A loyalty program is a specific marketing strategy which is used within the global market to attract more profitable customers and enhance the level of the organization’s income. Organizations usually offer reward cards or loyalty cards, flyers, and discounts in order to establish the long-term relations with loyal customers.
Loyalty programs are oriented toward the stimulation of the customer’s buying behavior with the help of the rewards and bonuses proposed (Dekay, Toh, & Raven, 2009). From this point, the loyalty program is one of the oldest marketing strategies which are used in the global economy during a long period of time.
History of Loyalty Programs
The first usages of loyalty programs are associated with the development of strategic management principles within organizations. That is why, loyalty programs are directly connected with loyalty marketing. The noticeable start of using the principles of loyalty within the hospitality industry is typical for the 1980s with the further intensive development of the tendency in the 1990s.
However, the aspects of the modern loyalty programs are also characteristic for the marketing in the 18th – 19th centuries when the first premiums and prizes were proposed to affect the customers’ loyalty (Yi & Jeon, 2003).
Premiums as the most typical forms of the loyalty programs were used in the business environment also along with prizes, trading stamps, discounts, and box tops. If premiums can provide significant discounts for customers in order to guarantee their next usage of the product or service, prizes are the small gifts which evoke the target audience’s interest in buying this or that product or using the definite service.
According to Voss and Seiders, there are many possible variants of prizes that retailers use to create the customer loyalty. During the first stages of the marketing development, cigarette cards and other trading cards were proposed to customers in order to create the loyal relations and make them purchase the certain product.
During different periods, the modern food packaging and other prize strategies were proposed to attract customers (Voss & Seiders, 2003).
The hospitality industry is one of the most competitive industries in the word. That is why the usage of the loyalty programs can be observed within the market since the early 1980s.
To win within the highly competitive market, hotels are inclined to use different loyalty programs and combine them with references to the group of customers. The typical feature of using the loyalty programs in the hospitality industry is the focus on attracting new customers (Berman, 2006).
That is why, much attention is paid to the development of loyalty strategies which are used to work with customers when they utilize the services of the hotel for the first time (Yi & Jeon, 2003). As a result, the system of bonuses and rewards is constantly developed in the hotel chains globally.
During the 1990s, the strategy of direct mailing was worked out in order to strengthen the current relations with customers and contribute to creating the group of the profitable customers. Thus, the customers who are involved in the loyalty programs are the profitable customers, and hotel managers pay much attention to working with these clients in order to increase the profits and guarantee the further returns.
To respond to the changes in the business environment and enhance the quality performance among individuals, the principles of direct marketing and direct mailing were developed. The next stages were the usage of the mail order catalogue and the involvement of the media in the direct marketing (Berman, 2006).
The evolution of premiums and prizes and the contributions of the pioneers of direct marketing have led to the establishment of the modern loyalty programs used by organizations within the hospitality industry to attract potential customers and maintain the existing profitable clients.
The introduction of present modern loyalty programs such as card linked offers, consolidated loyalty programs, and frequent flyers is based on the achievements within the market and analysis of the most effective strategies to stimulate the customers’ loyalty (Yi & Jeon, 2003).
The Effectiveness of Loyalty Programs
Business organizations are traditionally oriented to the profit maximization. However, organizations cannot maximize profits without focusing on the intense competition with other companies within the industry.
From this perspective, the usage of loyalty programs as a marketing strategy is important for companies to accentuate the definite advantages of the company, to help customers distinguish between different representatives of the same industry, and to make choice which is beneficial for the certain company.
Thus, hotels are inclined to propose various loyalty programs in order to attract the definite social categories and improve the customers’ brand loyalty.
Many researchers are inclined to agree that loyalty programs are the necessary and effective strategies to be implemented in the hospitality industry because they are the successful variant to draw the customers’ attention to the positive features and emphasize the real advantages for them (Dekay, Toh, & Raven, 2009).
The accents on the advantages in the form of rewards and discounts for customers are the direct way to contribute to the customer loyalty in relation to the definite hotel and increase the company’s profits basing on the long-term relations.
The loyalty programs which are effective to establish the profitable relations with customers can be divided into several types. A loyalty program with a saving feature enables customers to receive rewards after spending a certain amount of money while using the hotel services. The organization can use this program to create customer loyalty and increase purchases (Berman, 2006).
Thu, the program encourages the constant use of a loyalty card. Furthermore, this method supports the customer awareness of the services provided. The program also enables an organization to determine the product preferences and focus on the customer relationship status with the company.
Hotels and other organizations within the hospitality market offer price promotions to customers on definite products and services.
This feature can provoke the customer buying behavior and make several customers join the loyalty program provided by a company in order to become members and enjoy the proposed and promoted benefits. These programs can enhance the customer loyalty directly. Moreover, this strategy enables an organization to obtain and pay attention to specific personal responses (Bolton, Lemon, & Verhoef, 2004).
Direct mailing is also an effective marketing strategy used by hotels in order to address the needs of customers at the personal level with concentrating on their personal expectations.
This is a method that an organization can use as a personal treatment for customers, and it can enhance the personal customer loyalty. Receiving the individual response, the company can improve services and the provision of products with references to the customers’ desires and expectations.
Factors that Attract People to Loyalty Programs and Staying at Hotels during a Longer Period of Time
The factors which can attract people to loyalty programs and affect their customer loyalty are associated with the types of the programs proposed. Those loyalty programs that are based on savings enable customers to save for the future use of this definite service or product. This proposition is interesting for those clients who have to use the hotels services in the definite region frequently or during a long period of time.
Moreover, these loyalty programs attract customers to the respective organizations and famous hotel chains because they can redeem their points and use them to purchase.
However, the saving culture is an aspect that the most consumers evaluate, but they can find it difficult to practice, and the detailed loyalty programs proposed in hotels provide customers with the opportunity to use all the benefits of the program fully (Bolton, Lemon, & Verhoef, 2004). Thus, consumers are able to save their money by joining loyalty programs.
Loyalty programs which are associated with promotions can be based on the propositions of the lower prices or discounts to use definite services. Customers are mainly inclined to buying affordable, but high-quality products (McCall & Voorhees, 2010).
Reduced prices and discounts can increase the purchasing power of consumers and stimulate their general buying behavior. Promotions are easily accessible to consumers under loyalty programs provided by hotels (Bolton, Lemon, & Verhoef, 2004).
Furthermore, it is advantageous for the hotel when the concern and preferences of individual consumers are addressed by organizations basing on the response which they receive (Wansink, 2003). This strategy also enables an organization to pay more attention to the comfort and interests of the clients.
As a result, observing the positive attitude and a range of rewards provided, customers can decide to spend more time in a hotel or choose this hotel during the next journeys. Moreover, the individuals should have the opportunity to contact companies and hotels directly, if they are subscribed to the definite loyalty program. The customer’s interest in the services increases (Bolton, Lemon, & Verhoef, 2004).
Thus, individuals are attracted to the loyalty programs because this enables them to communicate their concerns directly to an organization and receive the feedback directly from the company.
When customers are provided with a large set of loyalty rewards which are connected with the definite terms they can be oriented to use more guaranteed services at a time.
Moreover, customers are often provided with the greater discounts proposed for the next comings and for the further usage of the hotel’s services (Wansink, 2003). This situation makes customers choose the definite hotel and stay there to use all the proposed benefits which are stated in relation to the developed loyalty programs.
Challenges that Hospitality Industry Faces in Relation to Loyalty Programs
The loyalty programs can be used ineffectively in relation to certain industries due to the nature of business, products, and services offered by companies. There are several challenges that organizations in the hospitality industry face in the process of developing and implementing a loyalty program to establish the customer loyalty and stimulate the buying behavior.
The most common challenges are the irregular patterns of demand, the dynamic nature of the industry, and the lack of an appropriate program, the imbalance between the costs and outcomes of the loyalty program used (Wansink, 2003).
The hospitality industry can face a challenge of the irregular demand pattern depending on the season factor or the region of the hotel’s location. It is rather difficult to establish an effective loyalty program due to the irregular demand patterns and the seasonal character of business.
Providing the definite rewards and bonuses for customers, the hotel managers should take into consideration the fact of the season when the proposed rewards or premiums can be used.
Wansink states that it is rather difficult to develop the effective loyalty program, concentrating on its possible outcomes from all the perspectives (Wansink, 2003). Thus,
the dynamic nature and highly competitive atmosphere of the industry makes hotel managers create more effective loyalty programs which can satisfy the needs of the majority of clients and which can attract new customers. The focus on the loyal and profitable customers remains unchanged for the hospitality industry without references to the season or the industry tendencies.
Moreover, considering the irregular demand patterns, organizations in the hospitality industry are not able to decide on an appropriate loyalty program to adopt. According to Berman, this situation often leads to changes in programs, therefore, confusing consumers (Berman, 2006).
The nature of services in the industry makes it difficult for organizations to develop effective loyalty programs also because costs of the loyalty programs are often higher than the real results. Some loyalty programs are highly costly, but they are not effective enough to attarct more customers (Berman, 2006).
References
Berman, B. (2006). Developing an effective customer loyalty program. California Management Review, 49(1), 123-148.
Bolton, R. N., Lemon, K. N., & Verhoef, P. C. (2004). The theoretical underpinnings of customer asset management: A framework and propositions for future research. Journal of the Academy of Marketing Science, 32(3), 1-20.
Dekay, F., Toh, R., & Raven, P. (2009). Loyalty programs: Airlines outdo hotels. Cornell Hospitality Quarterly, 50(3), 371-390.
McCall, M., & Voorhees, C. (2010). The drivers of loyalty program success: An organizational framework and research agenda. Cornell Hospitality Quarterly, 35(1), 35-52.
Voss, G. B., & Seiders, K. (2003). Exploring the effects of retail sector and firm characteristics on retail price promotion strategy. Journal of Retailing, 79(2), 37-52.
Wansink, B. (2003). Developing a cost-effective brand loyalty program. Journal of Advertising Research, 43(3), 301-309.
Yi, Y., & Jeon, H. (2003). Effects of loyalty programs on value perception, program loyalty and brand loyalty. Journal of the Academy of Marketing Science, 31(3), 229-240.