The Impact of Customer Loyalty on Budget Hotels

Dissertation proposal submitted in partial fulfillment of the requirements of the Degree [Name of degree] [University]

Abstract

The hotel business is growing at a very high rate due to the increase in demand for the services and the increased number of people traveling. This has led to hotels demanding customers and with the competition in the industry, customer loyalty is crucial. Budget hotels have then been on a higher demand since they offer good services at an affordable price to most people. The aim of this paper is to evaluate the impact of customer loyalty programmes on the performance of budget hotels. The study conducted a questionnaire survey and they were distributed to determine the level of customer loyalty in budget hotels. For these hotels to obtain more loyal customers, they need to make sure that the customers’ expectations are similar to the services they offer. Customer satisfaction is what brings about customer loyalty, therefore, these hotels have to ensure they offer services that satisfy the customers’ needs to, enhance and maintain loyalty.

Keywords:

customer loyalty, budget hotels, customer satisfaction, loyalty programmes

TABLE OF CONTENTS

Introduction. 5

Overview of the structure. 7

Literature Review.. 9

Theoretical Review.. 9

Literature Review.. 9

Customer Loyalty and Customer Loyalty Programs. 9

Benefits of Customer Loyalty Programs to Budget Hotels. 12

Summary and Further Research. 13

Research Approach. 14

Introduction. 14

Research Design. 14

Analysis. 17

Effectiveness of Customer Loyalty Programmes at Premier Inn and Travelodge. 17

Ethical Issues. 18

Validity, Reliability, and Generalizability. 19

Research Plan. 21

Appendix. 25

Customer Loyalty Programmes and Budget Hotels

Introduction

This research paper draws upon various functional areas of business, which include customer service, marketing, and research and development. Customer loyalty programmes are drivers of customer satisfaction through improved customer services. Additionally, implementation of the most effective LP programme requires investment in research and development to produce a program that can be used both for rewarding loyal clients and also marketing the firm.

In any business, attracting new customers and retaining existing clients requires a good investment in advertising and, marketing the business (Han and Hyun, 2015). Therefore, it only makes sense to develop a steady Loyalty Programme for business to flow for your past customers. Clearly, it is hard to retain existing customers than attracting new ones. One of the best ways to ensure that a hotel, especially in the low budget hotels, retains customers is through the development of Loyalty programmes. A hotel loyalty Programme works in a manner that even when established by the hotel it will not lead to losses for this hotel. For instance, giving guests free awards when they make repeated visits to the hotel is a feature of such programmes. The guests are offered value-added benefits, for instance, they are given discounts for the rooms, early check-in, and even late check-out. Loyalty programs are important as they give hotels information about customers, which is important for the growth of the hotel as this helps them have an insight of who their customers are (Davenport et al., 2014). Importantly, this information is crucial to the hotels as they can have valuable information that can help them in their marketing campaigns.

Business management is a key skill that any individual pursuing plan to establish a business venture should possess. However, as much as it is crucial for management, innovation and creativity must also be part of the business management strategies put in place by a business owner. Customer loyalty and the establishment of loyalty programs is an example of activities that enshrine creativity in business management. Owning a business and running it is part of my future plans. Therefore, this research topic is the best area for my learning process, so that I can understand customer loyalty and how it operates in the real business world.

The business course programme will provide insights into both the content of this research paper and the format of the paper. Customer satisfaction and marketing are key principles taught in business, hence, based on the knowledge acquired on these two topics, this research will tackle the research questions from an informed perspective. Therefore, the research paper will cover a wider scope in terms of explaining the various models of customer loyalty and how they can be targeted in LPs to affect the performance of budget hotels. Additionally, the course work also provides knowledge on doing research work which will be instrumental in guiding the scope of this research and the methods to be used to gather and analyse information. Given my background in these issues; business and research work, the quality of the paper is expected to be high. Conducting research is among the most crucial activities in a Masters programme, thus, I waited for this moment to apply everything I have learnt in class to real-world situations.

This research project is significant and relevant in the modern business world. Customer loyalty in almost every scenario,

comes after customer satisfaction. Therefore, to ensure that hotels, among other businesses, get loyal customers, they need to come up with customer loyalty programmes. Most of the budget hotels have come up with programmes to help attract more customers and retain those they have already.

Overview of the structure

This dissertation will contain five chapters; chapter one is the introduction, chapter two is the literature review, chapter three is the methodology, chapter four covers the results and discussion, and chapter five covers the conclusion of the paper and recommendations. Chapter two will review the concept of customer loyalty as it may relate to budget hotels using different research materials on the topic, chapter three will address the methods of data collection and research design, while chapter four will investigate the nature and perceived effectiveness of customer loyalty programs utilized at Ibis and Premier Inn hotels

Aim and Objectives

The main aim of the research is to investigate the nature and perceived effectiveness of customer loyalty programmes utilized at Ibis and Premier Inn hotels, and give a comparison between the two. This aim will be supported by three objectives of the research, which include the following:

i. To critically review the concept of customer loyalty as it may relate to budget hotels.

ii. To analyse how this study proved the benefits of loyalty programmes on Ibis and Premier Inn hotels.

iii. To summarise and conclude along with some recommendations on how well customer loyalty programmes can be improved in the future.

The primary aim of the research is to analyse the perceived effectiveness of customer loyalty programmes on budget hotels’ business performance, while focusing specifically on Travelodge and Premier Inn in the UK. However, customer loyalty programmes can be well described from the perspective of understanding what customer loyalty is and how it is perceived in budget hotels. Therefore, this research paper will define customer loyalty models which will be used to categorise the different forms of LPs used in budget hotels. Based on the definitions, it will be easier to collect specific data that will be primary in producing proof on the benefits gained by the two hotels from the implementation of loyalty programmes. In the past, many organisations have dropped loyalty programmes for reasons associated with the running costs of such a programme outweighing the benefits accrued. However, some firms have reported positive feedback on the use of loyalty programmes, for instance, for instance Starbucks Coffee which rewards its customers will points redeemable for free refills and other benefits (Starbucks). This imbalance creates the question of whether loyalty programmes are a good investment in creating a wider market base for the company and also satisfying the customers through rewards. Therefore, this research paper will address what needs to be added to loyalty programmes, what needs to be excluded, and how best a loyalty programme can be implemented to be effective. Additionally, with the world changing in various spheres of life including technology, a clear plan on adjustments needed on loyalty programmes to suit the expectations of clients and market trends in future will also be discussed by this research paper.

Literature Review

Theoretical Review

The theoretical review of this study will be formulated based on theoretical bases extracted from various research works on customer loyalty programs. These sources include journals, books, scholarly articles, and web pages on the internet with relevant information onto the topic of study. The theoretical review will be based on customer loyalty programs, and the benefits of customer loyalty programs to budget hotels and their respective performances. These theoretical discussions are compatible with the research objectives and the research aim.

Literature Review

Customer Loyalty and Customer Loyalty Programs. Customer loyalty refers to the behaviour that customers portray towards certain products, brands, services, stores, or activities provided by a given business or company (Hill & Alexander, 2017). Kandampully et al. (2015), defines customer loyalty as the attitude of a customer towards a brand. Customer loyalty is mostly confused with brand loyalty; however, they are two different concepts because while brand loyalty focuses on the features inherent in the brand, customer loyalty emanates from people themselves (Kandampully et al., 2015). Therefore, as much as the definition of customer loyalty is subjective, there exist three models which define this concept: loyalty as an attitude that connects the customer to a brand, loyalty based on the trend in historical purchases of the client, and the purchase situation of the customer.

True loyalty is a concept that can only be achieved through the existence of a strong commitment to a particular brand by a customer according to research by Watson et al. (2015). Ngobo (2017) also analyses true loyalty using Dick and Basu’s loyalty framework and concludes in his research that true loyalty is the best model of loyalty because it bears a strong bond between the client and the brand. In this situation, the customer develops certain beliefs about a brand or a company. The strength of this relationship with time becomes a perfect predictor of the frequency of repeat purchases by a customer or a cohort of consumers (Thorpe, 2015). True loyalty has been studied and approved as the most profitable model of customer loyalty compared to other existing models; this is because, regardless of the negative publicity that may come up about a given brand, true loyal customers rarely change their perceptions about the brand or the company (Nyadzayo et al., 2016). Therefore, with an increase in the general brand loyalty of a product, predicting the revenue trends from a cohort of trulye

loyal customers becomesbecome even easier.

Historical purchases can also be used to define customer loyalty to a brand or product (Van Doorn & Verhoef, 2015). Juster (2015) defines anticipated consumer behaviour as an aspect that can be predicted using past purchase behaviour. This model argues that based on the past purchases, a customer can be categorized either as monogamous, polygamous, or promiscuous. Monogamous customers are completely loyal to one brand; polygamous customers are loyal to a set of brands in a given category or product line; while promiscuous customers do not have any loyalty to any brand (Aggarwal & Shi, 2018). However, under this model, there is no commitment or strong relationship created between the customer and a brand. Instead, the customer’s behaviour is influenced by the choice not to consume a lot of time looking for alternatives.

Based on the purchase situation, customer loyalty can also be defined. The model moderates the first two models by introducing the situation of the customer during the purchase alongside their attitude and past purchases. These situations enshrine several aspects such as the financial position of the customer, the desire for variety, promotions, and special occasions (Soderlund & Colliander, 2015). A customer might be considered as loyal when in a real sense they are compelled to buy the brand because they cannot afford an expensive one that they desire most. Also, special events such as birthdays and weddings may happen to be frequent in a particular customer’s life to the extent that they make purchases of a specific brand repeatedly. A brand with numerous product promotions may also attract repeated purchases which are only attracted by the offers and not true loyalty.

Through understanding what customer loyalty is, it is easy to break down what customer loyalty programs are and their benefits to businesses especially budget hotels. Customer loyalty programs refer to marketing programs that have been designed to create a long-term relationship between customers and a particular brand in a company (Bowan & Chein McCain, 2015). Magatef & Tomalieh (2015) research work on customer retention outlines that a complete customer loyalty program entails rewards and benefits, and a database storing information about the enrolled customers, and also aims at retaining the identified clients. Research by Zakaria et al. (2014) defines customer loyalty programs as a planned program installed for the specific purpose of rewarding a group of customers who meet a certain criterion established by the marketer. Budget hotels have utilized customer loyalty programs to promote their relationships with customers for a long time. In the United Kingdom, most hotels have focused on customizing services for the clients who are enrolled in their loyalty programs, so as to achieve sales and also customer satisfaction, which promotes business growth in the long run. Budget hotels have developed customer loyalty programs based on customer segmentation; the type of loyalty, and loyalty steps (Ren et al., 2015). Budget hotels establish these programs to get access to loyal customers by rewarding them in different ways for their repeat purchases (Chen, 2015). However, as much as these hotels have established these programs to acquire a loyal segment of clients, the customers, on the other hand, on the other hand have enrolled only to get discounts and seasonal offers (Steinhoff & Palmatier, 2015). Budget hotels have developed these programs under the following typologies: rewards programs, rebate, partnership, affinity, and appreciation programs. Rewards programs award points to the clients of the hotel for every purchase they make in the hotel. The gained points can be redeemed in exchange for other products or brands that are not related towith the hotel, for instance, mobile phone airtime, confectionaries, books, novels, among other items. The program motivates first- time customers and also increases the spending of current customers. Example of hotels doing this include Travelodge in the UK. Rebates involve awarding loyal customers gift certificates which can be used during a new purchase by the customer exceeding a particular level. Under partnership programs, loyal customers are awarded access to the partners of the hotel and their products. Valued customers are the beneficiaries of affinity programs in most cases, which give them value-added benefits such as hamburger offers.

Benefits of Customer Loyalty Programs to Budget Hotels. Budget hotels use customer loyalty programs to maintain sales, profit margins, and promote cross-product purchases (Kang et al., 2015). A customer loyalty program that provides a wide range of benefits to the loyal customers will attract a large volume of customers to the brand, hence increasing the sales volume made by a hotel. Increase in sales reflects positively on the profit margin achieved by the hotel. Cross-product selling is mostly achieved through appreciation programs which gives the customer an opportunity to select from other products offered by the hotel such as food, and accommodation packages.

Premier Inn runs a Rewards and Affiliates program that has been in place for close to one year. The program rewards the customer’s points that can be redeemed for discounts or products in any Premier Inn destinations in the United Kingdom (Premier Inn).

The Ibis Reward scheme awards customers two points for every £1 they spend on consuming the services offered by the hotel. The points are branded as points. The points are redeemable at the hotel’s destinations across the country, and also in shopping for commodities that are not related to the hotel on Amazon, Halfords, The Hut, and John Lewis and partners. The customers are awarded 10% discounts during their shopping at the named stores using points. Since the inception of the Ibis hotel has thrived in business for its devotion to investing in customer loyalty (Ibis).

Summary and Further Research

Customer loyalty can be defined using three main models which based

on the attitude of the customer towards a particular brand, the behaviour of the customer considering past purchases, and the purchase situation of the customer. A true loyal customer holds certain beliefs about a brand that cannot be rubbished even with negative publicity about the brand. This type of customer loyalty is considered the best for the success of a company. Loyal customers based on past purchases are also considered to be beneficial for a business, while customer loyalty as a result of the purchase situation may not be a good kind for any business because if the situation changes, the loyalty of the client also switches to other brands. Therefore, loyalty programs have always been based on the three models of customer loyalty.

This research paper supported the loyalty models developed based on attitude, historical purchases, and situation. However, further research should be done to determine whether these models are relevant in other lines of business such as International money transfer in different banks among others. Future research should build on this paper by introducing firm evaluation in terms of the benefits of customer loyalty using CRM data. Lastly, extensive research on customer goal motivation should be an area of focus in the future because a better understanding of this concept will help a researcher better understand how to perceive the effectiveness of loyalty programmes.

Research Approach

Introduction

This research will utilize a case study of two budget hotels in the UK, that is, Ibis hotel and Premier Inn to develop a research design that will answer the research questions and fulfill the objectives and aims of the research.

Research Design

Basically, this study will comprise the theory and the empirical part. The theory part of this study will focus more on describing the customer loyalty programs, customer loyalty and give detailed information about the customer loyalty programs. More so, the subject has been studied by various researchers from different angles but this study will focus more on the basic and the crucial ideas of these subject.

There will be two different sections in the empirical part which are; searching for information about the two hotels and their customer loyalty programs on the internet, evaluation of empirical evidence such as efficiency profits and competitive advantage, and lastly, conducting interviews with the management of the case budget hotels. To collect the empirical data both the qualitative and quantitative studies will be used (Jensen, 2013). This research method is known as the mixed methods approach. Generally, both the qualitative and quantitative data collection techniques are what is referred to as a mixed methods approach. Further, the analysis procedures used in the research design can also be referred to as a mixed methods approach (Creswell et al., 2017). These methods will be chosen since they give better chances to answer the research questions and give better chances for the assessment of the research findings. The quantitative study will be used for the hotel management survey. Additionally, it will be used for data collection from the managers as it comes up with numerical data and comprises of data that can be quantified easily to assist in answering of research questions and to meet the objectives of the study.

There are two different categories in which quantitative data can be divided into; the categorical and the numerical. Categorical data entails of values that cannot be measured numerically but they can be grouped either into categories or ranks (Powers et al., 2008). The rank order shows the place while the categories are used to identify or rather describe the variable. On the other hand, the numerical data are values which are counted in numerical form as quantities.

The main aim will be to send a management survey to the managers of the two hotels who are running the customer loyalty programs. Firstly, the survey will be sent to a test group before being sent to the final recipient who in this case isare

the audience. The main aim of sending this questionnaire to the test group will be to get clarification on whether the logic of the questionnaire is clear enough for the respondents. Additionally, it will be to find out whether there were any spelling mistakes in the questionnaires. Finally, after receiving the answers from the test group, there will be final corrections that will be done to the questionnaire to ensure questions were similar to each of the respondents.

The qQuestionnaire will be used as the method of data collection as it allows for the collection of data from respondents who fall under diverse groups. The main reason as to why the questionnaires were selected, was to test the opinion of the managers about the effectiveness of customer loyalty programs to their firms. The questionnaire will comprise close- ended questions which will give the respondents a chance to choose from a limited set of responses. For instance, a Likert scaled questionnaire which has a scale from 1-5 will be used as the type of scale for this study. This is important as it measures the attitudes and opinions of the respondents as well as their agreement and disagreement levels (McLeod, 2008). The Likert scale used in this study will be a five-point scale that will give the managers a chance to express how much they agree or disagree to a particular statement. More so, it will give them a chance to write open feedback in the two questions asked in the questionnaire.

An eElectronic questionnaire was found effective since it has low- cost advantages and its easiness in distribution. Additionally, it will allowallowed for more efficient and effective analysis for the data collected. The questionnaire will beas distributed through an electronic survey tool of the company’s case. All the managers holding the position at different levels of the hotels and those who would havead given their email addresses for direct contact will beere

reached using this distribution method. The main use of graphs, charts, and statistics as a technique of quantitative analysis is to explore, present, describe and for examining relationships and trends that exist in data.

On the other hand, a qualitative study will be used for receiving data from the management as it generates non-numerical data or rather data that has not been quantified. This data varies from a short list of responses to open- ended questions for the questionnaires that are online based or those transcripts that are found in the in-depth interviews.

Interviews conducted in this study will be structured in that they will use questionnaires that will be based on a set of questions that have been prepared in advance. All the questions will be similar to all the interviewees. The interview questions together with the supporting material will be sent to the respondents via mail to give them a chance to compose and prepare themselves properly. Additionally, based on the answers given by the interviewees it will be possible to pose more detailed questions during the interview. The interviews will be done one on one with the interviewee. Standardized interviews go on under a set of questions that are presented in the same order assuming that the answers given by the respondent were honest so as to reveal enough indicators of the variable in questions, and as long as the questions are phrased accurately (Jensen, 2013).

Analysis

The interviews of the management will be analyzsed using the deductively based analytical procedures. The deductive procedures usually work from the more general to more specific approach or better known as the top-down approach. The dDeductive content analysis will be used in this study in order to find out whether the existing theory supports the approach of the study process and data analysis.

Premier Inn runs a Rewards and Affiliates program that has been in place for close to one year. The program rewards the customers points that can be redeemed for discounts or products in any Premier Inn destinations in the United Kingdom.

The Ibis Reward scheme awards customers two points for every £1 they spend in consuming services offered by the hotel. The points are branded as points. The points are redeemable at the hotel’s destinations across the country, and also in shopping for commodities that are not related to the hotel on Amazon, Halfords, The Hut, and John Lewis and partners. The customers are awarded 10% discounts during their shopping at the named stores using points. Since the inception of the Ibis hotel has thrived in business for its devotion in investing in customer loyalty.

The eEffectiveness of Customer Loyalty Programmes at Premier Inn and Ibis. Effectiveness is a subjective term. However, the effectiveness of the customer loyalty programmes on the performance of the two hotels will be evaluated using various measurements such as efficiency profits, and competitive advantage.

Efficiency profits refer to the profits gained by a firm or business due to the change in the purchasing behaviour of the customer caused by the loyalty programmed installed. The change in buying behaviour of the customer can be measured using tools such as share of wallet, retention, price sensitivity, and purchase frequency acceleration. Efficiency profits will be calculated using data on the profits earned by the firms net the cost of the loyalty program and also the additional revenue per customer.

Ibis hotel and Premier Inn hotel introduced the respective loyalty programmes to differentiate their products and services in the budget hotel industry. Therefore, by assessing the competitive advantage gained by the hotels due to the introduction of the loyalty programmes, it will be easy to determine whether the LPs are effective or not.

Ethical Issues

The principles of anonymity and confidentiality will also be applied fully during data collection. By adhering to the principle of anonymity, data will be collected and stored anonymously, that is, there will be complete discretion in hiding the value that can be associated or affiliated with the participants of the survey (Edwards & Weller, 2015). The surveys will be structured in the sense that the researcher cannot identify the specific participant. Since, the research will focus on the two budget hotels, the IP addresses of the participating managers will not be stored during allocation of the online surveys. The surveys will also avoid demographic variables of the participant.

The principle of confidentiality will be applied to the latter during data collection. The researcher will be able to identify the subjects of the process (Novak, 2014). Each participant will be assigned a code that will identify them as the participants in the surveys administered. Face to face surveys conducted will also maintain high confidentiality. The collected information will then be stored in a husky secure database system which is protected by a two-way authentication system: use of retina scans and password combination. Additionally, the analysis of the results will not entail the identification numbers assigned to the participants at the start of the process.

The principle of informed consent will also be applied during data collection. This principle means that the participant of the survey should be provided with the legal capacity to give consent, exercise free choice, without being subjected to any kind of force or fraud (Kim & Miller, 2015). The participant should also have enough knowledge about the subject or the research being conducted with their help in data collection. In case of any experiments involved, the participant should be made aware of all the risks, and methods to be used. This research will fully observe this principle by availing a consent form to every participant to be filled before conducting interviews. The consent form will be structured as shown in Appendix I.

Adherence to these ethical issues will ensure that the research is conducted without violating privacy, confidentiality, or any law pertaining to data collection policies.

Validity, Reliability, and Generalizability

Variability, reliability, and generalizability are principles of qualitative and quantitative research. Since this research paper will utilise both qualitative and quantitative methods, these three rules will apply in the following manner: the research questions which are to prove LP effectiveness in budget hotels’ performance and generally LPs are valid and have a desired valid outcome which will be attained using valid techniques, since part of data collected will be qualitative, the consistency in the data will help the researcher formulate attributes about the data, hence making it reliable, while quantitative data will have to be acquired from legit sources, and since the research is about customer loyalty specifically targeting budget hotels, the outcomes of the research will give a generalised concept on budget hotels.

Valid techniques used in this research include surveys and questionnaires which will be utilised to collect information from respondents with consent approval. Therefore, the validity of results is unquestionable. Legit sources for data collection on Ibis and Premier Inn include the respective company websites and National Audit data. These sources uphold consistency and validity since the information stored is updated frequently and protected from the breach. Based on the analysis of data on the two hotels, proof on the effectiveness of LPs on budget hotels’ performance will either be found or not, hence creating a general conclusion about LPs and budget hotels.

Research Plan

The Gantt chart is as provided in the MS Project file.

Figure 1. Table showing research events

Source: Author (MS Project)

Figure 2. Gantt chart

Source: Author (MS Project)

References

Aggarwal, P. & Shi, M. (2018). Monogamous versus Polygamous Brand Relationships. Journal of the Association for Consumer Research, 3(2), pp.188-201.

Bowen, J.T. & Chen McCain, S.L. (2015). Transitioning loyalty programs: a commentary on “the relationship between customer loyalty and customer satisfaction”. International Journal of Contemporary Hospitality Management, 27(3), pp.415-430.

Chen, R.J. (2015). From sustainability to customer loyalty: A case of full service hotels’ guests. Journal of Retailing and Consumer Services, 22, pp.261-265.

Creswell, J. W., & Creswell, J. D. (2017). Research design: Qualitative, quantitative, and mixed methods approaches. Sage publications.

Davenport, T. H., Dalle Mule, L., & Lucker, J. (2014). Know what your customers want before they do.

Edwards, R. & Weller, S. (2015). Ethical dilemmas around anonymity and confidentiality in longitudinal research data sharing: the case of Dan.

Han, H., & Hyun, S. S. (2015). Customer retention in the medical tourism industry: Impact of quality, satisfaction, trust, and price reasonableness. Tourism Management, 46, 20-29.

Hill, N. & Alexander, J. (2017). The handbook of customer satisfaction and loyalty measurement. Routledge.