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Chapter 14
Relationship marketing
Understand the differences between a relationship
marketing strategy and a transactional marketing strategy
Identify the components of a relationship marketing
Evaluate the concept of attitudinal and behavioural loyalty
in the context of hospitality
Analyse the role of a frequent guest program in branded
hotel chains
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
Concept of relationship marketing (RM or CRM) looks at
customers as a business asset that should be nurtured
Recognizes some customers have potential to generate
significant value for companies over a period of time
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
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
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
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
Hospitality companies have relatively high customer defection rates
(customer churn)
Although companies needto attract new customers to replace lost ones,
customer retention is critical
Companies want to build relationships with customers for economic
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:
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
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
This type of loyalty is described as behavioural loyalty, because it is
based on frequent behaviour
Loyal customers are true, faithful and constant
Loyal customers are completely satisfied with the marketing offer,
emotionally committed and do not seriously consider competitor
This type of loyalty is described as attitudinal loyalty because of the strong
preference the customer has built towards the brand or unit
Hospitality businesses want customers who have attitudinal loyalty and be
frequent guests
Evidence suggests that totally satisfied customers are six times more likely
to repurchase (Reichheld, 1993)
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
Figure 14.2 The relationship marketing ladder of loyalty
Already explained crucial difference between frequency and
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.)
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
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
These customers are aware of their importance to hotels
The programs provide different levels of membership,
determined according to the number of nights a customer
stays in the hotels
Higher number of stays, the more generous the benefits
Hilton’s Honours program more transactional (FGP)
Shangri-La’s Golden Circle more relational (LGP)
Hospitality companies can develop meaningful relationships with
customers to gain competitive advantage
Relationship marketing strategy not appropriate for all branded
hospitality organizations
Companies developing a relationship marketing strategy must
strong service culture that delivers high customer satisfaction
effective service recovery strategies
relevant recognition and reward policies
to create customer trust, commitment and loyalty
Barsky, J. and Nash, L. (2002). ‘Evoking emotion: affective keys to hotel loyalty’.
Cornell Hotel and Restaurant Administration Quarterly, 43, pp. 39–46.
Buttle, F. (1995). Relationship Marketing: Theory and Practice. Paul Chapman.
Dick, A. S. and Basu, K. (1994). ‘Customer loyalty towards an integrated framework’.
Journal of Academic Marketing Science, 22, pp. 99–113.
Grönroos, C. (1994). ‘From marketing mix to relationship marketing: towards a
paradigm shift in marketing’. Management Decision, 32, pp. 4–20.
Heskett, J. L., Jones, T. O., Loveman, G. W., Sasser, W. E., Jr. and Schlesinger, L. A.
(1994). ‘Putting the service profit chain to work’. Harvard Business Review, 72, pp.
Jang, D. and Mattila, A. S. (2005). ‘An examination of restaurant loyalty programs:
what kinds of rewards do customers prefer?’ International Journal of Contemporary
Hospitality Management, 17, pp. 402–408.
Lewis, R. C. and Chambers, R. E. (2000). Marketing Leadership in Hospitality,
Foundations and Practice. John Wiley.
Osman, H., Hemmington, N. and Bowie, D. (2009). ‘A transactional approach to
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Hospitality Management, 21, pp. 239–250.
Peck, H., Payne, A., Christopher, M. and Clark, M. (1999). Relationship Marketing for
Competitive Advantage: Winning and Keeping Customers. Butterworth-Heinemann.
Reichheld, F. (1993). ‘Loyalty based management’. Harvard Business Review, 71, pp.
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loyalty in online and offline environments’. International Journal of Research in
Marketing, 20, pp. 153–175.