Hotels use of the Internet as a relationship marketing tool
Food and Beverage

Hotels use of the Internet as a relationship marketing tool

It seems there can be no question about the commercial importance of the Web to the hotel industry. The real challenge lies in using the technology in a way which ultimately makes business sense.

The World Wide Web offers a communication opportunity which is ideally suited to the relationship marketing (RM) model.

The most valuable Web applications are those that allow companies to transcend communication barriers and establish dialogue directly with customers. For example, hotel Web sites can contain electronic forms for customer completion and hotels can reply directly via electronic mail (e-mail).

This kind of connection will improve customer relations and contribute towards the building of customer loyalty. The Web can give access to a greater store of information than other traditional communication media, and provide visitors with the means to select and retrieve only that which appeals to them.

This means that customised brochures, itineraries and guides could be produced at the touch of a key. For the hotels, it provides a useful tool in their adoption of micro-marketing in this “Age of the Individual” and relationship marketing.

However, it must be remembered that the true determinant is the willingness of customers to use the Web to book hotel rooms and to search for hotel information.

Limitations of the Web in the context of the hotel industry

Network limitations

The visual impact of the Web site is important, but issues such as graphics, bandwidth and connectivity in some areas may constrain website visitors experience.

Demographics

Successful Web applications should demonstrate relevance to the customer base. Web sites can be structured so that pages are targeted to specific online customer groups. These pages must be dynamic enough to keep pace with the ever-changing interests of such groups. The challenge here is to monitor the interests and to be flexible in responding to them.

Hotel marketplace and RM considerations

In the current competitive marketplace hotel companies have found it necessary to win the loyalty of the reduced number of customers. As such they need to reorient their thinking away from merely attracting customers to retaining customers. This is due to the need to reduce the cost of acquiring customers.

It is between five and ten times as expensive to win a new customer as it is to retain an existing one (Rosenberg and (Czepiel, 1984; Barnes and Cumby 1993; Liswood, 1989). Buttle (1996) notes that there are the direct costs of the successful conversion of a prospect into a customer (selling costs, commission, product samples, credit-checking costs, administrative costs, database cost) as well as the costs of  unsuccessful prospecting. Thus, keeping customers loyal is a sensible business strategy.

Even with successful campaigns, companies still face the risk of customers defecting, i.e. stop coming back. Defection rates affect retention rates, which is a central issue in relationship marketing. Price Waterhouse calculated that a 2 per cent increase in customer retention is equivalent to a 10 per cent reduction in costs (Caterer & Hotelkeeper, 1994). As such an awareness of the lifetime value of customers is growing.

A transaction-orientated view of the customer would consider the sales value and margin earned from a single sale, while a relationship-oriented view considers the revenues and contributions earned from contributions earned  from a long-term relationship with a customer. Gilbert (1996) argues that the life-time value of retaining customers enables the costs of conversion of the prospect to be set against the revenues earned over the longer term.

Sales and profits will also improve in direct proportion to the length of time a relationship lasts. In addition, existing customers tend to make more frequent visits, may broaden the base of their own purchases over time, and influence others through word-of-mouth advertising (Haywood, 1988).

A relationship marketing paradigm is most suitable when (Gilpin, 1996; Lewis and Chambers, 1989; Reichheld, 1993; Juttner and Wehrli, 1994):

  • there is an ongoing or periodic desire for the service on the part of the customer;
  • the service customer controls the selection of the service supplier;
  • there exists alternative choice of suppliers;
  • brand switching is a common phenomenon;
  • word-of-mouth is an especially potent form of communication about a product; and
  • there is an ability to cross-sell products

Data mining

The suitability of RM for the hotel industry is also due to the ease with which RM can be practised within the industry. From accommodation bookings and the registration process, hotels already possess certain information on customers. It is also possible for hotels to find out other valuable information, such as frequency of stay and spending behaviour, through company records. This information can be brought together on a database system and manipulated to identify and target the more profitable customers. Hotels could then begin a relationship with customers.

References

Journal of Marketing Practice; Applied Marketing Science, Vol.5 No. 1, 1999, pp 21-38 University Press, 1355-2538

Open University Business Library

Christopher Bird Author

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