Customer Retention On Hospitality Management
Customer retention management (CRM) is imperative to the success of today’s hotel sector in Nigeria, as it is more cost efficient to retain valuable customers than to gain new ones and in the current economic climate this is of high importance. The hotel sector currently implements CRM strategies that have been updated since the economic downturn. The most common CRM strategy used in the hotel sector is Customer Loyalty Programs, which theory suggests that in the hospitality sector Loyalty Programs are common. There is confusion of marketing in the hotel sector and a factor influencing this is the reductions in marketing budgets and that marketing personnel tend not to be marketing managers but rather owners and managers. Customer retention management has important elements in order to be effective. Customer satisfaction, relationship marketing, loyalty programs, data collection, complaints handling services, recovery strategies and post purchase follow up. The research process carried out by two phases, one descriptive in approach and one exploratory in approach.
Chapter One begins by clarifying the terminology used in this study. The background to the study, which contextualizes the topic under consideration, is then presented. This is followed by the formulation of the problem statement, and the goals and objectives of the study. After which the formulation of the research question and its hypothesis and the significance of the study then the definition of terms is provided.
1.1 Background of the Study
Blattberg, Getz and Thomas (2001:68) state that customer retention occurs when customers continue purchasing a product or service over an extended period of time. For products with short purchase cycles, they define customer retention as occurring when ‘the customer continues to purchase the product or service over a specified time period’.
For products with ,long purchase cycles, they define customer retention as taking place when ‘the customer indicates the intention to purchase the product or service at the next purchase occasion’.
Payne (2000a: 1 14) defines the customer retention rate as ‘the percentage of customers at the beginning of the period who still remain customers at the end of the period’. Payne warns, however, that other, more complex definitions might be more appropriate in instances where customers frequent more than one business at the same time. In the case of an hotel, it stands to reason that customers may regularly stay at a number of d~flerent hotels. To measure customer retention, therefore, a number of factors need to be taken into account. These include the customer retention rate over time, the customer retention rate by market segment in terms of the different services or products offered, and the share earned of the customer’s wallet (Payne, 2000a: 1 14- 1 15).
The growth of the hospitality industry has always been tied to the expansion of business and tourism. Providing accommodation is arguably the oldest professional activity.
Giving travellers a place to stay and eat is mentioned in the earliest historical records; and the concept of an hotel-like establishment predates the Bible. The Egyptians, Greeks, and Romans built pleasure and tourist resorts that would have rivalled today’s massive compfexes in style and grandeur, if not in the sophistication of their facilities (Wearne & Morrison, 1 996:2).
Since, shortly after the mid-1970s, Nigeria has had hotels. The need for accommodation has grown since then. The Nigeria hotel industry is recognized as one of the most important industries of the Nigerian economy (McManus, 2000: 13 1). In June 2005 there were approximately 48 800 rooms available per night at Nigerian hotels. The occupancy rate for the corresponding period was 55.8 per cent (Statistics Nigeria, 2005b:4).
McManus (2000:131) states further that the industry in Nigeria is characterized by the presence of many of the world’s best known hotel brands. These include Holiday Inn, Sheraton, and Hyatt. Home-grown brands such as Sun International, City Lodge, and Hotels differ in style and size. Some hotels have up to 800 bedrooms. Yet others are fullservice establishments, some are medium-sized business-class hotels, others do business in the budget sector, and, finally, there are the small country inns (McManus, 2000: 13 1). During February and March of 2002, the hotel industry experienced rapid growth.
Occupancy rates increased 1 1.2 per cent over the corresponding period in 2001. The reasons for this included the fact that Nigeria is gradually being perceived as becoming a safer and better value destination, offering hotels which are of the same standards as overseas competitors (Fredericks, 2002:3).
Total sales from travel accommodation amounted to N21.3 billion in 2004, up six per cent from 2003. Hotels accounted for N7.6 billion, or 37 per cent of total accommodation sales in Nigeria in 2004 (Euromonitor International, 2005).
A study conducted at 6500 hotels world-wide found that hotel room rates in Nigeria are among the lowest when compared to developed countries. Increases in hotel room rates were also found to be in line with inflation (Jenvey, 2005:22).
The purpose of this research is to evaluate the usage of Customer Retention (CR) in the hospitality sector focusing on the Nigeria Hotels Sector. The research process will focus on the Nigeria Hotel Sector in order to compile a profile of CR Management. Throughout the research previous CR Management strategies, current strategies, reasons for and benefits of these strategies will be highlighted and evaluated. This topic is one that is interesting and topical, as with the current financial crisis in Nigeria competition between different organizations in every sector has become rife. The research will examine which marketing activities are being implemented and if the attitudes towards customer retention are changing as companies compete to stay “alive”. The hospitality sector will be researched profiling the Hotel Sector as tourism is a crucial element in the Nigerian economy according to FailteMark (2009), “Tourism is one of the largest and most important indigenous industries in the Nigerian economy”(FailteMark Report 2009). According to Nigerian Tourist Industry Confederation (NTIC, 2008) “Nigeria has become an important global tourist destination” and “the Nigeria Tourism Industry is of vital economic importance to the Nigerian economy. CR management in the Hotel Sector in Nigeria is appropriate for the focus of this research.
Theory suggests CRM (Customer Retention Management) and the implementation of customer retention strategies have become increasingly more important over the last ten to fifteen years. It was stated that winning new customers is by far more difficult and expensive than keeping existing ones and this has become widely known across industries. The emphasis on the importance of customer retention is that rather than a focus solely on creating sales and the amount of sales it’s the post sale activity that focus should be strongly applied to. (Kotler 2008, Saunders 2000)
According to Kotler et al,. (2008), before the 1990’s there was little focus on customer retention but recently a change of focus has occurred and Customer Retention Strategies have been introduced, for example, Consumer Relationship Marketing, Loyalty Programs etc…
According to Drucker (1973), the sole purpose of a business is to create a customer. This has dramatically changed, today keeping the customer has become equally important, this is recognised by Dawkins and Reicheld (1990) when they reported that an increase in customer retention generated an increase in customer net present value. According to Kerin et al, (2007) there is a direct correlation between customer retention, company profitability and customer value, which can be identified as a unique combination of benefits received by target buyers. This includes quality, price, convenience, on-time delivery, and both before sale and after sale service. Satisfied buyers tend to tell 3 people about their experience and are more likely to become loyal. (Kerin et al, 2007) For many years managers were rewarded for their success in achieving sales targets, companies took customers for granted and with fast growing markets many companies did not worry about satisfying their customers. Today companies see the obvious downsides of customer churn. For example, it involves higher costs to a company than retaining their existing customers and increasing their revenue from them. (Kotler et al, 2008).
1.2 Statement of Problem
The background to the study outlines the factors impacting hotels in Nigeria. It also emphasizes issues surrounding customer retention management.
The foregoing discussion leads to the following assertions:
- The more integrated a country’s economy becomes with that of the rest of the world, the more players in the economy have to engage in a global game. The primary goal of a country should be to integrate its economy into the global economy as fast as possible.
- The globalisation of markets poses threats for local businesses. Strong overseas competitors have entered the Nigerian hotel industry and major international hotel groups are taking advantage of the opportunities present in Nigeria.
- Tourism is a fast-growing industry in Nigeria. Tourism was the fourth largest industry in Nigeria in 2001, and the fastest growing tourism industry in the world in 2003. This has obvious relevance to a study of the hotel industry such as the present one.
- The hotel industry experienced rapid growth during the early months of 2003 with occupancy rates up by 11.2 per cent over the corresponding period in 2002 and hotels accounting for 37 per cent of all accommodation sales in Nigeria.
- Businesses (such as hotels) that can attract, satisfy and retain customers are more likely to survive than those that do not do these things.
- Businesses increasingly find themselves in a situation where they have to build professional customer retention management systems.
- The costs of gaining new customers in highly competitive markets are increasing considerably.
During the course of the literature review it was discovered that much research has been done on customer retention and on the different components of customer retention and how it should be managed. But it was also found that a comprehensive customer retention frarnework for hotels has not yet been proposed. Kurtz and Clow (1998) write about customer retention management for the service industries as a whole. An opportunity exists, therefore, for establishing a customer retention framework for hotels in Nigeria.
From the literature review it seems likely that proposing a customer retention framework will be beneficial for service industry businesses such as hotels:
- Building strong relationships with customers not only helps businesses to retain customers but also leads to long-term success and survival.
- Customer-to-customer interaction may significantly affect the likelihood of customer retention and customer satisfaction.
- When customers are retained, the defection rate is reduced. This reduction can increase profits far more than growth in market share, better margins, and other factors usually associated with competitive advantage.
- When a service failure is documented and the service delivery system is reviewed and modified, similar future service failures can be prevented.
- If a customer complaint is resolved or a service failure rectified customers will more readily tell people about the successful recovery than if they had received good quality service .in the first place.
The problem statement of this study is once again addressed in chapter 3, where the insights gleaned from the literature review (presented in Chapters Two) are taken into account in a brief restatement of the problem the study. This section dealt with the problem statement of the study. The logical progression from this is an identification of the research objectives of the study. Section 1.3 does this, explaining the goal of the study and its subsidiary research objectives.
1.3 Aim and Objective of the Study
The aim of the present research is to suggest a customer retention framework for hotels in Nigeria. The research entails a literature review of customer retention management principles, and an investigation into the customer retention practices of hotels in Nigeria. This two-pronged approach will enable the researcher to propose a framework for customer retention management in the Nigeria hotel industry.
Its objectives are
- Investigate different competitive marketing strategies for hotels in Nigeria.
- To investigate the management of demand for services, and supply of services, at hotels in Nigeria.
- To investigate the management of yield at hotels in Nigeria.
- To determine the customer retention measurement practices of hotels in Nigeria.
- To determine the importance of customer retention management practices of Nigeria hotels by investigating:
- Relationship marketing activities hotels engage in;
- Compatibility management activities hotels embrace;
- Means whereby hotels manage customer defection;
- Activities hotels utilize to manage service failure;
- Service recovery activities hotels make use of.
- To establish customer retention activities at hotels in Nigeria
The conceptual diagram shows the two variable that when managed by the industries will have the loyalty of her customers gained to the industry. The two-way communication is very importance in customer retention in the hospitality industries as the customer will need to be in touch and updated so as to kkeep the relationship alive. And also the conflict management or handling, because in human management, conflict must arise, but the ability to manage it effectively will make the difference.
Source: developed by the researcher for the study (2016)
Fig. 1.1 Conceptual framework.
1.4 Research Question
The following research question is mapped out as a sample question to guide this study
- Associations between size of hotel and the perceived importance of competitive marketing strategies
- What percentage of guests stays at the hotel during weekends for leisure purposes?
- Will change the existing positioning strategy of the hotel to improve its appeal to guests?
- What is your understanding of Customer Retention Management?
- What, in your opinion, would you say would be the main marketing methods to retain customers?
1.5 Research Hypothesis
Four research hypothesis is formulated and will be tested in this study
There is not a significant association between the importance given to building and maintaining long-term relationships with guests, and the size of the hotel
There is not a significant association between the importance given to managing the rate at which guests defect to other hotels, and the size of the hotel
There is not a significant association between the importance given to identifying service failures and taking corrective action when service failures do occur, and the size of the hotel
There is not a significant association between the hotel type and importance given to managing the interaction between guests
The researcher experience in the hospitality industry and interest in customer retention is the motivation for this research study. These factors have also made the researcher aware of the effort needed to build customer loyalty. There are many competitors in the hospitality sector and focusing on accommodation there are many alternatives or substitutes to compete against. Another factor that motivated the researcher to carry out this research is that while researching for an appropriate research topic, it was evident from various databases and articles there had been no research carried out in this subject area in Nigeria. For the service sector there are many variables on which consumers measure the quality of the service they receive and this has a knock on effect on whether the company has been successful in retaining customers. When devising customer retention strategies in the service sector businesses have to focus on both the tangible and intangible variables to allow for success.
1.7 Significance of the Study
From the findings it is hoped to identify the common strategies that these companies have implemented and compare against the literature examined for the secondary research process, it will help the industry know how to manage customer and deliver an appreciating service to the guests
1.8 Scope and Limitation
Limitations on the research arose out of the empirical part of the study. Methodological limitations occur due to time and budget constraints, sample size, as well as other unforeseen factors. Errors might arise due to problems with sample selection and data collection.
Methodological limitations may be caused by the fact that the survey is restricted to one province of Nigeria – Lagos. The necessity for this restriction arises because of time limitations and budget constraints. The results of the study can thus not be generalized to the rest of Nigeria: only hotels in Lagos were surveyed.
The use of field workers to conduct interviews with hotel managers might have led to interviewer error. Interviewer error includes respondent selection error, questioning error, recording error, and cheating error (Malhotra, 1999: 10 1). These errors were minimized through the use of well-trained field workers.
Non-response error occurred. Some respondents were not willing to take part in the research and others may have provided incorrect answers – intentionally or unintentionally (Burns & Bush, 2000:458-462). A total of 56 hotels of a sample of 125 hotels – out of a possible 1582 hotels contained in the sampling frame – participated in the study. The sample size that was realized raises issues about the representatively of the results.
The realized sample size imposed a number of restrictions in terms of the statistical comparisons that could be made between the different strata of hotels identified, and the statistical procedures that could be used in the study.
1.9 Definition of Terms
A framework can be defined as an ‘hypothetical description of a complex entity or process’ (WordNet, 2005). A framework can also be defined as a ‘logical structure for classifying and organizing complex information’ (J3alance Scorecard Institute, 2005). For the purposes of this study a customer retention framework is defined as a logical structure which describes, classifies, and organizes the factors involved in retaining customers over time.
The Tourism Grading Council of Nigeria (2004) defines a hotel as an establishment that ‘provides accommodation to the travelling public; has a reception area and offers at least a breakfast room or communal eating area. In general a hotel makes food and beverage services available to guests, though these may be outsourced or provided by the hotel’.
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was to ascertain the effectiveness of customer retention on hospitality management.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges encountered by management of hospitality industry in retaining customers.
From carrying out phase one it was apparent that according to the target populations the most common customer retention strategy in use in the hotel sector was customer loyalty programs, such as frequent flyer programs. the respondents from phase one that had CRM in place stated that they used loyalty programs as the main CRM activity. Taking into consideration that customer service initiatives can be relatively low cost, the researcher recognizes that this is a low percentage compared to customer loyalty programs which are generally a higher cost to the company. In phase two of the research process when respondents were asked which initiatives were most important to retain customers customer service, complaints handling, data collection and utilization, targeted promotions, relationship marketing, loyalty schemes, value added incentives and market research were all recognized as important initiatives to retaining customers. It is apparent that loyalty schemes are an important method of currently retaining customers in the hotel sector. It is also clear that relationship marketing and marketing metrics are not seen as important to the respondents.
The use of loyalty programs was also highlighted in the literature review. For example, Boltan et al. (2000) recognises that in the hospitality industry reward programs which are based on usage levels are commonplace and generally the goals of these programs are to establish higher customer retention of valuable/profitable customer segments by increasing satisfaction and adding value. Loyalty programs according to Furinto et al. (2009) are one of the most popular marketing strategies developed to retain their customers. In addition, it was recognised that loyalty programs can serve a number of different roles and to implement a CRM program that is successful it should include success measurement that relate to the goals of the firm (Nunes and Drèze, 2006). Therefore, although the current strategies are a common method of retaining customers, relationship marketing and the metrics are not being implemented in order to maximize the success of the strategies in use. As highlighted in the literature review in order to have a successful CRM strategy data-collection, follow-up procedures and relationship marketing are necessary.
According to the research carried out by Ang and Buttle (2005, 2006), which was highlighted in the literature review, companies manage their customer retention process through a number of different organisational processes which include the “customer satisfaction measurement process, customer retention planning process, quality assurance process, 33 win-back processes and the complaints-handling (recovery) process. Also highlighted in the literature review and reiterated in phase two of the research that to measure the effectiveness of reward programs companies should examine the consumer usage levels, the positive financial outcomes and ensure that they exceed the amounts invested in the loyalty programs.
The literature review illustrates that a service business such as an hotel retains customers by making sure they are compatible with each other, by keeping track of, and managing customer defections, by addressing service failure with recovery strategies, and by maintaining long-term value-creating relationships with customers.
The researcher would recommend that CRM strategies are measured considering their usage, the cost and the output from these strategies. Also data retrieved from customers should be analysed and used to determine why customers defect and strive to eliminate this cause. Hotels should strategically choose which customers are the most valuable and which customers they want to target with their CRM strategies. Hotels should then use the most appropriate methods to develop the profitability of the target customers. Hotels should review their marketing plans regularly and revise them according to their success or the limitations at that time.
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