2 pages summary double space for each chapter. Total 2 chapters. PPTs included.

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HRT476Ch.5CustomerLoyalty.ppt
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CUSTOMER LOYALTY

HRT476

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Chapter 5 Discussion Points:

Satisfied customers, hopefully, become loyal customers. Customer royalty is the ultimate goal of hospitality entities. Chapter 5 discusses how to create customer loyalty.

  • What is the customer loyalty? In other words, who are the loyal customers?
  • Can we segment and classify loyal customers? We need different and tailored marketing strategies for each segment of loyal customers.
  • Then, why should we strive for customer loyalty? In other words, what are the consequences of customer loyalty?
  • Finally, how to create customer loyalty? Do you have any action plan for it?

Agenda

  • What is customer loyalty?
  • Classification of loyalty
  • Why is it important?
  • How to build a foundation for loyalty?

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Customer Loyalty

  • “Customer’s willingness to behave as a partner to the organization”
  • “Likelihood of a customer’s repeat business”

Is repeat business behavior a sufficient condition of customer loyalty?

  • “Perceptions, attitudes, emotional attachment and beliefs determine the loyalty”
  • “Two factors are critical for loyalty: emotional attachment to the product/service & repeat purchase/business (Griffin, 1995)”

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What is customer loyalty? You can define the customer loyalty using your own words, too.

When asked, you may come up with repeat purchase first. Then, my question is.. Is repeat business behavior a sufficient condition of customer loyalty?

Repeat purchase or revisit behaviours exactly define the “Behavioural Loyalty”, which is not good enough to defile the genuine loyalty. Strong emotinal attachment or positive attitude toward brand/product/service, that is also required to define customer loyalty. We call it “Attitudinal Loyalty”

Thus, we need two factors to define customer loyalty: emotional attachment to the product/service & repeat purchase/business.

Attitude

(Emotional

Attachment)

Taxonomy of Loyalty
(Dick & Basu, 1994)

Sustainable (Premium)

Loyalty

No Loyalty

Latent Loyalty

Spurious (Inertia)

Loyalty

Repeat Purchase (Patronizing)

Low

High

Negative

Positive

Using these two factors (emotional attachment to the product/service & repeat purchase/business), we can classify customer loyalty by drawing 2x2 matrix. Let’s place repeat purchase on the X axis and attitude/emotional attachment on the Y axis. And the, we can draw 2 x 2 matrix, creating four different quadrants. Each quadrant has its nick name: Sustainable loyalty (high repeat purchase & positive attitude), Spurious loyalty (high repeat purchase & negative attitude), Latent loyalty (low repeat purchase & positive attitude), and Mo loyalty (low repeat purchase & negative attitude).

Think about your purchase behaviors in your daily life and come up with at least one example (brand/product/service) for each category of loyalty.

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Taxonomy of Loyalty

  • Sustainable (Premium) Loyalty
  • The type of loyalty for which hotels should strive
  • Most resistant to competitors’ offerings
  • Spurious (Inertia) Loyalty
  • Most susceptible to competitors’ offerings
  • Frequency programs tend to create this loyalty
  • Latent Loyalty
  • Situational factors determine repeat business
  • Need to identify and remove these situational factors
  • No Loyalty
  • Loyalty programs do not impact customers

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Hospitality marketers must be selective in developing marketing strategies for each segment of loyal customers. Ultimate goal is of course to create the sustainable loyalty. Sustainably loyal customers are most resistant to competitors’ offering and stay with you for a longer period.

Why important?

  • Profit derived from increased purchases
  • Customers purchase in greater quantities as they grow
  • Profit from reduced operating costs
  • Customers become more experienced & make fewer demands
  • Customers make fewer mistakes, contributing to greater productivities
  • Profit from referrals to other customers
  • Positive word-of-mouth saves a firm from investing money in sales & advertising (Free sales & advertising)
  • Profit from price premium
  • Long-term customers willing to pay regular price
  • Willing to pay higher price during peak periods
  • Profits from reduced customer acquisition costs
  • Great savings in sales commissions, advertising & promotions costs, administrative costs, sending out welcome packages & sign-up gifts .

Building a long-term relationship or loyal relationship is a win-win situation for both service providers and customers. For service providers, loyal customers are kind of money in the saving account. They bring several different types of profits. Read this slide carefully.

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Why important?

This figure support the previous slide about different types of profits you can expect from your loyal customers.

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Why important?
– Customer Perspective

  • Confidence benefits:
  • Less risk of something going wrong (confidence in correct performance)
  • Ability to trust the service provider
  • Lower anxiety when purchasing (Knowing what to expect & receive)
  • Social Benefits:
  • Mutual recognition between customers and service providers (being known by name)
  • Friendship with service provider
  • Enjoyment of certain social aspects of the relationships
  • Special Treatment Benefits:
  • Better price & discounts that are not available to most customers
  • Extra services (higher priority when there is a wait)

Why is building a long-tern relationship important to customers?

It also brings lots of benefits to customers. Read the slide carefully.

Again, building a long-term relationship is mutual goal of exchange partners: service providers and customers.

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How to Develop Loyalty

  • Do frequent guest programs build loyalty?
  • Build frequency that does not build loyalty
  • Customers are willing to switch to other service providers
  • Focus on the “Deal”, not the brand or product relevance
  • Ignore the emotional and psychological factors that build real commitment
  • How to build real loyalty?

The, how to create customer loyalty?

Frequent guest benefits? That is a common and effective strategy to retain your customers.

Here, one question arise. Do these frequent guest programs create true (sustainable) loyalty? Obviously, these reward programs create frequency, however, that frequency does not build customer loyalty. Customer loyalty is more than simply frequency. In this case, the main reason customers purchase your product is not because of service excellence, but because of tangible benefits. That means they are willing to switch to other service providers when they provide better benefits.

Also, those reward programs focus on the “Deal”, not the brand or product relevance. And they ignore the emotional and psychological factors that build real commitment that lead to true customer loyalty.

Then, how to build real loyalty?

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How to Develop Loyalty

  • Build Trust (Reliability)
  • Service providers must behave in a reliable fashion - Do things as promised
  • Demonstrating guest concerns (respecting the well-being of others)
  • Acting with integrity (behaving in a consistent manner)
  • Reliability is important because it cannot be easily copied by competitors
  • Requires all departments work together as a team to serve the customer
  • Develop customer relationship selectively
  • Knowing your customers helps you select the customers you want to develop a relationship with

How to create customer loyalty?

We go back to the five dimensions of service quality discussed in chapter 2, the focus point of your individual research project, and the mid-term exam question.

First, you have to build trust or reliability. Service providers must behave in a reliable fashion. That means doing things as promised, demonstrating guest concerns, respecting the well-being of others, acting with integrity, and behaving in a consistent manner. Reliability is important because it cannot be easily copied by competitors.

Building trust requires all departments work together as a team to serve the customer. Please remember that you have to develop customer relationship selectively. All of your customers will not become your loyal customers. Thus, knowing your customers helps you select the customers you want to develop the relationship with.

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Complaints Are…

  • Inevitable:
  • Nothing is perfect. Diversity of the hospitality customer. Heterogeneity of hospitality products
  • Healthy:
  • Absence of complaints is the best indicator that there is something wrong
  • Opportunities:
  • To learn customers’ problems. To build the long-term relationships
  • Marketing tools:
  • Understand what your customers want. Better than customer survey
  • Advertising:
  • If you fix the problem, the best advertising tool => Positive word-of-mouth (WOM)

Yes, reliability (delivering as promised) is the key to the customer loyalty. However, as a human being, we fail to deliver it at times. In other words, service failure/breakdown may happen at workplaces in the hospitality industries. Fortunately, service failures and ensuing customer complaints are opportunities to build a sound long-term relationship.

Even though we do our best to meet customer needs and thus satisfy our customers, service failures and customer dissatisfaction arise all the time. Customer complaints are:

1. Inevitable: Nothing is perfect. Diversity of the hospitality customer and Heterogeneity of hospitality products inevitably cause service failure.

2. Healthy: Absence of complaints is the best indicator that there is something wrong in your operation.

3. Opportunities: To learn customers’ problems. To build the long-term relationships.

4. Marketing tools: Understand what your customers want. It is better than customer survey.

5. Advertising: If you fix the problem efficiently and effectively, then, it is going to be the best advertising tool => Positive word-of-mouth (WOM).

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This figure support the previous slide about why customer complaints are opportunity to build customer loyalty.

Look at the following data that shows why customer complaint is not crisis, but opportunity. If customers do not complain, only 37% of them will return to your property. However, if they complain and those complaints are resolved, 70% of them will return to your property. More importantly, if those customer complaints are resolved quickly, 95% of those customers will come back to your property. Obviously, customer complaints are not crisis, but opportunities to build the long-term relationship, in other words, customer loyalty.

In this chapter, we discussed how to create customer loyalty. In summary, we must first try to meet customer needs and wants. In other word: Reliability. By doing so, we can satisfy customer and satisfied customers tend to become loyal customers. What if we fail to deliver it as promised? In other words, how to handle service failure situations? Service failure and customer complain is not crisis, but opportunity to build a long-term relationship through the effective service recovery, which will be discussed in chapter 6.

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