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1.0 Introduction: CUSTOMER RETENTION ON HOSPITALITY MANAGEMENT
Chapter One begins by clarifying the terminology used in this study. The background to the study, which contextualizes the topic under consideration, is then presented. This is followed by the formulation of the problem statement, and the goals and objectives of the study. After which the formulation of the research question and its hypothesis and the significance of the study then the definition of terms is provided.
1.1 Background of the Study: CUSTOMER RETENTION ON HOSPITALITY MANAGEMENT
Blattberg, Getz and Thomas (2001:68) state that customer retention occurs when customers continue purchasing a product or service over an extended period of time. For products with short purchase cycles, they define customer retention as occurring when 'the customer continues to purchase the product or service over a specified time period'.
For products with ,long purchase cycles, they define customer retention as taking place when 'the customer indicates the intention to purchase the product or service at the next purchase occasion'.
Payne (2000a: 1 14) defines the customer retention rate as 'the percentage of customers at the beginning of the period who still remain customers at the end of the period'. Payne warns, however, that other, more complex definitions might be more appropriate in instances where customers frequent more than one business at the same time. In the case of an hotel, it stands to reason that customers may regularly stay at a number of d~flerent hotels. To measure customer retention, therefore, a number of factors need to be taken into account. These include the customer retention rate over time, the customer retention rate by market segment in terms of the different services or products offered, and the share earned of the customer's wallet (Payne, 2000a: 1 14- 1 15).
The growth of the hospitality industry has always been tied to the expansion of business and tourism. Providing accommodation is arguably the oldest professional activity.
Giving travellers a place to stay and eat is mentioned in the earliest historical records; and the concept of an hotel-like establishment predates the Bible. The Egyptians, Greeks, and Romans built pleasure and tourist resorts that would have rivalled today's massive compfexes in style and grandeur, if not in the sophistication of their facilities (Wearne & Morrison, 1 996:2).
Since, shortly after the mid-1970s, Nigeria has had hotels. The need for accommodation has grown since then. The Nigeria hotel industry is recognized as one of the most important industries of the Nigerian economy (McManus, 2000: 13 1). In June 2005 there were approximately 48 800 rooms available per night at Nigerian hotels. The occupancy rate for the corresponding period was 55.8 per cent (Statistics Nigeria, 2005b:4).
McManus (2000:131) states further that the industry in Nigeria is characterized by the presence of many of the world's best known hotel brands. These include Holiday Inn, Sheraton, and Hyatt. Home-grown brands such as Sun International, City Lodge, and Hotels differ in style and size. Some hotels have up to 800 bedrooms. Yet others are fullservice establishments, some are medium-sized business-class hotels, others do business in the budget sector, and, finally, there are the small country inns (McManus, 2000: 13 1). During February and March of 2002, the hotel industry experienced rapid growth.
Occupancy rates increased 1 1.2 per cent over the corresponding period in 2001. The reasons for this included the fact that Nigeria is gradually being perceived as becoming a safer and better value destination, offering hotels which are of the same standards as overseas competitors (Fredericks, 2002:3).
Total sales from travel accommodation amounted to N21.3 billion in 2004, up six per cent from 2003. Hotels accounted for N7.6 billion, or 37 per cent of total accommodation sales in Nigeria in 2004 (Euromonitor International, 2005).
A study conducted at 6500 hotels world-wide found that hotel room rates in Nigeria are among the lowest when compared to developed countries. Increases in hotel room rates were also found to be in line with inflation (Jenvey, 2005:22).
The purpose of this research is to evaluate the usage of Customer Retention (CR) in the hospitality sector focusing on the Nigeria Hotels Sector. The research process will focus on the Nigeria Hotel Sector in order to compile a profile of CR Management. Throughout the research previous CR Management strategies, current strategies, reasons for and benefits of these strategies will be highlighted and evaluated. This topic is one that is interesting and topical, as with the current financial crisis in Nigeria competition between different organizations in every sector has become rife. The research will examine which marketing activities are being implemented and if the attitudes towards customer retention are changing as companies compete to stay “alive”. The hospitality sector will be researched profiling the Hotel Sector as tourism is a crucial element in the Nigerian economy according to Failte Mark (2009), “Tourism is one of the largest and most important indigenous industries in the Nigerian economy”(Failte Mark Report 2009). According to Nigerian Tourist Industry Confederation (NTIC, 2008) “Nigeria has become an important global tourist destination” and “the Nigeria Tourism Industry is of vital economic importance to the Nigerian economy. CR management in the Hotel Sector in Nigeria is appropriate for the focus of this research.
Theory suggests CRM (Customer Retention Management) and the implementation of customer retention strategies have become increasingly more important over the last ten to fifteen years. It was stated that winning new customers is by far more difficult and expensive than keeping existing ones and this has become widely known across industries. The emphasis on the importance of customer retention is that rather than a focus solely on creating sales and the amount of sales it’s the post sale activity that focus should be strongly applied to. (Kotler 2008, Saunders 2000)
According to Kotler et al,. (2008), before the 1990’s there was little focus on customer retention but recently a change of focus has occurred and Customer Retention Strategies have been introduced, for example, Consumer Relationship Marketing, Loyalty Programs etc…
According to Drucker (1973), the sole purpose of a business is to create a customer. This has dramatically changed, today keeping the customer has become equally important, this is recognised by Dawkins and Reicheld (1990) when they reported that an increase in customer retention generated an increase in customer net present value. According to Kerin et al, (2007) there is a direct correlation between customer retention, company profitability and customer value, which can be identified as a unique combination of benefits received by target buyers. This includes quality, price, convenience, on-time delivery, and both before sale and after sale service. Satisfied buyers tend to tell 3 people about their experience and are more likely to become loyal. (Kerin et al, 2007) For many years managers were rewarded for their success in achieving sales targets, companies took customers for granted and with fast growing markets many companies did not worry about satisfying their customers. Today companies see the obvious downsides of customer churn. For example, it involves higher costs to a company than retaining their existing customers and increasing their revenue from them. (Kotler et al, 2008).
1.2 Statement of Problem
The background to the study outlines the factors impacting hotels in Nigeria. It also emphasizes issues surrounding customer retention management. The foregoing discussion leads to the following assertions:
- The more integrated a country's economy becomes with that of the rest of the world, the more players in the economy have to engage in a global game. The primary goal of a country should be to integrate its economy into the global economy as fast as possible.
- The globalisation of markets poses threats for local businesses. Strong overseas competitors have entered the Nigerian hotel industry and major international hotel groups are taking advantage of the opportunities present in Nigeria.
- Tourism is a fast-growing industry in Nigeria. Tourism was the fourthlargest industry in Nigeria in 2001, and the fastest growing tourism industry in the world in 2003. This has obvious relevance to a study of the hotel industry such as the present one.
- The hotel industry experienced rapid growth during the early months of 2003 with occupancy rates up by 11.2 per cent over the corresponding period in 2002 and hotels accounting for 37 per cent of all accommodation sales in Nigeria.
- Businesses (such as hotels) that can attract, satisfy and retain customers are more likely to survive than those that do not do these things.