!
!
!
Master’s!Degree!programme!
Second!Cycle!(D.M.$270/2004)!!
in!International!Management!
!
!
Final!Thesis!
!
!
Possible!
conflicts!
and!
solutions! between! Revenue!
Management! and! Customer!
Relationship!Management!
!The!Venetian!4*!hotels!
!
Supervisor!
Ch.!Prof.!Andrea!Ellero!
!
Graduand!
Andrea!Cester!
Matriculation!Number!837573!
!
Academic!Year!!
2015!/!2016!
Index&
!
Introduction
...1!
!
!
1.! REVENUE!MANAGEMENT!IN!THE!HOTEL!INDUSTRY,!PATTERNS!OF!
EVOLUTION!
!
1.1.! The!first!era!of!Revenue!Management...4! 1.2.! The!Renaissance!of!Revenue!Management...7! 1.3.! The!customer!centric!vision!of!the!firm...9! 1.4.! The!future!of!Revenue!Management...13! ! !2.!CUSTOMER!RELATIONSHIP!MANAGEMENT!IN!THE!HOTEL!INDUSTRY!
!
2.1.! Understanding!the!relationships!with!hotel!customers...20! 2.2.! Why!hotels!want!to!build!relationships!with!customers...22! 2.2.1.! Relationship!management!theories!across!different!cultures...24! 2.3.! Developing,!managing!and!using!customerTrelated!databases...25! 2.3.1.! Selecting!the!appropriate!technology!for!hotel!customerTrelated!databases...27! 2.3.2.! Oracle!customer!relationship!management!system!at!Marriott...29! 2.4.! Customer!portfolio!management...30! 2.5.! Customer!!experience...33! 2.6.! Creating!value!for!customers...35! 2.7.! Managing!the!customer!life!cycle:!acquisition,!retention!and!development...37! 2.8.! Organisational!issues!in!the!hotel!customer!relationship!management...40! !!
!
3.!THE!INTERACTION!OF!REVENUE!MANAGEMENT!WITH!CRM!IN!THE!HOTEL!
INDUSTRY!
!
3.1.! Positive!impacts!of!Revenue!Management!on!CRM...45! 3.1.2.! Negative!impacts!of!Revenue!Management!on!CRM...46! 3.2.! Understanding!potential!conflicts!arising!from!a!Revenue!Management!orientation..48! 3.3.! Strategies!to!reduce!Revenue!Management!conflicts!and!facilitate! long!term!relationships...51! 3.3.1.! Solutions!to!Revenue!Management!conflicts!with!customers...52! 3.3.2.! Solutions!to!Revenue!Management!conflicts!inside!the!organisation...60! 3.4.! Cross!cultural!analysis!of!potential!traveller!conflicts...62! ! !4.!HOW!ARE!REVENUE!MANAGEMENT!AND!CRM!ORIENTATION!MANAGED!IN!
THE!FOURTSTARS!CATHEGORY!HOTELS!OF!VENICE?!HOW!DOES!PEOPLE!
PERCEIVE!THEM?!A!CASE!STUDY!
!
4.1.! The!interview!to!Venetian!FourTstars!hotels...70! 4.1.1.! The!selection!of!the!city!and!the!division!in!quarters...70! 4.1.2.! The!use!of!Booking.com!as!a!database!of!hotels,!rates!and!scores...72! 4.1.3.! The!!questionnaire...78!
4.1.4.! The!respondents...79! 4.1.5.! Results!and!findings...85! ! 4.2.! The!interview!to!potential!hotel!customers...89! 4.2.1.! The!!questionnaire...89! 4.2.2.! Sample!and!respondents...90!4.2.3.! Results!and!findings...96! 4.3.! Conclusions!and!research!limits...99! ! !
Conclusions
...102! ! !Bibliography
...105! ! !Appendix!to!Chapter!4
...114!!
Introduction*
!
The!development!of!a!global!consuming!culture!and!the!falling!of!all!the!barriers!between! countries!and!customers!thanks!to!the!use!of!Internet!have!been!changing!the!way!of!doing! business! in! the! hospitality! industry.! The! increasing! use! of! websites! where! to! find! scores,! reviews!and!rates!about!the!majority!of!the!hotels!is!continuously!modifying!the!rules!of!the! game!exponentially!increasing!competition.!In!this!scenario!a!hotel!that!have!implemented!a! Revenue!Management!strategy!can!decide!to!adopt!a!rigid!approach!to!sales!in!order!to!obtain! positive! performances.! The! advantages! of! the! use! of! Revenue! Management! in! the! hotel! industry! has! been! empirically! recognised! by! the! hospitality! literature.! Pricing! dynamism,! inventory!control!tactics!and!methods!to!reduce!the!risk!of!unsold!rooms!are!more!or!less! used!by!the!majority!of!the!worldwide!hotels.!!
However,!a!strong!application!of!these!tactics!without!considering!the!customer!tendency!to! accept!them!may!generate!negative!results.!In!the!era!of!high!transparency!and!opinion!liberty! thanks!to!the!use!of!Internet,!a!hotel!can!not!justify!negative!comments!related!to!the!quality! of! service! or! the! staff! courtesy! but! in! particular! the! application! of! strong! and! rigid! sales! techniques.!In!order!to!increase!customer!satisfaction,!obtain!a!better!brand!reputation!and! as!a!consequence!positive!performances,!a!hotel!should!adopt!a!customer!centric!approach! to!business!instead!of!a!product!oriented!one.!
Apparently!the!two!approaches!to!hotel!management!have!different!objectives!with!specific! techniques! to! reach! them! and! focus! on! the! opposite! basis.! On! the! one! hand,! Revenue! Management!considers!the!maximisation!of!short!term!performances!without!considering!the! psychological!element!that!characterise!customers.!On!the!other!hand,!the!customer!related! approach,! known! as! customer! relationship! management! (CRM),! focus! on! the! long! term! retention! of! customers! and! development! of! solid! relationship.! The! apparently! different! approaches! to! hotel! management! can! leave! room! for! the! emergence! of! some! contrasts! between!new!or!fidelity!customers!and!the!firm.!!
The!aim!of!this!dissertation!is!to!present!some!of!the!solutions!that!the!hospitality!literature! has!developed!to!reduce!the!contrast!between!Revenue!Management!and!CRM!in!order!to!
of!the!developed!solutions!inside!a!sample!of!Venetian!fourKstar!hotels!and!the!degree!of! acceptance!of!the!same!solutions!inside!a!sample!of!potential!customers.!! Chapter!one!presents!the!pattern!of!evolution!of!Revenue!Management!since!the!very!first! adoption!by!the!airline!industry!to!nowadays!through!the!crisis!related!to!the!terroristic!attack! of!the!11th!September.!After!the!end!of!the!first!chapter!a!consideration!about!potential!future! evolution!of!the!discipline!takes!place.! Chapter!two!focus!on!the!apparently!opposite!approach!to!hotel!management,!the!customer! relationship!management!(CRM).!It!explores!the!processes!of!customer!retention!and!building! long!term!relationship!in!the!hotel!industry!through!some!considerations!about!trust,!fairness! and!why!a!hotel!needs!to!build!relationships!with!travellers.!It!also!deals!with!the!use!of!the! appropriate! technology! for! customer! databases! in! order! to! gain! as! many! advantages! as! possible!from!the!use!of!customer!data.!
After! an! introduction! to! the! two! apparently! opposite! approaches! to! hotel! management! Chapter!three!presents!the!solutions!that!the!hospitality!literature!has!developed!to!favour! coordination! and! interdependence! between! Revenue! Management! and! CRM! in! order! to! achieve!better!short!and!long!term!results.!Chapter!three!considers!two!level!of!influence!of! Revenue!Management!and!CRM.!The!first!refers!to!the!solutions!of!Revenue!Management! conflicts!with!customers!and!the!emergence!of!a!customer!oriented!culture!that!use!CRM! tactics!to!reduce!unfairness!and!favour!trust!in!the!firm.!The!second!considers!the!conflicts! that!can!rise!inside!an!organisation!between!two!departments!with!different!key!parameters! and!variables!to!manage.!Chapter!three!concludes!with!some!considerations!about!customer! culture!and!how!different!country!of!origin!can!affect!the!fairness!perception!of!them.! Chapter!four!includes!the!case!study!with!an!empirical!research!to!a!sample!of!Venetian!fourK stars!hotels!and!the!sample!of!potential!customers.!! The!first!part!of!the!case!study!deals!with!the!degree!of!adoption!of!Revenue!Management! and!CRM!by!hotels,!the!degree!of!complaints!that!they!received!due!to!Revenue!Management! and! what! kind! of! solutions! they! have! implemented! to! enhance! firm! profitability,! brand! reputation!and!internal!communication!and!coherence.!!
The!second!part!of!the!research!considers!the!same!issues,!but!in!order!to!gain!better!results! it!deals!with!some!potential!scenarios!related!to!Revenue!Management!conflicts!and!CRM! solutions!that!customers!may!experience!in!a!hotel!from.! ! ! ! !
!
Chapter*1*
*REVENUE*MANAGEMENT*IN*THE*HOTEL*INDUSTRY,*PATTERNS*OF*
EVOLUTION*
! 1.1.#The#first#era#of#Revenue#Management# !Most! of! the! past! debates! about! hotel! management! focused! on! Revenue! Management,! underlined!the!importance!of!this!practice!for!the!firm!profitability.!In!the!early!1970s!Revenue! management!was!first!adopted!in!the!airline!industry!as!a!tool!to!control!price!differentials!for! time! and! space! sensitive! products! and! services.! In! the! middle! of! the! 1980s! and! the! Deregulation! Act! in! the! United! States! airline! industry,! competition! increased! and! a! wider! range! of! Revenue! Management! tactics! began! to! be! implemented! in! order! to! increase! profitability!and!market!share.!The!adoption!by!the!hotel!industry!began!at!the!end!of!the! 1980s!when!Revenue!Management!became!the!most!promising!selling!tactic!for!many!hotels,! enabling!them!to!offer!a!broader!range!of!rates!to!travellers.!Hotels!initially!adopted!Revenue! Management! procedures! thanks! to! the! similarity! of! their! core! business! with! the! airline! industry!(Weatherford,#2016).#
The!sales!processes!and!operations!of!airline!and!hotel!products!are!very!similar.!In!fact,!seats! and!rooms!selling!have!the!same!limits!(Abrate,#2016)!due!to!the!relative!fixed!capacity!and! the!perishable!asset.!For!these!reasons!the!practices!used!in!the!airline!industry!could!fix!well! with!the!hotel!one.#
Revenue! Management! had! then! evolved! into! a! very! effective! and! efficient! process! of! managing! hotel! demand.! The! use! of! sophisticated! information! and! communication! technologies!lead!managers!to!develop!very!rigours!tools!for!demand!forecasting!and!optimal! occupation!mixes.!!
However,!the!terroristic!attack!at!the!early!beginning!of!the!21st!century!and!the!consequent!
After! this! event! uncertainty,! unpredictability! and! risk! avoidance! were! the! dominant! characteristics! of! the! hotel! market.! Much! of! the! rigorous! processes! around! the! Revenue! Management! were! relaxed! due! to! the! demand! slowdown.! Hotels! began! to! think! about! booking!everything!it!is!possible,!at!every!price,!in!order!to!obtain!any!value!added!from!an! unprofitable! industry.! The! effects! of! the! World! Trade! Centre! attack! influenced! at! first! the! United!States!economy!and!then!all!the!other!nations.!The!consequences!in!terms!of!numbers! were!more!negative!there!than!in!the!rest!of!the!world!(Wang,#2015).!The!general!economy! slowdown!changed!the!tourism!profits!significantly.! Figure!1.1.!and!Figure!1.2.!show!the!international!level!of!income!of!the!major!tourism!players! according!to!the!World!Tourism!Organisation.!The!data!regard!the!period!after!and!before! 2001!in!order!to!appreciate!the!impact!of!the!receipt!differences.!The!US!tourism!industry!was! the!most!damaged!economy!and!the!following!years!were!characterised!by!a!slow!growth.! The!other!major!actors!suffered!the!impact!of!2001!too!(World#Tourism#Organisation,#2015),! and!the!level!of!incomes!of!the!following!four!years!confirmed!the!US!tendencies.! They!also!began!to!use!the!distortive!practice!of!the!merchant!model!in!order!to!keep!the! volume!of!sales!up!in!a!period!of!weak!demand.!The!merchant!model!helped!hotels!to!increase! their!poor!profits!(Liao,#2015),!but!at!the!same!time!it!negatively!influenced!their!positioning! on!the!market!affecting!the!rate!coherence!through!the!different!sales!channels.#
Figure! 1.1.!
International! Tourism! Receipts! in! the! US! restricted! between! 1998! and! 2008! (World!Tourism!Organisation,!2015)! $60 $80 $100 $120 $140 $160 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 BillionFigure! 1.2.!
International! Tourism! Receipts! restricted! between! 1998! and! 2008! (World! Tourism!Organisation,!2015)!
! In!this!stagnant!environment!some!firms!renounced!to!further!investments!and!improvements! on!Revenue!Management,!others,!in!particular!big!and!international!chains,!exhibited!long! term!beliefs!about!the!competitive!advantage!of!the!different!sales!approach.!! During!the!slowdown!period,!many!of!these!disruptive!companies!began!to!reconsider!the! role!of!the!hotel!Revenue!Management.!A!radical!shift!and!new!combination!of!attitudes!were! necessary!to!develop!a!vision!of!management!more!favourable!to!advanced!and!integrated! Revenue! Management! systems.! Kimes! (2015)# reported! an! affirmation! of! an! interview! to# Bundock,! senior! vice! president! of! international! Revenue! Management! for! Marriott! International,! who! affirmed! that! the! event! of! 9/11/2001! was! a! wakeKup! call! for! the! hotel! industry.! According! to! him! “Hotel! business! had! to! look! more! closely,! examine! the! overall! strategy!and!how!Revenue!Management!should!impact!it”.!!After!that,!Revenue!Management,!the!most!promising!tactic!operation!to!increase!the!hotel! profitability,!was!redesigned!and!integrated!within!the!whole!hotel!strategy.!The!previous!use! of!Revenue!Management!as!a!stand!alone!practise!could!lead!the!customer!perception!of! fairness.!As!a!result!of!the!redesign,!Revenue!Management!expanded!its!role!once!again!and! became! one! of! the! most! growing! disciplines! in! the! hotel! world.! The! development! of!
$10 $15 $20 $25 $30 $35 $40 $45 $50 $55 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Billion
technologies! and! the! managerial! support! lead! to! the! end! of! the! first! era! of! Revenue! Management!(Weatherford,#2016)#where!it!was!used!as!a!stand!alone!tactical!approach!to! hotel!reservations.#
Now!big!and!international!hotel!chains!have!hundreds!of!members!dedicated!to!the!Revenue! Management! strategy,! technology,! support! and! execution.! The! environment! has! been! changing!on!a!daily!basis.!Companies!have!new!methods!to!making!decisions!and!at!the!same! time!customers!use!more!tools!to!evaluate!and!compare!hotel!offers.!
!
1..2.#The#Renaissance#of#Revenue#Management#
!
During! the! slowdown! period! the! companies! that! continued! to! invest! on! Revenue! Management!radically!changed!the!key!objectives!of!the!discipline.!Revenue!Management! was!facing!an!evolution!beyond!the!simply!demand!management.!It!could!play!a!key!role!in! creating! demand.! An! expansion! in! the! traditional! Revenue! Management! activities! was! necessary!in!order!to!reach!this!shift.!Procedures!became!more!analytical!in!order!to!have!a! better!understanding!of!the!customers.!The!analysis!of!demand!elasticity,!customer!segments! and!the!optimal!mix!of!them!inside!a!hotel!became!the!new!key!parameters!of!the!Revenue! department.!As!a!result!of!this!revolution,!well!acknowledged!by!the!literature!(Ortega,#2016),! Revenue!Management!is!now!one!of!the!most!important!disciplines!in!the!hotel!industry.!! The! support! of! information! and! communication! technologies! is! essential! for! a! modern! Revenue!Management!approach.!Revenue!Management!systems!permit!to!better!analyse!all! the!economic!indicators!in!order!to!develop!an!effective!program!for!decision!makers.!In!the! past! the! innovative! use! of! Revenue! Management! tools! was! in! part! inhibited! by! the! requirement!of!local,!sophisticated!hardware!and!software!interfaces.!Many!firms!considered! these!analytical!tools!too!expensive!in!a!short!term!managerial!orientation!(Noone,#2016).!The! evolution!of!webKbased!systems!and!integration!of!platforms!overcame!the!technology!issues.# Another!result!of!the!global!economy!slowdown!was!a!different!evolution!of!the!ownership! structure.! Before! the! crisis,! one! of! the! profit! model! used! by! the! estate! owners! was! the! exploitation!of!the!spread!between!the!acquisition!and!selling!value.!Entrepreneurs!used!to! buy! hotels! and! organisations! trying! to! gain! some! differentials! between! the! two! different!
operations.!As!a!consequence,!their!efforts!were!directed!to!the!property!renovation!and!not! on!management.!! After!the!crisis,!this!practise!slowed!and!owners!became!more!interested!on!the!maximisation! of!the!operating!performances!of!their!assets!instead!of!the!market!value.!The!change!of!the! owner!objectives!opened!increasing!room!for!the!managerial!reorganisation!of!the!firms!and! further!investments!on!Revenue!Management!(Weatherford,#2016).!Many!positions!for!sales! and!revenue!specialists!were!opened!also!at!top,!strategic!levels.!The!Revenue!Management! vision! were! no! more! an! operational! approach! to! sales,! but! also! a! part! of! the! corporate! strategy.!
The!new!objectives!were!incoherent!with!the!merchant!model!of!the!crisis!period.!After!that! the!airline!industry!began!to!dissolve!contracts!and!reduce!commissions!to!third!party!agents,! they!increased!the!spread!on!the!hotel!industry.!After!that!the!leverage!became!too!high!also! for!hotels,!many!firms!dissolved!contracts!and!reduced!revenue!to!third!parties!too!(Noone,#
2016).! They! were! too! expensive! for! the! company! profitability! and! the! high! differentials!
between! different! distribution! channels! damaged! the! value! proposition! of! the! firms.! The! reduction!of!third!party!agent!leaved!increasing!room!for!the!development!of!pricing!systems,! the!centralisation!of!sales!and!rates!control.!
However,!a!fascinating!approach!to!Revenue!Management!do!not!have!to!consider!only!the! advantages! in! terms! of! profitability.! An! objective! implementation! of! revenue! procedures! could!lead!customers!to!perceived!mistrust!and!opportunism.!Many!discussions!about!the! possible!conflicts!and!their!solutions!between!hotels!and!customers!began!to!take!place.!The! hospitality!literature!recognised!the!disadvantages!of!the!Revenue!Management!as!a!lack!on! the!customer!related!vision!of!the!firm.!Pure!Revenue!Management!focused!on!monetary! profit!maximisation!without!considering!any!customer!perceptions!(Wang,#2015;#Kimes,#2015;# Vaeztehrani#2015;##Guillet,#2015).# The!development!of!new!technologies!that!favoured!the!advent!of!more!sophisticated!pricing! management!systems,!enabled!also!the!creation!of!big!customer!databases.!These!systems! were!very!useful!for!the!acquisition!and!analysis!of!customer!data!in!order!to!develop!a!better! market!segmentation!and!positioning.!They!were!also!very!effective!for!the!creation!of!the! customer!related!vision!of!the!firm!(Rahimi,#2016).!In!fact,!a!better!knowledge!of!customer!
interests!and!behaviours!could!create!some!solutions!to!the!potential!conflicts!generated!by! Revenue!Management.##
The! evolution! of! databases! opened! also! increasing! room! for! the! discipline! of! customer! relationship!management!that!advocates!a!long!term!orientation!to!business!by!the!retention! and! development! of! the! relationships! with! customers.! The! revolution! of! information! technology!radically!changed!the!way!of!doing!business!in!hotel.!Nowadays!revenue!managers! have!many!tools!to!analyse!data,!provide!effective!forecasts!and!generate!customer!demand.! The!technological!improvements!that!reorganised!the!firm!decision!processes!also!modified! customer!attitudes!and!sources!of!information.!The!widespread!use!of!the!world!wide!web! has!been!changing!the!rules!of!the!game!because!customers!can!get!very!specific!data!there.! They!can!view!photos!before!booking!a!room,!check!the!proximity!of!a!hotel!with!the!reported! locations,!evaluate!hotel!benefits,!promotions!and!control!the!feedbacks!that!other!travellers! wrote!about!their!journey.!In!particular,!they!can!control!online!rates!and!appreciate!some! differentials!through!time!(Martin,#2015).!More!importantly,!customers!can!evaluate!all!the! hotel!attributes!and!make!some!comparisons.!The!customer!use!of!online!systems!has!been! increasing!the!competition!in!the!hotel!arena.#
The! new! era! of! Revenue! Management! has! to! consider! all! of! these! variables.! The! strictly! application!of!Revenue!Management!techniques!can!generate!customer!conflicts,!perceived! unfairness!and,!due!to!the!new!systems!of!communication,!potential!travellers!can!learn!these! bad!behaviours!in!advance.! ! 1.3.#The#customer#centric#vision#of#the#firm! ! The!most!promising!approach!that!emerged!with!the!renaissance!of!Revenue!Management! was!the!evolution!of!the!customer!analysis.!The!customer!centric!vision!of!the!firm!explores! customer! behaviours! (Pandita,# 2016)! in! order! to! understand! their! reactions! to! tailored! strategies.!The!inventory!centric!approach!leaved!room!for!the!integration!of!the!strategy! building! blocks.! Pricing! methods! were! no! more! the! most! important! key! objectives,! also! customer!related!parameters!began!to!influence!decision!makers.#
The! customerKcentric! view! focuses! on! a! fundamental! integration! of! pricing! and! customer! value.!Hotels!are!realizing!that!information!and!communication!technologies!(ICT)!contain!a! wide! variety! of! data! about! customers! (Carrilero,# 2016).! Where! a! loyalty! program! is! implemented,! these! data! are! usually! very! specific! and! regards! customer! value,! attributes,! details!or!notes!about!the!relationship!life!cycle.#
Many! organisations! adopt! customer! relationship! management! (CRM)! systems! to! capture,! store!and!analyse!information!about!customers.!These!data!often!include!personal!details,! demographic!profiles,!reservations,!sales!data,!requests!and!surveys.!Hotels!are!also!realizing! that! these! data! could! be! appropriately! integrated! with! the! forecasting! tools! of! Revenue! Management!to!create!a!new!system!of!demand!planning!cycles.!!
Even!if!CRM!advantages!are!well!recognised,!the!majority!of!the!hotels!do!not!usually!integrate! them! inside! the! Revenue! Management! department.! The! most! critical! part! of! a! Revenue! Management! strategy! is! the! process! execution! and! the! ability! to! work! in! a! coordinated! manner!with!the!sales!force.!The!difficulties!lie!in!the!different!points!of!view,!objectives!and! key!parameters!of!two!different!departments.!As!Hoffmeister!of!Marriott!affirmed!on!a!recent! interview!for!Forbes!“There!were!many!frustrations!between!the!sales!teams!and!the!revenue! teams,! many! of! the! salespeople! had! been! here! fifteen! years! and! had! not! had! to! consult! anyone!before!taking!an!action”#(High,#2014).!A!better!understanding!of!travellers!enhanced! the!notion!of!Revenue!Management!beyond!just!room!revenue.!!
One!of!the!new!capabilities!is!the!process!of!price!optimisation,!not!just!inventory.!The!falling! of!demand!during!the!slowdown!period!and!the!rate!transparency!resulting!from!internet! sales! lead! hotels! to! focus! on! effective! pricing! systems.! Noone! affirmed! that! the! obsolete! methods! were! focused! on! imposing! predefined! rates! and! length! of! stay! (minimum! and! maximum!of!nights)!in!established!periods!(Noone,#2016).!However,!controlling!inventory!and! length!of!stay!were!no!longer!enough.#
The! hotel! industry! was! calling! for! a! more! adequate! pricing! system.! As! a! result,! pricing! dynamics! evolved! with! the! use! of! new! tools! and! systems.! Other! industries! already! implemented!different!pricing!systems!with!success!and!hotels!inspired!themselves!to!well! established! examples.! Revenue! Management! systems! were! limited! to! optimizing! the! inventory! at! a! given! rate.! If! the! rates! were! appropriate,! the! maximization! of! profits! was!
possible!and!regarded!the!number!of!rooms!sold.!If!the!prices!were!not!optimal,!the!Revenue! Management!system!would!not!have!captured!the!opportunities!on!the!market,!creating!too! much!customer!surplus!or!unsold!rooms.!In!fact,!many!errors!on!reductions!of!only!one!euro! per!room!per!night!in!a!high!capacity!hotel!can!lead!to!high!financial!losses!considering!a! period!of!one!year.!Analytical!automated!tools!were!implemented!in!order!to!improve!the! effectiveness!of!the!pricing!strategy!and!reduce!losses.!The!focus!on!pricing!also!put!increasing! attention!on!the!study!of!demand!elasticity!and!willingness!to!pay!at!different!rates.!A!deeper! attention!on!these!variables!permits!to!reach!a!better!market!positioning.!Pricing!errors!are! now!more!visible!than!in!the!past!and!misalignments!of!rates!are!punished!with!unsold!rooms.! The!customer!centric!vision!of!the!hotel!also!proposes!a!new!kind!of!profit!model.!Travellers! contribute!to!revenue!not!only!with!the!room!payment!such!as!in!old!models.!There!are!other! several! ancillary! revenues! significant! for! an! organisation.! Revenue! Management! needs! to! consider!the!entire!revenue!stream!of!a!hotel.!Ancillary!revenue!could!not!be!very!interesting! for!hotels!with!nonKcustomizable!services,!but!they!are!one!of!the!major!sources!of!revenue! for!the!others.!As!Kimes!noticed,!a!well!recognised!wellness!and!spa!centre,!a!golf!camp,!a! very! prestigious! restaurant! are! sources! of! important! revenue.! However,! only! few! hotels! implement!these!kind!of!profit!model!(Kimes,#2015).!A!better!positioning!on!the!market!can! be!reached!only!with!the!optimisation!of!all!the!hotel!revenue!by!the!Revenue!Management! department.#
The!conferences!at!Hilton!represents!an!example!of!this!strategy.!They!use!to!invite!the!team! members! of! related! departments! to! Revenue! Management! discussions! considering! in! particular!the!function!space.!Moreover,!a!research!by!Maier!and!Barsky!(2015)!on!Las!Vegas! casinos!studied!how!the!different!amount!of!revenue!at!hotel!casino!influenced!the!interest! of! the! structure! and! its! willingness! to! retain! and! develop! the! relationship! with! specific! customers.! The!expanding!approach!to!Revenue!Management!is!the!evolution!of!management!control! systems.!Big!and!international!hotel!chains!use!to!develop!rigorous!tools!to!measure!actions,! processes!and!results!of!their!departments.!Revenue!Management!is!an!activity!centre!like! others!with!budget!objectives,!key!resources!to!exploit!and!key!actors!held!accountable!to! reach!these!objectives.!If!the!department!is!considered!a!revenue!centre,!managers!use!to!be!
responsible!only!of!generating!revenue!and!no!formal!attempt!is!made!to!relate!inputs!to! outputs!(Merchant,#2012).!However,!if!a!Revenue!Management!department!is!a!profit!centre,! managers!are!held!accountable!of!generating!profits,!the!financial!measure!of!the!difference! between!revenue!and!cost,!and!many!other!indexes!are!evaluated!to!reach!the!expectations.!# The! implementation! of! a! management! control! system! provides! a! measure! of! some! key! parameters!of!the!centres.!The!strategies!that!a!Revenue!Management!department!develop! would!lose!their!level!of!impact!on!the!whole!firm!results,!if!not!measured.!Positive!strategies! could! be! discarded! for! an! inefficient! measurement! and! most! importantly,! negative! and! unnecessary!promotions,!even!if!innovative,!could!damage!the!entire!organisation!in!terms!of! opportunity!costs.!When!performance!is!controlled,!it!is!more!likely!that!it!will!improve.!As! Hoffmeister! of! Marriott! explained! on! his! interview! for! Forbes,! a! Revenue! Management! organisation! can! have! a! high! impact! on! the! success! of! a! company,! many! Revenue! Management! organisations! do! not! only! oversee! the! process,! but! also! measure! the! effectiveness!of!decisions!on!pricing!and!inventory!controls!(High,#2014).!Big!and!international! chains!operate!like!the!multinational!companies!of!other!industries!and!have!sophisticated! tools!for!management!control!(Sainaghi,#2013).#
Smaller! companies! and! firms! may! operate! with! simpler! systems! to! control! the! Revenue! Management!impact.!The!absence!of!a!management!control!system!leads!decision!makers! with! very! low! budget! possibilities,! or! without! an! adequate! managerial! background,! to! be! fascinated!by!the!potential!power!of!Revenue!Management!without!effectively!understanding! the!dimension!of!the!change.!!
The!same!scenario!could!take!place!if!a!Revenue!Management!system!is!implemented!without! knowing! how! to! improve! and! develop! it.! It! would! damage! the! brand! reputation! creating! misalignments!with!the!hotel!and!traveller!expectations.! Strong!controls!on!actions,!results!and!processes!are!not!the!unique!tools!for!a!consistent! strategy.!The!customer!centric!approach!considers!also!the!human!contact!in!the!strategy! execution!(Merchant,#2012).!Hotel!staff!are!the!people!in!contact!with!customers,!the!ones! that!can!evaluate!strategies!consistency!and!provide!information!to!fill!the!gap!between!the! hotel!and!its!travellers.!Personnel!controls!could!be!one!of!the!major!sources!of!motivation! for!employees!and!at!the!same!time!a!reliable!tool!to!get!information.!!
Hotels!use!to!give!rewards!to!employees!when!goals!are!reached.!The!Revenue!Management! department! could! obtain! certain! individual/collective,! monetary/non! monetary! benefits! when!they!reach!revenue!goals.!Customer!related!teams!get!the!same!kind!of!benefits!when! they! reach! some! levels! of! retention! and! development! of! customer! relationships.! Every! department!acts!in!order!to!reach!its!own!objectives.!Reward!and!compensations!could!be! planned! to! favour! the! coherence! and! development! of! the! global! customer! centric! vision!
(Merchant,#2012).!However,!if!objectives!are!settled!without!any!considerations!about!the!
global!interdependence!and!mission!of!the!firm,!it!is!very!likely!that!a!misalignment!between! the!different!departments!takes!place.!
Revenue! departments! use! to! be! oriented! through! the! maximisation! of! short! term! results,! whereas!customer!related!departments!consider!the!customer!value!and!the!development!of! relationships! through! the! long! term.! The! customer! centric! vision! of! the! firm! is! not! a! key! objective!for!all!the!centres!or!the!prior.!It!is!a!shared!pattern!of!evolution!of!the!international! hotel!management,!but!it!coexists!with!others.!! ! 1.4.#The#future#of#Revenue#Management! ! The!future!of!Revenue!Management!is!not!written.!There!are!many!patterns!of!evolution!for! the!future!and!the!theories!are!various.!Scholars!and!hotel!managers,!the!executive!people! that!make!decisions!are!expressing!different!opinions!for!the!future.!A!research!by!Kimes!of! the!Cornell!University!confirmed!by!other!authors!explored!all!the!different!perceptions!that! insiders!have!about!the!future!of!Revenue!Management!(Kimes,#2015,#Weatherford,#2016).! Figure!1.3!summarises!the!path!of!evolution!of!Revenue!Management!divided!by!decades! since!the!first!era!of!Revenue!Management.!It!also!shows!a!positive!correlation!between!the! strategic!approach!to!Revenue!Management!and!the!profitability!of!performance.! In!the!future!Revenue!Management!may!become!more!strategic!and!it!would!encompass!all! the!revenue!streams!within!the!firm.!
Technologies! will! play! a! strong! role! in! the! future! and! will! help! the! continuous! evolution! through!a!more!strategic!oriented!approach.!Improvements!on!technologies!and!strategies! will!also!increase!the!level!of!competition!inside!the!arena.!A!major!number!of!players!will!be!
more!reactive!to!market!changes!and!on!the!point!of!view!of!Porter,!the!competition!of!the! existing!players!will!rise.!!
New! managerial! methods! could! require! more! qualified! employees.! Insiders! think! that! a! shortage!of!qualified!revenue!managers!will!be!the!future!scenario.!!
Revenue! Management! may! also! expand! to! function! space,! food! and! beverage! and! all! the! other!hotel!products!and!services.!Also!small!firms!could!be!able!to!adopt!a!global!revenue! approach.!New!technologies!could!then!modify!the!distribution!chain.!Hotels!already!try!to! change!the!distribution!channels!through!the!disintermediation!of!the!flow!of!reservations! from! the! online! travel! agents,! booking.com! at! the! head,! to! the! hotel! website! and! direct! channels.!This!changing!perspective!is!an!advantage!in!term!of!costs!with!the!reconsideration! of!commissions!to!third!parties.!A!different!distribution!strategy!can!also!reduce!the!distance! between!travellers!and!hotels!in!order!to!better!understand!how!they!behave!and!what!their! requests!are.! Reducing!the!distance!between!customers!and!companies!is!an!innovative!strategy.!American! multinational!corporations!are!back!reKshoring!their!manufacturing!processes!in!order!to!gain! more! control! on! production,! higher! quality! and! customised! products! or! services.! The! centralisation!of!many!of!the!value!added!processes!produces!better!tailored!outputs!and! develops!the!customer!centric!vision!of!the!firm.!The!use!of!third!parties!limits!the!control!on! processes!(Fratocchi,#2015)!and!a!hotel!that!considers!a!high!level!of!customer!satisfaction!as! a!competitive!advantage!can!lose!some!opportunities!to!evolve.#
Technologies! and! Revenue! Management! will! enhance! also! medium! and! small! firm! performance.! Improvements! in! technologies! and! their! use! by! every! decision! maker! will! change!the!analysis!of!customers.!Better!technologies!will!provide!a!better!segmentation,!a! better!positioning!on!the!market!and!a!real!focus!on!customers.!The!short!term!orientation!of! Revenue!Management!will!leave!exponential!increasing!room!to!long!term!thinking,!customer! loyalty!and!market!knowledge.!The!use!of!technologies!will!favour!the!customer!centric!vision! of!Revenue!Management.!This!business!strategy,!well!known!in!other!industries,!has!been! partially!neglected!in!the!hotel!world!since!the!advent!of!Revenue!Management.!! According!to!Wang!(2015)!and!Vaeztehrani!(2015)#the!future!of!Revenue!Management!could! be! the! era! of! interdependencies! between! the! short! term! thinking! and! the! long! term!
development! of! relationships.! The! customer! centric! vision! embedded! in! the! customer! relationship!management!is!already!practiced!by!big!and!international!chains.!The!long!term! focus!of!CRM!naturally!contrasts!the!short!term!thinking!of!Revenue!Management.! The!implementation!of!an!open!customer!relationship!management!system!may!solve!the! conflicts!that!emerge!between!the!Revenue!Management!approach!and!travellers.!Customer! relationship!management!will!help!decision!makers!to!propose!a!more!coherent!offer!to!new! entry!and!loyal!customers.!It!also!will!provide!them!with!consistent!data!for!the!development! of!effective!decision!making!tools.!! At!the!early!beginning!Revenue!Management!was!a!tactical!approach!to!sales!and!it!used!very! raw! tools! to! formulate! rates! and! promotions.! The! results! were! marginal! revenue! in! comparison!with!the!whole!firm!performances.!However,!the!escalation!of!investments!during! and!after!the!first!era!of!Revenue!Management!exponentially!grew!Revenue!Management! value!added.!The!shift!from!a!tactical!cybernetic!process!to!a!strategic!vision!of!revenue!has! been!increasing!the!value!of!the!department.!The!renaissance!of!Revenue!Management!after! the! terroristic! attack! of! 2001! leaved! room! for! a! better! market! segmentation,! a! better! positioning!into!specific!segments!and!a!deeper!analysis!of!customer!behaviour!and!loyalty!to! the!firm.!These!key!parameters!will!determine!the!future!patterns!of!evolution!of!the!sales! strategy.! The! customer! related! departments! and! the! strategic! interdependencies! with! Revenue! Management! will! play! a! dominant! role! in! increasing! the! revenue! function! profitability.!!
Chapter*2*
*
CUSTOMER*RELATIONSHIP*MANAGEMENT*IN*THE*HOTEL*INDUSTRY*
!
CRM! is! a! core! business! strategy! that! integrates! the! internal! processes! and! functions! with! external!networks.!The!objective!of!CRM!is!to!create!and!deliver!value!for!targeted!customers! with!reasonable!profits.!It!uses!high!quality!customer!related!data!enabled!by!information!and! communication! technologies! (Buttle,# 2013).! CRM! does! not! regard! only! information! technology,! it! influences! also! other! processes! and! functions! inside! a! firm.! The! access! to! customer!related!data!permits!to!sales,!marketing,!revenue!and!service!departments!to!be! aware!of!the!customer!interactions!and!experiences!with!a!hotel.!Historically,!most!of!the! hotels! were! located! close! to! their! markets! and! understood! their! customer! needs! very! intimately.!There!was!a!sort!of!faceKtoKface!interaction!(Kandampully,#2015)!that!permitted! the!acquisition!of!data!about!preferences,!requirements!and!the!development!of!customized! experiences.#
However,!as!the!dimensions!of!hotels!grew,!the!degree!of!attention!to!customers!decreased! and!many!organisations!didn’t!face!the!appropriate!intuitive!knowledge!and!understanding! about! their! customer! segments.! This! fact! opened! some! room! for! the! demand! of! more! consistent!customer!related!data!and!the!rise!of!CRM.!It!influences!the!traveller!experience! and!has!a!strategic!significance.!!
CRM!is!practised!in!a!variety!of!different!industries!such!as!finance,!automotive,!high!tech,! consumer! goods! manufactures,! hotels! and! airlines.! CRM! fits! well! with! the! hotel! industry! because!the!nature!of!the!products!and!services!provided!enables!the!flow!of!many!data!about! customers.!In!a!hotel!a!relationship!begins!with!an!exchange!of!eKmails!where!the!hotel!could! register!and!note!any!requirements!about!particular!service!and!needs.!It!continues!with!the! arrival!and!the!registration!of!traveller!personal!data.!It!evolves!during!the!stay!because!all!the! activities! could! be! registered! in! order! to! enrich! data! about! preferences! and! amount! of! expenses! for! extra! services! (room! service,! restaurant,! lounge! bar,! spa! and! wellness! area,! laundry!and!so!on).!
This!amount!of!information,!if!well!organised!and!analysed,!could!constitute!suggestions!for! future! promotions! (Jani,# 2014).! It! is! one! of! the! building! block! of! potential! long! term! relationships!with!customers.!
As! the! amount! of! data! grows,! one! of! the! leading! issues! of! information! and! technology! specialists!becomes!the!mass!of!information!to!handle!and!analyse.!Organisations!may!have! limits!to!their!IT!systems!and!elaborate!them!with!different!procedures.!Hotels!have!different! managerial!techniques,!according!to!their!strategies!and!administrative!heritage!(Gonzalez,#
2016).! Scholars! that! studied! different! organisational! approaches! developed! a! number! of!
different!comprehensive!CRM!theories.!They!constitute!an!organisational!perspective!that!fits! well!also!for!different!industries!with!the!necessary!adaptations.!!
One!of!the!CRM!acknowledged!model!is!the!Value!Chain!Model!developed!by!Buttle!(2013),! presented!in!Figure!2.1.!It!is!a!reinterpretation!of!the!famous!model!by!Porter!(2001).!In!his! model! Buttle! modified! all! the! variables! of! the! Porter! value! chain! according! to! a! customer! oriented!perspective.!In!fact,!primary!stages!consist!on!the!customer!portfolio!analysis,!the! customer!intimacy,!the!network!development,!the!value!proposition!development!and!the! management!of!the!customer!lifecycle.!These!activities!should!ensure!a!company!to!acquire! and!retain!profitable!customers.!The!supporting!conditions!refer!to!leadership!and!culture,! data!and!information!technology,!people!and!processes!that!enable!CRM!to!act!effectively! and!efficiently.!
Figure!2.1.!
CRM!Value!Chain!(Buttle,#2013)! !The!emergence!of!CRM!leaves!room!for!a!number!of!common!misunderstandings!about!the! nature!of!the!discipline.!It!is!helpful!to!describe!them!at!the!early!beginning!in!order!to!avoid! the!reader!from!any!kind!of!error.!!
CRM! is! not! database! marketing.! Database! marketing! regards! the! construction! and! exploitation!of!a!customer!database!for!marketing!purposes.!CRM!has!a!wider!scope!and!acts! as!a!strategy!with!strategic,!operational,!analytical!and!collaborative!purpose.!!
CRM!is!not!a!standardised!marketing!process.!CRM!specialists!use!CRM!software!for!many! marketing! activities! such! as! market! segmentation,! customer! acquisition,! retention! and! development.! They! help! a! hotel! to! develop! a! customer! centric! vision! and! produce! more! customised! offers.! CRM! could! help! the! other! hotel! departments.! A! Human! Resources! department! can! use! customer! data! to! develop! a! specific! training! program;! a! Revenue! Management! department! can! develop! an! offer! for! off! peak! periods! based! on! customer! preferences;!a!food!and!beverage!manager!should!adapt!the!menu!or!develop!an!offer!based! on!customer!culture;!a!housekeeping!manager!can!prepare!a!customised!mini!bar!or!increase! the!control!on!the!room!cleaning!service.!!
The!information!and!technology!department!is!not!an!independent!centre!held!accountable! for!the!CRM!system.!Some!CRM!systems!are!considered!an!IT!department!proposal,!and!their! development!is!considered!a!marginal!key!objective!of!the!same!division.!However,!CRM!has! a!strategic!perspective.!It!has!to!influence!every!hotel!division!in!order!to!develop!complete! and!consistent!customer!profiles.!If!this!characteristic!would!not!be!understood!by!all!the! different!managers,!inconsistent!decisions!would!be!taken!with!negative!effects!on!the!whole! hotel!performance.!! CRM!does!not!mean!loyalty!schemes.!They!are!very!common!in!the!hotel!industry!and!consist! on!a!collection!of!points!related!to!the!number!of!journeys.!The!sum!of!a!high!amount!of!points! give!free!benefits!and!additional!services!to!loyal!customers.!For!example,!the!very!well!known! Best!Western!uses!a!card!for!their!loyal!members!with!special!promotions!offered!only!to! them.!Also!other!big!and!international!chains!have!implemented!similar!fidelity!rewards.!Some! microbusiness!hotels!use!to!offer!the!same!kind!of!benefits!too,!even!if!with!different,!informal! procedures.!Loyalty!schemes!help!the!hotels!to!retain!customers!and!they!can!be!included!or! not!on!a!CRM!strategy.!In!fact,!a!hotel!strategy,!plan!or!program!that!involves!the!customer! relationship!management!does!not!necessarily!require!the!opening!of!some!benefits!schemes! for!loyal!customers.! ! 2.1.#Understanding#the#relationships#with#hotel#customers# * A!relationship!between!a!hotel!and!a!traveller!is!composed!by!a!series!of!interactive!episodes! between!the!parties!over!time.!Even!if!only!one!journey!is!enough!to!establish!a!certain!flow! of! information! between! the! parties,! the! term! relationship! constitutes! a! different! kind! of! interaction!based!on!repetitive!stays!driven!by!trust!and!commitment.!The!duration!of!only! one!stay!is!usually!not!enough!to!differentiate!a!simple!oneKtask!market!transaction!from!a! tradeKon! relationship.! The! former! is! characterised! by! a! mix! of! attributes! such! as! product,! service!and!price.!The!latter!is!driven!by!emotional!positive!factors!(Sheth,#2015).!However,! also!during!the!first!trade!a!traveller!can!establish!a!certain!kind!of!positive!attitudes!with! hotel!spaces!and!staff.!!
For!example,!an!occasional!traveller!that!drinks!a!White!Russian!drink!at!the!lounge!bar!does! not!necessary!constitute!a!relationship;!however,!the!same!occasional!traveller!that!comes! repeatedly,!even!during!the!same!stay,!opens!the!field!for!a!dependence!mechanism.! A!relationship!is!a!social!construct.!Buttle!(2013)#affirmed!that!a!relationship!exists!if!people! believe!that!a!relationship!exists,!and!they!act!accordingly.!! A!relationship!lifecycle!is!dynamic!and!changes!over!time.!Hotels!and!travellers!can!have!closer! interactions!for!a!certain!period!and!then,!with!or!without!reasons,!dissolve!or!reduce!their! frequency.!Hollensen!(2015)!examined!the!process!of!relationship!development!as!a!part!of! their!comprehensive!review!about!the!evolution!of!relationship!marketing.!They!categorised! relationships!into!two!different!theories,!the!stages!theory!and!the!states!theory.!The!former! is! characterised! by! a! gradual! and! linear! evolution! trough! stages.! They! are:! awareness,! exploration,! expansion,! commitment! and! dissolution.! The! latter! emphasizes! the! dominant! unforeseen!characteristic!of!all!businesses.!Uncertainty!is!a!sort!of!baseline!condition!for!the! business!practise,!it!is!complex!and!extra!rational.!According!to!Ford!(1980)!“Strategic!moves! occur!in!an!unstructured!and!unpredictable!manner!at!any!point!in!time”.#! Even!if!the!two!models!provide!different!patterns!of!evolution,!two!necessary!conditions!need! to!act!for!the!development!of!any!kind!of!durable!relationship.!These!conditions!are!trust!and! commitment.!! One!party!may!trust!the!other!if!and!only!if!there!is!a!coexistence!of!3!attributes:!benevolence,! honesty! and! competence.! The! development! of! trust! is! the! first! investment! that! an! hotel! should!make!in!order!to!build!a!long!term!relationship!with!its!guests!(Barreto,#2015).!It!is!very! easy!to!negatively!influence!the!traveller!trust.!In!fact,!it!is!possible!that!a!certain!kind!of! strategy!contrasts!the!operations!of!traveller!retention!and!cause!the!dissolution!of!the!long! term!relationship.#
Commitment! is! also! crucial! for! a! long! term! successful! relationship.! When! commitment! is! present,!a!party!believes!that!an!ongoing!relationship!with!another!is!so!important!to!justify!a! very! high! amount! of! efforts! to! maintain! it.! Commitment! is! generated! from! trust! in! the! company,!some!shared!values!and!the!belief!that!the!supplier!is!difficult!to!change.!!
In!the!hotel!industry,!organisations!use!to!position!in!specific!market!segments!and!attract! different!kind!of!travellers.!!
For!example,!a!luxury!hotel!attracts!customers!with!requests!for!high!quality!standards!of! service,!whereas!a!budget!hotel!positioned!in!the!low!cost!segment!uses!to!capture!travellers! that!prefer!low!rates!and!a!basic!service.!Other!hotels!use!to!share!some!interests!about!the! theme!of!holidays!with!animals!and!attract!people!that!travel!with!their!pets.!This!kind!of! values!are!the!base!for!repeated!transactions.!It!is!necessary!to!preserve!any!kind!of!shared! values!in!order!to!maintain!the!customer!commitment.!! During!off!peak!periods!a!rate!reduction!by!a!luxury!hotel!could!affect!the!optimal!guest!mix,! create! conflicts! between! them! and! negatively! erode! the! commitment! and! trust! of! loyal! customers.!Still,!new!animal!policies!could!change!the!specific!positioning!and!dissolve!many! relationships!with!customers!that!share!a!positive!passion!for!animals.!
The! exploration! of! trust! and! commitment! reveals! that! a! multitude! of! relationships! characterised!by!a!different!level!of!the!two!variables!may!occur.!Some!of!these!relationships! are! likely! to! continue! over! time,! others! not! (Kaushal,# 2015).! Every! customer! has! different! attitudes! and! values.! The! role! of! CRM! is! understanding! the! relationships! with! travellers,! identify!the!expected!value!of!each!segment!and!provide!consistent!tools!to!decision!makers.# # 2.2.#Why#hotels#want#to#build#relationships#with#travellers! # A!crucial!reason!for!a!hotel!to!maintain!long!term!relationships!with!customers!regards!profits.! Better!results!are!created!with!the!implementation!of!CRM!systems!that!identify,!acquire,! satisfy!and!retain!the!profitable!travellers!than!without!any!specific!tools.!In!fact,!one!of!the! key!objectives!of!the!CRM!is!the!enhancement!of!the!total!firm!performances.!
A! CRM! approach! reduces! the! marketing! costs! because! existing! customers! enter! in! the! marketing!chain!from!advanced!steps!avoiding!the!temptation!and!acquisition!phase!(Bowen,#
2015),! whereas! the! acquisition! of! new! customers! generates! major! costs! related! to! the!
strategic!analysis,!research!and!development!of!new!solutions.#
Long! term! relationships! reduce! also! the! risk! related! to! unforeseen! events.! Repeated! reservations!and!stay!during!the!same!year!or!through!different!ones!are!a!positive!and!solid! base! for! off! peak! periods.! The! business! models! of! some! hotels! consider! the! natural! environment! and! its! attractions! a! competitive! advantage.! For! examples,! hotels! on! the!
mountains,!on!the!seaside!and!near!hot!springs!use!to!exploit!the!external!environment!to! attract!a!specific!segment!of!tourists.!The!lack!of!snow!or!a!summer!with!low!temperatures! negatively!influence!the!organisation!performances.!In!these!firms!the!presence!of!a!solid!base! of!existing!customers!and!reservations!reduces!the!risk!of!unsold!rooms!(Suoto,#2015).!! Then! CRM! helps! decision! makers! to! have! a! better! customer! insight.! As! customer! tenure! lengthens,!a!hotel!become!more!able!to!understand!traveller!expectations!and!requirements.! A! better! customer! satisfaction! likely! rises! the! revenue! per! available! customer,! increases! commitment!to!the!firm!and!reduces!costs.!
Another! advantage! of! CRM! is! a! better! understanding! of! the! customer! LifeTime! Value.! A! customer!is!not!a!one!task!transaction,!but!incorporates!a!dynamic!perspective.!The!lifetime! value! (LTV),! also! known! as! customer! lifetime! value! (CLV)! is! an! indicator! of! the! customer! participation!to!a!hotel!revenue.!The!LTV!is!the!net!present!value!(NPV)!of!all!expected!margins! of! a! relationship.! LTV! could! be! measured! for! a! single! customer,! segments! and! groups.! A! clustered!LTV!indicator!helps!the!budget!committee!to!allocate!more!or!less!resources!to!the! marketing! departments! in! order! to! develop! existing! relationship! or! find! profitable! new! segments!(Kandampully,#2015)! LTV!is!closely!related!to!word!of!mouth!(WOM).!In!the!hotel!industry!loyal!customers!with!a! crucial!LTV!are!the!first!source!of!positive!reviews.!They!transmit!experiences!to!the!group!of! people!around!them!generating!positive!feedbacks!and!informal!advertising.!They!also!are! one!of!the!sources!of!positive!electronic!word!of!mouth!(eKWOM).!In!the!era!of!the!online! review!success,!positive!exhaustive!judgments!can!determine!the!success!of!a!hotel.!A!loyal! customer,! proud! of! its! customised! journey,! is! likely! to! leave! positive! reviews! underling! characteristics!of!the!hotel!services!that!a!first!time!traveller!could!use!as!crucial!for!the!hotel! selection.!Some!loyal!customers!also!enrich!the!online!reviews!with!details!about!the!public! service!lines,!the!quarters!where!the!hotel!is!located!and!the!activities!to!do!near!around.!This! information!regards!the!personal!impressions!of!the!travellers!and!not!professional!optimistic! promotions!of!the!marketing!department.!The!logic!of!WOM!and!eKWOM!affirms!that!satisfied! travellers!are!not!only!more!willing!to!purchase!again,!but!also!influence!other!potential!new! customers!to!buy!(Ladhari,#2015).!A!research!by!Lee!(2010)#explored!how!the!incorporation! of!WOM!effects!increases!the!lifetime!value!significantly.!!
The!retention!and!development!of!relationships!are!an!advantage!for!the!hotel!management,! total! performances! and! customers! interested! in! long! term! relationships.! Excluding! leisure! travellers!and!their!willingness!to!explore!a!different!destination!for!every!different!journey,! other!customers,!also!business!ones,!manifest!some!degree!of!preferences!when!they!are! recognised!and!addressed!by!name!from!the!hotel!staff;!when!the!service!is!unexpectedly!high! customised!on!their!well!known!preferences!(room!and!view!on!a!specific!side!of!the!hotel,! important! table! at! the! restaurant,! birthday! celebration! with! personalised! presents);! when! they!gain!a!more!important!bargaining!power!than!the!other!guests!for!rates,!promotions!and! discounts;!when!the!customer!status!is!rising!and!becoming!a!relevant!one.! # 2.2.1.#Relationship#management#theories#across#different#cultures# ! Many!models!try!to!explain!how!the!relationships!with!customers!should!be!managed!(Palmer,# 2010;#Grönroos,#2011;#Payne,#2014)# The!Nordic!school!emerged!in!the!late!of!the!1970s!in!the!countries!of!the!North!of!Europe.!It! emphasizes!the!role!of!services!in!the!customer!relationship.!The!quality!of!services!is!a!crucial! characteristic!for!a!long!term!relationship.!The!Nordic!school!identified!interaction,!dialogue! and! value! as! the! three! major! characteristics! for! any! commercial! relationship,! all! of! them! related!with!the!building!blocks!of!services.!During!the!interaction!between!customers!and! suppliers!both!parties!perform!services!for!the!other.!Customers!use!to!supply!information! and!suppliers!use!to!provide!solutions!for!their!requirements!(Grönroos,#2011).!A!dialogue! between! parties! is! essential! for! the! appropriate! development! of! relationships.! In! fact,! dialogue!is!not!a!oneKway!source!of!communication,!but!a!bilateral!exchange.!The!result!of! interaction!and!dialogue!is!value.!The!Nordic!school!emphasized!the!double!nature!of!value! too.!Value!is!a!mutual!advantage!for!parties!because!both!can!appreciate!and!contribute!to! create!it.!! A!different!theory!that!appeared!in!another!culture!is!the!AngloKAustralian!school.!It!affirmed! that!companies!have!relationships!with!customers!and!another!wider!range!of!stakeholders.! The!company!objectives!are!the!satisfaction!of!customers!and!of!the!other!six!categories!of! stakeholders!involved!(Grönroos,#2011)!(internal!employees,!suppliers,!the!labour!market,!the!
referral!markets,!the!influenced!markets!and!governments,!shareholders!and!regulators).!The! AngloKAustralian! school! included! a! wide! range! of! parties! because! it! considered! the! total! amount!of!interaction!that!a!firm!can!have,!considering!both!inputs!and!outputs.!
The!Relationship!management!theory!in!North!America!manifests!a!different!approach.!The! major! theme! of! the! North! Americans! is! the! idea! that! a! successful! relationship! favours! excellent! business! performances.! A! positive! relationship! reduces! transaction! costs! and! enhances!trust!and!commitment.!The!North!American!school!confirms!the!link!between!trust,! commitment!and!competitive!advantage.!!
Asian!countries!developed!an!outlier!approach!to!relationship!management.!Their!culture!use! to!share!opposite!codes!of!conduct!and!norms!for!business!relationships.!The!Guanxi!school! is! a! philosophy! about! how! to! conduct! relations.! It! compares! the! business! field! to! an! interpersonal!relationship!in!the!Chinese!and!Asian!context!(Ambler,#1995).!Guanxi!refers!to! the! informal! social! norms! of! families,! friends! and! group! members.! There! are! bilateral! obligations! and! cooperation! in! order! to! obtain! resources! and! exchange! of! favours.! A! relationship!is!conducted!only!within!a!familiar!group!of!companies!and!a!network!expansion! is!possible!only!with!an!invitation!by!one!of!the!existing!members.!At!the!very!beginning!they! use!to!verify!norms!and!values!of!the!new!entrants,!and!only!after!a!common!acceptance,!join! any!kind!of!business!with!them.! ! 2.3.#Developing,#managing#and#using#customer#related#databases# #
Develop! a! very! specific! knowledge! about! customers! is! crucial! to! achieve! CRM! success.! Strategic!CRM!uses!customer!related!data,!operational!CRM!needs!customer!related!data!to! achieve!results!about!sales!and!marketing.!Analytical!and!collaborative!CRM!relies!on!them! too.!Big!and!international!hotel!chains!use!to!have!many!advanced!systems!that!capture!data! from! different! perspectives! (Rahimi,# 2016).! Medium! and! small! hotels! may! not! have! any! common!customer!related!database!and!the!decision!making!processes!could!be!based!on! data! provided! by! single,! independent! or! unstructured! information! from! one! or! more! departments.!Customer!related!database!should!be!implemented!in!many!of!the!hotel!key! centres.! The! Revenue! Management,! sales,! marketing,! accounting,! and! housekeeping!
department!can!contribute!to!capture!data.!A!Customer!related!database!should!be!about! segments!and!traveller!profiles.!It!could!also!contain!information!about!the!service!provided! or!the!business!environment.!A!preliminary!decision!about!the!implementation!of!a!database! is!the!definition!of!its!objectives!and!functions.!! If!the!management!needs!a!strategic!CRM!system!it!would!contain!data!about!markets,!trends,! peak!and!offKpeak!periods,!competitors!and!how!they!act!on!the!market,!key!customers!and! segments!to!retain,!develop!or!abandon.!! Operational!CRM!systems!use!to!contain!different!data.!They!help!the!employees!in!the!dayK byKday!routine.!Operational!CRM!systems!store!data!necessary!for!the!daily!operations.!A! reservation!office!agent!usually!needs!the!access!to!guest!profiles!and!their!past!requirements! in!order!to!reserve!the!right!room!for!him/her.!The!exploration!of!traveller!history!could!also! guide!the!same!employee!through!customised!rates!and!discounts!similar!to!past!conditions.! Traveller!history!of!payments!could!determine!different!levels!of!uncertainty!with!a!request! acceptance!or!refuse.!
Analytical! CRM! systems! use! customer! related! data! for! other! aspects! too.! They! help! the! marketing,!sales!and!service!departments.!For!example,!a!hotel!can!promote!special!offers!or! weekendKbreak! on! the! base! of! the! traveller! preferences! analysis.! This! tactic! retains! and! attracts!customers!of!specific!segments!(Soltani,#2016).# After!the!explicit!definition!of!objectives!and!function,!it!is!important!to!define!which!are!the! significant!information!for!the!very!effectiveness!of!the!tool.!The!personnel!that!best!know! which!kind!of!data!are!meaningful!for!the!database!are!those!who!directly!use!it.!For!example,! the!front!office!staff!that!faceKtoKface!communicate!with!customers!could!be!held!accountable! for!some!of!the!database!information!about!profiles.!In!fact,!one!of!the!staff!interests!are!the! details! of! customer! history! concerning! their! operative! position.! Senior! managers! use! to! require! completely! different! information! for! their! decisions.! They! may! be! interested! on! market! segments,! current! customers,! the! level! of! promotion! accuracy,! the! sales! performances,!requirements!and!expectations.!
Every!department!needs!an!amount!of!information!because!every!decision!maker!is!used!to! deal!with!different!variables!(Nieves,#2015).!The!result!is!the!necessity!of!customised!CRM! systems.!The!advent!of!packaged!CRM!applications!leaved!room!for!the!mass!customisation!
of!systems.!In!fact,!service!providers!use!to!set!up!software!with!the!different!management! needs!of!the!companies! ! 2.3.1.#Selecting#the#appropriate#technology#for#hotel#customer#related#database# # There!are!different!designs!for!a!customer!related!database.! The!hierarchical!database!was!the!most!common!between!the!1960s!and!the!1980s.!It!is!the! oldest!form!of!database!and!do!not!fit!well!with!the!advanced!applications!required!by!modern! CRM!systems.!The!structure!of!a!hierarchical!database!neglects!any!possibility!of!access!by! lower!levels.!Every!department!has!the!access!of!its!own!section!and!control!lower!ones.!It! also! has! physical! locks! for! higher! hierarchical! positions.! This! is! a! marginal! issue! for! small! companies.!However,!big!and!international!chains!that!use!hierarchical!databases!do!not!have! access! to! crucial! geographically! separated! data! (Coronel,# 2016).! A! hierarchical! database! allowed!only!the!top!management!to!appreciate!the!real!value!of!the!customer!base.#
A!different!set!up!occurs!for!relational!databases.!The!different!kind!of!data!organisation!is! the!modern!standard!architecture!for!CRM!systems.!A!relational!database!has!one!or!more! columns!providing!a!unique!form!of!identification,!the!primary!key.!Every!available!software! in!the!market!respects!this!norm.!Companies!can!have!customised!databases!for!different! departments! (revenue,! marketing,! sales,! accounting,! payments! and! so! on).! However,! as! Coronel!(2016)!affirmed,!a!unique!primary!key!permits!the!creation!of!meaningful!queries!also! for!different!departments.!For!example,!the!sales!and!marketing!department!could!appreciate! data!from!the!revenue!management!and!favours!coordination!and!interdependence.!
According! to! Singh! (2006),# the! selection! of! which! system! better! fits! with! the! firm! characteristics!is!influenced!by!three!core!variables.#Figure!2.2.!summarises!the!three!variables! studied!by!Singh.!
The!former!is!the!size!of!the!requested!database!and!the!amount!of!data!to!be!located!into!it.! A!standard!desktop!computer!can!store!a!significant!mass!of!data,!but!it!is!not!projected!to! share!them!between!several!users.!
The! second! variable! regards! the! technology! that! the! firm! has! already! implemented.! A! relational! CRM! system! needs! to! be! integrated! with! the! others! firm! databases.! A! lack! of! compatibility!between!the!software!can!limit!every!radical!improvement.!
The! latter! variable! concerns! the! number! and! geographical! location! of! users.! Firms! with! a! centralised!geographical!management!can!implement!a!simple!database,!in!terms!of!interface! language! too.! Geographical! dispersed! and! international! hotels! use! to! adopt! more! sophisticated!kind!of!databases.!
The!selection!of!the!appropriate!technology!and!structure!to!implement!is!only!one!of!the! issues! of! CRM! systems.! An! information! and! technology! system! has! to! respect! local! and! international! privacy! policies.! Customers! are! not! aware! about! how! many! information! companies!can!obtain!from!the!contact!with!customers,!surveys!or!the!use!web!cookies.!The! publication!of!privacy!policies!is!now!mandatory!for!every!company!in!order!to!respect!the! transparency!of!information.!The!personal!data!protection!is!guaranteed!by!the!Organisation! for! Economic! Cooperation! and! Development! (OECD)! at! international! level.! Its! voluntary! regulations!are!the!guidelines!used!to!protect!individuals!from!privacy!abuses.!
#
Figure!2.2.!
Three!variables!for!the!database!selection!(Singh,#2006)##2.3.2.#Oracle#customer#relationship#management#system#at#Marriott!#
!
After!the!recent!acquisition!of!Starwood,!Marriott!has!become!the!biggest!international!hotel! chain! of! the! world.! Forbes! (2015)! also! ranked! Marriott! as! one! of! the! most! innovative! companies!of!the!world!for!the!degree!of!new!combinations!developed!in!all!the!worldwide! divisions.! As! regards! as! the! customer! relationship! management,! the! company! uses! an! approach!that!extends!beyond!the!on!task!reservation.!According!to!Goldenberg#(2015),!It!is! a!dynamic!process!that!evolves!with!the!society!development!and!customer!attitudes.#
Modern!CRM!is!very!different!than!in!the!preKdigital!world.!In!the!past!era!of!CRM,!Marriott! monitored!and!affected!traveller!experience!from!the!arrival!till!the!departure!with!the!use!of! less!and!row!tools.!The!advent!of!the!online!reservations!and!eKcommerce!has!been!changing! the! rule! of! the! game.! In! addition,! smartphones! and! social! media! has! been! disrupting! the! competitive!arena!opening!many!opportunities!and!threats!for!the!players.!Customers!can! mass!customise!their!journey!at!Marriot!before!the!checkKin!with!an!online!application.!The! goal!the!company!wants!to!reach!is!to!make!the!customer!experiences!more!pleasurable!in! order!to!retain!them!for!the!future.!The!data!collected!before,!during!and!after!a!stay!are! stored! in! a! program! called! Personal! Planning! Service! powered! by! OracleKSiebel.! This! CRM! system!permits!to!program!a!customisation!in!advance,!before!the!customer!arrival.# When!a!customer!reserves!a!room!or!a!suite,!Marriott!starts!to!build!an!itinerary!based!on!the! traveller!requirements!and!stored!data.!At!the!moment!of!the!checkKin!everything!is!already! scheduled.!Marriott!affirms!that!people!that!participated!to!this!program!showed!a!noticeably! higher!satisfaction!and!a!major!willingness!to!pay!of!about!100!USD!per!day!for!extra!services.! They!also!use!to!be!more!likely!to!generate!repeated!purchases.!! The!Revenue!Management!department!uses!the!CRM!system!too.!Siebel!technology!helps!the! growth!of!the!average!revenue!per!sale!identifying!preferred!higher!deals!based!on!the!system! multiple!data.!Revenue!department!can!now!determine!the!true!potential!of!an!opportunity,! thanks!to!the!CRM!technology.!It!gives!to!representatives!a!whole!view!of!customer!profiles,! their! activities! and! opportunities.! Berzle,! Vice! President! of! Corporate! Marketing,! said! that! Oracle!CRM!technology!and!the!new!processes!moved!the!sales!organisation!to!an!entirely! new!level.#
Siebel!is!increasing!the!retention!rate!also!with!other!kind!of!strategies.!!
It!provides!analytics!that!help!the!organisation!to!understand!the!real!key!drivers,!timing,!and! the!turnover!prediction.!It!can!trace!the!LTV!of!a!relationship!and!help!the!sales!department! to!improve!the!retention!rate!by!automatically!advise!the!representatives!about!customers!at! risk!to!defect!away.!!
Siebel! helps! Marriott! to! maintain! a! unified! guest! information! across! its! brands! too.! If! a! traveller!wants!to!book!a!room!in!a!hotel!with!unavailable!accommodations,!the!CRM!system! easily!suggests!to!the!potential!customer!other!properties!nearby!with!similar!standards!of! services.! This! extension! of! recovery! programs! is! used! to! prevent! the! dissolution! of! any! relationship! (Zhang,# 2015).! It! also! tries! to! gather! additional! information! about! customer! preferences.!In!case!of!success!the!traveller!benefits!of!an!unexpected!free!customised!stay.# ! 2.4.#Customer#portfolio#management# # A!customer!portfolio!is!a!number!of!travellers!grouped!together!on!the!basis!of!one!or!more! strategically!important!variables.!A!traveller!lies!in!only!one!of!the!portfolio!clusters.!A!CRM! approach! needs! to! treat! every! customer! as! unique,! for! particular! needs,! preferences,! requirements!and!so!on.!Profiles!and!clusters!evokes!different!expected!revenues!and!costs.! They!should!be!managed!in!different!ways.!Cluster!details!give!many!information!about!who! a!customer!is!and!why!he/she!reserves!a!room!(Rahimi,#2015).# Customers!are!segmented!by!geography,!culture,!values,!needs,!history,!willingness!to!pay!for! a!room!and!extra!services.!A!business!traveller!is!a!customer!who!travel!for!work!reasons!to! attend!meetings,!presentations,!organise!events,!discuss!new!contracts,!sell!goods,!services! and! join! relationships.! A! business! customer! usually! travels! during! the! weekdays.! A! leisure! traveller!presents!different!purposes!and!interests!for!a!journey.!Couples,!groups!of!people! and!families!with!children!are!the!traditional!leisure!customers.!Guillet!(2015)#affirmed#that#a! leisure!customer!reserves!a!room!for!holiday,!travelling!or!cultural!reasons.!It!has!a!different! willingness!to!pay!than!a!business!traveller.# After!the!customer!segmentation,!the!aim!of!a!customer!portfolio!management!is!to!optimize! business!performances!in!terms!of!sales!and!profitability,!both!in!the!short!and!long!period.!!
A!hotel!use!to!offer!specific!value!propositions!to!different!customer!segments.!A!preliminary! process!for!a!correct!Customer!Portfolio!Management!(CPM)!is!to!identify!the!business!the! hotel!is!in.!A!marketing!myopia!is!one!of!the!product!oriented!thinking!issues.!In!fact,!a!hotel! should!think!about!its!customers!first,!and!then!adopt!sales!and!product!oriented!strategies.! A!customer!oriented!view!stimulates!the!correct!market!segmentation!because!it!identifies! the! characteristics! of! the! travellers! served! (Bolfing,# 2105).! The! consistency! between! operations! and! strategic! objectives! helps! the! managers! to! act! in! terms! development,! consolidation!or!dissolution!of!desirable!or!low!profit!relationships.#
The!process!of!market!segmentation!at!Hilton!hotels!and!resort!involves!the!division!of!the! market!into!segments!based!on!similar!characteristics.!They!use!to!divide!the!market!into!five! groups,! geographic,! demographic,! psychographic,! geoKdemographic! and! behavioural.! The! geographic! segment! includes! data! about! the! place! of! origin.! The! demographic! segment! considers! mainly! income,! occupation,! the! socioKeconomic! group! and! family! life! cycle.! It! excludes! variables! like! age,! gender,! religion! and! personal! traits! in! order! to! avoid! over! segmented!promotions!and!benefits.!The!psychographic!segment!is!related!to!lifestyle,!values! and!attitudes.!For!example,!the!efforts!of!the!company!luxury!brands!are!directed!to!attract! only! a! specific! domain! of! business! people,! the! one! with! a! high! disposable! income! and! willingness! to! pay.! In! this! case! the! standard! of! a! hotel! positively! fits! with! guest! lifestyles,! personalities!and!values.!The!geoKdemographic!segment!considers!the!geographic!location!of! a! hotel! within! the! demographic! characteristics! of! its! location.! A! business! traveller! usually! select!hotels!strategically!located!in!the!city!centres!of!major!industrial!poles,!whereas!a!family! and! a! leisure! traveller! may! prefer! tourist! attractions.! The! behavioural! division! constitutes! another!segment!of!interest!for!Hilton!Hotels.!It!divides!the!market!in!terms!of!loyalty,!status! and! reservation! occasion! in! order! to! define! service! and! benefit! customisation! (Dudovskiy,#
2014).#
A!customer!oriented!view!leads!Hilton!to!focus!first!on!travellers!with!a!high!willingness!to!pay! for!expensive,!high!quality!services.!!
However,!a!profitable!marketing!strategy!should!focus!also!on!different!segments!in!order!to! optimise! revenues.! Decision! makers! needs! to! consider! some! segment! mixes! to! reach! any!
budget!objective!(Rahimi,#2015),!even!if!some!conflicts!between!them!can!emerge!due!to!an! excessive!focus!on!revenue.#!!
An!efficient!CPM!needs!to!consider!the!costs!of!a!relationship!maintenance!too.!An!activityK based! customer! costing! technique! explores! this! variable.! The! implementation! of! a! cost! analysis!system!is!very!related!to!the!interest!on!customer!needs.!A!key!parameter!to!consider! is!the!revenue!per!available!customer!and!her/his!preferences,!another!combines!them!with! costs!and!explores!the!total!profitability!of!different!segments.!Hotels!use!to!trace!revenues.! However,!costs!are!an!entirely!different!matter.!Costs!vary!for!different!customers!too.!Some! of!them!are!very!costly!to!acquire,!others,!for!example!loyal!customers,!are!less!expensive.! The!customer!acquisition!and!retention!process!considers!different!genre!of!costs.!Customers! acquisition! costs! represent! the! first! impact! on! profits! and! involve! marketing! promotions,! campaigns,!sales!calls!and!advertisements.!Still,!terms!of!trade!such!as!a!rate!discount!impact! on!the!contribution!to!profits.!Costs!for!highly!customised!requests!are!another!key!variable! to!manage!for!an!efficient!costKbased!segmentation.!An!activityKbased!costing!is!a!well!suitable! tool!to!complete!a!market!segmentation!because!it!identifies!categories!of!customers!such!as! high! profit! contributors,! marginal! contributors! or! loss! makers.! The! support! of! an! activityK based! costing! system! goes! deeper! in! the! cost! analysis! and! determine! which! requests! or! activity!influence!the!general!profitability!more.!For!example,!a!customer!could!spend!lot!of! time!in!sending!eKmails!or!making!phone!callings!to!review!the!terms!and!conditions!policy!or! negotiate!a!better!rate.!As!Chao!(2016)!affirmed,!an!amount!of!these!episodes!reduces!the! aggregate!profits.!
An! activityKbased! costing! extends! its! influence! on! all! hotel! departments.! It! gives! to! the! manager!a!clearer!knowledge!about!which!activities!and!customers!generate!more!or!less! costs.!! Another!phase!of!CPM!is!the!acquisition,!retention!or!dissolution!of!relationships!with!existing! or!new!segments.!! Even!if!accountKbased!costing!is!clear!about!who!creates!more!or!less!profits,!the!effective!use! on!!CPM!is!limited.!It!is!used!as!a!general!tool!about!the!contribution!of!a!customer!to!the! aggregate!profits.!In!fact,!a!premium!luxury!hotel!does!not!consider!that!the!higher!the!costs!
