Customer Relationship Management, or CRM, has many perspectives and definitions that illustrate its fundamental thrust, that of trying to present a holistic strategy for managing customer relationships by getting to know the customers and their needs better, communicating with them more effectively and trying to fulfil these needs (Payne, 2005, Pp. 1 – 2). Because CRM is about getting to know customers and their needs better, it is about implementing specific Information and Communication technology projects within an organisation to process organisational data to deliver knowledge about customers and their needs. It is now possible for organisations to implement more effective and sophisticated technology solutions for processing customer related data because computers are now far more powerful and cheaper compared to what they used to be, with a vastly increased storage capacity. In addition, businesses and organisations can now store vast amounts of data about their customers on computerised systems that can communicate more effectively with individuals and other computer systems using technologies for the Internet. Companies in all sectors, including the hospitality and tourism sector, now routinely engage their customers on the World Wide Web and process customer data to deliver more useful products and services at competitive rates (Gretzel, 2010, Pp. 1 – 48 & 63 – 72). Thus, CRM presents opportunities leading to higher profitability and superior competitive advantage (Roberts, 2005, Pp. 315 – 316).
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It is important for modern hospitality organisations to try to increase customer occupancy rates and customer experience in a tough and rapidly changing business environment that presents intense competition (Minghetti, 2003, Pp. 141 – 143). Thus, managers associated with the hospitality sector, including the hotels and tourism sector must have a deep knowledge of customers’ needs, behaviours, and preferences to offer services that deliver value to create customer retention, value and loyalty. In addition, it is important to try to communicate effectively with customers in a timely manner and to encourage them to engage in a dialogue with an organisation that can benefit everyone. Thus, customer-centric information systems are important for the hospitality industry, which must use these systems to develop effective relationships with customers to serve them better, encourage them to use more offerings from an organisation and to get to know about their needs in order to satisfy them and to retain them. It is important to understand that customers are the lifeblood of an organisation and without customers, there will be no revenues and no organisation. Customers who are not satisfied or fulfilled leave to benefit from others who can offer more and this means that efforts directed towards trying to maintain effective customer relationships are now essential for all organisations, including those operating within the hospitality and tourism sectors. It is far more expensive to try to get a new customer than it is to retain and to earn from an existing customer (Buttle, 1996, Pp. 155). The collection and use of customer information, its effective analysis and use for delivering to customers are now more important than ever before (Minghetti, 2003, Pp. 1 – 2).
To understand better the importance of CRM in hospitality industries, it makes sense to try to carry out an in-depth investigation into the topic of discussion from the perspectives of customers, managers and other stakeholders, including employees, from within the context of a place with established hospitality industry that has achieved a reputation for excellence around the world. Edinburgh, in Scotland is a suitable location for such an investigation, not only because the author of this dissertation studies nearby, but also because in addition to being the United Kingdom’s favourite domestic holiday destination, Edinburgh is now a world renowned destination for its festivals, events and conferences (Susan, 2008, “Scotland – A World Class Product”).
Susan (2008, “Scotland – A World Class Product”) goes further to state that Edinburgh is the most favourite city in the United Kingdom to hold a conference and the demand for rooms for guests is fast outstripping supply. Edinburgh is at the forefront of hospitality and tourism in terms of innovation and quality and the hospitality sector in this city employs 31,000 people, which is nine percent of the workforce (Edinburgh Tourism Action Group, 2010, “Edinburgh Tourism Framework for Growth 2007-15”). According to the previously mentioned publication, Edinburgh won the Guardian / Observer Travel Award as the UK best city for seven consecutive years and tourism generates more than £ 1.7 billion expenditure in this city. Efforts are ongoing to maintain Edinburgh as a competitive tourism destination of world class and to try to expand on its potential. Thus, it makes sense to try to examine how the hospitality industry in Edinburgh uses CRM to attract customers and to deliver more to Edinburgh and its tourists.
The research presented in this dissertation attempts to examine the importance of CRM for the hospitality industry in Edinburgh by presenting a review of selected literature, a customer survey, insights from senior managers and executives from the hospitality and tourism industry in Edinburgh and opinions from those who have the real ground-level knowledge, the employees working within the hospitality sector.
1.1 A Discussion of the Problem for Research
Marketing is important for the hospitality industry and for marketing for a successful hospitality organisation should touch the customer (Buttle, 1996, Pp. 155 – 157). The hospitality product is highly personalised with a substantial intangible content judged on experience. Relationship marketing is important for hospitality because the hospitality market with its ongoing and periodic demand in the face of competition presents a greater need for relational efforts and an understanding of the needs of customers. A need for the personal touch exists in hospitality and information technology provides opportunities for using information about customers to deliver the personal touch in novel ways. However, it is important to deliver correctly the CRM effort, based on the right information analytics and using the right channels to make a positive impact for the customer and the hospitality organisation. Despite the fact, that CRM has continued to present a promise of effecting improvements in corporate profitability, performance, customer retention and customer satisfaction, the proper implementation of CRM in an organisation is essential for success (Van Bentum, 2005, Pp. 28). CRM literature not only reports successes, it also reports a large number of failures in situations when well thought ought CRM solutions were not implemented correctly to impact the customer and to benefit an organisation. Thus, it is important to try to find out how the hospitality industry in Edinburgh is effectively making use of CRM in its efforts to compete with destinations from the rest of the United Kingdom, Europe and the world.
It is far easier to articulate CRM than it is to implement it (Dickinson, 1999, Pp. 11 – 12). Today, the hospitality industry needs exceptional marketing that has the capacity for delivering the long-term customer who profits the business over time to emerge as a business partner. Thus, it is important to know the right way for CRM in hospitality and to get to know how the winners are making use of this new marketing reality for hospitality. For the small business operator in the hospitality sector, a customer information database that has evolved over time is likely to serve well using personal computers and internet connectivity if business continuity persists. However, for a large luxury hotel chain, resort or hotels involved with hosting and arranging conferences, the equation becomes more complex. In the present day and age, the design of CRM system emphasises linking knowledge management in organisations with CRM to try to enhance operational and strategic efficiencies (Xu, 2005, Pp. 955 – 956). Thus, hospitality organisations and businesses must not only try to use CRM implementations effectively, but it must also be ensured that the right CRM implementation is serving an organisation by capturing the right data to perform the right analysis to present the most useful of results. With the passage of time, the lifestyles and preferences of customers change, customers become more demanding, new customers become involved with organisations and the business environment places new demands on businesses. Thus, it is not possible to say that knowledge acquisition for CRM in hospitality will be a once only exercise that will not be required on a continuous basis. A requirement exists for understanding CRM implementations, processes, practices and techniques with a view for making projections for the future to benefit most from this essential and important component of hospitality marketing.
1.2 Rationale for the Study
It is important to consider the fundamental reason or reasons serving to account for something, or a statement of reasons when contemplating a research study because such an approach serves to elucidate, the aims of a research project or that which is required to be researched. For this dissertation, rationale for undertaking research into CRM in hospitality industries in Edinburgh is important because this influences the thrust of research into the topic of discussion.
Clearly, an understanding of CRM and its implementation is not only of importance to the researcher who intends to make a career in the hospitality management, but it is also important for Edinburgh, Scotland and all destinations with an interest in enlarging and enhancing hospitality and tourism industries. Thus, a research project involving CRM in hospitality will benefit the industry and the place where the research is carried out to present new insights into what hospitality management should aim for in the future. Many of the more successful and ambitious hospitality establishments from around the world have practices in place to manage customer relationships (Lo, 2010, Pp. 139 – 156) and (Pechruttanamunee, 2008, Pp. 134 – 142). Not only is it likely that the more traditional forms of CRM will continue to play an important role in the evolution and success of hospitality organizations, but it is also likely that eCRM, which is made possible by advances in computer and communication technologies, will present a new global meaning to marketing for hospitality at a destination. Thus, the right way to deliver, manage and to drive the CRM effort in hospitality will make the difference and is worth researching in depth.
1.3 Significance of the Study
An examination of literature available in learned journals and books on the subject suggests that a very large body of published literature is available for CRM in organisations and the number of published research studies on CRM in hospitality is increasing. However, although a keen interest exists in Edinburgh and Scotland for promoting and further enhancing the hard won competitive advantage in hospitality and tourism for this city, little is available in terms of what role CRM plays in hospitality industries in Scotland and how better, more effective CRM strategies may be implemented for greater success. Thus, it is likely that this study will not only serve to add to the knowledge about CRM in hospitality, but it will also serve to highlight and to emphasise the importance of CRM in the hospitality industries of Edinburgh and Scotland. It is very likely that an effort to examine CRM practices and implementations in the hospitality industry in Edinburgh will present new insights and ideas that will be use to all with an interest in the management of hospitality and tourism.
1.4 Purpose and Research Questions
The following research questions are of interest in the research presented for this dissertation:
What is the thrust of CRM strategies in the hospitality industries of Edinburgh?
What impact has CRM made on the hospitality industries in Edinburgh and is it possible to improve or to innovate further?
What are the critical factors that influence deployment, development, planning and implementation of CRM in the hospitality industry in Edinburgh?
What role does technology play in the delivery and implementation of CRM in the hospitality sector in Edinburgh?
How has CRM shaped the corporate culture and vision for the hospitality sector in Edinburgh?
What rewards has CRM presented to the hospitality sector in Edinburgh?
How has CRM influenced the design and delivery of competitive and superior services for the hospitality sector in Edinburgh?
What essential framework for the implementation of CRM has emerged in the hospitality sector for Edinburgh?
What is the alignment that characterises CRM success for hospitality industries and businesses in Edinburgh?
A literature review that attempts to examine and to present relevant perspectives on the importance of CRM in hospitality industries is in the next chapter.
Chapter 2 – Review of Relevant Literature and Research
In the tourism and hospitality industries in general and the hotel industry in particular, Customer Relationship Management (CRM) becomes important as travellers become more price sensitive, less brand loyal and more sophisticated (Sigala, 2005, Pp. 391 – 392). In the present day and age, information technologies have made it possible for shoppers to make instant comparisons between hospitality and tourism offerings on websites and this means that it is important to implement CRM efforts to ret to retain customers and to provide them with better than what the competitors offer. The hotel industry around the world in particular is experiencing increased globalisation, competition, higher customer turnover, growing customer acquisition costs and rising customer expectations not only because the financial recession and competition but also because prospective customers can quickly make comparisons. Depending on the nature of hospitality business in which an organisation is involved, processes for automated data collection and analysis for influencing engagement with the customers are possible.
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Ryals (2001, Pp. 531 – 535) states that CRM in hospitality and service industries is important because efforts directed towards trying to enhance customer relationships pay in terms of offsetting high customer acquisition costs for those customers that use certain types of service offerings frequently. After covering acquisition costs, a stream of profit flows emerges for the previously mentioned customer and the longer a customer stays with a hospitality firm, the higher the profit. Thus, CRM helps to offset acquisition costs and to generate higher profits. In addition, the return from CRM increases even further when satisfied customers refer other potential customers who add to the bottom line for an organisation. Because efforts to develop a relationship with customers have generally positive effects on customers, a relationship with a hospitality organisation has a value for customers who associate with a brand to become price insensitive.
The impact of efforts to enhance CRM in hospitality organisations are likely to result in the following (Ryals, 2001, Pp. 535):
Long-term retention of selected customers
Gathering and integrating information on customers
An emphasis on data mining and analysis of customer data
An emphasis on customer segmentation in terms of lifetime value
Identification and micro-segmentation of markets for types of offerings
Efforts towards enhanced customer value creation
An emphasis on the delivery of customer value through channels optimised for serving various market segments
A shift in emphasis from management of product portfolios to the management of portfolios of customers, resulting in efforts directed towards optimising an organisation to serve better customer segments
Sigala (2005, Pp. 409 – 410) goes further to suggest that profound change in service marketing, including marketing for hospitality and tourism, demands that an emphasis exist for customer retention, customisation of products and customer focused processes that incorporate Information and Communication Technologies (ICT) for collecting and processing customer data. Processed data is required to deliver customer insights, superior customer relationships and design of superior products and services. The previously mentioned author suggests an integration of ICT, knowledge management and CRM for hotels and the hospitality industry. However, CRM can and does exist in small hospitality and tourism establishments without the implementation of elaborate ICT applications, and it is important to try to have a good fit between the CRM implementation and the business. It is important to understand that with a good fit, the integrated CRM system will present opportunities for improving staff skills, competencies, the working environment and services in addition to enhancing customer relationships.
The advent of e-commerce has meant that online intermediaries on the web present a threat to hospitality operators because although such intermediaries do present opportunities to customers to select after comparing a number of offerings, they do not always correctly depict the true value of offerings (O’Conner, 2004, Pp. 474 – 476). By implementing CRM efforts, hospitality establishments are in direct contact with customers and they can try to sell the value of their offerings to customers with a personal touch that is missing with online intermediaries. To illustrate the point, it is possible to suggest that by mailing a hotel magazine to selected customers who qualify, it will be possible for a hotel to keep customers informed about developments and at the same time to offer new or discounted products to try to maintain and enhance customer interest. In the age of Internet and the World Wide Web, post visit presentations, including magazines or other advertising literature from hospitality establishments will neither be expensive to deliver nor late in a fast changing world full of new developments. CRM in the hospitality industry has the potential for reducing marketing expenditure and for increasing sales, but it is important to ensure that potential data-ownership dilemmas are in control so that CRM can work optimally at the brand level (O’Conner, 2004, Pp. 480 – 481). Effective data mining using artificial intelligence and sophisticated statistical techniques for data analysis on warehoused data is important for CRM, especially for the large hospitality organisations. However, the previously mentioned author suggests that the regional proliferation of Internet and interest in web-based interactions determines how effective eCRM will be when focusing on a region. The developed world with a more prolific proliferation of the Internet is far more suited to eCRM compared to regions in the developing world with limited access to ICT. In addition, large multinational hotel chains must practice and present effective knowledge sharing for international hotel joint ventures (Magnini, 2008, Pp. 249 – 252). Hence, clearly CRM implementations in hospitality present both risks and opportunities. O’Conner (2004, Pp. 482) states that the hospitality industry spends millions of dollars on information technology acquisitions every year, but not much published material exists about the management of acquired information technology resources.
According to Ozgener (2006, Pp. 1356 – 1358), senior management commitment and adequate budgets are important for CRM implementations in the hospitality industries. CRM implementations in the small and medium hospitality firms are likely to feel the effects of innovation quality, customer relations, communication-distribution infrastructure and business dynamics. Business dynamics, which refers to change imposed on businesses due to economic, social, technological and environmental change, is important for CRM because it is such change that demands new offerings from businesses to retain customers in the face of competition. Although the smaller hospitality firms will have less to spend on CRM, they are likely to be more interested in having CRM systems because existing customers are far more important to the smaller businesses compared to the larger ones. Thus, within the context of the hospitality industries existing in a city or a region, CRM implementation within small and large hospitality businesses may vary, depending on the peculiarities of the place. The previously mentioned, together with barriers for the implementation of CRM in hospitality, is likely to be something that will be worth investigating in the small-scale research project for the importance of CRM in Edinburgh. In addition, the more important goals for implementing CRM in hospitality are also worth investigating because the relative reasons for an interest in CRM are likely to differ. It is possible to use CRM systems in hospitality firms for decreasing costs, sustaining competitive advantage, improving customer services, improving customer retention, acquiring new customers or for increasing profits. However, the relative priority reasons for CRM implementation may vary from firm to firm.
Oronsky (2007, Pp. 944) suggests that CRM implementations in hospitality industries are not just limited to hotels, resorts, airlines or travel agencies because it is possible for restaurants to benefit from such implementations and a strategic thrust for CRM. The previously mentioned author suggests that chain restaurants and independent full-service restaurants may benefit from information technology and CRM implementations that effectively use IT for engaging customers and better understanding their needs. Within the restaurant sector, information technology has made an impact on the dining experience of customers and the way in which meals are prepared, even though according to the previously mentioned authors, some researchers suggest that the hospitality industry is not technology oriented. However, it is clear that if information technology for implementing CRM systems can benefit large hotel chains, then there is no reason why the same technology cannot benefit chain restaurants. Oronsky (2007, Pp. 942) states that within the restaurant industry, information technology has the potential for minimising costs, providing support for superior employee and revenue management, enabling analysis of customer preferences and optimising menus for target costs that will appeal more to customers. Thus, despite reservations expressed by some researchers about hospitality not being a technology industry, other researchers suggest that it is likely that more than 50% of the change that will have an impact food service within the hospitality sector will involve technology influences. Thus, it is clear that a potential exists for using information technology and CRM systems within the food service sector in hospitality organisations.
According to Oronsky (2007, Pp. 944), customer feedback and analysis of customer needs is as important for restaurants as it is for any other hospitality operation. Like hotels, airlines and tour operators, restaurants too can engage customers using websites and receive comments, feedback, suggestions or survey results presented on the web. For large restaurant chains, it is possible to implement systems for deciding about how well menu items are doing across the entire chain, and it is possible to enhance customer relationships by using imaginative ways, including deal offerings, special promotions, joint offerings with other businesses or offerings related to food events, etc. Thus, clearly technology facilitates information management, knowledge management and engagement with the customer even in the food service sector.
In the business environment that prevails today, CRM is as important for airlines as it is for other hospitality industries because serving and having the customer counts and influences the bottom line (Cheng, 2008, Pp. 487 – 490). CRM is likely to make a difference for airlines in their effort to retain and attract the frequent flyers because relationship marketing emphasises maintaining long-lasting relationships with customers and a significant proportion of airline customers, even during the tough economic times, are business travellers who fly more frequently than tourists do. Thus, it is clear that the character of airline service offers many opportunities for practicing the relationship marketing approach and many airlines do maintain frequent flyer databases that are useful for deciding about customer requirements and for engaging the customer. Because airline operations present a substantial dependence on computers and information technology for reservation systems, scheduling and maintenance activities, it is quite possible to incorporate effectively CRM implementations as an addition to existing information technology support systems.
For airline CRM that delivers results, it is important to ascertain what keeps customers loyal to airlines and how airlines can respond better to offerings presented by competitors (Cheng, 2008, Pp. 488 – 489). Loyal customers do appreciate rewards for patronage by loyal customers if airlines present competitively priced offerings that are comparable in quality to offerings from competitors. Although, it is very likely that the touch, the thoughtfulness, benefits and the effort will count in CRM for airlines, customers must be satisfied with the price for quality and type of service offerings. Thus, enrolling customers in frequent flyer programs is not a guarantee of customer loyalty because service quality and service recovery policies in case of service disruption are important for frequent flyers. Clearly, a frequent flyer is likely to prefer an airline that checks them into a decent hotel and presents meals instead of leaving them to wait it out in a departure lounge if a substantial flight delay persists. A balance must exist between rewards for frequent flyers with the care that airlines can offer to such customers who must constantly be on the move to attend to important business matters. In the present day and age, the digital market on the World Wide Web made possible by the Internet is important for airlines, and it is important that airlines lean closer to their customers to try to cut off agents and other intermediaries. In addition, the previously mentioned author suggests that airlines need to emphasise customer orientation, domain expertise, interpersonal relationships, service recovery performance and the judicious use of information technology to make an impact with customers that will result in superior relationship quality. From a customer perspective, domain orientation or the quality of offerings made by an airline and the quality of its employees are of the greatest importance to customers and this means that it is important to tune the CRM system for presenting superior offerings that benefit customers most.
2.1
2.2
2.3
2.4
2.5
2.6
The chapter, which follows, presents a discussion about the methodology for this dissertation.
Chapter 3 – Methodology / Methods Used
3.1 Research Approach for the Thesis
3.2 Preparation of a Literature Review
Chapter 4 –
Chapter 5 – Discussion
A discussion about the conclusions derived from the results of the literature review and the interviews are in the next chapter.
Chapter 6 – Conclusion, Recommendations and Suggestions for Further Work
Appendix A –
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