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Customer Retention in Hospitality Sector

Discuss about the Customer Retention in Hospitality Industry for Hilton Hotel.

This section of the research study involves review of the secondary sources of information on the topic of research from the journals on the research issue, blogs, earlier researches, online texts, industry databases and published articles to aid the development of a theoretical perspective about the variables of the study. In the service sector of hospitality, customer as the end user of the service is the fulcrum of all business strategies and decisions, hence its retention is of paramount importance to augur organisational success and growth in the market competition. Therefore through the review of the established theories and perspectives on the issue of customer retention, a critical analysis of the various facets of customer retention, its significance and implications in the service sector of hospitality would form part of the study in this section.

The case study organisation of Hilton Hotel has been confronting hurdles lately in its customer relationship management leading to a loss of customers, thus making it pertinent to conduct the present research so that a comprehensive awareness can be developed about the issue of customer retention, and recommendations can be formulated on the basis of findings to help the brand retain its global reputation among its clientele. Hilton Hotel has a strong brand presence in over 90 countries with a staggering number of 4000 properties. The brand gained immense global popularity due to its utilisation as the integrative force behind many films and television serials. The brand boasts of over 150,000 employees and is known for its endowment of its workforce relationship along with a sound relationship with its customers.

Customer retention according to Osman, Hemmington and Bowie, (2009) is the prime cause for the sustainability of the hospitality organisations as the prime objective of the hospitality sector centres around fructification of the goals desired by the customers. On the face of stiff emerging global competitiveness, the marketing activities tend to reveal a downwards slide making it almost imperative for the hoteliers to adopt a stable and modern marketing strategy that involves incorporation of programs that aims at the development of customer loyalty towards the respective brand. Generation of customer loyalty as stated by Yoo, Lee and Bai, (2011), in the current hospitality industry scenario makes customer acquisition and retention the prime focus for long run sustainability in the market competition. Not only attracting the new set of customers is mandatory for the maintenance of a steady flow of revenue and profits from the business but maintaining the old customers are equally vital for the growth of the enterprise. The hotel industry as stated by Grissemann, Plank  and Brunner-Sperdin, (2013), survives purely on the basis of customer retention since it concerns repeated purchase of services and products of the similar nature over a specific period of time. Hence the business activity of customer retention is given more importance in the hospitality sector than the other industries. It is after all the increasing number of loyalists towards a hotel brand that makes the particular business sustainable in the market competition. The loyal customers are the ones who promote the brand of hospitality through word of mouth publicity and sharing of their experiences thus enhancing viral marketing for the respective brand (N. Torres and Kline, 2013). This in turn helps in gaining new customers. In the changing market scenario flooded with umpteen opportunities for the discerning customers to choose the hospitality experience that suite the best of his needs, it has become a literal challenge to retain customers since the substitutes are more and the customers are in look out for similar or enhanced service features within an affordable price.

Factors Influencing Customer Retention

The most crucial factor that influences a customer to come back to a particular hotel time and again is the degree of satisfaction that he gets during his stay in the property. It is more often than not the quality of service that matters the most in creating a loyal base of customers as has been pointed out by Ladhari, (2009). The factor of customer loyalty not only enhances the business of a hospitality brand manifold but also helps the organisation in its pricing strategy, since the loyalists would not cringe to pay premium price for enhanced levels of satisfaction. There are several other factors such as customer relationship management, brand image and technological advancements that play an important part in retaining the customers of hospitality organisations.  The issue of customer retention is of global importance and therefore the premium hotel brands like Hilton, Marriott etc has invested time, efforts and economic resources in developing the customer experiences, the rapport with the customers and in delivering customised services to their valued clients. The adoption of value added customer recognition and identification systems by several hospitality brands has tremendously helped in retaining the customers because these visitors get more attenuated to the recognition and respect in such hotels. The planning of operational strategies according to Han, Kim and Hyun, (2011), is crucial for the hotels since on one hand while a certain set of customers look for price or variety, the other half of customers simply look for quality of service. Thus adopting the fundamental principle of addressing the specific demand and needs of the customers can only result in customer retention and gaining of competitive advantage in the long run.

In the research conducted by Hu, Kandampully and Juwaheer, (2009), in a sporting club hotel on the topic of evolution of element of customer satisfaction, it was found that adoption of a structured model of customer relationship management has intensified the satisfaction level of the customers. In the domain of interrelationship and correlation between the components of customer satisfaction, service quality, performance of the hotels and management of human resources, the study by Tajeddini, (2010), contributed considerably in reshaping and empowering the process of quality of service in a hotel through the five dimensions of empathy, assurance, tangibility, responsiveness and reliability. The study reflected the aspects of impact of human resource over customer satisfaction and quality of service along with the impact of the quality of service over the satisfaction of customers, thereby emphasising on the role of customer satisfaction towards the organisational performance. A research conducted on the hotels in the Penang district of Malaysia by Mohammed and Rashid, (2012) for recognising the correlation that exists between customer loyalties, customer satisfaction, quality of service, service standards and perceived value of consumers revealed a substantial degree of influence on the customer satisfaction from the perceived value of consumers, impact of quality of service over the perceived value and how brand loyalty results from customer satisfaction. A thorough research by Dominici and Guzzo, (2010), on the topic of the effect of quality of service on the hospitality sector stated a strong connection between customer loyalty, customer satisfaction and service quality. An experiment by Amin et al, (2013), focusing on the connection between customer loyalty, satisfaction and service quality in the process of repetitive service usage depicted that the quality of service is burdened by the effect of sensitivity, compassion and guarantee which as a consequence makes it responsive towards satisfaction of customers. It is the degree of satisfaction that is instrumental in intermittently pulling the consumer towards the property.

Relationships Between Customer Satisfaction, Customer Loyalty, Service Quality and Perceived Value in Hospitality Industry

The growth of the hotel industry thus is dependent largely on the aspect of customer satisfaction. The impact of customer satisfaction is hugely dependant on the quality of service delivered by the hotel. Through the process of getting exposed to high quality of service repetitively, the perception of the consumers’ changes and loyalty results towards the respective brand.  

Creation of customers has been always the sole purpose of any business according to Wu and Lu, (2012), and in the present times it has become quite important that the customers are also retained since the report of N. Torres and Kline, (2013) highlighted the correlation between the increases in net present value of customers to that of an increase in the aspect of customer retention. The report revealed that with a 5% increase in the latter, the former recorded an increase of 25-95%. Like products the customers do have a lifecycle that can be managed by the organisations. On the value ladder the customers climb from the stages of suspect, prospect and first time customers towards a loyal one and ending in the advocating status. In the past the customers were not given much of importance and competing in the growing markets made the companies put lesser focus on the aspect of customer satisfaction. A constant loss and gain of customers resulted in increased costs and it was observed by Amin et al, (2013) that if such loss or defection of customers can be reduced by 5% then the improvements in the margin of profits can be around 25-100%. Kim, Ng and Kim, (2009) asserted that when the company is able to retain customers for long period of time, it basically means that the same customers are repeatedly acquiring the products in increasing volumes, and are also eager to try new offerings from the brand turning a blind eye towards the competitors, which incidentally is helping the company reduce its cost of marketing and sales, since positive word-of-mouth publicity by the retained customers is helping in growth and promotion of the brand among more and more people. Customer retention thus can be termed as an asset that produces revenue for the firm. Customer retention, if targeted on the section of customers that fall in the low-cost high value bracket becomes a rewarding proposition for the business.

Customer value, profitability and customer retention is correlated and purchasers get subjected to the benefits of timely delivery, price, pre and post sales services, quality and convenience through this unique combination as has been highlighted by He, Li and Keung Lai, (2011). The buyers on gaining satisfaction share their experiences and more often than not end up being a loyalist of the brand. The economic benefits of customer retention are lengthened tenure of customers, growth in the volume of purchases and increase in the number of customer referrals. Such benefits result in fall in the maintenance cost of the customers and the replacements costs and an eventual higher price payment by the retained customers which leads to an upswing in the net present value of the customers thus retained. The benefits of customer retention as reiterated by Lee and Way, (2010) states:

  • Cost of customer retention is cheaper than that of acquisition
  • Less cost involved in serving loyal customers over the new ones
  • Improvement of company reputation and attracting new ones through word-of-mouth promotion
  • Price sensitivity is lesser in retained customers than the new ones thus willingness to pay more is higher amongst the former over the latter
  • Likelihood of purchasing greater volumes by retained customers resulting in the increase of revenue for the brand through cross or up-selling.

In the competitive global environment the quality of service and satisfaction of the customers have become vital components for hospitality industry to retain its respective market share in its business domain. Mohammed and Rashid, (2012), in their research suggested investment in quality engraining in the delivery and production systems in business to optimise the operational performances. The loyalty or reward programs in the hotel industry are aimed at the establishment profitable and valuable customer segment retention through value additions and increasing of the aspect of satisfaction. A case study conducted by Han and Ryu, (2009), stated that in the early 80s there was a gradual shift among the companies to embrace the concept of customer loyalty as it was observed that customer acquisition was more costly than retention. The study highlighted that success can be gained by the hotels through developments of loyal customer base by delivering better service and product through display of conviction and passion in their hospitable activities. The significance of the customer loyalty programs has not only stiffened the competition between various brands but also their initiatives of building loyalty have developed over time. The implementation of the loyalty programs according to Castellanos-Verdugo et al., (2009), thus have become the benchmark of success and an imperative cost that the hotels indulge in to reap long term growth and success. There are however a number of factors that are dependant for the loyalty program to be effective as these programs serve many purposes like increasing the degree of consumption, retention of the customers and gaining awareness about the customers’ perspective. The measures of success that are to be included in the loyalty programs must relate to the organisational goals (Abu and Minai, 2009).

According to Hu, Kandampully and Juwaheer, (2009), loyal customers are the most valuable assets of any organisation and it is the degree of satisfaction that is received through the relationship which in turn, strengthens the commitment of the customers towards the brand. The research conducted by Tajeddini, (2010), revealed that loyalty programs are perceived as value for money by the customers. The prevalence of reward programs in the service sector of hospitality was observed from the year 2000. The financial performance of the companies in the long run competition is positively influenced by the incremental degree of loyalty and customer satisfaction as has been suggested by Ladhari, (2009). In the service sector of hospitality, the aspect of switching the service providers by customers is dependent on multifarious factors such as failure of core services, inconvenience, price, ethical problems and competition. However in the re-emphasised study of Dominici and Guzzo, (2010), it was pointed out that decision of repurchase was influenced by the factors of price and most importantly the prior levels of satisfaction. A marked enthusiasm has been observed lately among the hotel sector customers to embrace the loyalty programs despite its more than a few decades long existence. As all customers aim to receive value for their money, it becomes quite challenging to guarantee satisfaction to all of them but the efficacy of enhanced levels of brand loyalty from high degree of customer satisfaction cannot be overlooked in the practice and theory of customer retention (Han, Kim and Hyun, 2011).

The review of the literature thus has highlighted the facts and information about the causes, effects, implications and interrelationships between the various facets of customer retention namely, loyalty, satisfaction, perceived value, quality of service and management of retention in general as well as the in the context of the hotel industry. It has also stated the importance of managing the customer retention initiatives through the designing of loyalty programs so that success and growth can be ensured to the hotel brands in the market competition.

References

Han, H., Kim, W. and Hyun, S.S., 2011. Switching intention model development: Role of service performances, customer satisfaction, and switching barriers in the hotel industry. International Journal of Hospitality Management, 30(3), pp.619-629.

Dominici, G. and Guzzo, R., 2010. Customer satisfaction in the hotel industry: a case study from Sicily.

Ladhari, R., 2009. Service quality, emotional satisfaction, and behavioural intentions: A study in the hotel industry. Managing Service Quality: An International Journal, 19(3), pp.308-331.

Tajeddini, K., 2010. Effect of customer orientation and entrepreneurial orientation on innovativeness: Evidence from the hotel industry in Switzerland. Tourism Management, 31(2), pp.221-231.

Hu, H.H., Kandampully, J. and Juwaheer, T.D., 2009. Relationships and impacts of service quality, perceived value, customer satisfaction, and image: an empirical study. The Service Industries Journal, 29(2), pp.111-125.

Abu Kasim, N.A. and Minai, B., 2009. Linking CRM strategy, customer performance measures and performance in the hotel industry. International Journal of Economics and Management, 3(2), pp.297-316.

Castellanos-Verdugo, M., de los Ángeles Oviedo-García, M., Roldán, J.L. and Veerapermal, N., 2009. The employee-customer relationship quality: Antecedents and consequences in the hotel industry. International Journal of Contemporary Hospitality Management, 21(3), pp.251-274.

Han, H. and Ryu, K., 2009. The roles of the physical environment, price perception, and customer satisfaction in determining customer loyalty in the restaurant industry. Journal of Hospitality & Tourism Research, 33(4), pp.487-510.

Mohammed, A.A. and Rashid, B., 2012. Customer Relationship Management (CRM) in Hotel Industry: A framework proposal on the relationship among CRM dimensions, Marketing Capabilities, and Hotel performance. International Review of Management and Marketing, 2(4), p.220.

Lee, C. and Way, K., 2010. Individual employment characteristics of hotel employees that play a role in employee satisfaction and work retention. International Journal of Hospitality Management, 29(3), pp.344-353.

He, Y., Li, W. and Keung Lai, K., 2011. Service climate, employee commitment and customer satisfaction: evidence from the hospitality industry in China. International Journal of Contemporary Hospitality Management, 23(5), pp.592-607.

Kim, W.G., Ng, C.Y.N. and Kim, Y.S., 2009. Influence of institutional DINESERV on customer satisfaction, return intention, and word-of-mouth. International Journal of Hospitality Management, 28(1), pp.10-17.

Amin, M., Yahya, Z., Ismayatim, W.F.A., Nasharuddin, S.Z. and Kassim, E., 2013. Service quality dimension and customer satisfaction: an empirical study in the Malaysian hotel industry. Services Marketing Quarterly, 34(2), pp.115-125.

  1. Torres, E. and Kline, S., 2013. From customer satisfaction to customer delight: Creating a new standard of service for the hotel industry. International Journal of Contemporary Hospitality Management, 25(5), pp.642-659.

Wu, S.I. and Lu, C.L., 2012. The relationship between CRM, RM, and business performance: A study of the hotel industry in Taiwan. International Journal of Hospitality Management, 31(1), pp.276-285.

Osman, H., Hemmington, N. and Bowie, D., 2009. A transactional approach to customer loyalty in the hotel industry. International Journal of Contemporary Hospitality Management, 21(3), pp.239-250.

Grissemann, U., Plank, A. and Brunner-Sperdin, A., 2013. Enhancing business performance of hotels: The role of innovation and customer orientation. International Journal of Hospitality Management, 33, pp.347-356.

Yoo, M., Lee, S. and Bai, B., 2011. Hospitality marketing research from 2000 to 2009: topics, methods, and trends. International Journal of Contemporary Hospitality Management, 23(4), pp.517-532.

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