The hospitality industry is one of the most competitive sectors in contemporary global market. To survive, companies operating in this sector have come up with innovative measures of retaining existing clients and attracting new ones. One of the strategies used is the loyalty program. For example, the Hilton group of hotels has come up with such a program to cater for the needs of its guests.
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Hilton HHonors is one of the well known plans in this industry. The package is very attractive to business travelers. One of the major advantages associated with it is the large number of participating hotels in different parts of the world. To this end, the program has brought on board more than 3,500 partners.
In this paper, the author addresses 5 questions in relation to the Hilton HHonors case study. To this end, the author will analyze the benefits of a loyalty program to the stakeholders. For example, the benefits of the program in relation to the management of customers will be analyzed. The value of the program to Hilton will also be analyzed.
In addition, a comparison will be made between Hilton and Starwood brands and their value to a franchisee. Recommendations will be provided on how the company can utilize the revenue generated through the program. Finally, the author will analyze the possible strategies that Hilton can adopt in response to the threat posed by Starwood.
Using Loyalty Programs to Effectively Manage Customers
Loyalty programs are very important marketing tools, especially in the service industry. They help companies to retain clients. Kotler, Armstrong, Trifts, and Cunningham (2013) are of the opinion that these programs entail understanding customers and how they connect emotionally and rationally with a given brand. The marketing strategy is widely used in Canada today.
Loyalty programs in the hospitality industry seek to attain the aspects of customer reliability. The competition posed to Hilton brand calls for a more comprehensive marketing strategy. In line with this, the company (and other brands in the industry) can use loyalty initiatives to improve the management of customers in several ways.
To start with, managers and brand owners need to identify the relationship between brand equity and allegiance. Income from loyalty programs should facilitate the growth and prosperity of the company in numerous ways. Rewarding employees and increasing the value of shareholders can be used in the formulation and implementation of this marketing strategy.
Another way through which loyalty programs can be used to manage customers involves striking a balancing between transactional and relationship marketing. Transactional marketing incorporates service standardization and customization by brand managers and property operators (Kotler et al., 2013).
On its part, standardization of services enhances security of employees with regards to service delivery. It helps in the provision of high quality and uniform services to the customers. Relationship marketing features the development of beneficial as well as mutual interactions with the customer. It goes beyond the transactional engagement.
Cultivating relationships with customers through loyalty programs would facilitate their repeated access to the brand and consequent ease in their management. There are various categories of customers in the hotel industry. They include business, conventional, and leisure clients. All these customers have varying desires and tastes. A loyalty program that takes into consideration all these aspects is likely to enhance effective customer management.
The reward scheme should employ tactics that encourage consumers to develop loyal consumption behaviors. The main objective is to align value for customers with consumer (Kotler et al., 2013). Targeting the various categories of consumers in the hospitality industry and satisfying their needs will increase loyalty and profitability.
Value of HHonors Program to Hilton
The cost of the HHonors World Wide Program can be quantified using the income and members-paid activity statements for 1998. In this period, the costs incurred in the program amounted to $69,438. The revenue generated stood at $69,837. Consequently, net income was $399 (Deighton & Shoemaker, 2005).
The program required significant input from the company. However, the net returns are insignificant in comparison to the extensive investments that went into the plan. The true worth of HHonors program to Hilton brand, as a result, is questionable. The costs incurred in implementing it are higher than the monetary gains made. Kotler et al. (2013) highlights the importance of measuring and managing the returns made from marketing programs.
Determining the long run value of the undertaking takes precedence. Hilton brand might have incurred substantial costs in the implementation of the program, but the quantified output fails to reflect the actual value at the moment. Loyalty programs have a number of objectives. One of them includes rewarding loyal customers.
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Through the program, Hilton brand can generate market information and manipulate the behavior of consumers through strategic plans (Kotler et al., 2013). As such, apart from the quantified value, the company can combat competitors and defend its market share by managing customers’ value using the information gathered with the help of the program.
Getting customers in the hospitality industry is vital. However, retaining them is even more important for the long term wellbeing of the business. The costs of HHonors are offset by the long term benefits of doing business with existing customers.
In addition, the program is likely to attract additional guests, increasing the ratings of the brand in the market. The arrangement also offers the added advantage of helping the brand to communicate with customers through sustained contacts. The value of this plan to Hilton brand is worth the costs. The worth is justified by the long and short term benefits associated with it.
Determining the Value of Loyalty Programs to Franchisees
Loyalty reveals the degree to which a customer is attached to a given brand (Kotler et al., 2013). The quality is regarded as a key determinant of brand longevity. The major beneficiaries of this concept are the owners of the product. They enjoy it more than the other ‘perpetuators’ of the brand.
In franchising, the franchisor sells or allows the franchisee to use their systems and knowhow in running their business. In most cases, the latter can carry out their business activities under the control and with the support of the former. Benefits to the franchisees range from being granted brand names, products, services, signs, and elements of managing businesses by the franchisors.
A franchisee can evaluate the benefits of adopting Starwood or Hilton brands and making them part of their property. The value of such a venture can be determined by analyzing the nature of existing royalties. Such measures are essential in sustaining profits. Lack of explicit profit structures by any of the two hotel brands translates to low levels of sustainability. A franchise relationship with the brands might force franchisors to set high fees to generate profits.
The brand to invest in through franchising can be determined through level of franchisor’s support, and the strength of the brand name. A well recognized and profitable brand is more likely to benefit the franchisee compared to a nondescript product. The support of the franchisor in relation to business operations, infrastructure, knowhow, and supervision must be geared towards enhancing the value of the engagement to the franchisee.
Success in the hotel industry requires the provision of superior services. According to Kotler et al. (2013), businesses must strive to sustain and improve the quality of services they offer. As already indicated, the hotel industry is highly competitive. As such, the franchisee needs to determine the efficiency of the tactics and strategies aimed at implementing their loyalty programs. The strategies that pay attention to customer perceptions are more beneficial than those that do not.
Increasing Franchisee’s Benefits through Increased Loyalty Revenue
If a franchisee pays 10 cents per dollar as opposed to the current 4.5, the revenue from the program would increase significantly. HHonors can spend the additional revenue to enhance the value of the franchisee. For instance, the loyalty program would generate more profits for the franchisor under such circumstances.
Consequently, Hilton will invest a lot in marketing activities to facilitate brand awareness among customers, attracting more clients to the hotels. The increase in the number of clients would improve sales and raise revenue. Franchising can help Hilton to invest in research and design. Increased revenue can enhance capital investments by the brand, such as the construction of more hotels (Kotler et al., 2013).
In addition, by launching new menus and services, the company would increase the options available to the customers. Apart from satisfying consumers, the loyalty program would make the franchisee more profitable. The franchisee can also benefit in terms of contract renewals from the franchisor’s loyalty program.
The profits of the franchisee may increase as a result of the business activities of the franchisor. In such cases, the former’s brand loyalty is enhanced. The loyalty would convince the franchisor to renew the contract. All these are indications of the benefits of doing business with such brands as Hilton and Starwood.
Hilton’s Response to Starwood’s Loyalty Program Initiatives
Starwood has resolved to address competition through its loyalty program. Such initiatives necessitate a response from Hilton. However, responding by expanding Hilton HHonors might not realize the needed positive outcomes. Hilton can choose to alter the strategies and tactics used to generate customer loyalty. According to Kotler et al. (2013), loyalty programs can succeed by combining various marketing tactics.
For instance, customized combination of transactional and relationship marketing approaches can enhance Hilton’s loyalty program. Hilton HHonors program should adopt various approaches to create loyalty. The company should fight the temptations of increasing rewards. For instance, the organization can divide the market into segments using such elements as rate of usage, lifetime value, loyalty, and frequency.
At the end of the day, the brand will determine the most attractive consumer groups. The company should then target the relevant groups using transactional or relational marketing strategies. Targeting would facilitate effective response to the needs of the specified category. The approach would increase customer satisfaction and enhance value creation for the brand.
Hilton’s transactional marketing strategy should offer highly differentiated services. The approach would demonstrate to the customers the genuine value of their money. The company’s relationship marketing strategy should indicate a profitable value proposition engagement with the customers. The approach should utilize relational databases, promote brand culture, and manage the customer-employees’ interface.
Kotler, P., Armstrong, G., Cunningham, P., & Trifts, V. (2013). Principles of marketing (9th Canadian ed.). Ontario, Canada: Pearson Education Canada.