Term Paper on "Benefit Trend in Hotel Industry"

Term Paper 13 pages (4302 words) Sources: 13 Style: APA

[EXCERPT] . . . .

Hotel Benefits Programs

Benefits Programs & the Hotel Industry

Hilton Hotels (HHonors), Marriott (Honored Guest), Holiday Inn (Priority Club), Hyatt (Gold Passport), Sheraton (Club International), and numerous other hotel brands have over the past few years developed benefits (rewards) program. They launched these programs because these and other hotel chains felt the sting of waning customer loyalty; they are battling back with rewards, benefits, and other special marketing programs to regain some of that lost loyalty. Indeed, saying that brand loyalty (also identified as customer loyalty to brands) is in decline is at the very least "an understatement" according to Jean-Noel Kapferer. Writing in Ivey Business Journal Online Kapferer (Professor of Marketing at HEC Paris, Graduate School of Management) asserts that while brand loyalty is the "holy grail" of marketing (Kapferer 2005), locating and hanging on to that holy grail has become more difficult in recent years because consumers are more versatile and "less loyal" than they have ever been.

Many studies have shown, Kapferer continues, that satisfied customers, when considering the next purchase, do not automatically buy the same brand, or stay in the same hotel; instead, the customer tends to select from several brands within the same product category. Kapferer uses the analogy of the institution of marriage, which is supposed to be a long lasting relationship based on fidelity. And yet, in many cultures and countries, men and women divorce and remarry "many times" in their lives. Given this lack of fidelity and loyalty between men and women across widely diverse cultures, it is then "unreasonable" for brands to "demand exclusive long-term relationships" with customers, Kapferer explains. Moreover, it is "logically impossible" for a brand such as Hilton or Marriott to expect loyalty when it is "not reciprocal." This is the key point Kapferer offers in his research article; brands wine and dine their customers and expect "...total faithfulness" when in fact brands should just treat their customers as good friends and offer them the gratitude befitting good friends. This is where benefit trends come into the picture.

LITERATURE REVIEW:

Steven M. Shugan (Marketing Science). Before entering into a review and analysis of recent benefit trends - also called "rewards" and "loyalty marketing" programs and promotions, among other titles - it is worthwhile initially to look deeper into the philosophies and strategies behind brand loyalty and customer value. For example, how important are the concepts of "commitment" and "trust" when it comes to the hospitality industry pleasing and keeping their customers?

To wit, among frequently-cited papers in the field of economics and business over the past twelve or so years, the top cited piece, according to the journal Marketing Science, is the Robert M. Morgan / Shelby D. Hunt research titled "The Commitment-Trust Theory of Relationship Marketing." Published in the Journal of Marketing, the article presents the case that "commitment and trust are necessary requisites" for a business relationship that is productive (Shugan 2005), the editorial in Marketing Science explains. (More on Morgan / Hunt a bit later in this section.)

The organization that made the assertion that Morgan & Hunt had hit the nail on the head in terms of the sheer number of publications and journalists that had tapped into their research was the Institute for Scientific Information (ISI), which should remove any doubt that a marketing or advertising or advocacy group aligned with hotels put out a PR-type report on the topic.

Writing in Marketing Science, editorial scribe Steven M. Shugan suggests that customer loyalty is achieved through the understanding that customers are "assets" and that believing in that concept is "essential" to marketing success in the hospitality industry. Shugan quotes from (and agrees with) available marketing research: "...the life-time value of a well treated customer and his/her good opinion, far exceeds any single transactional benefit."

Shugan writes that the typical balance sheet of any firm might well embrace its customer base, buildings, cash, and other "tangible assets" - along with employee resources. And as to marketing activities, for the successful business (in this case, hotels) those activities should be well more expansive than just creating "short-term sales." Instead, marketing activities should work towards the creation of "enduring, if not permanent assets." Those assets (customers) become the Holy Grail that Shugan alluded to earlier, and they return far more value to the hotel than awareness advertising, that only offers temporary customer brand awareness, Shugan continues in his editorial in Marketing Science.

A true loyalty program trusts the customer rather than demanding the customer's trust, Shugan continues. Many existing loyalty programs are "shams" in Shugan's opinion, because they tend to produce liabilities instead of producing assets. The loyalty programs Shugan alludes to do in fact garner short-term cash flow, but they also produce "substantial future obligations" to the same customers. Instead of making a commitment to the customer (which demonstrates the hotel's trust of the customer), too many loyalty / benefit programs ask the customer to trust that, in turn for his or her expenditures out front, the hotel will follow through with future customer rewards. So, Shugan sees that particular strategy as not investing in the customer as an asset, but rather as a liability; i.e., the hotel owes the customer something in the future. And in the process, the hotel risks a "catastrophic backlash" when in the future the rewards promised tend to fall short of what the customer had expected.

The bottom line for Shugan: True loyalty / benefit programs trust the customer rather than insisting on the customers' trust of the hotel. A true loyalty program creates an asset by "making the customer more attached to the brand over time."

Robert M. Morgan & Shelby D. Hunt (Journal of Marketing): Although this article in the Journal of Marketing was published in 1994, it set the stage for and cleared the path for much of the benefit / loyalty trends in hotel services today, according to Shugan's narrative in the previous paragraphs. Morgan et al. writes that his approach is to examine the nature of the "relationship marketing" based on relationship "commitment and trust."

In their groundbreaking 1994 journal article, Morgan & Hunt break relationship marketing down to two distinguishing concepts; one is the "discrete transaction," and two is the "relational exchange." The discrete transaction normally features a big-splash-type launching (what Shugan alludes to as "awareness advertising"), a short duration, and a "sharp ending by performance." On the other hand, the relational exchange is an ongoing process, linked to the future, one that "...traces to previous agreements."

The Commitment-Trust theory asserts that commitment and trust are pivotal because those concepts encourage marketers to, a) cooperate with their "exchange partners" (customers) in order to preserve relationship investments; b) avoid "short-term alternatives" that may be attractive and instead stay with existing customers over the long haul; and c) be willing to launch "high-risk actions" based on the belief that their customers will not behave "opportunistically" and abandon the brand for a better deal from a competitor (p. 22). The Morgan & Hunt theory holds that that relationship commitment is a key component of relationship marketing; and relationship commitment, like a successful marriage between two loving partners, involves "mutual social trust" and leads to the achieving of "valuable outcomes" for both parties (p. 23). The trust component of Morgan & Hunt's theory suggests that while commitment to a brand involves some vulnerability on the part of the customer, when trust is achieved, the relationship between the customer and the brand moves into the genre of confidence. And if a customer has confidence in the integrity of the brand, he or she is then willing to step out into the vulnerable place known as commitment and trust the brand, which leads, Morgan & Hunt explain on page 24, "to higher levels of loyalty."

Christopher J. White & Steve Scandale (Journal of Hospitality and Tourism Management): Why do travelers choose one destination over another - and by inference, why do they choose one hotel over another? Certainly the brand loyalty / customer loyalty factor enters into the mix; but White & Scandale's research into the "cross-cultural" dynamics of decision-making suggests that consumer emotions "were the strongest predictor" of where a visitor would choose to visit and stay. The research White & Scandale engaged in focuses on the relationship between the "affective" and "cognitive" components (p. 169) related to decision-making. An "affective" reaction is the immediate impulse of the customer to make a decision about where to stay; a "cognitive" reaction is more thoughtful and "deliberate," the research indicates.

Meanwhile, White & Scandale's findings tend to collaborate the assertion of Kapferer in the Introduction to this paper (that loyalty is in decline); White & Scandale believe that the affective component may well be a "better predictor" of customer behavior than the cognitive component. And since the affective component is based more on emotions than the cognitive component, it behooves the hotel industry to make an appeal to the "affective" component within the traveler. When followed up with service,… READ MORE

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