by Anne on May 21, 2010
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Loyalty- A Human Compulsion
Loyalty is a very puzzling subject. Everybody knows what it is and what it can do. But to understand it completely has been difficult. The decoding of the entire Loyalty-code is still awaited. Pritchard et al.have lamented in their work that "despite extant literature on customer loyalty, it is recognized that the psychological processes behind customer loyalty and commitment are still ill understood" (1). Loyalty may be called an instinct or a feeling and is the outcome of responses to various stimuli. The fundamental guidance system for all human responses is strongly powered by its emotional palette, so is loyalty. Thus, to understand basic emotional underpinnings and moderate human behaviour, a deep understanding of human psychology is important.
Total customer-loyalty is the "Holy-Grail" that all organisations seek in order to meet their business objectives and bolster financial bottom-lines. Every organisation hunt for that elusive treasure called loyalty that would ensure that their clients only transacted with their organisation and buy only their products or services. Thus constant and growing profitability may be like in a fairy tale may be achieved by drinking that elixir of loyalty.
Complete loyalty towards an organisation is nothing but, a dichotomous idea. In reality, if all customers would restrict their loyalty to a few organisations, then new customer acquisition-the manna for business growth would grind to a halt, killing expansion and new initiatives. Thus, varying degrees of disloyalty is not only a reality but also a necessary evil.
Among the various factors that affect customer loyalty, the sense of commitment comes across as the most important one. In the literature on organizational psychology, Allen and Meyer (1990) distinguish between affective, continuance (calculative) and normative commitment. The differences between these three types of commitment reflect the psychological state that binds the individual to the organization. Affective commitment refers to the emotional attachment to an organization, while continuance commitment refers to the costs that individuals associate with leaving the organization and the normative component refers to individuals' feelings of obligation to remain with the organization. They argue that a more comprehensive understanding of the link between commitment and loyalty will be achieved when all three types of commitment are considered simultaneously . Pritchard et al. (1999) argue that an analysis of commitment ‘should move beyond a general expression of attachment and incorporate an understanding of the psychology inherent in binding a person to that disposition' (p. 334). They distinguish information processes, identification processes and volition processes as antecedents of commitment. (2)
Loyalty-the Hospitality perspective
Like any business, the hospitality industry has organically grown to many times its size since the first entrepreneur began his hotel. The new world of today is flatter that acknowledged and this flatness has resulted in better rolling of people and ideas from one place to the other with lesser friction. This cross-border rolling has created new inter-cultural and inter-national dependencies. These increased travels has also meant that the industry is particularly getting more vulnerable to global incidents like epidemics (Particularly SARS, Swine Flu etc), Terrorist attacks (especially the attack in Bali), political instabilities.
Despite these vulnerabilities, the contemporary world eschews insulation or political isolation as it will result in total economic annihilation. Despite the arrival and proliferation of long distance quality interactive methods like video conferencing, business or personal travel has been on the increase. The first item before pre-travel is to identify a safe and comfortable place to stay. Hospitality industry has ably supported by the travel industry has always bounced back from business troughs. In the post socialist world, conspicuous consumption has attained respectability, and also become a style statement. Today, it definitely matters in which hotel one is put up or which restaurant one entertains one's clients. Hotels and hotel rooms have increased, so has customers. It may be safely said that the power has shifted from the service provider to the service consumer-Finally; the consumer seems to have been truly been crowned "King". Ironically the increased business pie has also brought in competitors making every customer acquisition nothing less than a battle. In this battle, the loyalty programs have become the primary weapon thus elevating it from a "good-to-have" to a "must-have".
Increased business opportunities have throw up its own unique challenges and the hospitality Industry in their bid to maintain profitability has had no choice but revamp, invigorate and empower alternative marketing opportunities that loyalty programs provide. Loyalty Programs are psychological marketing initiatives that focus on the emotions of the target prompting a change that drives them not only in thought, but action as well. Which means, over a period of time, the target customer is encouraged - if not to actually make a purchase, then at least find out more about the offer made. This most of the times is the beginning of a transaction. The primary issue is to get the customer's attention.
Change is a state that affects everything. Today's loyalty programs are going through an adaption process to meet changed customer needs and expectations. In this metamorphosis, from its previous avatar in the form of primitive stamps & coupons , it has transformed into data driven, analytics guided form and almost entirely driven by software offering better flexibility through intelligent automation.
Any loyalty program depends on acquiring and processing the data and transforming it into a deployable state that too at economic costs. For deriving maximum returns on every communication/marketing activity, a reserve of deployable data is a crucial component for any organisation. Hospitality business is like any other business as far as customer behaviour is concerned and thus is bound by the Pareto principle of 80:20. Since all customers are not same, it becomes important to identify the most "valuable" customers. A sophisticated data-capture system as a part of the loyalty program helps in identifying these customers and increasing their Life time value (LTV). By analysing wallet-share, the customers can be identified, segmented and selectively incentivised. The outcome of this narrowcasting results in better ROI on marketing expenses. Loyalty is a two-way street and is the outcome of a bargain between the hosts and the customer. Thus, for repeat and consistent business, the hotel offers rewards to the customer who in return responds by patronizing the Hotel and its properties.
Data- The new Currency for successful Business
As mentioned earlier in this work, the fuel of any loyalty program is information and the success of a loyalty initiative primarily depends on it. It's not just any data but the right fields that it captures and the customer behaviour patterns that it brings out which helps the hotels in fine tuning its strategies and fortifying its bottom lines.
Data is everywhere accumulating by default with every transaction and most organisations have enormous amounts of data in store. Considering that thousands of transactions take place in a Hotel done by as many customers, the data trail is large. It is not the existence of data that matters, but interpreting it and providing a consistent, single version of the truth across all sources of information. The challenges faced in many Hotels stemmed in part from the fact that customers have multiple identities; variations or discrepancies in names, addresses, phone numbers, numerical identifiers or other unique attributes – often residing in disparate systems that prevent enterprise initiatives from achieving a consolidated view. Mostly, this valuable asset remains unutilized or rather underutilized either due to lack of clear communications policy or lack of technical capability. All guest-related processes in a hotel has to be managed and give a clear view of overall business performance and supports efficient communication at all guest touch points. However, in today's changed circumstances, there seems to be a scramble to upgrade technologies and analytical ability to sieve-out relevant data to maximise profits.
Hospitality Industry – An introduction
A layman's definition of hospitality may be defined by drawing together a number of key characteristics ascribed to it, including:
Due to the very nature of the industry, human processes seem to be primal in its interactions at a hotel and to enhance customer-experience technology represents an important strategic asset.
Hospitality Industry, adaptation to contemporary reality:
The world is fast becoming smaller with distances becoming shorter with many people travelling across countries doing business and also carrying their own religious and cultural belief systems. Thoughts are rarely insular in nature; it tends to change with the infusion of newer ones. India is no longer the land of the snake charmer and rope-trick nor is China a land of mystery. Dissipating romantic notions and positioning themselves as investment destinations are a vital activity for most emerging countries. Encouraging travel to see their countries are being supported by the hospitality industry.
Relation competitiveness – strategy in the hospitality industry
The Changes in the political and economic environment in the last century had strong effects on the way companies operate. The evolution of production economies into market economies brought about by globalization has confronted companies with new realities including severe competition. To survive in this harsh terrain, they need more sophisticated tools. Innovations at all levels of the hospitality industry have been the key to attracting and retaining clients which in the hotel context translates to exclusive presentations and unforgettable experiences. Along with innovation, technology is an important strategic asset that allows hotel chains to improve their performance and competitiveness. On a global scale, the role of technology in strengthening the competitive advantage of a hotel is recognized, hence its contribution to the hotel's success.
One of the biggest challenges of the hospitality industry seems to be the proliferation of Legacy Systems:
The hospitality industry seems to predominantly use legacy systems. The challenges of legacy systems are well known. Legacy systems were useful at a time when the definitions of loyalty and expectations from it were also different. In the contemporary world where the very definition of loyalty has changed, new-gen enterprise systems have begun to take-over the hospitality systems.
A typical legacy system may be understood as early software programming languages, older proprietary hardware, unsophisticated databases and/or non-existent network protocols. Majority of hotel properties worldwide rely on decades-old legacy applications written in obsolete programming languages. Since legacy applications are tightly tied to the way hotels operate today, the health and flexibility of those applications directly affect a company's ability to manage information lucratively, to expand geographically, to offer differentiated services and to benefit from more efficient Internet-based distribution systems.
Legacy systems-weak points:
Lack of flexibility- In most systems it is extremely difficult to make changes-changes like new promotions, new programs or even smaller things, like what data gets stored for each customer.
Expensive to Maintain- In order to accommodate enhancements within the legacy systems that are inherently difficult to make, a lot of coding is required. Coding exercises being manual intensive are expensive by nature. Built predominantly on custom-made systems, there is poor interoperability between alliance partners. Thus, the opportunities to share opportunities & costs that come with economies of scale are diminished thereby pushing up the costs.
Little or no access to customer data for analysis- Despite accumulating customer data, many hotels are constrained by their inability to derive deployable information through data mining and analysis. Such information is valuable in understanding customer behaviour patterns, calculating ROI, make any necessary course correction or most importantly, to directly communicate with valuable customers.
Lack of customer information flow between systems: For enhancing the staying experience for the customers, the hotel staff needs to treat them with familiarity and based on larger business, treat them as special. Unless the information regarding the customer is accessible through their system, this cannot happen. In legacy systems, actionable customer information cannot be pushed out to customer contact employees at the appropriate time.
There are also other constraints like inability to offer complex tactical promotions, Inability to effectively handling large databases, lack of multi-channel support, non-integrated and non-automated marketing functions etc restrains an hotels from exploiting the true capabilities of a Loyalty program. Thus faced with loyalty programs on state-of-the art loyalty platforms, these hotels lose the opportunity to convert their loyalty programs into true tools of competitive advantage, attracting, retaining and expanding business with high-value customers. In a different period, the legacy systems have served the hotels well. In the more demanding circumstances wherein the value-proposition of an loyalty programs has changed, the customers loyalty has become all the more determining factor that has a direct effect on the operational efficiencies and profitability for an hotels. Legacy systems are well past their prime and the hotels are left with no choice but upgrade their loyalty programs on enterprise systems.
Loyalty Programs in Hotel Industry:
Loyalty programs are workhorses for hospitality industry having proven its effectiveness over many years. Loyalty programs have become harbingers of change in the way data is managed and deployed. The next generation loyalty solutions have already arrived in the market and are making a huge difference in the way business is done. They also have advanced functionalities that capture and enable an organisation to truly exploit customer behavioural data. It is time that progressive organisations adapt these new technologies within their current environment in order to maximise the power of loyalty programs. Some highlights of the new-gen loyalty solutions are:
With organisations like ITC Infotech offering specialised services to upgrade the loyalty program from legacy systems to new enterprise based platforms, loyalty programs are set for transform into dynamic entities that can handle complex functions and exceed the current expectations from it. ITC Infotech is one of the pioneer to introduce cutting edge loyalty technology in transforming loyalty programs in the airlines, retail & other verticals.
The information age and the globalisation will continue to drive changes in the way customers of tomorrow will do business with companies within the hospitality industry. This consumer will demand greater assurances of quality, safety and well being. They will look for more intangible experiences that match their wallets and physical capabilities.
Customer perception of service delivery will be imperative and will shape their choice of supplier or service provider. Service excellence will need to take on a new mantle of one to one partner relationships with the customer. The traditional choice to stay loyal to one provider lost credibility in the 90s drive to downsize and reduce operating costs.(5)
The new pattern for business will be based upon developing pro-active one to one relationships and partnerships. In order to live one to one marketing and service delivery, organisations will need to become far more flexible than in the past which will require a radical change in the culture that underpins customer management. It is sufficient to say that new ways of doing business requires new technology.
1. Pritchard, M.P., M.E. Havitz, & D.R. Howard (1999). Analyzing the Commitment-Loyalty Link in Service Contexts. Journal of the Academy of Marketing Science, 27 (3), 333-48.
2. The psychology behind commitment and loyalty. An empirical study in a bank setting. Josée Bloemer, Gaby Odekerken- Schröder, Hilda Martens.
3. Hospitality Strategic Management ,By Cathy A. Enz, Publisher - John Wiley and Sons, 2009
© Sanjai Velayudhan.
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About the Author
A behavioural trainer by education and a loyalty specialist by profession, Sanjai has PG qualifications in Training and Performance management from CLMS, University of Leicester. Sanjai currently works with ITC Infotech India Limited as senior manager-loyalty programme. He has hands-on experience in managing loyalty programmes both in India and the middle east. He writes extensively on loyalty programmes and the psychology behind it. To read some his papers, please visit: http://www.itcinfotech.com/Loyalty-Solutions/Home.html. you can watch his talk on the psychology of loyalty- :www.24framesdigital.com/winningedge/260608/& feel free to write to firstname.lastname@example.org