Chapter 14

Chapter 14

Relationship marketing

Lecture objectives

Understand the differences between a relationship marketing strategy and a transactional marketing strategy

Identify the components of a relationship marketing strategy

Evaluate the concept of attitudinal and behavioural loyalty in the context of hospitality

Analyse the role of a frequent guest program in branded hotel chains

Introduction Traditional approach to marketing is acquisition of new

customers, often described as transactional marketing

Once customer bought product/service, there is no strategic effort to develop relationship further; transaction complete from both the customer’s and the company’s perspective

Concept of relationship marketing (RM or CRM) looks at customers as a business asset that should be nurtured

Recognizes some customers have potential to generate significant value for companies over a period of time

Focus of RM is to create and maintain customer relationships over the long-term

What is relationship marketing?Relationship marketing is both a business philosophy, which stresses the importance of customer retention, and a marketing strategy with actions

Grönroos (1994) defines relationship marketing as:to identify and establish, maintain and enhance, and where necessary, terminate relationships with customers and other stakeholders, at a profit so that the objectives of all parties involved are met; and this is done by mutual exchange and fulfilment of promises

Relationship marketing recognizes customers who make repeat purchases have high lifetime value (LTV)

LTV is the present-day value of all historic and future profit margins earned from sales to a particular customer or segment

Building close relationships with key customers is mutually rewarding for company and customer

RM strategy targeted at selected hospitality customers

Economics of customer retentionHospitality companies lose customers each year Customers move through the family life cycle, changing employment,

home, lifestyle and consumption habits Corporate customers/intermediaries go through similar changes, with

growth, mergers, takeovers, relocation, downsizing and demise Competitors lure customers away with new-product initiatives, price

incentives Hospitality companies have relatively high customer defection rates

(customer churn)

Although companies needto attract new customers to replace lost ones, customer retention is critical Companies want to build relationships with customers for economic

reasons Companies generate better profits when they manage their customer base

in order to identify, satisfy and retain profitable customers Improving customer retention rates has the effect of increasing the size of

the customer base Research suggests increasing customer retention by 5% increases profits

between 35% to 95% – e.g. marketing costs are reduced and repeat customers generate more revenue

Characteristics of relationship marketing

Hospitality companies implementing relationship marketing strategies successfully need:

strong service culture commitment to internal marketing effective segmentation strategy interactive relational database in all properties trust from their customers customer recognition and reward strategies

Figure 14.1 Marketing strategies for frequent LTV customers

Behavioural loyalty

There is a distinction between a frequent customer and a loyal customer

Frequency is not an indicator of loyalty:

a frequent business traveller might have to stay at hotel because of company expenses policy

some customers may regularly patronize the establishment because there are no competitors in the area

This type of loyalty is described as behavioural loyalty, because it is based on frequent behaviour

Attitudinal loyalty Loyal customers are true, faithful and constant

Loyal customers are completely satisfied with the marketing offer, emotionally committed and do not seriously consider competitor alternatives

This type of loyalty is described as attitudinal loyalty because of the strong preference the customer has built towards the brand or unit

Hospitality businesses want customers who have attitudinal loyalty and be frequent guests

Evidence suggests that totally satisfied customers are six times more likely to repurchase (Reichheld, 1993)

Loyal customers will often take ownership of the relationship and refer to the brand in first person terms (e.g., loyal pub customers often describe their bar as ‘my local’), and tune in brand’s marketing communication messages

Figure 14.2 The relationship marketing ladder of loyalty

Frequent and loyalty guest programs

Already explained crucial difference between frequency and loyalty

Distinction applies to frequent guest program (FGP) and loyalty guest program (LGP)

FGP adopts transactional approach to marketing and builds sales by offering rewards from a wide range of services (hotels, travel, retail, etc.)

LGP adopts relational approach and encourages regular customers to join a club, receive recognition as a privileged guest and get rewards via added benefits during the stay at the hotel

But FGP and LGP are virtually interchangeable and hospitality companies use the term FGP to apply to any loyalty program

Hospitality FGP/LGP All major hospitality brands offer a guest

program to reward regular customers These customers are aware of their importance

to hotels The programs provide different levels of

membership, determined according to the number of nights a customer stays in the hotels

Higher number of stays, the more generous the benefits

Hilton’s Honours program more transactional (FGP)

Shangri-La’s Golden Circle more relational (LGP)

Conclusion Hospitality companies can develop meaningful relationships with

customers to gain competitive advantage

Relationship marketing strategy not appropriate for all branded hospitality organizations

Companies developing a relationship marketing strategy must develop: strong service culture that delivers high customer satisfaction effective service recovery strategies relevant recognition and reward policies

to create customer trust, commitment and loyalty

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