The Impact of Customer Loyalty and Relationship Marketing - Research Paper Example

Customer Loyalty and Relationship Marketing LETTER OF TRANSMITTAL Dear Sir/Madam, RE: Submission of Customer Loyalty and Relationship Marketing Assignment. In accordance to the above reference, enclosed herein find my report entitled Customer Loyalty and Relationship Marketing’ (CLRM). This report is part and partial fulfilment of (Degree course_______) (HONS). The objective of this project is to understand the attributes and to study the impact of Customer Loyalty and Relationship Marketing (CLRM) Expectantly, this report meets your requisite and expectation. Thank you Executive Summary In the current times, service organizations have started shifting their focus from “transactional exchange” and many of them have adopted “relational exchange” in an aim of developing mutually satisfying firm-customer relationship. Extended relationships have a significant impact on profitability and value of transactions. There is an absolute need for hotel industry to be customer-centric and to focus on the needs of clients and duly fulfil those needs. Customer Loyalty and Relationship Marketing (CLRM) focuses on attracting, maintaining and enhancing customer relationships that are profitable and long term. The prevailing social socio-economic changes in Australia has witnessed that there are increasing demand towards the hotel and service industry. As a highly involving service and a capital incentive sector, hotel industry needs a long lasting relationship with clients. This will assist to achieve customer retention and the institution will build up a repeat business and attract new clientele through them. The objective of this study is examining the Relationship Marketing approach and the relative significance on developing Customer Loyalty (CL) in this industry. The study reveals that though all dimensions of Relationship Management and essential to the hotel and service sector the most salient factor developing loyal customer are “service quality” and promoting positive word of mouth communication. The results of this study direct that the management of hotel and service industry has to emphasize on service quality. The management should also train internal staff in a manner that increases their quality in service delivering towards clients. Table of Contents 1.0 Introduction 3 1.1 Background Information 4 1.2 Aims 5 1.3 Scope 6 2.1 Literature-based Evidence 6 2.1.1 Managing Value through Loyalty Programs 9 2.1.2 Customer Benefits and Sacrifices in the Value Equation 9 2.1.3 Benefit of retaining clients 10 2.2 Survey Findings 10 2.2.1 Customer Loyalty Surveys: Analysis 11 2.3 Existing Loyalty and Relationship Marketing Programs 12 2.3.1 Point program 13 3.0 Conclusion 13 4.0 Recommendation 15 5.0 References 16 1.0 Introduction Chen and Popovich (2003) states that there has been increased interest in Customer Loyalty and Relationship Marketing (CLRM). In reference to Chen and Popovich, such strong rivalry characterizes the modern day business environment has resulted to building a firm relationship between the firm and clients. In accordance to Boshoff and Allen (2000), this phenomenon is described by this concept has been strongly supported by the ongoing trends in the contemporary business. In keeping with Chan and Ndubisi (2004), firms are increasingly capitalizing on strong firm-customer relationship. In reference to Chan and Ndumbisi (2004), this is assisting the firms to achieve invaluable information on the best way to offer their services. It also keeps the clients from defecting to other competing brands. Hence, Customer Loyalty and Relationship building creates mutual reward that benefit both the firm and the customer. In building relationship with the consumer, an organization gains quality sources of marketing intelligence for improved planning on marketing strategy (Gefen, 2002; Lampton, 2003). Therefore, it is essential to empirically examine the exact impact on the underpinnings of Customer Loyalty and Relationship Marketing. Such understand help in better management of the relationship between the customer and the business and in achieving high levels of customer loyalty (Lindgreen et al. 2004; Rowley & Dawes, 2002). This work contributes as a guide to a luxurious hotel. It gives the hotel valuable information on the expectations of the clients which if duly met then there shall be not occurrence of service gaps. The paper gives scope for service oriented business to improve their overall quality in services and strengthen its position in the industry. 1.1 Background Information Customer Loyalty and Relations Management can be termed as customer’s adherence to an establishment (Buttle, 2004). In reference to Buttle, Loyal customers do not leave an even when the business makes mistakes. With the current global recession and financial crisis, changes in customer preferences have been observed there has been a decline in family income and increased unemployment. With such global changes, customer loyalty has changed with recession. The hotel wants to start a program that will enhance customer loyalty and retain the already existing customers. One of the most indispensable elements of CLRM of a Luxurious hotel is communication of outcome to the marketing manager and the organizations sales force, the members of CLRM and any other employee who interact with customers. As a marketing manager delivering this study to the Chief Executive Officer, I submit a profound analysis on various CLRM programs that can be implemented and the most valuable way of Customer loyalty that can boost profitability. 1.2 Aims The main aim of this study is to show how service quality for Customer Loyalty and Relationship Marketing (CLRM) is essential for business' growth and survival. In reference to Gronroos (2001), interest in service quality has attracted substantial attention from many practitioners and researchers. Service quality can be defined as a form of attitude that represents a long lived, overall evaluation. It differs from customer satisfaction which focuses on short term and which gives each transaction a specific judgment. According to Looy, Gemmel and Dierdonck (2003), the level of customer satisfaction results from customer comparison of service quality expected in a certain service encounter with perceived service quality. CLRM is a key business strategy that integrates external networks and internal functions and processes to deliver value to targeted clients at a profit. CLRM is a business strategy that helps to identify, cultivate and maintain a profitable customer relation that is long term. 1.3 Scope This study focuses exclusively on CLRM in hotel management. It analysis two distinct ways of viewing customer loyalty i.e. attitude, this is the varying feelings that create an individual's entire attachment to an organization, product or a service. Such feelings are defined purely on cognitive degree of customer's loyalty. The other way is the behavioral view of clients' loyalty it refers to client’s behavior to repeated purchases. 2.1 Literature-based Evidence Hotel industry is a global industry and it has its producers and clients spread worldwide. The use of hotel facilities i.e. the restaurants, rooms, nightclubs, bars and health club have seized to be considered as luxurious. According to McDonald (2002), such services have turned to be an integral component of lifestyle. A major challenge that has faced the industry is the ever growing competition. Reinartz and Kamar (2003) analysis this competition to have great implications for the customer, this has result to increased great value for money, provision of increased choice and augmented level of service. It has become imperative for the hotel to gain a competitive edge and there are two strategies that are mostly used by the hotel managers to gain this advantage (Reinartz and Kamar, 2003; Boshoff & Allan, 2000). The first is the low cost leadership, this comes through price discounting and the second is development of customer loyalty which is gained through provision of unique incentives to clients. Boshoff & Allan (2000) state that those hotel that try to improve their market share through provision discounted prices run the risk of negative impact on the hotels long-term profitability. Consequently, it is the quality of those services but not the services has become essential to a hotel's ability to distinguish itself from the competitors and to win customer loyalty. According to studies, it is important for the hotel industry to develop customer loyalty rather than depending solely on pricing strategies. Chan and Ndubisi (2004) indicate that, many people perceive customer loyalty to be a repeat purchase behavior by the clients. However, customer loyalty is the likelihood of a customer to return and their voluntary shipping of activities for the establishment. Partnership activity entail the will from the customer to spend more while using the hotel services , to give positive referrals to others and the willingness to inform the management when any problem occur (Reinartz and Kamar, 2003; Boshoff & Allan, 2000). There are two critical factors for loyalty to grow. The first factor entails consumer emotional attachment towards a certain service or product, while the second is the clients' repeat purchases. Customer loyalty is based on two dimensions i.e. the degree of repurchase which is behavioral and the degree of attachment which relies on clients attitude. In this industry CLRM is more than a practice that is used to collect guest-centric data. CLRM is an art that involve using historical, experiential, and personal information to personalize hotel guest's stay while simultaneously generating incremental revenue opportunities. Example, when one knows that a traveller is a fan of sports, this will create an opportunity of marketing tickets to a game. On realizing the guest do not have a memorable experience in the hotel creates a chance to win such clients back next time they visit the town. With up to date offerings in CLRM, the marketing manager can develop a comprehensive profile for guests from the reservation information. This can help him to demonstrate to the guests that the facility is in touch with their requirements, allow the employees to deliver increased value to the guests, allow the establishment to create guest-centric marketing, and to generate a realistic spending profile and stay patterns of its guests (Reinartz and Kamar, 2003; Boshoff & Allan, 2000). The shift in CLRM landscape requires the hotel to be advanced and to advance with technology; this will allow managing client’s relationships. The hotel must consider carefully how it tracks, stores, and analyze all aspects of its relationship with the customer. 2.1.1 Managing Value through Loyalty Programs This study shows how value perception of CLRM program relative effect of point and reward program vary depending on the degree of involvement. The research indicates that under high involvement customer participates more actively in search for information. This information given the type of program that is more rewarding if implemented because of it high degree of relevance and value. It results that consumers are likely to purchase services and products with direct rewards and those that are related to value proposition of a product than to the indirect rewards. 2.1.2 Customer Benefits and Sacrifices in the Value Equation Customer value (CV) = Perceived benefits (PB) – perceived sacrifice (PS) this can also be rewritten as; the gain which in this case is the acquisition of products and/or services should outweigh pain of acquisition that is; pain of obtaining the product/ service, cost, uncertainty about taking the right choice, and cost of making the wrong decision. There are a number of identifiable parameters such as; meeting and exceeding clients expectations ( not only on prices) Provision of quality environment that provides a feeling of value and comfort to the customer. It is paramount for any business to match the values and belief of their customer and to reflect them in their product range, promotions and advertisements surrounding such service and product. 2.1.3 Benefit of retaining clients During the contemporary times, challenging economy and competitive world of business, customer base retention is critical for the hotels success. If a marketing manager fails to provide good reason why the customer should repeat purchase then the competitor will make them get the reason to leave. Customer satisfaction and retention increase profits and it are much less expensive to retain the existing customer base and increase on services to them than to find new single transaction clients. Many survey findings across the hotel industry shows that keeping a single existing customer is more than five times more profitable that attracting a new customer. 2.2 Survey Findings The purpose of the survey is to evaluate overall customer experience in the hotel. To assess the current customer satisfaction level so that the management can know the hotels performance. The survey also avoided questions that pertain to performance of a specific service feature. However it concentrates on how the clients perceive the hotels performance and how specific needs have been met through provision of the already available products and services. This outstanding customer service survey has been comprehensively designed to identify and to determine the key independent and dependent variables. Independent Variables Dependent Variables Professionalism Customer loyalty Competitive pricing Likelihood to repurchase Timeliness of delivery Likelihood to recommend Customer service Overall satisfaction 2.2.1 Customer Loyalty Surveys: Analysis A test was conducted with 10 travellers. It has been noted that it is rather hard to manipulate participation for an individual traveller and so we chose customer involvement based on the type of products and the available categories. Their assessments with various product categories was also considered with 5 point scale as; essential/ not essential, relevant/ irrelevant, valuable/worthless, boring/exiting, vital/ superfluous. According to the result, two categories of products and services were taken to consideration and a major experiment was done on the types program to implement. The findings in the survey indicates that modern customer in the hotel industry are gather information intensively. Advertising have been observed as one of the most powerful source of information for potential clients. Reportedly, customers venture into a variety of channels as they search for products hence adopting a single program of customer loyalty can deliver disappointing results. The customer loyalty survey probed that the customers need to feel that the products are specifically made for them. 2.3 Existing Loyalty and Relationship Marketing Programs In reference to (Boshoff & Allan, 2000), Customer Loyalty and Relationship Marketing (CLRM) programs are structured marketing strategies that encourage loyal behavior through rewards. It is a scheme where loyal clients are rewarded for sequential patronages. Reinartz and Kamar (2003) states that loyalty program as any other marketing program is designed in boost the life time value of available clients through a long-term interactive relationship. Many companies have both internal and external partners that help in providing a wide range of rewards which are appealing to the desires and taste of the clients. There are several types of loyalty programs; Information and advice program Service program Discount program Access program Community program and point program. Service program deals with provision of special service as the point of differentiation like the VIP services. The program of information and advice helps to give product experience. The community programs help the clients to interact with one another while discount programs issue discounts to members. Access program provides an establishment's clients with an avenue of exclusive events. 2.3.1 Point program In this program a customer gets points upon purchasing of products and services and attains a reward after accumulating some point. According to Butscher (2002), it is important to understand the final issue in regard to the program. The key reason why the program can be terminated could be failure to control the cost. For this reason point program should meet client’s expectations and should be cost efficient for the hotel. In references to (Yin, 2002; Boshoff & Allan, 2000), the combination of the five elements should determine the value of a loyalty program. 3.0 Conclusion Customer Loyalty and Relationship Management is a hard task for marketing managers. Clients are extremely vulnerable and easy to migrate to other establishments as they have ample choices availed. In this connection, managers should amply understand that making clients loyal involves encouraging them to use the hotel service repeatedly and building their emotional attachment to the establishment. In order to successfully win the loyalty of the customer, loyalty programs should be planned and implemented with care (Reinartz and Kamar, 2003; Boshoff & Allan, 2000). Result from this meta-analysis indicates that other studies states that loyalty programs have no significant effect on building clients loyalty. These programs persuade clients to repeatedly use the services and the products of the hotel, but it is not a real pursued of customer loyalty. Clients can make repeat attendance without having any emotional attachment or a personal relationship with the company’s management or attendants. Most customers get involved in membership of more than one loyalty program. They become loyal to the program as they attempt to redeem their financial benefits. According to the findings there are two factors that affect the effectiveness of loyalty program when building customer loyalty especially in the hotel industry. The involvement of the customer with the production. The degree of involvement in purchasing hotel products is exceedingly high. For such high-involvement goods and services it is the company and not the incentive that counts as the primary reward. The other factor is the characteristic of the targeted group. Various target groups react differently towards the benefits and programs availed. It is therefore recommended that managers should creatively design the most suitable benefits. This depends upon the targeted group of clients. Conclusively, although the study herein is carried out under some setbacks and does not wholly give solution to the underlying problems, it has achieved the objective of the study. This study has attempted to provide significant information to marketing managers in offering loyalty programs that are more effective specifically to the hotel industry. The study also provides recommendations for future research on aspects of culture and types of royalty program membership. 4.0 Recommendation According to the meta-analysis study, most of the programs available offer similar benefits for the clients. There are no variations among loyalty programs in different companies. In that case, the marketing manager should offer soft benefits instead of just rewarding financial benefits to the clients. Soft benefits are believed to provide extra ordinary benefits for the clients like the value added services, personal reward, and special treatment which enable building individual relationship between the business and its clients. This is intensive in the hospitality industry where customer and company interaction is more intensive. Individual consumer re cognition is extremely important to build. Secondly, the level in consumer involvement with the product influences the client’s response towards loyalty programs. It is therefore recommended that the management should think carefully about the contribution of this prospect as well. When planning loyalty programs in the hotel, the manager should be acknowledge that consumer involvement in purchasing the products and services is relatively high. The manager should also consider psychological factors like perception, beliefs and trust, as well as rational factors like, risks, value of money that certainly influence clients decisions. The manager should understand that mere financial incentives to clients and making them loyal to the business might end up being inappropriate. Finally, to make loyalty program to influence client’s loyalty significantly, it is critical to understand to group being targeted. This is because different groups respond differently towards loyalty program and the impact towards the company. In is then critical for the managers to design the most suitable benefits depending on which customer they are targeting. For instance, if the manager is planning to build a loyalty of high income business travellers, a loyalty offering financial benefits cannot be effective. Contrary, if the target is the middle class, there should be frequent programs with discounts and benefits of free purchasing. However, there should be need for additional benefits to avoid creating spurious loyalty. 5.0 References Boshoff, G. & Allen, K. (2000), “Influences of selected antecedents on perception of service recovery performance by staffs”, Journal of Hotel Service Industry Management, 11(1) Buttle, F. (2004), Customer Relationship Management: concepts and tools, Oxford: Elsevier Butterworth-HeinemannCaruana, Chan, K. & Ndubisi, O. (2004). Building customer loyalty in the digital age through relationship marketing (RM) and the mediation effect of trust. International Conference on Operations and Quantitative Management, Seoul, SouthKorea, Korea, pp. 293-302. Chen, H. & Popovich, G. (2003). Understanding customer relationship management (CRM). Business Process Management Journal, vol. 9(5), pp. 670-680 Geffen, B. (2002), “Customer loyalty in hotel industry”, Journal of the Association for Communication and Information Systems, (3), 27-51. Gronroos, F. (2001), Service Marketing and Management, 2nd Ed, Chichester: John Lampton, G. (2003), “Paragon of Customer Service Excellence - The Ritz-Carlton Hotel PART I”, available at http://www.expertmagazine.com/EMOnline/RC/part1.htm,Retrived on 24th April 2012 Lindgreen, A., Palmer, R. and Vanhamme, G. (2004). Contemporary marketing practice: theoretical propositions & practical implications, Marketing Intelligence & Planning, Vol. 22 No. 6, pp. 673-92. Looy, B., Gemmel, L. & Dierdonck, V. (2003), “Customer Loyalty and Services Management”, 2nd Ed, Essex: Pearson Education Ltd McDonald, F. (2002), “Customer Relationship Management Retrieved from http://www.brillianceweb.com/betterwebdesign/tips_48.aspx, Rowley, H., & Dawes, M. (2000). Disloyalty: A closer look at non-loyals. Journal of Consumer Marketing. 530-550. Ruyter, K. & Wetzels, N. (2000), “Customer equity considerations in service recovery: A cross- industry perspective”, Journal of Service Industry Management, 11(1), pg 91-108 Vargas, M. (2006), “The value of privacy”, Retrieved from http://retailindustry.about.com/od/crm_privacy/a/loyalty2privacy.htm, Yin, K. (2002), “Case Study Research, Design and Methods”, 3rd ed. Newbury Park: Sage Publications. Read More