The Importance Of Customer Loyalty And Relationship In Service Organizations, An Essay.

Literature review

This report focuses on the importance of customer loyalty and customer relationship in the service organizations. In this report, literature review provides the strategies and the benefits to retain the customer loyalty in the operating market. Relationship marketing is appropriate to maintain customer base in the business. The organizations have to adopt the feature of customer loyalty in the business to maintain the relationship with the customers for future basis. The benefit of customer loyalty can be seen in the organizational productivity or effectiveness, moderate expenditure to bring new customers and decreasing the prices for products and services etc. There are many ways by which the customers show loyalty for particular product or service in the market. They can decide to remain with the product supplier or they can escalate for the purchased service or product (Magi, 2003). Further, report focuses on the famous hotel named Hilton group which is the famous hotel chain in the hospitality industry. Hilton Hotels has introduced guest reward program to build the loyalty among the customers. This report focuses on the strength and weaknesses of guest reward program in various perspective.

 Customer loyalty is the most important intangible assets of the companies. High customer loyalty is important for the companies to stay competitive in the market. Customer loyalty ensures stability of the company on the market. In the era or service market, improving service quality is one of the effective ways to improve customer loyalty in the market. The impact of improved service quality can be direct or indirect on the customers (Emes & Bollen, 2008). Customer loyalty can be considered as the deep commitment of the customers for the particular product or service which will be purchased by the customers and will be stick to the same brand of product or service. The customer loyalty can be divided in to two parts i.e. attitude loyalty and behavior loyalty. In the attitude loyalty, consumers have positive psychological tendency about the products or services of a company. On the other hand, in the behavioral loyalty, the repetitive purchase behavior can be seen by the customers (Hanley & Leahy, 2008).

The relationship between customers and sellers can be improved by understanding the customers’ perspective. The service companies can measure and appreciate the customers’ relationship with them by identifying the need of the customers. It is important to understand the customers for developing effective relationship with them. Most of researchers are agree that customer loyalty is the most important factor (Keller, 2008). It means that customers are loyal towards a specific service provider company such as specific hotel chain. But customer loyalty is not a permanent thing. If customer value is decreasing for a particular company, it means competitors are providing better services and customers are engaged with them. So, it is most important to build the strong relationship with the customers to gain competitive advantage in the market. Customers always prefer the quality services of the organizations. There is the link between quality, customer value and customer loyalty which must be considered by the organizations.

Key strategies to create customer bond and long-term relationship

Figure 1: link between quality, customer value and customer loyalty 

(Source: Jacobsen, Olsson & Sjövall, 2004) 

Basically, there are three types of bond between customers and suppliers i.e. temporal bond, social bonds and structural bond. For the quality relationship between the suppliers and consumers, companies must create satisfaction, trust and commitment in the relationship. Trust is an expectation which plays a significant role in building the long-term relationship in the business. Trust can be important for all the stages of relationship. Further, commitment is important for a working relationship. It entails the desire to develop an effective relationship with the customers, and confidence of stability in the relationship (Reichheld & Detrick, 2003). Along with this, satisfaction is the most important factor to maintain the relationship with the customers. If the customers are satisfied with the services provided by the company then customers will prefer the services again and again. Satisfaction has been defined as the positive and affective state which is important for all aspects of relationships between company and the customers (Jacobsen, Olsson & Sjövall, 2004).

Figure 2: Customer bond

(Source: Chakor & Jouali, 2013)

By adopting these strategies and factors, company can build effective relationship between the customers and the business organization. All types of relationship bonds and connected to the relationship factors. In other words, by using these relationship factors, company can build above stated bonds with the customers (Chakor & Jouali, 2013).

There are various organizations that have introduced loyalty programs to improve services or priced discounts. Loyalty programs and membership are designed in such way that encourages loyal buying behavior of the customers which is beneficial of the company. Those marketing include reward cards, loyalty cards, advantage cards, point’s card and club cards which identify persons as the member of loyalty program (Agchi & Xingbo , 2011).

Points’ system- This is the most common and popular loyalty program. In this, customers earn points and get some type of rewards i.e. gifts, discounts, and special customer treatment. Along with this, customers can redeem these points. This is most appropriate program to encourage frequent and short-term purchases.

Tier System- In this, companies offers small rewards for being the part of the program and encourages repeating the customers by improving values of rewards. Tier system can work for high commitment and higher price-point business such as hotels, airlines and insurance companies.

Loyalty card- This is an interactive plan which allows the business to collect the information about the customers. Customers are provided coupons, product discounts, and points towards merchandise in exchange of active participation in the program. The aim of loyalty card program is to build effective business environment by offering participative customers for business (GhavamiArezu & OlyaeiAlireza, 2006).

It is not easy to keep the existing customer loyal. The organizations have to incur various costs to get the benefit of customer loyalty. Customer relationship management is an important factor to grow and get competitive advantage in the market. There are various benefits and costs of having loyal customers for the organization.

Evaluation of the costs and benefits of keeping existing customers loyal

Benefits:

Acquiring new customer will take mire costs as compared to maintain existing customers. The longer relationship the company has with the customers, lower the amortized cost it has to bear. Further, the loyal customers have the propensity of purchasing products with the little efforts of marketing as the loyal customers know about the quality of products and services. If a customer stays with the organization for a long time, then there is the probability to increase the business share of the organization (Kandanarachchi, 2014).

Costs:

To keep the customers loyal, organizations has to spend lots of amount in the business. It is not easy to stay competitive in the market so, organizations have to focus on the various costs. There can be marketing cost, transactional cost, selling cost, advertisement cost etc. these all cost are important to attract the repeat customer (Satyendra, 2014).

Social media can be described as the set of online tools which supports the company to interact with the customers. Social media includes many services like discussion forum, email, blogs, chat, texting, micro blogs, social networking sites, photo and video sharing site, and review sites. Social media sites have become integral part of the business to communicate with the customers. As compared to traditional communication tools, social media encourages the customers to search and receive important information die to two-way communication character (Emond, 2013).

Figure 3: Social Media Marketing

(Source: Tuan & Moretti, 2013) 

Trust and recommendations are two main important factors in the customer loyalty. So, Social media is focused on building and maintain the relationship between companies and the customers. It is very important for the companies to gain the trust of the customers for the growth and progress in the operating market (Begorgis, 2015). Social media is all about producing and sharing the content which are useful in getting customers to recommend to brands to their friends. There are various service companies which are taking advantage of opportunities which are offered by Social media. Those opportunities are useful to engage the customers as much as possible (Tuan & Moretti, 2013).

Many studies reveal that customers’ reviews have deep impact on the customers’ loyalty in the companies. Customer’s reviews can be gathered on specific websites, company website and blogs which influence the decision-making and purchasing process of the customers.

Figure 4: Impact of Customers' reviews

(Source: Schindler & Bickart, 2005)

The positive or negative reviews from the customers are one of the most considered factors in the service marketing. The reviews impact on the customers’ behavior and their dependency on the products or services. A study by Chattarjee (2001) shows that negative reviews by the consumers impacts on the reliability of the company and purchasing intension of the customers (Bambauer-Sachse, & Mangold, 2011). The impact could be more negative in the case of a company is unfamiliar to the customers. According to Vermeule and Seegers (2008), positive and negative improve the awareness of the customers about hotel existence. Reviews of the customers play an important role in the decision making process of the customers. Customers’ reviews are more influential in nature for service production and consumption and also important for the experience of the customers (Breazeale, 2009).

Potential impact of social media in services and relationship marketing

Customers provide both positive as well as negative reviews and booking intensions in the hospitality industry. Customers post their reviews travel-non transactional websites which impact the decision making process of other customers. So, online reviews are an important source of information which impact the booking intensions and their decision making process. A negative review can impact on the overall reputation of the company. Source of information in this case is seen as not independent on the organization (Gretzel, 2007).

Hilton Hotels Corp and Hilton International

Strengths:

The main strengths are the double dipping service which is provided by the Hilton Hotels and Hilton International to the customers. Hilton is basically one of the hotel chains which offered double dipping to the customers. This program is unique as compared to other hotels and by this program; customers are able to earn points when they stay in the hotels. In the Hhonors program, customers can earn the points when they use services of the diverse combined associates with the program (Johnson, 2011). Consumers may also utilize those points not only to exchange it for staying in hotels but also to buy products and services which are included in the program such as FTD florists and Field cookies. This can be considered as the added incentives for the customers as instead of joining loyalty program, customers can join Hhonors program and they can be the part of range of service providers. Double dipping program gives the partner access to the customer base of each other and help to attract the customers for their business and make them loyal. The investment in the FTP Florists has kept the cost down which is helpful in attracting the loyal customers for business. This strength can be the competitive advantage for Hilton. Along with this, it is also helpful to create value among the customers. Hilton is the most famous brand name and by the Hhonors program, Hilton can improve the brand name. According to the case, Hilton have around 2.5 million members and collaboration with the other associates such as airlines in which there are 20,30,40 million members. This program can be the way to build up a famous brand to increase the customer loyalty (Lieu et al, 2012).

Weakness:

There are some weaknesses in the Hilton. Hhonors is only a visitor recompense program to make customers’ reliability in all over the world. So, this program is not controlled by Hilton Hotels group and Hilton international Corp directly. Both of the groups do not have admittance to control and manage the procedure of this program. So, it is not easy to improve this program to satisfy the customers and their expatiations in the first time. Further, cost will increase the management complexity. The expense of Hilton Hotels is $12,654 and revenue is $49.855. From these numbers, it can be seen that the expense of Hilton Hotels group and Hilton international Corp is reaching to $37,200. So cost can be considered as the weakness of this program.

Strength:

The achievement of this program has allowed the hotel chain to attain more hotels or franchisees to sign the business contract with them. The partnership with other hotels provides opportunity to Hilton to attract the customers of partner hotels. The loyalty program if Hilton was considered to be the best service to run the business when the cost of programs was comparatively lower than the competitors. The franchisee has advantage under the Hilton brand as costs of the advertising are cut due to standardization. Along with this, it allows to attract joint customers of both of the hotels. At last, there was an increment in the contribution in terms of money for Hilton group (Hantuli, 2016).

Weakness:

From the table of U.S. Lodging industry, there are not some positive dates. It can be seen that the franchised prosperities of Hilton international Corp is zero and Hilton Hotels Corporation has 207. It means that the Hilton Hhonors program will be understood and enjoyed by very few customers and this is not a good sign. For example, as compared to Hilton, the franchise prosperities of Starwood are 291 which are more than that of Hilton. So, consumers are enjoying ‘Starwood Preferred Guest’ offered by Starwood. This is more than that of Hilton Hhonors program. Because of this, the revenue of Hilton Hhonors program is decreasing.

Strength:

From the guest perspective, the strength is that they are attracted by the Hilton Hhonors program. The aim of this program is to satisfy the guests and customers by the services and make them feel important from every aspect. Along with this, guests get flyer miles with the earning points in Hilton Hhonors program. The main strength of this program is that customers are able to purchase other products and services with these earning points. Further, Strength is that every member or guest would receive the personalized experience in this program. This program stores the profile of guests into the system which enables the Hilton to keep record of the customers’ preferences. Along with this, Hhonors members would be provided the customized services during the stay at visit (Magatef & Tomalieh, 2015).

Weakness:

From the standpoint of guest, there is one weakness of this particular program. Weakness is that Hilton Hotels have blackout dates. This shows that the members are not able to redeem the pints for free travel of free stay in the high seasonal demands. In other words, point’s redemption time is not applicable throughout the day. Along with this, there is limited availability of rooms at Hilton Hotels. Because of limited access of rooms, the rooms are offered to those guests only who redeem their points for free stays. There is no guarantee provided by Hilton hotels that they will get free stays any time of the year.

Starwood was attempting to add new features in the loyalty program to gain market share in the hotel industry. Jeff Diskin had expressed in the trends of hotel industry i.e. the large scale which will bring economies of scale. In terms of competition, the history of Hilton was bigger and better. Although even if the service, performance or plan of the company is not doing well but still Jeff Diskin is able to win the competition in the market. After the acquisition of Starwood, the competition for customers’ loyalty has increased. Starwood is attempting to dominate the ‘loyalty war’ by cutting down the requirement such as capacity control, no paperless rewards, blackout dates and no hotel compensation etc. The Starwood was trying to get them to the top of the hotel business.

There were various options and ways available for Jeff Diskin to give response to the new policies of Starwood. The first way was that he could respond to Starwood by matching everything which was provided by the Starwood such as no capacity control, no hotel reimbursement, no blackout dates and paperless rewards. Along with this, there was another way to give response. By offering original and competitive offerings with the Hhonors program such as first stay in the Hilton Hotel may give up to 15,000 points to the customer. By these ways, Hilton Group and Jeff Diskin can respond to new policies of the Starwood. Further, Jeff Diskin can adopt another technique by not compete with the Starwood. By the research, Jeff Diskin realized that the Starwood launched its new frequent-guest program because it had problem with the two of the hotel chain of Hilton. The change in program feature of Hilton can be the solution of this problem. The program feature will be helpful to gaining new customers.

Conclusion 

The hospitality industry is highly competitive industry having the large number of hotel chains which attract the customers’ attention. So, one of the most effective marketing tools to gain the customers is loyalty program. Although, the aim of loyalty program has aim to increase for the loyal customer base for the brand but there are many other reasons why the loyalty programs are important. It is important that each organization realizes the importance of loyalty programs in the business operations. Overall, it can be said that loyalty programs are important to compete in the service industry.

References 

Agchi, R., & Xingbo , L., (2011), Illusionary Progress in Loyalty Programs: Magnitudes, Reward Distances, and Step-Size Ambiguity: Journal of Consumer Research, 37, P 184-17

Bambauer-Sachse, S., & Mangold, S. (2011), Brand equity dilution through negative online word-of mouth communication: Journal of Retailing and Consumer Services, 18, 38–45

Begorgis, G., (2015), The Impact of Social Media as a Customer Relationship Management Tool: Business Administration, Accessed on 4^th April 2017 from https://www.diva-portal.org/smash/get/diva2:821090/FULLTEXT01.pdf

Breazeale, M., (2009), Word of mouse, An assessment of electronic word-of-mouth research: International Journal of Market Research, 51 (3), 297-319

Chakor, A., & Jouali, J., (2013), Collaboration in Buyer-Seller Relationships as a New Approach to Competitive Advantage: Journal of Business and Management, 10 (2), 55-64 

Emes, C., & Bollen, A., (2008), Understanding Customer Relationships, Accessed on 4^th April 2017 from https://www.ipsos-mori.com/DownloadPublication/1216_loyalty_customer_loyalty_understanding_customer_relationships_052008.pdf

Emond, S., (2013), A study of how social media can enhance customer loyalty on the Internet, Accessed on 4^th April 2017 from https://bada.hb.se/bitstream/2320/12799/1/2013.11.8.pdf

GhavamiArezu & OlyaeiAlireza, (2006), The Impact of CRM on Customer Retention: A Master’s Thesis, Lulea University of Technology, Department of Business and Social Sciences

Gretzel, U., (2007), Online Travel Review Study, Role and Impact of Online Travel Reviews: Laboratory for Intelligent Systems in Tourism, Texas A&M University

Hanley, S., & Leahy, R., (2008), The Effectiveness of Relationship Marketing Strategies in Department Stores: International Journal of Business and Management, 3(10)

Hantuli, L. M., (2016), An analysis of hotel loyalty programs: a case study on the hilton hhonors loyalty program, Accessed on 4^th April 2017 from https://scholarworks.calstate.edu/bitstream/handle/10211.3/173535/Hantuli,%20Lana_Project2016.pdf?sequence=1

Jacobsen, D., Olsson, M., & Sjövall, A., (2004), The Creation of Customer Loyalty - A Qualitative Research of the Bank Sector, Accessed on 4^th April 2017 from https://www.diva-portal.org/smash/get/diva2:229457/FULLTEXT01.pdf

Johnson, M. (2011), Customer Loyalty Trends Dominating the Hotel Industry, Accessed on 4^th April 2017 from https://hotelexecutive.com/business_review/2665/customerloyalty-trends-dominating-the-hotel-industry

Kandanarachchi, R., (2014), Customer Loyalty: Benefits to organisations and customers, Accessed on 4^th April 2017 from https://www.linkedin.com/pulse/20140701012809-258844093-customer-loyalty-benefits-to-organisations-and-customers

Keller, K. L. (2008), Strategic brand management: Building, measuring, and managing brand equity,(3^rd), NJ: Pearson Education, Inc

Lieu, J., Cheong, M. P., Chan, M., & Camilleri, S. (2012), Hilton HHonors, Accessed on 4^th April 2017 from https://prezi.com/w2qfjdo-ct-t/hilton-hhonors/

Magatef, S. G., & Tomalieh, E. F., (2015), The Impact of Customer Loyalty Programs on Customer Retention: International Journal of Business and Social Science, 6(8) 

Magi, A.W. (2003), Share of wallet in retailing: The effects of customer satisfaction, loyalty cards and shopper characteristics: Journal of Retailing, 79(2), 97–106

Reichheld, F., & Detrick, C., (2003), Loyalty: A Prescription for Cutting Costs, Accessed on 4^th April 2017 from https://www.fredreichheld.com/bainweb/PDFs/cms/Public/MM_Loyalty_prescription_cutting_costs.pdf

Rosman, R., & Stuhura, K., (2013), The Implications of Social Media on Customer Relationship Management and the Hospitality Industry: Journal of Management Policy and Practice, 14(3)

Satyendra, (2014), BUILDING CUSTOMER LOYALTY- A NECESSITY FOR AN ORGANIZATION, Accessed on 4^th April 2017 from https://ispatguru.com/building-customer-loyalty-a-necessity-for-an-organization/

Tuan, A., & Moretti, A., (2013), Social Media Marketing and Relationship Marketing: revolution or evolution? A first step analysis, Accessed on 4^th April 2017 from https://www.researchgate.net/profile/Annamaria_Tuan/publication/258048911_Social_Media_Marketing_and_Relationship_Marketing_revolution_or_evolution_A_first_step_analysis/links/02e7e526cdb0141792000000/Social-Media-Marketing-and-Relationship-Marketing-revolution-or-evolution-A-first-step-analysis.pdf