Importance of customer loyalty programs in the hospitality industry

Competition in recent times has compelled the hospitality industry to adopt myriad marketing tactics, especially with regard to customer relationship management. Since the hospitality industry is extremely service-centric, customers are highly skeptical about the quality of services provided. Based on their experience they take their future purchase decisions. To inspire loyalty amongst customers, most standalone hotels, and hotel chains have implemented customer loyalty programs. These, however, are advantageous more to customers than to the providers.

Advantages of customer loyalty programs in the hospitality industry

The two most prominent advantages of marketing hotels through customer loyalty programs are (Miranda, 2018):

• Increased revenues by improving repeat purchases and augmenting the services offered.
• Customer retention through close association with the existing customer base.

Cross-selling of allied services

Other advantages of loyalty programs are that they open a lot of avenues for hotels to cross-sell allied services like gym and club memberships, develop a customer database that helps to get valuable inputs for improving services and establishing business tie-ups with other firms for co-branded loyalty programs. These programs also help in improving public relations and brand image (Uncles, Dowling, and Hammond, 2002).

Characterization and customization through data tracking

The hospitality industry is facing intense competition and saturation of product categories and more demanding and busy customers (Stegemann, 2002). Thus, loyalty programs are the key to survival in stiff market conditions. Moreover, Stegemann (2002) also identified significant advantages of loyalty programs in the present-day scenario. Loyalty programs have transformed from being a differentiating factor a few years back to a contemporary survival tool as most of the hospitality firms have devised their individual loyalty programs.

Moreover, loyalty programs provide valuable inputs about the characteristics of the target market and the ability to customize services as per customer preferences. They also help study the pattern of consumer purchase behavior towards a better and more sustainable customer-company relationship.

Cost saving for hotels and customers

Chaabane and Volle (2010) highlighted the benefits of loyalty programs from the customer’s point of view. The utilitarian value derived by customers results in the financial advantages of the firms as well. Lesser spending on repeated purchases is a motivation for consumers to show loyalty towards a particular hotel. It also provides convenience as the hotel must be already aware of the customer’s preference for services. This helps them provide value-added services to customers.

Lack of brand affinity is a challenge in customer loyalty programs

Deloitte (2013) in its study inferred that loyalty in the hospitality industry displayed a staggering dearth of brand affinity amongst the customers, even the loyal ones. Loyalty programs do not guarantee brand affinity, particularly in the hospitality industry. In fact, loyalty program members frequently switch brands and spend nearly 50 percent of their total hospitality-related expenses on other brands. As much as 43 per cent of the people refused to stay loyal to a hotel brand in case a better loyalty program is offered to them by another brand (Deloitte, 2013).

Customers make purchase decisions on the basis of their previous experiences with a brand. These revelations hint towards the flaw in hotels’ approach towards customer loyalty. There is a growing dependence on the present approach towards loyalty programs that culminate into repeat purchases with redemption of points as discounts. It is establishing an illusion of loyal customers as it ignores the spending done on other brands in the same product category. It also ignores customer experience with the brand in the past which determines brand affinity and nurtures exclusive opportunity for hotels to sustain loyalty.

Improving cost efficiency and enhancing customer’s perceived value an additional challenge

Capgemini (2012) in their study on loyalty programs have enumerated the challenges of the contemporary scenario. First and foremost, the challenge that loyalty programs face is to target the desired customer segment correctly. Secondly, hotels need to strive hard to create customer delight which will foster the superior perceived value of the brand, encouraging retention. Thirdly, hotels need to utilize their resources appropriately and attain breakeven and gradually economies of scale to improve cost efficiency as loyalty programs increase overall costs.

Customer loyalty programs have become critical for survival

The growing intricacy and density of contemporary businesses obligates managers to implement innovative strategies to retain customers. This is pertinent across all industries and product categories. Since marketing tactics to acquire new customers is getting costlier with each passing day, businesses are seeking refuge in customer loyalty programs. Customer relationship management is intended to retain the customer for longest possible time and such alliance must be benefitting the customer as well, thereby, creating a win-win situation for both. Reward points and value added benefits are a fruitful avenue for cross-selling and alternative marketing outfits (Vyas and Sinha, 2008). Thus, the challenges posed need to be tackled meticulously and marketing strategies must be developed as per the resources, unique selling propositions of the hospitality firm, customer profile of the target market and a comprehensive understanding of the customer expectations.

With market competition intensifying and customer expectations soaring high, hospitality firms are finding it challenging to ensure long-term profitability and retaining their market position. Hotels are venturing into an alliance with other retailers like banks, airlines, and restaurants to create co-brand loyalty programs. With recessionary economic conditions across the globe and people having lesser disposable income, rewards, and benefits offered through loyalty programs act as a commendable motivator.

References

• Capgemini, (2012). New Generation Loyalty Management Systems: Trends, Challenges and Recommendations, Report.
• Chaabane, A. and Volle, P. (2010). Perceived Benefits of Loyalty Programs: Scale Development and Implications for Relational Strategies, Journal of Business Research, 63(1), Pp. 32-37
• Deloitte (2013). [Online]. A restoration in Hotel Loyalty: Developing a blueprint for reinventing loyalty programs. Available at: http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Consumer%20Business/us_thl_customerloyaltyPOV_012313.pdf
• Stegemann, N. (2002). Loyalty Programs in Australia: Who is in Bed with Whom?, Proceedings of the 18^th Annual IMP Conference, 5-7 September, 2002, Dijon- Burgundy Graduate School of Management.
• Uncles, M., Dowling, G., and Hammond, K. (2002). Customer Loyalty and Customer Loyalty Programs,School of Marketing Working Paper No. 98/6, University of New South Whales
• Vyas, P. and Sinha,P.(2008). Loyalty Programs: Practices, Avenues and Challenges,Working Paper No.2008-12-01, Research and Publications, Indian Institute of Management Ahmedabad, Pp. 1-24