Evaluating Hotel Reward Programs and Working Towards Improving Them - Coursework Example

HERE HERE YOUR HERE HERE Evaluating hotel reward programs and working toward improving them INTRODUCTION The hotel industry is a very competitive industry with many hotels around the world operating in saturated competitive markets. In this situation, the switching costs for consumers to defect from one hotel to another are quite low when consumers are offered more options, disparate pricing structures, and different amenities provided by the hotel firms. As a result, many hotels implement loyalty programs, structured marketing campaigns that offer consumer patrons rewards for illustrating loyal buying behaviours. Some of the most common rewards in these hotel loyalty programs include points accumulations associated with bookings that can be redeemed for discounts, future stays at the hotel, or even certain prizes made available by the hotel firm. Other programs maintain opportunities for consumers to accumulate airline miles or even the ability to upgrade their accommodations to a more lavish room in the future. Whilst the implementation of hotel rewards programs would appear to be a significant incentive for consumers to develop loyalty toward the issuing hotel, it has been criticised that these programs are ineffective, long-term, toward increasing hotel profitability and establishing a loyal consumer base. Several studies have found that genuine consumer loyalty is achieved by establishment of absolute customer satisfaction (Taylor, Celuch and Goodwin 220; Mittal and Lassar 177). In this context, loyalty is theoretically determined by illustrating superior service quality and perceived trust in the hotel. Therefore, the purpose of this literature review is to explore the dynamics of hotel reward programs to determine whether the points accumulation scheme, tiered loyalty programs, upgrade opportunities and airline miles are sufficient in establishing legitimate customer loyalty. Can these incentives be sufficient enough to create recurring purchase commitment and, if not, what can be done to improve them? The literature supports that service quality related to the loyalty program would be more important for hotels to emphasise, to provide tiered program members more equity between the higher-level and lower-level tier members, and structure the program so that consumers can perceive rapid and more valuable rewards. EVALUATING THE THEORETICAL BENEFITS OF HOTEL LOYALTY PROGRAMS It is believed that loyalty programs give consumers a perceived sense of ownership of the firm and the impression of belongingness at the firm (Hart, Smith, Sparks and Tzokas 542), hence having potent psychological impact which theoretically drives more loyalty. Utilising a case study methodology of five disparate loyalty programs, the aforementioned study found that relational factors (i.e. service quality and engagement) were more effective in creating consumer loyalty as compared to the loyalty programs. These findings were consistent with Taylor, et al. who found that service quality was a primary predictor of satisfaction which, in turn, leads to consumer loyalty; not the incentives offered by a rewards program. A study, utilising a case study methodology that collected both quantitative and qualitative data from five different hotels, found that service quality perceptions directly impacted future purchasing intention toward the hotel (Ekinci, Dawes and Massey 64). Yet another study utilising a questionnaire that targeted 540 participants and employing a factor analysis technique discovered that hotel patrons’ likelihood to make future purchases at a hotel was reliant on perceived service quality (Choi and Chu 288). Hence, there is significant evidence that perceived service quality is more important than rewards stemming from loyalty programs at hotels in predicting genuine customer loyalty construction. This is a consistent theme in empirical studies measuring the constructs of hotel consumer loyalty and the role of perceived service quality in comparison to the literature focusing on the effectiveness of hotel loyalty programs. There is a gap in research literature, however, about the role of service engagement (and quality) supplementing a loyalty program. Hence, there is not beneficial research illustrating how rewards methodologies should or should not be supported by superior service emphasis as a means of fostering loyalty at the hotel issuing a loyalty program. Despite this gap, a subjective evaluation is that a loyalty program should theoretically include some dimension of enhancing quality of customer engagement as a means to enhance the potential effectiveness of a hotel loyalty program is a hotel firm desires to create genuine consumer loyalties. One study which explores the potential drivers of customer loyalty in the hospitality industry based on secondary evaluation of established marketing and consumer behaviour models, asserted that the interpersonal communications between hotel staff and customer was fundamental to the success of hotel loyalty programs (Shoemaker and Lewis 356). In another study, 1080 participants were surveyed to determine what aspects of service were most important for satisfying customers. The study found, using a linear regression analysis technique, that empathic attitudes of staff were critical to building satisfaction (Najafi, Saati, Bighami and Abdi 3024). Hence, the study by Shoemaker and Lewis as well as Najafi, et al. illustrate that service dimensions and interpersonal engagement quality are critical dynamics over that of hotel loyalty programs. These studies provide evidence that to theoretically improve a hotel loyalty program, there should be an emphasis on enhancing service quality engagement rather than relying on the rewards, themselves, to build legitimate customer loyalty. From a different perspective, it should be recognised that many hotels have tiered loyalty programs that group customers into specific segments associated with their purchasing volumes. One U.S. hotel, The Las Vegas Bellagio, offers three tiers: Gold, Platinum and Pearl which offer higher rewards for those consumers who reach Pearl status (Grieves 1); a type of price discrimination. The intention of tiered loyalty programs is to entice consumers to frequent the hotel and increase their expenditures to achieve superior rewards. However, one empirical study utilising an experimental design with a sample of 101 university students found that consumer satisfaction was reduced as a result of offering disparate discounts to different consumers under equity theory which states that perceptions of fairness are increased when the same benefits are offered to everyone (Darke and Dahl 330). When recruited participants learned that other customers had been offered a superior bargain, it negatively impacted satisfaction which is theoretically understood as being a predictor of the development of customer loyalty. It should also be recognised that consumer repurchase intentions are driven by emotions (Barsky and Nash 39). Utilising a secondary research methodology, exploring various respected models of human psychology, the researchers identify that when an individual believes they are better than others (from a social perspective), it produces positive psychological outcomes inclusive of self-esteem and general mental well-being (Suls, Martin and Wheeler 161). Perhaps this theoretically explains why higher-resource consumers that maintain membership in top tier loyalty programs have higher levels of loyalty than lower-tier members. Several studies have found that customers who maintain a higher tier status are more loyal because it creates perceptions of exclusivity which, in turn, enhances self-esteem and makes them feel special (Anderson 118; Dreze and Nunes 902). The study by Dreze and Nunes utilised a sample of 49 executive business students who were told they were in the top one percent of all hotel customers and had achieved elite status over that of other customers. Quantitative results illustrated that consumers maintained a much more favourable attitude toward the hotel when they believed they were in a tier status higher than that of the 99 percent in a generic tier stature. Two additional studies found that lower-tier members often perceive rewards programs as being too discriminatory and inequitable which leads to lower-tier member aggravation and dissatisfaction (Lacey and Sneath 460; Stauss, Schmidt and Schoeler 242). Yet another study which recruited 214 participants responding to an online survey found that upper tier members of hotel loyalty programs were much more likely to develop strong emotional bonds toward the hotel than that of lower-tier members (Tanford, Raab and Kim 304). With the acknowledgement that future purchasing intentions are influenced strongly by consumer emotions, all of the empirical studies seem to support that tiered loyalty programs are only going to provide return on investment for those with higher resources or more frequent patronage levels at the hotel. The evidence identifies that lower-tier consumers will have a much less affective response toward the program-issuing hotel which predicts minimal loyalty. This is supported by the quantitative findings of another study which surveyed 996 members of a major casino. This study found that those patrons with the highest tier status in the firm’s loyalty program illustrated much more substantial loyalties toward the organisation where they were members as compared to lower-spenders in lower tier status (Palmer and Mahoney 282). The most significant strength of Palmer and Mahoney’s research study is the high sample population recruited all maintaining disparate tier status. Furthermore, the tangible constructs of the loyalty program appear to be a viable construct for gaining consumer loyalty with hotel loyalty programs (O’Brien and Jones 75). One study found that loyalty is a predictor when the loyalty program gives consumers the perception that they can realistically achieve a reward and when the relative award value is perceived as significant. When consumers perceive time constraints or unattainable thresholds for reward procurement, it is unlikely to produce loyalty as consumers’ perceptions of expected benefits decreases. Acceleration of the rewards life cycle is critical to encouraging customers to make more frequent repurchases (O’Brien and Jones 76). Hence, this provides evidence that the structure of the program, to increase loyalty, must give consumers the perception of rewards value whilst also structuring the program so as to achieve prompt reward benefits. CONCLUSION The majority of the aforementioned empirical studies which explore tiered loyalty programs, service quality and satisfaction are based not on generalisations, but on solid, quantifiable data about the potential effectiveness of interpersonal relationships and tiered loyalty programs. The studies which utilised larger sample populations are the most valuable to understanding loyalty program benefits or disadvantages as it encompasses the perspectives more predictable to the broader tourist and traveller populations across the world. Based on all findings of this literature review, it would be rational to suggest that hotel loyalty programs, first and most importantly, determine whether tiered programs are the most viable and relevant for improving customer loyalty. Whilst clearly the literature described that tiered programs provide better benefits (i.e. loyalty construction and revenue from repurchase behaviours) to a hotel from the higher resource consumer. To improve the holistic effectiveness of tiered loyalty programs, it might be advantageous to create policies which make it easier for lower-resource program members to move upwards into a new, higher tier status. This could theoretically reduce perceptions of unfairness and discrimination which might motivate members to increase their repurchase frequency to obtain better rewards. It would also be relevant, though subjective, based on the influence of service quality perceptions and satisfaction, to improve a hotel loyalty program by engaging and training employees to better facilitate relationships associated with hotel loyalty programs. By improving interpersonal relationships between staff and customer, perhaps by emphasising the ease of redeeming accumulated points or miles, it could theoretically improve perceptions of total service quality making customers more interested and enthused about the loyalty program. The literature identified in this study found significant theoretical and research-supported inter-dependencies between service ideology (quality), satisfaction, and the potential effectiveness of hotel loyalty programs. Rather than simply relying on rewards benefits, the literature seems to point toward having more competent and quality-focused engagements with program members if the loyalty program is to achieve long-term return on investment. With service quality perceptions being a predictor of loyalty behaviours, quality of customer engagements as a supplement to loyalty programs appears to be a relevant focus for the issuing hotel if the loyalty program return on investment is to be achieved. It might be viable, additionally, for hotel firms with loyalty programs to consider a consumer marketing approach which details equity and non-discrimination for lower-level tier employees. This could be accomplished through frequent digital marketing or direct mail marketing communications which give these lower-tier members a sense of their own exclusivity to gain loyalty commitment to the hotel where they are program members. Whilst it was clearly described in this review of literature that higher-tier members maintain the most predictable loyalty behaviours as a result of the self-esteem and sense of belonging they receive for being in higher tier statuses, lower-level subscribers need more communications-based emphasis that they are also as desirable as higher-tier members and maintain their own exclusive reward opportunities in their respective tier status. With such research-identified influence of consumer perceptions of discrimination and unfairness dictating loyalty program failures, more future repurchase and loyalty behaviours might be manifest through a new marketing-based communications strategy aimed at reducing such aggravations for the lower-tier member. When combined with a reward program that is structured with rapid rewards and those that are feasible, to improve loyalty, hotels reward programs must be considerate of the speed of benefit procurement available for consumers. If available program rewards appear unrealistic or not feasible without substantial repurchases, they are likely to not have loyalty toward the program issuer. To improve loyalty, the life cycle of the rewards must be considered. WORKS CITED Anderson, Cameron, Oliver P. John, Dacher Keltner and Ann M. Kring. “Who attains social status? Effects of personality and physical attractiveness in social groups”. Journal of Personality and Social Psychology. 81.1 (2001): 116-132. Print. Barsky, Johnathan and Lenny Nash. “Evoking emotion: affective keys to hotel loyalty”. Cornell Hotel and Restaurant Administration Quarterly. 43.1 (2002): 39-46. Print. 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