The UK hotel industry
This section aims to provide a thorough understanding of the theoretical framework behind the concept of loyalty in general and in particular, the practice of implementing loyalty programs in the UK hotel industry. As loyalty programs are gradually being developed by an increasing number of hotel organisations, it is thus important to recognize the meaning of loyalty and the purpose of loyalty programs within the context of the hotel industry. This chapter examines the existing literature on loyalty systems and discusses the major principles that render it to be a significant aspect of marketing and customer relationship building.
It outlines the concepts of customer loyalty and loyalty program in general and provides details on customer loyalty programmes as implemented in the hotel sector. It also examines the alleged benefits of loyalty programs and attempts to find out if loyalty programs do indeed encourage or stimulate repeat sales. Finally, it looks into how customers perceive loyalty programs by reviewing the experiences in some sectors and industries that have advocated this particular type of marketing strategy. 1. Loyalty and the Hotel Industry The hotel sector is an enormously fast growing field within the hospitality industry.
It has been recognised as a global industry with consumers from all over the world. The facilities of the hotel such as rooms, bars, restaurants, clubs and health club are no longer considered as extravagance. In the modern society, these facilities and services have become essential components of life style (Kandampully and Suhartanto, 2000). In the past decades, the supply of hotel services has increased significantly which has propelled tight competition among hotels. One of the biggest challenges that hotels are facing today is gaining and maintaining the competitive advantage over the industry’s market.
Since services and products that a hotel offers are quite hard to differentiate from among all other hotels, developing a loyal customer base by providing special, targeted benefits may very well turn out to be an essential strategy for any hotel to stand out from among its competitors. Developing customer loyalty can be one of the most efficient and successful marketing tools if implemented properly. Thus, in today’s hospitality industry, advanced loyalty programs may prove to be a critical success factor in acquiring competitive advantage. Loyalty programs started 1980 and since then, they have been developing in every industry worldwide.
Because loyalty brings benefits to the organisation and its customers, majority of hotels nowadays have high-quality loyalty program. The development of customer loyalty is a strategic goal for most hotels today in order to increase profit (Duffy, D. L. , 2003). 2. Definition and concept of Loyalty According to Richard L (cited in Brown, 2000), loyalty is “a deeply held commitment to re-buy or re-patronize a preferred product or service consistently in the future despite situational influences and marketing efforts having the potential to cause switching behaviour.
” In other words, loyal customers keep purchasing the same products or service from one organisation whenever the need arises. Brown (2000) defines loyalty as “the result of an organisation creating a benefit for a customer so that they will maintain or increase their purchases from the organisation”. However, loyalty may also be created when the customer advocates for the organisation. Dick and Basu’s (1998) loyalty categories are the most well known classifications of loyalty as used in journals and/or books in general.
It combines the concepts of repeat purchase and relative attitude into loyalty in order to separate the levels of loyalty. They divide loyalty into four types. The first level is absence of loyalty. Some people just will not keep going to certain hotels. For instance, if there is low interest or weak relative attitude, there is less possibility for customers to repeat purchasing at certain places over time. Second is spurious loyalty accompanied by weak attitude but with repeat purchase. The type of customers in this category is most likely to buy due to force of habit.
Usually, this type of loyalty depends on what the situation demands or on the personality of the customer. In other words, customers may buy products or services mainly because of situational factors or because it is in their nature to do so. For example, customers may become familiar with certain hotel names, get used to certain organizations or depend on particular stores for convenience. As such, even though there is a low level of attachment, their buying behavior is greatly influenced by what the situation brings and in turn, they tend to keep purchasing at same place.
The third category is latent loyalty. It is combined with a low repeat purchase and a high level of relative attachment. This type of customer’s choice may be changed by situations similar to that in spurious loyalty but buying behavior is more likely to be influenced by opinions of other people. For instance, even though a customer loves to go to a certain place to stay or dine, but if his/her family or friends do not like the service or product of that place, the decision to patronize the establishment may easily be changed and the customer may defect at that point.
Therefore, even though there is a strong attitude or high level of attachment, it is still hard to keep the customer loyal at all times. The last category is presence of true loyalty. The loyal customer is the most wanted type among these four types of loyalty to all the organisations. This type of customer keeps on purchasing certain products or services and even makes recommendations to others in a positive way such as through “positive word of mouth” which can be the most powerful influence for customers (Griffin, 1995).
Majority of hotel establishments offer variety of benefits to customers in order to get this type of customers and keep them forever loyal. In the hotel industry, it can vary from people’s attitude and behaviour whether to become a loyal guest or not. As such, it may not be enough to get people to be loyal customers. Reichheld (1994 cited in Malley, 1998) found that despite giving ratings of “satisfied” or “very satisfied” in customer surveys, many customers would still defect.
According to the UK Oglivy Loyalty Centre (cited in Malley, 1998), “although 85 percent of customers reported of being satisfied, only 40 percent repurchased and 66 percent of packaged goods customers who identified a favourite brand had bought “another brand” most recently”. In other words, people would tend to change hotels depending on their convenience, income, and price even though they are satisfied with the services of a certain hotel establishment. Perceived loyalty therefore might not be sufficient to define or explain “Loyalty” adequately (Malley, 1998).