Chapter 11 Building Customer Loyalty through Quality

“To understand service quality and make quality management effective, we need profound knowledge about the details and activities connected with the emergence of a service. This presupposes interest in service design and service production.” -Evert Gummesson ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Chapter Objectives Define customer value and customer satisfaction Understand the difference between customer satisfaction and customer loyalty Discuss attracting new users and retaining current customers by developing relationship marketing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Chapter Objectives Know tactics for resolving customer complaints and understand the importance of resolving complaints Define quality and discuss the importance of the benefits of quality Implement capacity and demand management tactics ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Customer Delivered Value Customer-delivered value is the difference between total customer value and total customer cost of a marketing offer Customer satisfaction depends on the product’s performance relative to a buyer’s expectations Companies must be customer centered and deliver superior value to target customers ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Customer Delivered Value ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Customer Satisfaction Buying decisions based on judgments formed about the value of marketing offers Customer expectations based on past buying experiences Today’s most successful companies raising expectations and delivering performance to match ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Customer Satisfaction vs. Customer Loyalty Customer satisfaction measures how well a customer’s expectations are met Customer loyalty measures how likely customers are to return and their willingness to perform partner shipping activities for the organization Customer satisfaction is a requisite for loyalty ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Relationship Marketing Creating, maintaining, and enhancing strong relationships with customers Basic Reactive Accountable Proactive Partnership ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Benefits of Customer Loyalty Continued patronage Reduced marketing costs Decreased price sensitivity Partnership activities ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Cost of Lost Customers Companies must define and measure retention rate Company must identify causes of customer defection and determine which can be reduced or eliminated Reducing customer defections by only 5 percent can result in improved profits of over 25 percent ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Resolving Customer Complaints A critical part of customer retention 82% of customers are likely to return if a complaint is handled quickly, as opposed to 9% if it is not Most customers do not complain ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Quality Quality has emerged as an important area in hospitality Product features enhance customer satisfaction and adds to the cost of a product Freedom from deficiencies increases customer satisfaction ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Quality Technical quality refers to what the customer is left with after the customer – employee interactions have been completed Functional quality is the process of delivering the service or product Societal (ethical quality) means firms must consider ethical responsibilities when developing products ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Managing the Perceived Service Quality ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Benefits of Quality Service Customer Retention Avoidance of Price Competition Retention of Good Employees Reduction of Costs ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Managing Capacity Involve the customer in the service delivery system Cross-train employees Use part-time employees Rent or share extra facilities and equipment ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Managing Capacity Schedule downtime during periods of low capacity Extend service hours Use technology Change the Configuration of the Service ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Revenue Management Revenue management is a methodological approach to allocating a perishable and fixed inventory to the most profitable customers ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Managing Demand Use price to create or reduce demand Use reservations Overbook Use queuing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Managing Demand Shift demand Change the salesperson’s assignment Create promotional events ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Class Discussion The Five-Gap Model of Service Quality Question: Describe ways in which you as a Manager could use the five-gap model of service quality ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

The Five-Gap Model of Service Quality ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Close Gap 1 1. Talking to customers 2. Talking to customer contact employees 3. Marketing information systems – customer surveys – analysis by segment – focus groups 4. Reducing levels of management ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Close Gap 2 1. Management Commitment – resources, internal marketing, reward systems 2. Use of hard and soft technology 3. Shift demand 4. Is meeting customer expectations financially feasible? ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Close Gap 3 1. Training 2. Internal marketing, pride 3. Teamwork 4. Reward systems 5. Service quality audits ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Close Gap 4 1. Know the capabilities of the firm 2. Good communications within the firm 3. Internal marketing – teamwork ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens