Customer Loyalty in the Hospitality Industry - Literature review Example

Loyalty in the Hospitality Industry Raed Albustami Wilmington 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 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, 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 the some hospitality industry players to fulfill this need. There however is however 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 The ability to create or stimulate loyalty in customers is very valuable. However, to examine how loyalty marketing may be of value, it is necessary to define the concept of loyalty, as this is a fuzzy concept. Oliver (1997) gives a good definition, stating loyalty is “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 a 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. Assael (1992) also argues that buying behaviour alone, such as continuing purchases is not a sufficient measure of loyalty. The consumer may change their mind and shift to another product when it becomes available or just change their preference. In this respect, it is not sufficient to look at buying behaviour or attitudinal measures when defining and observing loyalty. This is the case considering that satisfaction is also not leading or indicative of loyalty, although it may be argued that it is needed to create loyalty. When looking at loyalty, there is also the need to consider how it may be measured. For example, it may be defined by the number of purchases. However, this measure increases the potential for variants due to the different types of travellers and customers that exist in the market. In general, loyalty may be defined in terms of the proportion of purchases to a particular supplier and/or the attitude. It may be measured by asking the following questions: does the purchase look elsewhere and /or do they actively prefer the brand or supplier with the coalition loyalty scheme? The loyalty of the primary customers, those that entered the loyalty scheme through the supplier, and the secondary customers, those that entered the scheme through a strategic partner and have started to use the service, may be measured to assess the value of the coalition marketing programs. 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, and/or points redemptions (Parise and Casher, 2003). This model has been increasingly seen and may be referred to as the coalition model. The definition of this is that it is a model where a loyalty program is created so that a number of different firms work together, giving rewards that can be accumulated from a number of different suppliers. Therefore, the coalition model is a strategic alliance between more than one supplier of services. 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 system 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 that 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 program 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. References Aasael (1992), Consumer Behaviour and Marketing Action, Boston, PWS-Kent. Cigiliano, J., Georgiadis, M., & Pleasance, D. (2000) “The price of loyalty”, The McKinsey Quarterly, No. 4. Disney, John, (1999) “Customer satisfaction and loyalty: the critical elements of service quality”, Total Quality Management (1999): S491. Driver, J. C. (1999). “Developments in airline marketing practice”, Journal of Marketing Practice: Applied Marketing Science, 5 (5), 134-150. Duffy D, (1998) “Customer loyalty strategies”, Journal of Consumer Marketing, Vol. 15, No. 5, p435-448. Fudenberg, D. & Tirole, J. (2000), Customer Poaching and Brand Switching. RAND Journal of Economics, Vol. 31, p. 634-657. Gallacher, J. (August, 1999) “Playing your cards right”, Airline Business, p46-50. Malhotra, K., Agarwal J. & Ndubisi N. (2010) “What are your customers saying about you?” Marketing Research: A Magazine of Management & Applications 22.4. Oliver R L, (1992) “Whence Customer Loyalty”, Journal of Marketing, Vol. 63, Issue 4, pp 33 – 45 O’Malley L, (1998) “Can Loyalty schemes really build loyalty”, Journal of Marketing Intelligence and Planning, Vol. 16, No. 1 p47-55. Parise, S. & Casher, A (2003) “Alliance Portfolios: Designing and managing your network of business-partner relationships”, Academy of Management Executive, Vol. 17, No. 4 Retail week, (2002) “Loyalty - Keep them sweet”, Retail Week, 13. Robles, Gabriela; Leyva Adolfo, (2011) “Analysis of attributes creating customer value and loyalty in hospitality industry”, International Journal of Leisure and Tourism Marketing 2.2 (2011): p111. Shelton, E. (2001) “CRM - Information at your fingertips”, Retail Week, p18. Taylor, C.R. (2003) “Supplier Surfing: Competition and Consumer Behavior in Subscription Markets”, RAND Journal of Economics, Vol. 34, pp. 223-246. Read More