Chapter 14
Relationship marketing
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Understand the differences between a relationship
marketing strategy and a transactional marketing strategy
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Identify the components of a relationship marketing
strategy
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Evaluate the concept of attitudinal and behavioural loyalty
in the context of hospitality
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Analyse the role of a frequent guest program in branded
hotel chains
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Traditional approach to marketing is acquisition of new
customers, often described as transactional marketing

Once customer bought product/service, there is no
strategic effort to develop relationship further; transaction
complete from both the customer’s and the company’s
perspective
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Concept of relationship marketing (RM or CRM) looks at
customers as a business asset that should be nurtured
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Recognizes some customers have potential to generate
significant value for companies over a period of time
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Focus of RM is to create and maintain customer
relationships over the long-term
Relationship marketing is both a business philosophy, which stresses the
importance of customer retention, and a marketing strategy with
actions
Grönroos (1994) defines relationship marketing as:
to identify and establish, maintain and enhance, and where necessary,
terminate relationships with customers and other stakeholders, at a profit
so that the objectives of all parties involved are met; and this is done by
mutual exchange and fulfilment of promises
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Relationship marketing recognizes customers who make repeat purchases
have high lifetime value (LTV)
LTV is the present-day value of all historic and future profit margins
earned from sales to a particular customer or segment
Building close relationships with key customers is mutually rewarding for
company and customer
RM strategy targeted at selected hospitality customers
Hospitality companies lose customers each year
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Customers move through the family life cycle, changing employment,
home, lifestyle and consumption habits
Corporate customers/intermediaries go through similar changes, with
growth, mergers, takeovers, relocation, downsizing and demise
Competitors lure customers away with new-product initiatives, price
incentives
Hospitality companies have relatively high customer defection rates
(customer churn)
Although companies needto attract new customers to replace lost ones,
customer retention is critical
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Companies want to build relationships with customers for economic
reasons
Companies generate better profits when they manage their customer
base in order to identify, satisfy and retain profitable customers
Improving customer retention rates has the effect of increasing the size of
the customer base
Research suggests increasing customer retention by 5% increases profits
between 35% to 95% – e.g. marketing costs are reduced and repeat
customers generate more revenue
Hospitality companies implementing relationship marketing
strategies successfully need:
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strong service culture
commitment to internal marketing
effective segmentation strategy
interactive relational database in all properties
trust from their customers
customer recognition and reward strategies
Figure 14.1 Marketing strategies for frequent LTV customers
There is a distinction between a frequent customer and a loyal
customer
Frequency is not an indicator of loyalty:
a frequent business traveller might have to stay at hotel
because of company expenses policy
 some customers may regularly patronize the establishment
because there are no competitors in the area
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This type of loyalty is described as behavioural loyalty, because it is
based on frequent behaviour
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Loyal customers are true, faithful and constant
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Loyal customers are completely satisfied with the marketing offer,
emotionally committed and do not seriously consider competitor
alternatives
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This type of loyalty is described as attitudinal loyalty because of the strong
preference the customer has built towards the brand or unit
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Hospitality businesses want customers who have attitudinal loyalty and be
frequent guests
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Evidence suggests that totally satisfied customers are six times more likely
to repurchase (Reichheld, 1993)
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Loyal customers will often take ownership of the relationship and refer to
the brand in first person terms (e.g., loyal pub customers often describe
their bar as ‘my local’), and tune in brand’s marketing communication
messages
Figure 14.2 The relationship marketing ladder of loyalty

Already explained crucial difference between frequency and
loyalty
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Distinction applies to frequent guest program (FGP) and loyalty
guest program (LGP)

FGP adopts transactional approach to marketing and builds sales
by offering rewards from a wide range of services (hotels, travel,
retail, etc.)
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LGP adopts relational approach and encourages regular customers
to join a club, receive recognition as a privileged guest and get
rewards via added benefits during the stay at the hotel
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But FGP and LGP are virtually interchangeable and hospitality
companies use the term FGP to apply to any loyalty program

All major hospitality brands offer a guest program to
reward regular customers
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These customers are aware of their importance to hotels
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The programs provide different levels of membership,
determined according to the number of nights a customer
stays in the hotels
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Higher number of stays, the more generous the benefits
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Hilton’s Honours program more transactional (FGP)
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Shangri-La’s Golden Circle more relational (LGP)
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Hospitality companies can develop meaningful relationships with
customers to gain competitive advantage
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Relationship marketing strategy not appropriate for all branded
hospitality organizations
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Companies developing a relationship marketing strategy must
develop:
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strong service culture that delivers high customer satisfaction
effective service recovery strategies
relevant recognition and reward policies
to create customer trust, commitment and loyalty
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