In many ways the high-end hospitality and service industry has been a slowly moving giant built on tradition. A lot of well designed boutique and design hotel concepts have been developed over the years. However, the service concept has been developed mainly to be executed in person and by well trained staff that love service and are proud of delivering it.
The main aim of this dissertation is to guide and assist 5-star hotels in constructing a solid and long term strategy towards their loyal customers. It is also to develop a plan that can guide and assist the same in the implementation phase of launching a holistic eCRM strategy that will benefit both the company and the customer in a win-win situation, as well as strengthen all their online customer relationships.
When it comes to loyal customers having a customer focused strategy is essential and to be able to handle the customer side yet integrate into your operation a holistic approach is needed. Then thru ensuring a win-win relationship you can work on increasing trust, build commitment and to create true feelings of customer loyalty. This is not a onetime deal and efforts towards improving the customer relationship have to include consistency.
This includes that the approach is user-friendly and that it adds customer value at all times. The key to a long-term Customer relation is customer Interaction, engagement, participation. If your customers do not put any effort into the relationship it does not matter how much you will put in and it will be a failure.
Too often companies take the easy way out and just discount to lure the customers in. However, when you discount loyal customers you give away money to the customers that are already buying and using your product. If the wrong strategy is used, it is used on the wrong customers or just parts of a holistic approach is used the lack of strategy or gaps in the holistic strategy will create profitability leaks.
As according to the findings the profitability is in the strategy itself and how you chose to handle the customer relationships. Most companies today stop to early in the process and focus on handling the frequency and loyalty programs (which are both not sufficient ways of measuring or handling customer loyalty anymore) instead of focusing to develop the customers in to the most profitable customers they can be. In the words of Reinartz, “To identify the true apostles of, companies need to judge customers by more than their actions” Reinartz (2000)
The key is to listen to and get to know your customers as good as you possibly can. Segmentation is the key and Identification on one-to-one level is a necessary part in order to achieve customer profitability as the old solutions of one fits all simply is not enough. Companies need to adapt to the power shift that has happened on behalf of the consumer. As this has happened over the last years and is happening now the investment in technology, resources and necessary skills time is of the essence. Adapting the strategies’, organization and technology to a holistic approach is no longer so much an options but as a requirement. However, this is where the gap between the ones who has, and the ones who have not are going to show. Today the challenge is not to get data from your customers it is to handle the sheer volume and or do it within the time frame of real-time.
One of the most basic rules of business is that the business has to make a profit. This is nothing new and the links between customer loyalty and profitability has long been discussed, along with the methods of measuring the same. According to the findings in the theoretical study the link is not as strong as one could wish for and divided into two camps. However, looking at Reinartz (2000) findings they suggests that the weak link has to do with the “crudeness of the methods most companies currently use whether or not to maintain their customer relationships” Reinartz (2000)
In the discussion of profitability there is however one view most authors seems to agree on and that is that the cost of continue working with the customers you already have, is less than hunting for and acquiring new ones. Zineldin (2000) even estimates that the cost ratio is 1/5. Nevertheless, there are other factors affecting customer loyalty. According to Reinartz (2000) there are 3 main claims to if loyalty is profitable or not; 1) It costs less to serve loyal customers, 2) Loyal customers pay higher prices for the same bundle of goods, and 3) Loyal Customers market the company.
Regarding the findings in the first and the second claim Reinartz argues that “a customer expects something in return for their loyalty”. Reinartz (2000) indicating that the cost of that “something” has to be able to keep in profitable and reasonable limits. In the end the added customer value is the key to a win-win situation indifferent of if the value is extrinsic or intrinsic and it keeps the switching cost and barrier. As this is up to strategy and policies to handle this is more important than ever in levels of high competition. That is why it is so important to connect profitability to a holistic strategy as it is far too easy just giving out discounts and rate cuts as a short-term solution.
As regards to the third claim loyalty really becomes “profitable” if you look at the indirect benefits brought by for example WOM and happy customers. However, as this is a concept that has rapidly grown in size and importance thru concepts like viral marketing, crowd-sourcing and eWOM, as well as online marketing and online branding this has become even more valuable. In today’s society even the strongest as the first claim become cheaper and more effective by the use of technology and the second claim has turned into a more added-value focus.
When it comes to technology which has always been one of the major investments in customer loyalty the discussion of cost versus profitability has always been there. Nevertheless, after the power shift from company to consumer took place. The cost of investing in customer loyalty systems is an investment everyone will have to make in order to survive and be able to deliver flawless 5-star service. Today you have to be able to handle real-time data, be pro-active and know what your customers want before they arrive and sometimes even before they know it.
The times have changed and so have the playing field, the rules and the level of competition. With all the information available today it is possible and many customers even tell you straight out which makes it first priority for you as a company to listen, even if the channels of communication are different than before. This has also brought new focus to the strategies used in order to make loyalty profitable.
12 years ago Reinartz (2000) conclusion on the topic of if loyalty was profitable or not was, “There is no one right way to make loyalty profitable. Different approaches will be more suitable for different business, depending on the profiles of their customers and the complexity of their distribution channels.” (Werner Reinartz, 2002) And today 12 years later, this could still not be more true.
As a very important part of what people are paying for in the luxury industry is the brand it has to be able to guarantee quality in product, service and add value to the purchase. The value does not necessarily have to be in explicit and measurable form but can also be more implicit through values like social status, recognition and a sense of belonging to a social group e.g. having an AMEX Centurion card or being a top level LHW Ambassador card-holder.
As brands are so valuable in the high-end markets branding can also be used at many levels and not just for physical products and services. Even if one of the brand trends in hospitality has been over the last years has been to create branded luxury hotels for specific products or concepts like Armani hotels or Bvulgary hotels. Global-, International- or domestic level is not the important part as long as there is a strategy in place. Brands can even serve as great marketing tools to set world wide standards like for example “Leading Hotels of the World” that guarantee end enforce quality values worldwide but actually do not own, represent or manage hotels just guarantees their products and services. This is also something that can have to be worked in to the holistic approach.
According to Palumbo, “the name of the game has been standardization as to the economies of scale. In reality, few successful brands are fully standardized. Manufacturers desire global brands not consumers. Consumers do not care if the brand is global, and they increasingly prefer local brands or what they perceive as local brands. “ (Fred Palumbo, 2000) However, even if the core of branding is pretty much the same on all levels with globalization companies today have to face the challenge to think global but act local to handle the different cultures adaptations and stay relevant in the different markets and customers.
Another aspect of branding is that the brand is the first thing the customer sees. This means that brand awareness are becoming increasingly important and still is for every minute the level of competition increases. This has made taking brand awareness into account in the holistic strategy, as well as the first seed to brand loyalty a necessary stage in order to create loyal customers, either to the brand or the company.
Palumbo (2000) describes brand loyalty as, “The ability to make a consumer repeatedly seek out and buy one brand over another, even when others offer coupons or lower prices, is brand loyalty” (Fred Palumbo, 2000) In order to attain brand loyalty (Edmondson, 1994) suggest three main things; 1) Give your brand a good cause, 2) Get permission, and then get personal. Get to know the customer. 3) Sell with information.
Apart from the fact that brands add value Palumbo (2000) also argue that it contributes: Familiarity, Reliability and Risk Reduction. As the relationship trends are moving back to basic and closer to the core of the personal relationship this is also where feelings become more important. In today’s society strengthening you customer relationship will get you closer to the customer and facilitate the customer communication tremendously. The key to customer communication today is to get invited by the customer and make the customer bring you with them wherever they are. However, in order to get there you need to establish trust.
The key to profitability and customer loyalty is in the long-term relationship and the quality of the same. The ability to build trust has then become a hurdle and opportunity in marketing. In order to build trust, the customer has to understand that your company values their needs. This according to Zineldin means that, “The manager and the marketer must focus on the company’s mission, resources, and strategy to create an environment that concentrates on customers’ needs and satisfaction.” Zineldin (2000)
However, trust is something that takes time or memorable actions as argued by Palumbo, “Loyalty is created by providing a customer benefit that is valued and remembered” Palumbo (2000) To then keep the trust this have to be done with consistency. This means being able to manage the customer relationship thru all the stages of the customer lifecycle, not just one or two of them like many companies do today.
In short: The key to the relationship is to generate a win-win relation between customer and company. In today’s world focusing on the customer will be a large part of creating the win part for the company. As the company focus have to revolve around adding customer value while increasing the rate of repeat purchase.
In order to progress and gain deeper knowledge of customer loyalty I recommend to examine:
