A Study on the Development of Brand

Loyalty in the Hospitality Industry

Linara Gimadova

Diploma in International Hotel and Tourism Management

HTMi Switzerland
Introduction

Referring to Benneth (2001, p. 21) as a concept brand loyalty was established in

the 1940s. As the author found out, the brand loyalty is most commonly defined

as “the biased behavioural response expressed over time by some decision-

making unit with respect to one or more alternative brands out of a set of brands

and is a function of psychological processes” assumed by Jacoby (1971 cited

Nawaz and Usman, 2011, p. 214). Furthermore, brand loyalty is reported to

consist of two vital measures such as attitudinal and behavioural measurements

(Schiffman and Kanuk, 2010). Attitudinal measures indicate customer’s opinion

about the brand and correspondingly their motives to purchase, whereas

behavioral measures include quantity, regularity of purchase and constancy of

buying (Ibid). Many hoteliers have been attempting to approach the maximal

number of new guests and identified it as a top priority. According to Shoemaker

and Lewis (1999) this orientation on new customers is called conquest

marketing. Relying on the research, this author believes that conquest marketing

will not be profitable in the near future for the reason that the hospitality

industry has become one of the most sustainable fields, and as a consequence,

the competition has grown very strong. However, brand loyalty has recently

been recognized to be essential part of marketing development in the hospitality

industry and the main marketing goal of hospitality firms. Therefore, since the

1990s brand loyalty has been researched in detail, and businesses are still

seeking different ways to use loyalty programs for their profitability (Yoo and

Bai, 2013). The aim of this research is to show the reasons for development the

brand loyalty by explaining the importance of this phenomenon in the industry

and aspects, which create the brand loyalty.

Concept of Brand Loyalty

Mc Alexander et al. (2003 cited Yoo and Bai, 2013) reported that brand loyalty

can be explained as a repeated purchase or visit caused by emotional attachment

or certain attitude towards a chosen company brand. Therefore, the significant

role of the brand loyalty is commonly known. The loyal customers are more

likely to spend money on changeable prices and less likely to change a

competitive company for the new advantages. Furthermore, this brings

effectiveness to decrease the expenses of promotion through the positive worth-

of-mouth way (Petrick, 2004 cited Yoo and Bai, 2013). Reichheld (1993 cited Yoo

and Bai, 1999) theorized that increasing the number of loyal customers causes

considerable step for profitability of the business. Nevertheless, it was proved by

Petrick (2004 cited Yoo and Bai, 1999) that promotion directed on the

acquisition of new consumers costs six times more than planning marketing

strategies for retaining consumers. Besides, Reichheld in the collaboration with

Sasser (1990 cited Yoo and Bai, 1999) found out that 5 % growth in holding the

customer led to 125% growth in profit of the service industry. To conclude,

loyalty marketing was recognized as the most important source for the

hospitality firms to be in favourable business position, having an ability to

perform on the competition field (Ibid).

Brand Loyalty Pyramid

Nonetheless, for a better understanding of the concept of brand loyalty and the

ways of using it in the hospitality, the author supports his research with the

following information about the consumer typology in the term of loyalty.

Brown (1953 cited Moisescu, 2006) created the first suggestion of classifying

consumers regarding their levels of loyalty.

According to his work, the customers fall into four groups: hard-core loyals,

constantly buying the same brand; split loyals, demonstrating loyalty to a few

brands; shifting loyals, who are loyal to one brand for a certain period of the

time, however, easily finding other brands, and switchers, who demonstrate an

absence of loyalty concept. Aaker (1991 cited Moisescu, 2006) suggested the

second hypothesis, which reveals five levels pyramid of brand loyalty, ranging

from non-loyal, “switchers”, to the most loyal consumers, ”committed” (Ibid).

Figure 2.1.2: The Aaker’s loyalty pyramid (1991 cited Moisescu, 2006 p. 1130)

This model gives the explanation to the customer behaviour

for each level and identifies the difficulties that the marketers

face while attempting to lift their consumers to a higher level.

The efficiency of the branding strategy will be more effective if there is a rise in

the customer inflow. Furthermore, the author hypothesizes how this model could

be related to hospitality industry.

For instance, the group of tourists came to Switzerland for the first time through

European Tours travel agency, and they were “switchers”, due to absence of

loyalty towards the firm. However, at the end of the holidays the group was

satisfied by tours and excursions provided and intended to visit the country next

year, using the same travel agency, what demonstrates them to be “satisfied”

customers according to Aaker’s pyramid (1991 cited Moisescu, 2006). Thereby,

the author assumes that the model above would be helpful for the hospitality

firms to be informed how to classify their customers in term of loyalty and which

steps should be taken to build the loyalty among them.

Factors Forming Brand Loyalty

Hence, the development of brand loyalty cannot be discovered without

considering certain factors, which form the brand loyalty. Accordingly, particular

marketing strategies need to be fulfilled for the each level of loyalty consumers in

the different ways, as the motives for purchasing the service might differentiate

(Tepeci, 1999). Nevertheless, according to Bowen and Shoemaker (1998 cited

Tepeci, 1999) loyal customers show the following common behaviours: repeat

purchase, resistance to other competitors, being a representative of the brand,

providing publicity and trying another range of the same brand products. The

following diagram integrates the factors that form the brand loyalty.
Figure 2.1.3.1. Structural equation model of the brand loyalty (Cadwell, 2014)

In figure 2.1.3.1 Structural equation of the brand loyalty and referencing to

Tepeci (1999) brand image was considered as one of the first steps in sustaining

the loyalty customers. Berry et al. (1988 cited Tepeci, 1999) indicates that the

term of image includes slogans, symbols, and logos, colors that create a clear,

adequate concept of the company. The brand image has significant role in

purchase decision, due to consumers attempt to emphasize their self-image by

purchasing relevant products (Ibid). The concept of image can be the sole factor

for a customer’s perception that a brand is more advantageous over the other

(Schiffman and Kanuk, 1991 cited Tepeci, 1999). Afterwards, brand image is

structurally followed by expectation and receive value, which are important

parts for understanding the brand loyalty as a concept. A brand is supposed to

impersonate traits of satisfaction to the customers (Aaker, 1991 cited Moisescu,

2006). The chances of making the customers stick to a particular brand are only

possible when their analytical conclusions state their requirements of what the

brand caters to. The concept of choosing a famous brand is a factor that depends

on the high quality product deliverance of the brand.

The firmness of the product regulates a 10 to 15 % premium in comparison to

their rivals (Elliott, 1996 cited Tepeci, 1999). Thus, the structural equation

model of brand loyalty designed by more modern researcher, Cadwell (2014)

shows the elements, which form the term of brand loyalty for the contemporary

comprehension of loyalty development.

Effectiveness of Loyalty Programs

The loyalty programs are considered as a vital tool for improving customers’

loyalty and satisfaction (Zakaria et al., 2013). According to Uncles et al. (2003) by

using these programs the companies attempt to sustain close relationships with

consumers as well as increase the revenue due to high repeat purchasing.

However, the author revealed by research that there are many different points of

view about effectiveness of customer loyalty programs. Shugan (2005) indicated

that the programs can cause both encouraging repeat purchasing and price

discrimination and argued that the higher repeat purchasing would not

necessarily be an asset for the business. He explained that the loyalty programs

provided short-term revenue, since the firm’s guarantees a future reward for the

customers can simply reverse the cost to the future (Ibid). Likewise, another

phenomenon called frequency program was challenged by Mattila (2006); from

her point of view, the customer’s aim to collect more frequency points does not

lead to the creation of loyalty. Nevertheless, the author believes that customer

loyalty programs are rather more effective than unproductive for the companies.

Such researchers as Keh and Lee (2006) and Verhoef (2003 cited McCall and

Voorhees, 2010) assumed that loyalty programs developed in appropriate way

could increase repeat purchases along with eagerness to pay extra.

The author made a further research and found out the methods how to improve

effectiveness of loyalty programs conceptualized by McCall and Voorhees (2010).

Thus, these methods can be categorized into three parts: the structure of the

loyalty program, the structure of the rewards and customers fit with the loyalty

program. As an example, Shugan (2005) hypothesized that in order to create the

successful loyalty programs the companies need such changes in the structure of

these programs as switching investment responsibilities from the customer to

the company itself in the first stages of programs establishment. In the next part

of entire research the author provides the information about various types of

loyalty programs with the examples in the hospitality industry.

Types of Loyalty Programs in Industry

Berman (2006) stated that loyalty programs fall into 4 major categories: type 1,

type 2, type 3 and type 4 programs. Thus, following type 1 program all the

customers receive a discount on particular goods based on swiping their

membership cards at the POS terminal. However, it is the very basic level of

loyalty programs and this type does stimulate repeat purchasing, as all

customers obtain the same benefits from such programs, despite the fact that

they are new consumers or best clients of the company. The strategy of all the

other loyalty programs types is increasing customers’ purchasing by offering

premium discounts or free items when the customers gain a predetermined level

of purchases. Examples of type 2 loyalty programs are free parking spot in

Airport Fast Park or free sandwiches in Jersey Mike’s Subs. However, such

programs have major problems relating to be easy copied by competitors and

lack of direct communication with customers.

For these reasons, most of hotel and restaurant chains use the type 3 programs,

which reward points for consumers are based on their past purchases, kept in

database of the company. Majority of type 3 programs has program tiers to

increase the repeat purchases rate. For instance, Hilton Honors program

provides tiers; according to which the heavy users can easily collect enough

points for free hotel rooms or reservations on an unlimited basis (Ibid). A similar

strategy is used by another hospitality firm, Starbucks, which offers four-tier

customer loyalty programs. These tiers represent four different level of loyalty

cards such as “Gold”, “Green”, “Welcome” and “non-member”, and for each level

there are particular benefits for consumers like free drinks, various coupons and

offers (Hanover Research, 2011). The last type of loyalty programs is very

similar to type 3, the difference is that type 4 programs focus more on targeted

offers and mailings to the customers and mostly are used by supermarkets and

textile brands (Berman, 2006). Hence, by analysing the types of customers

loyalty programs, the author revealed that in hospitality industry the most used

and appropriate one is type 3, as it is a more developed kind of programs with its

tier system, keeping the customer database fairly accurately.

Conclusion and Recommendations

For the future research the author recommends to look at contemporary

methods of increasing efficiency of customer loyalty programs in term of twenty

first century trends of loyalty programs. More information about technological

approach could be also added for the clear understanding of developing the

companies’ strategies regarding building the loyalty among their customers.

More factors can be explored to reveal the most sufficient kinds of loyalty

programs, which can be used in hospitality industry.

As mentioned in introduction, brand loyalty consists of two vital measures such

as attitudinal and behavioural measurements (Schiffman and Kanuk, 2010),

further research can be also done on the detailed description of these two

measurements and relating examples in the industry. At the same time, to

enlarge the entire topic of brand loyalty and examine it from different aspect, the

author suggests to take a consideration of the brand loyalty role as an element of

brand equity. To conclude, the aim of this paper is to examine a continuous

development of band loyalty in hospitality industry. As the author was not able

to use the primary research for the current paper, the purpose and objectives

were done by secondary research, using different existing researches on brand

loyalty as entire concept, also supported by two models, and reviewed the

studies on effectiveness of loyalty programs and their applying in hospitality

companies. For the reader’s better understanding of the increasing importance

of the customer loyalty especially for hospitality firms the Aaker’s loyalty

pyramid (1991 cited Moisescu, 2006) and structural equation model of the brand

loyalty (Cadwell, 2014) were provided in the paper.

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