Chapter Four Relationship and Loyalty Marketing

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 2 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw What is Loyalty and Why is It Important? Loyalty defined: When the customer feels so strongly that you can best meet his or her relevant needs, your competition is virtually excluded from the considered set, and the customer buys almost exclusively from you — referring to you as “their restaurant” or “their hotel.” Winning maximum share of heart, mind and wallet.

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 3 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw What is Loyalty and Why is It Important? Relationship marketing The process of identifying and creating mutual value for customers that you share over the relationship’s lifetime Levitt’s definition compares the relationship to a marriage Benefits of loyalty Financial importance of maintaining and creating new customers Loyal customers use word-of-mouth to promote a product or brand Different from traditional marketing

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 4 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw What is Loyalty and Why is It Important? Drawbacks of Frequency: Exclusive focus on behavior ignores the emotional and psychological factors that build real commitment Without that commitment the customer focuses on “the deal,” not the brand or product relevance

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 5 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw How It Plays Out Objectives Build traffic, sales and profits. Build sales, profits and the brand. Real Loyalty Strategy Incentive repeat transactions. Build personal brand relationship. Focus A segment’s behavior and profitability. An individual’s emotional and rational needs, and their value. Traditional Frequency

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 6 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Maintaining a Good Relationship with the Customer Model of service relationships Antecedents that affect trust and commitment Consequences that result from trust and commitment

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 7 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Customer Relationship Management Creating improved shareholder value through relationships with customers and customer segments

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 8 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Lifetime Value of a Customer Definition The net profit received from doing business with a customer during the time that the customer continues to buy from your business Profitability increases over the life of the relationship, due to positive word of mouth Customer loyalty ladder Moving a customer from a state of awareness to brand advocacy

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 9 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Exhibit 4-8; The Consumer Buying Process

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 10 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Exhibit 4-6; Profits through a hotel guest’s life

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 11 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Building Loyalty Evolution of customer loyalty Sales Targeted promotions Frequency promotions Brand relationships Knowledge relationships

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 12 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Exhibit 4-9: The Evolution of Building Loyalty

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 13 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Building Loyalty The loyalty circle Process Value Communication

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 14 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Exhibit 4-10; The Loyalty Circle

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 15 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Building Loyalty Frequent guest programs Not the same as loyalty programs Any program with guest rewards that can be redeemed for free or discounted products or services Can be one part of a loyalty program

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 16 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Building Loyalty What loyalty programs don’t do: Not a “quick fix” Not a promotion What makes loyalty programs work: Database, communication, meaningful rewards, simplicity, attainability, sustainability, measurability, management, manageability, profitability

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 17 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Customer Complaints and Service Recovery Customer complaints Inevitable, healthy, opportunities, marketing tools, advertising TARP research study on complaint handling 50% of consumers complain to front line staff 1-5% of those go to management Complaint rates vary by type of problem Twice as many people are told about a bad experience over a good one Tip of the iceberg phenomenon

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 18 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Exhibit 4-11; Tip of the Iceberg Phenomenon

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 19 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Customer Complaints and Service Recovery What to do about it? This is marketing’s task Make it easy for customers to complain Make it known where and how to complain Do something about the complaint if it is reasonable

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 20 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Customer Complaints and Service Recovery Effective complaint handling, from A Complaint is a Gift: Say “thank you” Explain why you appreciate the complaint Apologize for the mistake Promise to do something about it immediately Ask for necessary information Correct the mistake Check customer satisfaction Prevent future mistakes

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 21 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 22 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Employee Relationship Marketing or Internal Marketing Definition Apply marketing principles to those who serve the customer (directly or indirectly) and build a mutual bond of trust with them To create a customer, must create employee value Lower employee turnover relates to higher profits

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 23 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Employee Relationship Marketing or Internal Marketing Noncontact employees All employees are part of the marketing effort Employees need to understand how their job and actions effect the customer Employees need to be kept up to date on important information Success ultimately lies with management

© 2008 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 24 Marketing Essentials in Hospitality and Tourism: Foundations and Practices by Shoemaker & Shaw Class Discussion Name two products or services to which you consider yourself extremely loyal. What has produced that loyalty? How frequently do you buy this product or service? What do you tell your friends about this product or service? What do you tell your family?