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CUSTOMER RETENTION ON
HOSPITALITY MANAGEMENT
CHAPTER ONE
1.0 Introduction
Chapter One begins by clarifying the terminology used in this
study. The background to the study, which contextualizes the topic under
consideration, is then presented. This is followed by the formulation of the
problem statement, and the goals and objectives of the study. After which the
formulation of the research question and its hypothesis and the significance of
the study then the definition of terms is provided.
1.1 Background of
the Study
Blattberg, Getz and Thomas (2001:68) state that customer
retention occurs when customers continue purchasing a product or service over
an extended period of time. For products with short purchase cycles, they
define customer retention as occurring when 'the customer continues to purchase
the product or service over a specified time period'.
For products with ,long purchase cycles, they define customer
retention as taking place when 'the customer indicates the intention to
purchase the product or service at the next purchase occasion'.
Payne (2000a: 1 14) defines the customer retention rate as
'the percentage of customers at the beginning of the period who still remain customers
at the end of the period'. Payne warns, however, that other, more complex
definitions might be more appropriate in instances where customers frequent
more than one business at the same time. In the case of an hotel, it stands to
reason that customers may regularly stay at a number of d~flerent hotels. To
measure customer retention, therefore, a number of factors need to be taken
into account. These include the customer retention rate over time, the customer
retention rate by market segment in terms of the different services or products
offered, and the share earned of the customer's wallet (Payne, 2000a: 1 14- 1
15).
The growth of the hospitality industry has always been tied
to the expansion of business and tourism. Providing accommodation is arguably
the oldest professional activity.
Giving travellers a place to stay and eat is mentioned in the
earliest historical records; and the concept of an hotel-like establishment
predates the Bible. The Egyptians, Greeks, and Romans built pleasure and
tourist resorts that would have rivalled today's massive compfexes in style and
grandeur, if not in the sophistication of their facilities (Wearne &
Morrison, 1 996:2).
Since, shortly after the mid-1970s, Nigeria has had hotels.
The need for accommodation has grown since then. The Nigeria hotel industry is
recognized as one of the most important industries of the Nigerian economy
(McManus, 2000: 13 1). In June 2005 there were approximately 48 800 rooms
available per night at Nigerian hotels. The occupancy rate for the
corresponding period was 55.8 per cent (Statistics Nigeria, 2005b:4).
McManus (2000:131) states further that the industry in
Nigeria is characterized by the presence of many of the world's best known
hotel brands. These include Holiday Inn, Sheraton, and Hyatt. Home-grown brands
such as Sun International, City Lodge, and Hotels differ in style and size.
Some hotels have up to 800 bedrooms. Yet others are fullservice establishments,
some are medium-sized business-class hotels, others do business in the budget
sector, and, finally, there are the small country inns (McManus, 2000: 13 1).
During February and March of 2002, the hotel industry experienced rapid growth.
Occupancy rates increased 1 1.2 per cent over the
corresponding period in 2001. The reasons for this included the fact that
Nigeria is gradually being perceived as becoming a safer and better value
destination, offering hotels which are of the same standards as overseas
competitors (Fredericks, 2002:3).
Total sales from travel accommodation amounted to N21.3
billion in 2004, up six per cent from 2003. Hotels accounted for N7.6 billion,
or 37 per cent of total accommodation sales in Nigeria in 2004 (Euromonitor
International, 2005).
A study conducted at 6500 hotels world-wide found that hotel
room rates in Nigeria are among the lowest when compared to developed countries.
Increases in hotel room rates were also found to be in line with inflation
(Jenvey, 2005:22).
The purpose of this research is to evaluate the usage of
Customer Retention (CR) in the hospitality sector focusing on the Nigeria
Hotels Sector. The research process will focus on the Nigeria Hotel Sector in
order to compile a profile of CR Management. Throughout the research previous
CR Management strategies, current strategies, reasons for and benefits of these
strategies will be highlighted and evaluated. This topic is one that is
interesting and topical, as with the current financial crisis in Nigeria
competition between different organizations in every sector has become rife.
The research will examine which marketing activities are being implemented and
if the attitudes towards customer retention are changing as companies compete
to stay “alive”. The hospitality sector will be researched profiling the Hotel
Sector as tourism is a crucial element in the Nigerian economy according to
FailteMark (2009), “Tourism is one of the largest and most important indigenous
industries in the Nigerian economy”(FailteMark Report 2009). According to
Nigerian Tourist Industry Confederation (NTIC, 2008) “Nigeria has become an
important global tourist destination” and “the Nigeria Tourism Industry is of
vital economic importance to the Nigerian economy. CR management in the Hotel
Sector in Nigeria is appropriate for the focus of this research.
Theory suggests CRM (Customer Retention Management) and the
implementation of customer retention strategies have become increasingly more
important over the last ten to fifteen years. It was stated that winning new
customers is by far more difficult and expensive than keeping existing ones and
this has become widely known across industries. The emphasis on the importance
of customer retention is that rather than a focus solely on creating sales and
the amount of sales it’s the post sale activity that focus should be strongly
applied to. (Kotler 2008, Saunders 2000)
According to Kotler et al,. (2008), before the 1990’s there
was little focus on customer retention but recently a change of focus has
occurred and Customer Retention Strategies have been introduced, for example,
Consumer Relationship Marketing, Loyalty Programs etc…
According to Drucker (1973), the sole purpose of a business
is to create a customer. This has dramatically changed, today keeping the
customer has become equally important, this is recognised by Dawkins and
Reicheld (1990) when they reported that an increase in customer retention
generated an increase in customer net present value. According to Kerin et al,
(2007) there is a direct correlation between customer retention, company
profitability and customer value, which can be identified as a unique
combination of benefits received by target buyers. This includes quality,
price, convenience, on-time delivery, and both before sale and after sale
service. Satisfied buyers tend to tell 3 people about their experience and are
more likely to become loyal. (Kerin et al, 2007) For many years managers were
rewarded for their success in achieving sales targets, companies took customers
for granted and with fast growing markets many companies did not worry about
satisfying their customers. Today companies see the obvious downsides of customer
churn. For example, it involves higher costs to a company than retaining their
existing customers and increasing their revenue from them. (Kotler et al,
2008).
1.2 Statement of
Problem
The background to the study outlines the factors impacting hotels
in Nigeria. It also emphasizes issues surrounding customer retention
management. The foregoing discussion leads to the following assertions:
- The more integrated a country's economy becomes with that
of the rest of the world, the more players in the economy have to engage in a
global game. The primary goal of a country should be to integrate its economy
into the global economy as fast as possible.
- The globalisation of markets poses threats for local
businesses. Strong overseas competitors have entered the Nigerian hotel
industry and major international hotel groups are taking advantage of the
opportunities present in Nigeria.
- Tourism is a fast-growing industry in Nigeria. Tourism was
the fourthlargest industry in Nigeria in 2001, and the fastest growing tourism
industry in the world in 2003. This has obvious relevance to a study of the
hotel industry such as the present one.
- The hotel industry experienced rapid growth during the
early months of 2003 with occupancy rates up by 11.2 per cent over the
corresponding period in 2002 and hotels accounting for 37 per cent of all
accommodation sales in Nigeria.
- Businesses (such as hotels) that can attract, satisfy and
retain customers are more likely to survive than those that do not do these
things.
- Businesses increasingly find themselves in a situation
where they have to build professional customer retention management systems.
- The costs of gaining new customers in highly competitive
markets are increasing considerably.
During the course of the literature review it was discovered
that much research has been done on customer retention and on the different
components of customer retention and how it should be managed. But it was also
found that a comprehensive customer retention frarnework for hotels has not yet
been proposed. Kurtz and Clow (1998) write about customer retention management
for the service industries as a whole. An opportunity exists, therefore, for
establishing a customer retention framework for hotels in Nigeria.
From the literature review it seems likely that proposing a
customer retention framework will be beneficial for service industry businesses
such as hotels:
- Building strong relationships with customers not only helps
businesses to retain customers but also leads to long-term success and
survival.
- Customer-to-customer interaction may significantly affect
the likelihood of customer retention and customer satisfaction.
- When customers are retained, the defection rate is reduced.
This reduction can increase profits far more than growth in market share,
better margins, and other factors usually associated with competitive
advantage.
- When a service failure is documented and the service
delivery system is reviewed and modified, similar future service failures can
be prevented.
- If a customer complaint is resolved or a service failure
rectified customers will more readily tell people about the successful recovery
than if they had received good quality service .in the first place.
The problem statement of this study is once again addressed
in chapter 3, where the insights gleaned from the literature review (presented
in Chapters Two) are taken into account in a brief restatement of the problem
the study. This section dealt with the problem statement of the study. The
logical progression from this is an identification of the research objectives
of the study. Section 1.3 does this, explaining the goal of the study and its
subsidiary research objectives.
1.3 Aim and
Objective of the Study
The aim of the present research is to suggest a customer
retention framework for hotels in Nigeria. The research entails a literature
review of customer retention management principles, and an investigation into
the customer retention practices of hotels in Nigeria. This two-pronged
approach will enable the researcher to propose a framework for customer
retention management in the Nigeria hotel industry.
Its objectives are
1. Investigate
different competitive marketing strategies for hotels in Nigeria.
2. To investigate
the management of demand for services, and supply of services, at hotels in
Nigeria.
3. To investigate
the management of yield at hotels in Nigeria.
4. To determine the
customer retention measurement practices of hotels in Nigeria.
5. To determine the
importance of customer retention management practices of Nigeria hotels by
investigating:
i.
relationship marketing activities hotels engage in;
ii.
compatibility management activities hotels embrace;
iii. means
whereby hotels manage customer defection;
iv.
activities hotels utilize to manage service failure;
v.
service recovery activities hotels make use of.
6. To establish
customer retention activities at hotels in Nigeria
Conceptual framework
The conceptual diagram shows the two variable that when
managed by the industries will have the loyalty of her customers gained to the
industry. The two-way communication is very importance in customer retention in
the hospitality industries as the customer will need to be in touch and updated
so as to kkeep the relationship alive. And also the conflict management or
handling, because in human management, conflict must arise, but the ability to
manage it effectively will make the difference.
Source: developed by the researcher for the study (2016)
Fig. 1.1 Conceptual framework.
1.4 Research
Question
The following research question is mapped out as a sample
question to guide this study
1. Associations between
size of hotel and the perceived importance of competitive marketing strategies
2. What percentage
of guests stays at the hotel during weekends for leisure purposes?
3. Will change the
existing positioning strategy of the hotel to improve its appeal to guests?
4. What is your
understanding of Customer Retention Management?
5. What, in your
opinion, would you say would be the main marketing methods to retain customers?
1.5 Research
Hypothesis
Four research hypothesis is formulated and will be tested in
this study
Hypothesis One
There is not a significant association between the importance
given to building and maintaining long-term relationships with guests, and the
size of the hotel
Hypothesis Two
There is not a significant association between the importance
given to managing the rate at which guests defect to other hotels, and the size
of the hotel
Hypothesis Three
There is not a significant association between the importance
given to identifying service failures and taking corrective action when service
failures do occur, and the size of the hotel
Hypothesis Four
There is not a significant association between the hotel type
and importance given to managing the interaction between guests
1.6 Motivation
The researcher experience in the hospitality industry and
interest in customer retention is the motivation for this research study. These
factors have also made the researcher aware of the effort needed to build
customer loyalty. There are many competitors in the hospitality sector and
focusing on accommodation there are many alternatives or substitutes to compete
against. Another factor that motivated the researcher to carry out this
research is that while researching for an appropriate research topic, it was
evident from various databases and articles there had been no research carried
out in this subject area in Nigeria. For the service sector there are many
variables on which consumers measure the quality of the service they receive
and this has a knock on effect on whether the company has been successful in
retaining customers. When devising customer retention strategies in the service
sector businesses have to focus on both the tangible and intangible variables
to allow for success.
1.7 Significance of
the Study
From the findings it is hoped to identify the common
strategies that these companies have implemented and compare against the
literature examined for the secondary research process, it will help the
industry know how to manage customer and deliver an appreciating service to the
guests
1.8 Scope and
Limitation
Limitations on the research arose out of the empirical part
of the study. Methodological limitations occur due to time and budget
constraints, sample size, as well as other unforeseen factors. Errors might
arise due to problems with sample selection and data collection.
Methodological limitations may be caused by the fact that the
survey is restricted to one province of Nigeria - Lagos. The necessity for this
restriction arises because of time limitations and budget constraints. The
results of the study can thus not be generalized to the rest of Nigeria: only
hotels in Lagos were surveyed.
The use of field workers to conduct interviews with hotel
managers might have led to interviewer error. Interviewer error includes
respondent selection error, questioning error, recording error, and cheating
error (Malhotra, 1999: 10 1). These errors were minimized through the use of
well-trained field workers.
Non-response error occurred. Some respondents were not
willing to take part in the research and others may have provided incorrect
answers - intentionally or unintentionally (Burns & Bush, 2000:458-462). A
total of 56 hotels of a sample of 125 hotels - out of a possible 1582 hotels
contained in the sampling frame - participated in the study. The sample size
that was realized raises issues about the representatively of the results.
The realized sample size imposed a number of restrictions in
terms of the statistical comparisons that could be made between the different
strata of hotels identified, and the statistical procedures that could be used
in the study.
1.9 Definition off
Terms
A framework can be defined as an 'hypothetical description of
a complex entity or process' (WordNet, 2005). A framework can also be defined
as a 'logical structure for classifying and organizing complex information'
(J3alance Scorecard Institute, 2005). For the purposes of this study a customer
retention framework is defined as a logical structure which describes, classifies,
and organizes the factors invoIved in retaining customers over time.
Hotel: The Tourism Grading Council of Nigeria (2004) defines
ahotel as an establishment that 'provides accommodation to the travelling
public; has a reception area and offers at least a breakfast room or communal
eating area. In general ahotel makes food and beverage services available to
guests, though these may be outsourced or provided by the hotel'.
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