering the customer more value. There is also the potential that the partners may gain more customers from the strategic partners, attracting business from customers seeking the rewards for loyalty. It may be argued that there is some internal coalition taking place. For example the IHG has a number of different brands, including, but not limited to Holiday Inn, Holiday Inn Express, Indigo and Crown Plaza, all take part in the same program, and all target different market segments (Priority Club, 2011). However, it is also possible to collect points elsewhere, such as with car hire firms, airlines and through a wide range of online retailers (Priority Club, 2011). Likewise, the rewards may be redeemed in a number of ways, including nights in hotels and the purchase of gift vouchers. Loyalty and Customer Satisfaction Malhotra (et al, 2010) notes that where customers are satisfied, they will come back. In the hospitality industry there may be a focus on experiences as opposed to other factors that lead to satisfaction and loyalty. However, where loyalty schemes are present and there are generally homogenous services, loyalty schemes may be seen as providing a new source of potential satisfaction. The different partners used may help to increase that satisfaction. For example UK’s supermarket Tesco, which has a fairly limited scheme, had majority of its life points only collectable by shopping at Tesco but offered a wide array of ways in which the points could be redeemed for vouchers. The vouchers could be used against a large number of different retailers, from restaurants and hotels though to theme parks, airlines, holiday companies, florists and furniture stores just to mention a few. The flexibility of the rewards has been argued as one of the key successes of the Tesco loyalty scheme in gaining and retaining customers (Disney, 1999). This can be compared with other schemes for the other two leading supermarkets in the UK with which Tesco was competing, such as the Asda scheme which was singular and subsequently was withdrawn, and the Sainsbury Nectar Scheme which adopted the coalition model after Sainsbury tried to operate an isolated model. These cases from elsewhere and the evidence for general as well as specific research into areas such as airlines all indicate the value of strategic alliances in loyalty schemes. However, not all firms take this approach and may remain isolated. For example, Starbucks is a singular scheme, so one has to consider whether or not the model is one that can lead to success or if it is the way individual firms use them. Plan for Expanding Search The impact of loyalty programs on hospitality industry players is a subject that demands a lot of study. Having defined loyalty and how it may be measured, what needs to be done is establish the nature of the hospitality industry. This will include the different customers that are served by industry players, their demands and what constitutes their satisfaction and what promotes their loyalty to particular service providers. In gathering information for the literature review, various sources will be consulted including journals, books, reputable websites, magazines, newspapers and other publications that may provide credible material. Furthermore, a literature review of statistical data collection and analysis will be conducted with a view of establishing which methods and models may be applied in the collection and analysis of data. The Hospitality Industry The hospitality industry comprises several fields that relate to the service industry. The industry includes services such as event planning, transportation, cruise line, restaurants and lodgings. The multi-billion dollar industry thrives mainly on the availability of time that can be spent on leisure and the availability of cash that may be freely spent. One entity in the hospitality industry can offer numerous services. For example, an amusement park may offer drinks and food as well as providing opportunities for play. The industry has several sectors including meeting and events, gaming, tourist services and accommodation. Although tourist locals benefit from services offered by the hospitality industry in their areas of residence, tourists play an important part in its success and growth. This is because tourists normally have a lot of disposable income to spend as compared to locals who may go for the services mainly for convenience and to spend short durations of leisure. Being a fast growing and very competitive industry, customers are always a treasure and their maintenance a task beyond ignoring. Many players in the industry seek to outdo competitors so as to maintain customers and to attract new customers who eventually form their client base. Customer Satisfaction in the Hospitality Industry It is always philosophically stated that the customer is king. The customer-king in today’s age is quite demanding in so far as expectations are concerned. In every industry, including the hospitality industry, one of the important factors that impact satisfaction is human interaction (Holjevac, nd). The customer’s unique experience with a particular service provider hence impacts greatly on the level of satisfaction that the former will get. This however is not limited to the individual service provider but the entire team that the customer gets to meet and interact with. Apart from human relations, customers derive satisfaction by getting in touch with the aesthetics of a place. Better stated, when a place is unkempt and in a state of disorder, the customer is most likely to experience less satisfaction than when they have an experience in a place that is in order with a lot of beautiful things to see around. The core service that an organization offers plays a very significant role in determining the level of customer satisfaction. When, for example, a hotel offers a customer food that is not cooked to a customer’s specification, the level of satisfaction is bound to remain low. Very closely linked with satisfaction is loyalty. Satisfied customers, it may be confidently stated, make loyal clients (Holjevac, nd). Apart from the level in offering core services, loyalty and satisfaction may be gotten by providing exceptional secondary services. Methods and Methodology There are two main types of data in research work, these being primary and secondary data. Secondary data is the information that is retrieved from sources that have been collected by a party other than the one using it (David and Notz, 2009). Primary data, being the exact converse of the former, relates to data directly drawn from the field by the party who uses it. In seeking to establish the relationship between customer loyalty in the hospitality industry, both primary and secondary data may be used. Secondary data may be drawn from books, journals and websites among other sources (David and Notz, 2009), their credibility being a factor of consideration. However, secondary data may be outdated in some cases, which then ultimately warrants the search for primary data which is normally assumed to reflect the state of the field as it is currently. Primary research may be gotten by conducting surveys, or by experimentation. In the case of the hospitality industry, the most applicable method of getting data is by carrying out a survey. The survey may be conducted by issuing mailed personal questionnaires, performing personal or telephone interviews or by sending questionnaires to the respondents by post. Yet again, surveys may comfortably and conveniently be done online. This study will involve a survey of the field through the use of personal questionnaires. Mailed personal questionnaires are applicable where the postage costs far outweigh the cost of conducting the survey by visiting the site (David and Notz, 2009). In many cases, research involves the consideration of huge populations. This being the case, samples are often applicable in determining the characteristics of the population under study, albeit with some assumptions. Samples are easier to deal with in terms of cost, convenience and ease of analysis. Once data from the field has been collected, it may be analysed descriptively or inferentially. Descriptive statistics include the mean, mode, median and other measures of central tendency. Inferential statistics on the other hand include hypothesis testing, regression analysis and correlation analysis (David and Notz, 2009). 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