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Customer Value In The Hospitality Industry

Paper Type: Free Essay Subject: Marketing
Wordcount: 3723 words Published: 17th May 2017

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Understanding the customer is among the top five most troubling problems for hotel managers . Obtaining precise customer information is crucial to define the hotel attributes that fulfill their requirements, to foster innovative and tailor-made services, and develop targeted marketing strategies, the final goal being to acquire and retain valuable customers. Each interaction with the customer either builds or erodes value in the relationship and then impacts future contacts, depending on the information and behavioral insight hotel organizations gain during the process and the ability to translate it into a coherent response.

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Today, in the business world, management recognizes that customers are the core of a business and that a company’s success depends on effectively managing relationships with them and with the hotel industry is facing an increasingly competitive market which signifies the greater need for the hotels to differentiate their customers. As a result, one of the first goals that management has its employees achieve is based on a maxim such as “the customers are always right,” “do whatever it takes to deliver your promise” or something similar.

All objectives are focused to one ultimate goal that is to make customers happy because they are the ones who keep the business running. Not too long ago, many companies did not consider this an important factor and often ignored their customers with the result that many of these customers did not come back. Often, these objectives become constraints for businesses and their employees when they do not have appropriate tools, equipment, or methods to achieve this goal.

Today, technology provides businesses with systems that can help companies track customers’ interactions with the firms and allow the firms’ employees to quickly retrieve all information about the customers. This concept if used properly could enhance a company’s ability to achieve the ultimate goal of retaining customers and so gain a strategic advantage over its competitors. The process of digitizing a staff’s knowledge about his or her customers. This is because in a usual business process, customer relation staff would normally be required to remember their clients’ requirements, behaviors, tastes, preferences, etc. In essence, technology helps focus on building long-term and sustainable customer relationships that adds value for both the customer and the company.

Increasing occupancy rates and revenue by improving customer experience is the aim of modern hospitality organizations. To achieve these results, hotel managers need to have a deep knowledge of customers’ needs, behavior, and preferences and be aware of the ways in which the services delivered create value for the customers and then stimulate their retention and loyalty.

Marketing is important in all areas of the organization, and customers are the reason why business exist and operate. In fact, marketing efforts often account for more than half of the price of the product.

Based on the nature of marketing, it involves voluntary “exchange” of relationship where both sides must be willing parties. The parties must be able to communicate through different instruments. Therefore in today’s exceedingly competitive environment, businesses need to gain an insight into their customers and their psyche, segregate those most profitable and concentrate efforts into acquiring, satisfying and retaining these customer segments. One of the means to achieve this end is by CRM. “CRM” is short for Customer Relationship Management, the industry term for the set of methodologies and tools that enable an enterprise manage customer relationships in an organized manner.

It helps companies make sense of customer needs and helps companies manage these relationships more intelligently and help predict the future. Such knowledge provides a crucial competitive differentiation for companies to gain market share and reduce operational costs of retaining their customers. There are many technological components to CRM, but thinking of it primarily on technological terms is a major mistake. The more useful interpretation of CRM would be that of a process that helps bring together lots of pieces of information about customers, sales, marketing effectiveness and market trends.

The strategy implementation is based on the concept that an organization’s most valuable asset is the customer and the organization must manage its customer relationship resources wisely. Having the various departments of the organization gather qualified information will create a database that is of real value to the company. Establishing defined processes for data retrieval will allow effective retrieval will allow effective use of the data and a uniform platform for customer relations management as well as optimal customer service. Thus, an in depth organizational change that supports CRM is required throughout marketing, sales and services departments.


Proposition 1 : The impact of CRM in customer retention in the hospitality sector is a positive and welcome change

Proposition 2: The role of customer centric information system’s is instrumental in building customer value in the hospitality sector

Proposition 3: IT implementation could be a possible solution to overcome ostracism of Small and Medium Hospitality Organizations.

Proposition 4: Essentiality of customer satisfaction measurement system for enhancing business enhancement

Proposition 5 : CRM : a tool for strategic competitive advantage


Customer retention is an important application area of CRM, given that customer acquisition costs are higher than retention costs. In addition to saving profitable customers, retention programs allow companies to collect data about customers, which is used to better understand, target, market to, communicate with or to customize future interactions with customers. Retention programs can be a relatively inexpensive way means to making a customer feel special, increase their purchase and recommend prospects. CRM helps companies focus on the economically valuable customer while keeping away and eliminating the economically invaluable ones. Proper CRM practices can potentially impact customer satisfaction rating and can potentially lead to increase customer retention

CRM systems require capital investments and integrate strategy, marketing and IT. As such, they cut across traditional organizational structures and force the integration of activities. There is no doubt that CRM will help achieve sustainable competitive advantage. The strategy deals with how to establish, develop and increase customer relations from a profitability perspective. Based upon knowledge about the individual customer’s need and potential, the company develops customized strategies describing how different customers should be treated to become long term profitable customers. The basic philosophy underlying CRM is turning information into intelligent business knowledge.CRM maximizes each customer contact through the use of business process automation, technology solutions, and information resources. All activities need to have the same outlook to reinforce the strategic objective of maximizing customer and firm value. So to increase customer satisfaction and customer perceived value, CRM process is implemented that involves the following steps: Segment and Profile the market, Design Communication Strategy, Implement designed strategies, Evaluate the results. CRM is practiced at three levels: functional or backend, customer facing or front end and companywide. The application of CRM is in these following areas: Investing in best customers first, Integrated view of all customer transactions, Optimizing ‘exchange of value’ between customer and company, Assessing customer value and motivating Loyalty, and Customer Retention.

Hotels, especially those that develop a customer centric model for the first time, have to adopt a step by-step policy, based on a learning-by-doing process.

In particular, reorienting the hotel company around its customers basically requires:

• The implementation of a customer-centric strategy, which not only means information management but a change in organizational culture, business processes, and working practices (human resources empowerment);

• A clear view of the role of IT in customer-oriented programs and the ability of hotel managers to translate their technology requirements into proper investments;

• The convergence of all information systems and databases that can be used at each point of interaction (call center, CRS, front office system, Internet, etc.) into a central data warehouse, to avoid the creation of separate islands of information

and facilitate “whole guest” information sharing.

An effective Customer Information System for the hospitality industry players centers around modeling customer intelligence in their hotels.

Modeling Customer Intelligence, the process:

All information collected should be stored and processed into the hotel database, which allows each actual customer to be identified as a record and recognized through online details of his/her previous visit.

The starting point for investigating the guest profile and building an effective customer database is modeling the information flows that take place in a hotel organization according to four important aspects:

1. WHO: who are the information providers?

2. WHEN: when is the information acquired?

3. HOW: how is the information collected and


4. WHAT: what kind of information should be


Next is The Guest- Hotel Touch Points, guests get in touch with hotel organizations and with single departments/functions within these organization in a variety of different places and ways. Across all points, it is crucial to ensure real-time

customer data synchronization, because guests want to give and receive information from various channels,

but they do not like to repeat the same information across all those channels.

Information Channels and Systems

At each “touch point,” customer information and service requests can be collected through different channels and using a variety of customer-facing systems and back-end information systems (call center,front office system, email, Internet, etc.) and then downloaded into the hotel information system, which

delivers orders to all hotel departments.

The Guest Information Matrix

Three basic categories of information can be identified, according to the way the information is gathered

Front-line data: “Compulsory” information needed to complete the booking procedure (e.g., name, address, type of room, length of stay, credit card number, etc.) and to manage the guest folio

Spontaneous data: Information provided directly by the guest to the hotel staff, such as personal preferences and requests

Behavioral data: Information that the system records automatically (e.g., use of the hotel fitness center through a chip card that records the entrance) or that the hotel staff can input into the system by observing guest behavior.

Given these categories, the guest profile basically consists of three main parts:

• Personal information, such as name, sex, contact details, nationality, language spoken, if physically challenged person, business address, means of payment, etc. This includes both front-line data and spontaneous data.

• Information regarding all aspects of the hotel stay, such as accompanying persons, type of booking , type of room arrangement , length of stay, type of room services required, use of food & beverage services and other hotel facilities, etc. This information includes “compulsory” data as well as spontaneous

and behavioral data.

• Guest complaints and opinions on quality standards of hotel services and hotel staff performance, which can be collected during the stay or just before check-out, through printed forms or online questionnaires on interactive TV.

The building of an operational customer information system depends on the trade-off between the theoretical information framework discussed in the third section and hotel managers’ requirements. Generally, it would be simple to provide them with the information they want, but this may be not effective

because, except for compulsory data, they often tend to choose the information that is easy to collect and deal with and not the information that would aid decision making . On the other hand, an information overload may be equally unproductive, the risk being to create an amount of data too large for managers to digest or even process, thus making it hard for them to identify information useful for defining guest patterns and high-profit market segments .

From the hotel’s point of view, a cost-benefit analysis is then required, which means to assess the convenience of different solutions in terms of technology, time, human resources, training and motivation.

In the future, hotel market power will lie more and more in satisfying guests’ knowledge-based needs, and technology will accelerate this pattern of change.

Small and medium hospitality organizations (SMHOs) are increasingly recognized as pivotal in the ability of destinations to benefit from tourism as well as to satisfy tourism demand. However, it is recognized that they are often marginalized from the mainstream tourism industry, owing to their inability and reluctance to utilize information technologies.

Research in these peripheral regions of Wales, France and Greece demonstrates that the incorporation of ITs in SMHOs is not always a rational managerial decision. It is often associated with the dynamic relationships between stakeholders as well as a number of other variables which are related to their characteristics. Stakeholders adopt a number of push and pull factors to force

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SMHOs to utilize ITs. Research demonstrates that some key stakeholders exercise a more influential role in forcing SMHOs to utilize ITs, particularly technology partners. Perhaps most important, the public sector, as a stakeholder, increasingly appreciates the benefits introduced by ITs and undertakes initiatives to assist SMHOs to take advantage by improving their equipment and by formulating networks. These initiatives will be critical in the adaptation process. Moreover, consumers may be the key stakeholders in the industry, pulling technology through to hotels. SMHOs do not have the problem of “legacy” systems. Thus they can design their systems to take advantage of the emerging technologies, particularly Internet, extranets and intranets, without losing valuable data and, if any, technology investment. The rapid expansion on the Internet and the World Wide Web would seem to provide a unique mechanism for SMHOs to develop their marketing and distribution mix. ITs also support SMHOs to develop partnerships with the entire range of players in the tourism industry and to establish networks which will enable them to acquire virtual size.

Two of the major trends which will affect the hospitality market in the near future are “mass customisation” and “disintermediation”. Given that channels of distribution are already evolving towards disintermediation, this direct contact will be crucial as suppliers of hospitality products who will need to be

able to deal directly with customers and establish effective “one to one marketing” of their products. This will only be possible with the effective use of technology. The likelihood of success in introducing technology is enhanced in a pull environment and that it is possible to convert from a push to a pull scenario, which is what SMHOs have been exposed to over the last few years. This is where interconnectivity, as well as customers and the travel trade, will provide the necessary marketing pull. Despite the current lack of co-ordination between stakeholders, it seems that a certain level of co-operation will be essential in order to facilitate the IT’s penetration to the benefit of peripheral locations.

Determining customer satisfaction is fundamental to effective delivery of services. Successfully being able to judge customer’s satisfaction levels and to apply that knowledge potentially gives a hospitality manager an advantage over competitors via such benefits as product-differentiation, increased customer retention and positive word of mouth communication. Given the role of customer satisfaction, one should not be surprised that a great deal of research has been devoted to investigating the process by which customers form judgments about a service experience.

With increasing competitiveness, hotels are concerned with customer satisfaction and profitability, both in the short as well as in the long-term. Long-run profitability can be achieved in CRM through the new focus on customer retention which resulted from an effective management of customer relationships. Thus, the competitive pressures are demanding that hotels not only adopt the customer-focused CRM strategy, but also the customer-related measures of performance.

Thus, the hotels are expected to use strategy that focused on customers in order to sustain their competitive advantage. For these hotels, the use of the financial measures is not only short-term oriented but also inadequate to capture the customer perspective of performance. Customer-related performance measures are therefore needed to quantify customer relationships and to differentiate customers who are worthy of the CRM efforts.

The top three frequently used customer-related performance measures are percentage of repeat customers, ratings from customer surveys and percentage of market share. As mentioned earlier, CRM places more emphasis on relationship relative to transaction-based interactions with customers. The key thrust is to build lasting relationship with customers through identifying, understanding and meeting their needs. A longer-term relationship develops customer retention and thus, loyalty, which is critical to the success of organizations.

Customer profitability, total sales to new customers and customer lifetime value are moderately used. Customer lifetime value refers to the potential monetary value of repeat and referral business both over time and over a range of products and services. The mediation effect of customer measures implies that the hotels are expected to measure how they perform from the perspective of the customers. Although the use of IT is expected to lead to a favorable impact on performance, the hotels need performance measures which are related to customers for improving performance.

Companies should define the goal of implementing

CRM in their businesses :

Guiding principles : Organizations who want to reshape the focus of their CRM

programs should follow these three guiding principles:

Customer experience is essential to creating brand value. Organization should do something about logos, catchy styles, or memorable commercials that can give customers the impression or awareness that it is their product or service.

Customer insight should inform and drive customer treatment. Every contact that the company has with its customers determines the economic value of its future because if the customer is happy, he or she will be back.

CRM programs should be executed in a pragmatic way that mitigates financial and delivery risk. CRM programs should be planned according to both financial ability and risk elimination to the best of the company’s practice. It is not to be built with elegant capabilities, or the latest version of the software, or serving the customers at any cost. However, it must be practical, realistic, and provide the capabilities that the users need.

To have a successful CRM implementation, management must make sure that they have done research in both the industry’s best practices and the adaptation capability of their organization in the new application. The following are the recommended key steps to a successful CRM strategy:

Strategic context. The organization should understand how CRM fits into the context of the company’s overall business strategy.

Capabilities assessment. The assessment is to be done to confirm the company’s current CRM capabilities.

Business case development. The organization needs a good reason to implement CRM other than new technology fever.

Implementation plan creation. Create and execute a plan, which clearly defines how to achieve the goal and execute it.


CRM system is not “just another information tool.” If applied properly, CRM programs can contribute exceptional economic value to the company as well as competitive advantage. Implementing CRM systems can enhance an organization’s ability to improve customer service, which in turn can generate revenue. However, not all organizations who implement CRM have been successful. In order to have a successful implementation of CRM, organizations should evaluate how CRM fits into their overall business strategy, evaluate its current CRM capabilities, and have a business reason for implementing CRM. They should then create a plan and execute it. The next level of CRM could be “untethered-commerce” u-commerce “untethered” by the hard wires of traditional computers and telephones, “unbounded” by traditional definitions of commerce, and “ubiquitous” in that business can take place anywhere, anytime.


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