Exploring the Relationship Between Revenue Management and Hotel Loyalty Programs

Recently, there has been a shift among the structure of loyalty programs to not only reward the large spend of casino players, but also to compensate other frequent travelers of the hotel. As hotels continue to reevaluate the structure of loyalty programs, research was necessary to discover if these loyalty programs are extracting the maximum revenue per guest and creating overall revenue. The purpose of the study was to uncover the relationship between revenue management and hotel loyalty programs. First, a pilot study of a focus group was conducted, followed by thirteen in-depth interviews. After transcription, content analysis was performed, followed by the use of Atlas.ti to further analyze the data. Overall, the goal was to understand consumer behavior to drive repeat business. Revenue management used a loyalty program as a tool to track and gather data on the customer. INTRODUCTION AND LITERATURE REVIEW Loyalty programs have yet to be assessed from a revenue management perspective. The value perception of loyalty programs [10] [22], as well as the cost of switching brands [7] have been examined, yet this is strictly from a loyalty or marketing perspective. Customer relationship management [16] is a close bridge between revenue management and hotel loyalty programs that exists, calling for an immediate exploration of this area. The purpose of the study is to address a gap in the literature, while uncovering the relationship between revenue management and hotel loyalty programs and assess the managerial implications of that relationship. The intent of a loyalty program is to drive customer loyalty and make the guest want to stay at the same hotel time and time again [6]. This study was grounded primarily in the components of loyalty, namely behavioral and attitudinal loyalty. Attitudinal loyalty [9] is described as a deep desire to maintain a relationship with a product, supplier or brand. Conversely, transactional loyalty, or often referred to as behavioral loyalty [15], relies on repeat patronage as an indicator or customer loyalty [8] [9]. Despite the contrast made between attitudinal and behavioral loyalty, other research [17] contends that loyalty must contain both a deep commitment to a brand (attitudinal) as well as repeat patronage (behavioral) in order to flourish. The principle of dual entitlement also plays an important role in the theoretical framework when discussing fairness [11] [4], while also detailing fairness and its constraint on profit seeking. Under dual entitlement theory, consumers evaluate perceptions of price fairness based on the fairness of the process in which a company sets the price. Their article details how dual entitlement theory focused on how sellers’ set prices; consumer perceptions of price fairness are based on the degree to which the price charged accurately represents the cost of producing that product/service [3]. For example, if the price of a product is raised for no apparent reason, and the production cost remains constant, consumers will perceive this as unfair. It has been noted that loyal guests are less price sensitive, cost less to acquire, and also spend more than non-loyal guests [18], which indicates the importance of loyalty programs A study by Reichheld and Sasser in 1990 [12] indicates that a firm with a 5% increase in loyalty could produce profit increases of 25-85%. Conversely, another article [5] stated that loyalty programs are neither cost effective nor foster true loyalty. The authors continue by emphasizing the lack of solid scientific research supporting the effectiveness of loyalty programs; the conclusion of the article encourages managers to proceed with caution when it comes to loyalty programs [5]. Other researchers explore switching costs [19], which are costs associated when a customer changes from one brand to another [18]. Switching costs may involve monetary [7] costs, such as loss of funds, or non-monetary switching costs, such as loss of relationship [19]. Analysis of the literature revealed that some important antecedents of loyalty are: value [2], service quality [20] and satisfaction [12]. Prior research has not fully explored the methods for measuring consumer loyalty or loyalty program success [1]. Loyalty from a revenue management perspective [17] seems to be a relationship that has not been fully explored, but could possibly shed light on the connection between hotel loyalty programs and revenue management practices. Lastly, using revenue management and customer relationship management together [14] will consider the lifetime value of the customer and not simply demand. Other research [13] emphasizes the need to integrate revenue management and customer centric marketing.