The relationship ideas and models have over the years evolved and materialized in the concept of Customer Retention Management. As the environment and the market evolve, competence, mind-sets and technology investments also need to be updated. In the case you do not, you will fall behind in the increasing competition.
CRM is defined as a process of understanding and managing profitable customer relationships by delivering superior customer value, service and satisfaction (Chen & Popovich, 2003; Christopher, Payne & Ballantyne, 1991; Morgan and Hunt 1994; Webster, 1992)” (Sigala, 2010)
Another definition of CRM is that it “involves identifying, attracting, developing and maintaining successful customer relationships over time for increasing retention of profitable customers (Bradshaw & Brash, 2001; Massey, Montoya-Weiss, & Holcom, 2001) ” (Sigala, 2010) The profitability part was one of the challenges with this approach as it proved to be hard getting short-term results, as the strategies and systems used to keep track of the customer databases proved very costly and tedious to maintain.” (Xu Yurong, 2002)
Nevertheless, the aim is the literature seem to agree that CRM aims to, “seek, gather and store, the relevant guest information, validate and share it throughout the entire organization and then use it throughput the organization levels for creating personalized unique guest experiences (Christou 2003b; Olsen and Connolly 200; Siguaw and Enz 1999)” (Sigala, 2006)
In the beginning of the 1980s the airline companies developed the concept of retention programs. These programs were frequency programs, designed to collect points and then be able to redeem these points for rewards, benefits or discounts in a points collecting schemes. The concept was to issue a card, code or another unique identifier to the customer and then the customer could collect points, rewards or climb through series of discount tiers when doing his/her purchases. The goal was to get the customers to make repeat purchases, grow a deeper loyalty and increase the barrier of switching supplier. The programs grew fast and across industries due to the fact of the success and the fact that the concept was easy to copy.
However, the implications of these programs appeared when your customers got loyalty cards from more than one company, which in fact did not make them loyal to a specific brand or company at all. The focus of the customer shifted from loyalty to hunting for the best rate, juiciest offers or best promotion packages. The first step to try to gain control of this challenge was the tier system. Many companies put a lot of resources into differentiating and exceeding the competition. This also generated large member numbers and therefore increased the cost of the program.
The main challenge with frequency programs is the natural state that appears every time a customer redeems points as this creates the effect of having to start over again. This makes them equal to the non-members as they have no points and actively has to chose to start over with the same program , also creating the risk for the company that they will chose to switch over to another company or frequency program, as the switching barrier is minimal or non-existing (figure 6).
However, apart from this there are also a few other challenges that needs to be looked after:
In the 90s the organizations started catching up and “when organizations realized that customer relations was something that had to be seen from a more holistic perspective. It was soon found that customers do not solely interact with the marketing department, but instead all parts of the organization. Many organizations now refocused on the individual customers, aiming more at finding the ‘right’ customers and creating win-win relationships profitable for both parties.” (Peelen, 2005)
In an effort to further differentiate and evolve the loyalty programs, more focus was put on personal recognition, the relationship and the personal touch. This manifested in a wave of personalization, one-to-one marketing and custom made systems. This provided freedom of choice in the point-collection race and the customer could exchange the points for something that mattered to the person and connected on a more personal level.
This increased the incitement for the customer to strive for a higher tier, the object of his/her desire, the intrinsic values through personal recognition, as well as more points as a bi product. This added customer value, as well as impact. Nevertheless, to provide recognition and strengthen the customer relationship you first need to know their needs, wants and expectations.
The world has changed and the CRM strategies therefore need to be updated. This is supported by several authors making statements in line with, “The fierce global competition and increased customer acquisition costs also mean that, in order to become competitive, hotels need to redesign their business model around the customer-centered processes in order to satisfy the increasing and diversified gests needs and particular requirements (e.g. Olsen and Conolly; Gillmore and Pine 1997; Sigala 2003b)” (Sigala, 2006)
The technology evolution made the customer, as well as the global market data, easier to handle and administrate, and also more important to link together. As the frequency and recognition programs became more alike they lost out on their competitive advantage, as well as their most existential value; to add customer value while increasing the rate of their repeat purchases to benefit the company.
