The Effectiveness of Loyalty Programs: An Application in the Hospitality Industry

I. INTRODUCION Increased competition has forced firms to constantly look for new ways to be more attractive and thus more competitive. As the cost of keeping an existing customer is lower than the cost of acquiring new customers, many firms have launched loyalty programs. These programs are marketing strategies aimed at rewarding and thus encouraging loyal behaviour. However, their cost when compared to the benefits which they bring the firms has made several authors question their real effectiveness (Meyer-Waarden, 2002). The cost of the programs is often underestimated (and has led certain firms to re-examine them i.e. Air France with its program Flying Blue). Moreover, as competitors imitate the schemes the initial competitive edge is gradually eroded. The tourist sector was the pioneer in this field. Firstly, it was airline companies followed by hotel chains. This article proposes to question the effectiveness of loyalty programs in the hotel sector. This involves ranking the determinants of loyalty: is a customer loyal to a hotel or a chain of hotels for practical reasons and comfort; because he is satisfied; because the loyalty program arouses his interest, or finally for all these factors together? The answer to these questions should make it possible to determine if a loyalty program and its associated advantages can render the other choice factors secondary and thus increase the probability of the hotel being chosen. More precisely, we want to both gain a better understanding of the antecedents of commitment and trust and how these factors influence customer loyalty, and to determine the impact of the loyalty programs. After reviewing the existing literature on loyalty theories, we propose a conceptual model which aims to explain the loyalty of customers to a hotel or a chain of hotels and thus evaluate the efficiency of loyalty programs. To validate our model empirically, we questioned 390 users of hotel services in Bratislava. The specification of the structural model was made in two stages in order to identify the antecedents of loyalty. We first tested the general structural model, then the reduced model after removing non-significant variables. Lastly, we tested the impact of the loyalty programs by analyzing the possible differences in response between members and non-member of these schemes. II. ANTECEDENTS OF LOYALTY In this section, we offer a concise review of the main contributions to marketing research literature on the concepts of loyalty and customer loyalty schemes in order to better understand their intrinsic links, and to define our conceptual framework. A. From Loyalty to Loyalty Program The exchange marketing approach has evolved over the last few decades as companies have changed their preoccupations. The concept of traditional marketing was interested mainly in satisfying the needs and desires of the customer and in creating an orientation towards a product or a brand without taking into account the possible social relationship between the actors. From this perspective, communication between the two parties (companies and customers) was almost non-existent. The latter were regarded as complete strangers with no interest in the personality of their partner because the role which was allotted to them consisted in respecting their obligations in accordance with the terms of the exchange. This exchange, named by researchers "transactional exchange" (Dwyer et al, 1987) or "restricted exchange", is not seen as enduring as each transaction is regarded as being unique and independent of other transactions which had already taken place or which could take place in the future. The customer has no preference, or consideration, or loyalty to the seller. Reciprocally, the seller does not express any desire for knowing the preferences of the customer, nor his perception and personal opinion about the service or product sold. This highly restrictive vision of an exchange was criticized for its limited ability to explain behaviour and real practice. …