This is an analytical study assessing Customer Relationship Management through the Hilton Hotels Loyalty scheme. This paper will give a thorough literature review on relationship marketing, a case study on Hilton Hotel loyalty scheme and within this, a framework of the brand’s role; position in the organization and the market will be discussed. Winer, (2001) customer relationship management framework will be used to analyze the Hilton HHonors scheme to which the nature of the difficulties and effectiveness will be covered as well. This paper will end with possible suggestions regarding the effectiveness of the Loyalty scheme.
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There are several scholarly definitions of relationship marketing and (Shani and Chalasani, 1992) define it as a combined effort to maintain, identify and build up a linkage with separate customers and to continue to fortify the linkage for the common benefit of both sides, via interactive, one to one and value added contacts over a stretched out period of time. While (Gronroos,1990) described relationship marketing to be the establishing , maintaining, enhancing and commercializing of customer relationship so that the distinct purpose of the parties concerned are met which is done by a common exchange and fulfilment of agreements. This definition tries to encompass both the relational and transactional qualities of marketing. These two descriptions differ somehow but they both signify that relationship marketing centres on the individual customer and seller relationship and states that they both benefit. Plus the nature of the relationship is longitudinal. Moreover, they both indicate that the core of relationship marketing is on customer retention.
On the other hand (Morgan and Hunt,1994), argue that relationship marketing represents all marketing activates destined towards launching, improving and preserving successful relational give and take or exchange. Taking into record that relational exchanges and transactional exchanges differ. From this definition relationship marketing is marketing plus Morgan and Hunt have as a result re described marketing and extended a paradigm shift.
It is key for organisations to assess customer relationship stages (Figure 1.0) in order to evaluate the need for investment to make these customers move up the relationship ladder (Dwyer, Shurr and Oh, 1987, Kotler and Dubois, 2000) and turn out to be more profitable, or better implicit for cross-selling and offer them with personalized services establishing higher bond and switching cost.
Suspects Prospects First-time Repeat Client Advocate Member Partner
————— Traditional Marketing—- ————————— Relationship Marketing———————-
Figure 1.0.The relationship ladder: (Egan, 2001: p.59)
However, marketing relationship is a give and take relationship parallel to intimate relationship (Clark 1984; Clark and Mills 1979; Kollock, Blumstein and Schwartz 1994). Each party involved in an exchange relationship provide value measurable to those received.
Relationship Marketing and Customer Loyalty
Relationship marketing recognises that a steady customer base is essential in business. The crux and feature of relationships and their business vale is summarized in the notion of customer loyalty and its correlated literature. The advantage of customer loyalty to a supplier of either which ever product or services, consist of enhanced organisational productivity or effectiveness, moderate expenditure on bringing together new customers and decreased customer price vulnerability.(Rowley, 2005)
Although customers may show their loyalty in numerous ways; they may decide to remain with a supplier or provider, if this prolongation is described as relationship or not, or customers may escalate the amount of purchases or the regularity of their purchases or possibly both. Customers may become advocates of the brand or organization involved by performing an influential role in the decisions of others. (Hallowell, 1996; Reicheld et al, 2000).
Even though there is substantial progress in the loyalty scheme. There has been an extensive argument about the benefit of loyalty schemes, to either customers or businesses. Certainly many have affirmed that such schemes have been unsuccessful (Divett et al, 2003; Worthington, 2000). Byrom, (2001) debated that with many organisations cancelling their scheme; those schemes were at somewhat of a crossroads. Critique of schemes fall down to three groups which are those that declare that the relationship among or between such schemes and the promotion of loyalty is vague; those that debate that organisations are not creating correct or proper use of data; and those that debate that the incentive structure in loyalty schemes are unsuitable.
However according to (Jenkinson,1995) real brand loyalty is as a result of the emotional bond established by dialogue, trust , sense of value and ease of use, added satisfaction and frequency. Loyalty is the mirror image of the customer’s psychological and subconscious emotional necessity to trace a frequent source of satisfaction, identity and value. Samuelson and Sandvik, (1997) states that customer loyalty has been theorized as a collaboration of attitude and behaviour. There is a lot as to what makes up loyalty, this starts from repeat purchase to extended relationship (Dick and Basu, 1994). Furthermore (Hallowell, 1996) states that loyalty behaviours consist of relationship extension, enlarged scale or range of relationship, and suggestions. Although there is a positive link between customer loyalty and satisfaction (Soderlund, 1998).
Moving on, the rewards or incentives are the basic structure or mechanism for motivating customers to indulge in the scheme. O’Brien and Jones(1995) single out the following elements that add to the value of a loyalty scheme: choice of reclamation option( the list of incentives provided), cash value( How greatly the incentive stand for, as a part of spend), aspirational value ( how greatly the customer the incentive); relevance( the degree to which incentives are achievable) and convenience( simplicity of participation in the scheme). Parker and Worthington, (2000) debate that customer loyalty to an incentive scheme or reward scheme is most likely to be influenced by social factor, relative attitude and situational factors. Firstly customer loyalty is possibly influenced by satisfaction that a customer experiences regarding the level of return that they are accepting. Secondly, customer loyalty could be influenced by what is obtainable from other schemes and thirdly behaviour could be affected by other customers, social norms and the media. They continue to debate that the loyalty card that they examined did not pay its customers rightfully, as it was providing lower incentive values on products probably to be saved for. O’Malley (1998) expatiates on the level to which many schemes have established customers who have come to anticipate an incentive as part of the regular shopping experience and assign a low value on rewards or incentives.
Why Consumers enter into Relationship Marketing
According (Sheth and Parvatiyar 1995), the basic axiom of relationship marketing should be or is that consumers like to cut back selection or choices by participating in a current loyalty relationship with marketers. This is a very fascinating and exciting argument and one that has intense suggestions for both the theory and marketing practice if correct. Moreover consumers sometimes go into relationships because it elevates the number of choices open to them. For each purchase decision, numerous options exist.
CASE STUDY: HILTON HHONORS
However Hilton Hotels and Resort from its name is into providing hotel accommodations and Hospitality to its customers which makes it a very good example, it is a worldwide company that has expanded vastly in every sector including its relationship marketing in order to retain customers through its Hilton HHonors loyalty scheme. Moreover this Hotel was founded by Conrad N. Hilton who opened the first Hilton hotel in Texas in 1925. Presently Hilton is one of the reputable hotel brands in the world. The hotel today is owned by Hilton Worldwide; they are managed, franchised or owned by several independent operators by Hilton Worldwide. Currently there are over 500 Hilton hotels brands in the world (Hilton Worldwide, 2012).
Over the years Hilton has created brands; today they have about ten brands in over 78 countries in the world. In 2009 Hilton was formerly known as Hilton Hotel Corporations but changed its name and Logo to Hilton World then moved their headquarters in Beverly Hills to Mc Virginia. (Hilton Worldwide, 2012).
Marketing is grown from a centre point on the single transaction to developing or becoming increasingly apprehensive with the growth and support of equally satisfying long term relationships with customers. The success story of charity organizations, Tesco, banks, Hotels and others exploiting loyalty schemes is driving companies to take careful note. The most productive relationship marketing campaign makes room for viable benefits and promotes long term relationship with customers which are difficult to replicate (Gilbert, 1996).
However, looking at the value proposition of the Hilton organisation, they try to establish loyalty among their customers by striving to delight them and expecting their changing aspiration while making sure that team members, who are important contributors to attaining this objective, are satisfied as well (Huckestein and Duboff, 1999). From this proposition it is obvious that the essential elements of product leadership and customer relationship must be attained. For the Hilton organisation the value and importance of the customer relationship has been elevated via its Hilton HHonors Loyalty programme.
Hilton HHonors Benefits:
It allows customers to earn both miles and points for a holiday at about 3,750 Hilton hotel brands worldwide and airline miles with partners of over 50 airlines. They provide numerous exclusive ways to accumulate points. Firstly a customer can earn them through hotel stays or with participatory credit cards; or a customer can deliberate on purchasing them if he or she feels shy of the trip to the Caribbean. One can also transfer them to their family who happens to be a member as well. The hotel also provides room to donate extra points to numerous charitable organizations. This loyalty program allows a customer to join free by registering online or offline to get a list of services and benefits that assist with directing a customer’s travel and rewarding the customers for their loyalty and offering customers with the undivided attention they deserve (Hilton HHonors, 2012).
Loyalty Programme Classification:
Hilton HHonor can be classified under the type 3 programs, it awards points to members according to their previous purchase or past purchases. This type 3 program needs a complete database that can trace a members purchase history and points. Some type 3 program persuades customers to escalate their purchases or reward substantial purchasers by creating program tiers. Hilton HHonors program provides tiers where substantial or heavy users can without difficulty build up free hotel rooms or can reserve a room on a basis that is unrestricted (Berma,2006).
There are other organizations that use the type 3 program and they include Hotels like (Hyatt, Marriott rewards,) Airlines like (American Advantage) Credit card companies like (Discover card: The Mile Card, Citibank Premier Pass Elite,). Lots of type 3 programs include the partnerships of complimentary marketers like airline, car rental and hotel chains etc to enable a members gathering of points and to escalate the category of rewards options (Berma, 2006). HiltonHHonors are in partnership with airline and car rental services to facilitate the gathering of points. (Hilton HHonors, 2012)
However, the company has four membership levels which include the Blue, Silver VIP, Gold VIP and Diamond VIP. It’s calculated according to the number of stays in a 12 month period. It starts from no smallest amount for the Blue membership to 60 nights in a calendar year for the Diamond VIP membership. Moreover each category of membership has its own exclusive benefit which is: the Silver, Gold and Diamond VIP members are qualified for health club access while the Gold and diamond VIP members are qualified for accommodation upgrades and Only the Diamond VIP members can be assured reservations with their points with no collapsed or blackout dates. (Berma, 2006),
Hilton HHonors Credit card:
Hilton is known to also have co branded cards and the term co branding may simply mean the use of two or more brand names in marketing activates. This happens with the juxtaposition of brand names by labelling them side by side on a product (Blackett, 1999). Moreover Hilton has a number of co branded cards with financial companies in specific locations like Hilton HHonors cards from American Express, Citibank in the U.S, Platinum Visa card in the UK, Credit card in Germany, Visa card from Sunitomo Mitsui card co. Ltd in Japan etc.
However this co branded cards allows customers earn bonus points from everyday purchases like groceries, gas, eating out etc. Customers can claim or redeem these points for flights, free hotel nights or merchandise. (Hilton HHonors, 2012).
In further light, According to (McCleary and Weaver, 1991) they claim that Hotel and restaurant loyalty program were inspired by the success of airlines that give customers benefit for repeat purchase. However, these Programs look to improve the customer’s membership in an exclusive club with rewards from this membership such as gifts, free hotel accommodations etc. For the organisation or company the main aim is to compliment customers for their patronage and make it obvious that the company is very much interested in establishing and sustaining long term relationship with them.
Hilton HHonors E- presence:
Hilton HHonors has an e-presence (www.HHonors.com). The value of customer relationship has also been escalated through its loyalty program website. Via this website customers can sign up or register for rewards, hotel reservations, room preferences and so on. The characteristics of the Hilton Honors web site portray product leadership (Hilton HHonors, 2012).
This site creates opportunity for interactivity between its members and the scheme in order to encourage brand and customer relationships plus customer data is also being collected and stored for future purposes for direct marketing via emails, Customized emails are sent based on a customer’s preferences. From the perspective of relationship, it lets customers retrieve their information and statements on the scheme. From the perspective of the brand, the brand web is duplicated and improves in the virtual world (Rowley, 2005).
ANALYSIS EMPLOYING (WINER, 2001) CUSTOMER RELATIONSHIP MODEL
Winer, Russell (2001) elaborated on the Customer Relationship Management process Model below;
Figure 1.1 (Winer, 2001)
Create a Database: Involves construction of customer information file which is the bedrock of customer relationship management. The database ideally should contain Customer transactions (Hotel Reservations), Contacts, explanatory information and rely to marketing incentives over time. However according to (Winer, 2001) Customer interaction quadrant, Hilton should be classified under the High-indirect box (Figure 1.2)
Figure 1.2 (Winer, 2001) Customer Interactions
Meaning they have to work harder to establish an Information file unlike the High -direct box which has quick and easy access to customer database E.g. Tesco. Hilton Database is also collected online up registration for the HHonors program.
Analysis: Involves the analysis of established customer data with the aim of segmenting the customers by grouping those with the same behavioural pattern. This is then used to create several product offerings via direct marketing. Hilton does target the most valuable prospects for catalogue mailing and customizes the catalogues to several groups.
Customer Selection: having established and analyzed the customer database information, the next step is to deliberate on which Customer group to target with marketing programs. The customers with most preferred segment (Highest purchasing rate) would be chosen first for retention programs followed by other segments. However Hilton applies this before embarking on marketing programs to encourage retention and customer acquisition. This is evident in their four membership levels.
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Customer Targeting: There are several ways of targeting customers after selection; they involve direct marketing techniques including telemarketing, direct mail and direct sales. This enables a company interact with customers rather than talk at them via television or radio. Hilton mainly invests time and money into telemarketing (Customer service) and direct mails in order to reach a desired audience. However today they seek permission from customers before sending mails.
Relationship programs: these are techniques for executing Customer relationship marketing, the aim of this is to provide a higher level of satisfaction to customers than competing firms do. More over research has proven that there is a clear-cut positive relationship between profits and customer satisfaction (Winer, 2001). Mangers need to weight satisfaction levels by delivering performance ahead of customer expectation. Loyalty programs include frequency/Loyalty programs, Rewards programs, Customer service and Community Building. Hilton has taken the frequency/Loyalty program and Customer service as its Relationship Method which has worked to improve profitability. The Hilton HHonors as stated above provides rewards for repeat purchase.
Privacy Issues: This extends through the CRM Model (Figure 1.1), Hilton uses database to provide service customers request and as a global brand they share this database with other Hilton worldwide brands to ensure same level of service. Hilton makes sure that personal information are handled according to the law. Usernames and passwords are however created for customer’s personal use.
Metrics: This is the traditional ways managers employ in measuring the success of their product and service. Market Metrix uses Loyalty program effectiveness. It identifies the percentage of customers who affirm that their loyalty membership was the primary reason for picking the hotel. Market Metrix,( 2012) identified that Hilton hotel in 2009 had 34.6%, 2010 had 35.8% and in 2011 had 39.2% showing an increase in profitability.
There are potential draw back in loyalty schemes, they are expensive, difficult to correct mistakes as the company may be seen by customers as taking away. Benefits; however there is the question whether the scheme actually works to escalate loyalty or spending behaviour plus it is also kind of difficult to have competitive advantage. (Winer, 2001)
These Loyalty schemes can be successful by elevating customers switching cost and building entry barriers. For the Hotel industry it has become a competitive necessity to create loyalty programs so incentives could also be encouraged for repeat visits to websites even though this has not been greatly successful.
This paper has reviewed some past literature on loyalty schemes along with some scepticism from a few scholars. The idea of the loyalty scheme is growing and becoming more refined each day. Hilton Hotel has created brand web through their loyalty scheme which has be expatiated above (Hilton HHonors) plus they have an E-presence. From the consumer relationship, those that the hotel refers to as most valued customers have considerably escalated their spending at the hotel. This increased or escalated spending is no doubt as a result of the customers envisioning an escalated value in their relationship with the hotel.
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