Customer Loyalty and Satisfaction in the Hotel Industry: A Review

This literature review explores customer loyalty and satisfaction within the hotel industry, examining both external and internal customer perspectives. It delves into the significance of customer loyalty for hotel success, emphasizing the impact of customer satisfaction on retention. The review covers strategies for attracting and retaining customers, including making positive first impressions, personalizing service, offering incentives, and implementing effective loyalty programs. It also highlights the importance of employee loyalty programs and their impact on business results, employee retention, and engagement. The review further discusses customer loyalty pyramids, structured loyalty programs, and the role of technology in enhancing customer relationships, supported by various theories such as the dissonance theory. It offers insights into the interplay between customer loyalty and satisfaction, providing a comprehensive overview of key concepts and strategies within the hospitality sector.

Literature Review

Table of Contents
LITERATURE REVIEW................................................................................................................3
Part 1: Customer loyalty in Hotel industry for external and internal customers.........................3
Part 2: Customer satisfaction in hotel industry for external and internal customers with the
help of theories............................................................................................................................8
Part 3 Correlation between customers loyalty and customer satisfaction.................................12
REFERENCES..............................................................................................................................17

LITERATURE REVIEW
Part 1: Customer loyalty in Hotel industry for external and internal customers
According to Kashmira Lad, customer loyalty is one of the important aspect in a hotel
industry. This leads to the cause of success or failure in a hotel industry. Since there is a lot of
competition in the hotel industry therefore customer satisfaction is one of the important aspect to
make the business successful. In order to retain the new customers, the hotel management should
always try to satisfy the needs and wants of customers (Ahmad and et.al., 2016). This allows the
customer to feel important for the hotel premise and retain its accommodation in future also. If a
hotel has large loyal customer base, the possibility of success increases. In order to retain the
customers in a hotel industry, it is necessary fro the hotel management to allow new and
advanced strategy for the satisfaction of customers. Customer satisfaction is directly related with
customer loyalty. If a customer gets satisfied with the services of hotel than its loyalty towards
hotel increases. The hotel industry should try to use new and innovative ideas which can help
them to attract a number of customers towards their premise. There are many ways through
which a hotel can increase internal customer loyalty which are as follows:
Make the first impression right
This is the first step in which the customer should be attracted enough on it first impression
with hotel. The customer touch point towards hotel could be telephone, website or directly into
the premise of hotel. In case of touch points through website or application, the hotel should
make the website attractive, simple and understandable to the customer (Berezan and et.al.,
2015). Apart from that, the pictures of the hotel should be real and attractive also. This will
enhance the relationship of customer with the hotel premise. The application of the hotel premise
should be attractive and simple enough so that any type of transaction and other activities can be
done easily. If the customer enters the hotel premise directly than the ambience of hotel should
be nice so that it can increase attraction between the hotel and customer. All these touch points
are the first impression, therefore every hotel should keep in mind these touch points so that
customer can be attracted towards its premise.
Add the personal touch

This is another way through which the customer can be attracted towards the premise of a
hotel. There could be any type of issue to the customer in hotel such as laundry issue, service
issue charges issues etc. All of these issues should be treated personally by the hotel staff so that
customer can feel important itself (Chathoth and et.al., 2016). This personal touch increases
senses in the customer to feel positive about the services. This increases customer satisfaction
and thus loyalty also increases. The hotel premise can add these features by knowing about the
personal interest of customer. They can change the ambience of its accommodation and services
according to the needs and demands of customer. These are the innovative ways through a
customer can be attracted towards the premise of a hotel.
Offer incentives
Customers are the most important visitor in a hotel premise. The management of hotel
should provide incentives to the new customers so that it can be loyal towards the services of
hotel. This is a new and innovative idea through which customer loyalty can be increased. The
hotel management can provide complementary breakfast, a quality time for the family etc. All of
these services will allow the customer to feel important for the hotel. This increase customer
satisfaction and loyalty also. A business person in the hotel should be provided flexible timings
to check-in. Apart from that, a hotel premise can also announce the incentives and cashback
offers for the new bookings as per the customers. This will allow the customer to pre-book the
next time for the same hotel again.
Creating useful Hotel Loyalty programs
Customer loyalty cards are one of the important innovative idea through which a customer
can be attracted towards the premise of hotel (de Leaniz and del Bosque Rodríguez, 2016). These
cards provide cashback, incentives, discount for the selected hotel or on transactions through
which customers gets benefited. As per the report published by deloitte, 18% of the total
customers can be attracted and become loyal who uses customer loyalty cards. The new guest in
the hotel premise should also know about the customer loyalty cards. This will help them to
retain their premise in the same hotel. These loyalty cards help the customers to gain extra
benefit for them. They not only use those benefits to self built also they advertise the customer
loyalty benefits to the other customers also. Hence customer loyalty cards help the hotel premise
to attain the customers for a long time.

Apart from the above external customer, internal customers such as staff should also
provide loyalty by the company so that they can be retained for a long time. These customer
loyalty programs help the hotel premise to gain extra services from them as they have gained
experience. The importance of customer loyalty programs is shown below which can help the
hotel premise a lot.
Driving measurable business results
The external customer such as staff loyalty programs are an essential part of the business
which favours the measurable business results (Durna, Dedeoglu and Balikçioglu, 2015). Every
successful business always tries to motivate the employees by rewarding them and providing
incentives. This is the most significant factor which is helpful in influencing the revenue and
profitability of a hotel. A good employee loyalty program should enhance the motivation of
employees and also strengthen the bottom line of hotel by retaining the employees.
Manage and retain top talent
Employee loyalty program is also important because it is helpful for any hotel premise to
retain and manage the top hotel. The biggest reason behind leaving the organizations is that the
employees are not appreciated enough. The employees which are stated longer in an
organizations provides better outcomes and makes sense. As per the report of deloitte, the
organizations having proper employee loyalty programs have 31% less employee turnover rather
than the organizations shaving no employee loyalty program. This data shows that the
organizations within hotel industry should motivate the employees by providing them effective
rewards and incentives.
Inspire employee engagement
Employee loyalty programs help the staff to inspire themselves to work for the organization.
An effective loyalty program motivate the team members and others employees also. It also
creates a positive behaviour and stimulates the behaviour of others. When employee engagement
increases it will result into increase in profitability, productivity, customer satisfaction and safety
(Han and et.al., 2017). All of these factors reflect a positive environment to the overall business
productivity. As a result it can be formulated that employee engagement program help the hotel
industry to survive in this rivalry market.

Increases productivity
Employee loyalty programs help the organizations to motivate the employees for their
performance . In order to increase the productivity and profitability of the employee the hotel
industry should try to provide employee loyalty which can help it in increasing its productivity.
With the help of motivation, the employee feel important itself or the organization which allow it
to work harder. Therefore increases the productivity and profitability of the firm.
According to Han and Hyun, 2017, A loyal customer is one who cares about the relationship
with the company. These types of customers don't breach these relationships on the basis of
prices and services, although they provide valuable feedback to the company so as to improve
the services and issues. Reichheld theory suggests positivism when related to the customer
loyalty. It suggests to be a situation of wining to both the parties customer and company in case
of loyalty. The biggest advantage of customer loyalty is word of mouth. Both parties satisfy their
needs and demands with the help of a loyal relationship. Customer loyalty is the internal program
of marketing which help the hospitality organizations to provide a loyal relationship with
customers. This is the basic idea which is helpful also in retaining the customers. Apart from
that, it allows the hospitality organizations to increase their customer base.
According to Palacios-Marques, Guijarro and Carrilero, 2016 the boom in information
technology help the organizations to increase the customer loyalty among the customer and
company. Apart from that, Uncles and Dowling talk about the development of loyalty programs
increases with the help of increase in tactics of managing the healthy relationship with
customers. In addition to this, some of the authors also suggests that technological advancement
help the organisation to promote the customer relationship user friendly and cost effective.
Bijmolt also suggests about various customer loyalty programs conducted to increase a
healthy relationship with the customers. These are as follows:
Structured: In this program, the membership based loyalty programs should be initiated by
the organisation. These membership programs will help the companies to gather the information
about the valuable feedback from customers which will help in maintaining a healthy
relationship and loyalty with the customers.

Long term: Han, Lee and Kim, 2018 have identified the long term characteristics of
maintaining customer loyalty. The customer loyalty programs should be of long term for the
benefit of both customer and company.
Reward: In order to maintain the healthy relationship with customers, membership
programs should be included. These membership programs help the organizations to gather
valuable feedback from the customers. This feedback will allow the hospitality industries to
improve the services and facilities to the customers. Thus helping in maintaining a healthy
customer loyalty.
In order to show the step of a loyal customer, Customer Loyalty Pyramid is shown above.
According to this pyramid, potential customers are identified on the basis of marketing
segmentation. With the help of this, Customer acquisition is done with the help of providing
them different rewards and benefits. Customer membership is one of the lading tools to acquire a
customer in hotel industry (Herstein and et.al., 2018). In addition to this, customer development
will help the organizations to develop different strategies which are beneficial for the customers.
With the help of this development, customer bonding also increases. Providing different types of
support to the customer will allow them to be a emotionally loyal customer.
Illustration 1: Customer loyalty: A review and future directions. Kadampully, 2015

Part 2: Customer satisfaction in hotel industry for external and internal customers with the help
of theories.
According to Kendra Cherry, 2018, there are two types of customers across the hotel
industry.
External Customers
External customers are those who focus on an organisation mainly as an provider of
something they want to purchase. They are important part of hospitality industry because without
them organisations working within this sector cannot generate revenue as well as no reason will
left for being business. In simple term, external customers are those who directly get affected by
hospitality industry (Jeon and Jeong, 2017). For satisfaction of customer hospitality industry
have to implement several theories. Explanation of these are as follows :-
The Dissonance theory – This theory suggest if an individual is expecting high value
product but he/she receive low value product would realise disparity as well as experience
cognitive dissonance (Jin, Line and Merkebu, 2016). Thus, expectations of customers will not
fulfilled which result in dissatisfaction as well as psychological discomfort. As per this theory,
dissatisfied products should be pressured for reduction which can be possible through adjusting
the perceived disparity. In the hospitality industry, dissonance theory can be applied while
employees does not provide quality services to customer's as per their requirement and need it
result as dissatisfaction in their mind towards business. In this sector, theory hold post exposure
rating that is an primary function of expectations level on the basis of services user's rating that
depends on their satisfaction level. So, from this rating scale it become easy to identify how
much customers are satisfied from which products at what level. On the other hand, it will assist
in analysing dissatisfaction level of buyers which is necessary for hospitality industry for making
further changes.
The Contrast Theory - This theory is also know as Contrastivism or contrast theory of
meaning. This is develop by Jonathan Schaffer. This theory is consider as opposite of dissonance
theory and according to respective theory when a performance of any products or service get
reduce in comparison of customers expectation. This contrast among the expectation of
customers and outcome will cause or leads to exaggeration of disparity. According to theory if

there is difference between expectation and outcome then customers will always magnify that
difference of what they expected for products and what they receive. Another word contract
theory is consider as subject of favourable and unfavourable reaction of a consumers in particular
situation. In hospitality industry, this theory takes a specific place in which some of the
customer's expected to get quality services beyond to their expectation level. Thus, it is the
responsibility of employees of hotel to provide specific services to users as exactly same or
better beyond to their expectation. The contrast theory can be applied while customer's have high
expectation from the organisation but it will not be as mitigated at a exact level then it will
impact adversely. For example in the case of restaurant, if customers will get bad food one time
but they may say that this restaurant is worst place to eat their food are unfit for consumption of
humans and many other things. This will directly impact badly on that restaurant in many ways
such as reduce in customers base or loyalty, profitability, market shares and many others. Along
with this according to respective theory customers perceptions may make poor thing into worst
and good performance to be best (Kao, Tsaur and Wu, 2016).
From the above discussed theory it become easy for Hospitality industry to gain satisfaction
of there customers which is necessary for long term sustainability of business within competitive
business environment. Apart from this, within service industry it is necessary for each and every
organisation to gain satisfaction of their customers because this is the only source which result in
growth and profit maximisation of business.
Internal Customers
These are the customers which have used by the organizations to provide services to the
external customers. These internal customers provides better services to the original customers
so that the organizations can increase their productivity. In order to satisfy the internal
customers, there are various motivational theories which can help them to gain motivation. Some
of the motivational theories are stated as below:
There are two types of motivational theories for the employees such as content theory of
motivation and process theory of motivation.
Content theory of motivation

In the content theory of motivation Maslow's hierarchy of needs is going to be discussed.
According to this theory, there are various needs of an employee within an organizations through
which it can be motivated (Khan, Garg and Rahman, 2015). These needs have hierarchy such as
when first need completed the employee will be ready for the next needs. This theory basically
shown in a shape of pyramid due to the hierarchy of needs. Here is the diagram of Maslow's
hierarchy of needs below:
As per the above stated diagram there are five stages of a employee needs. The basic needs
starts with the psychological needs and ended at self actualization needs. Following is the
implementation of such needs:
Psychological needs
These are the basic needs of a person which includes food, cloth shelter etc (Khoo-Lattimore
and Prayag, 2016). These needs are basic for the survival of an employee. In order to fulfil these
needs, a hotel should provide salary for the employee so that it can be motivated enough to fulfil
its basic needs. This type of need is the most dominated needs among all of the hierarchy. Since
a person cannot live without the three basic needs such as food, cloth and shelter. An
organization should fulfil these needs so as to motivate the employee for its hotel.
Safety needs

After the completion of the previous needs, another need comes into existence is safety
needs. The organizations in which employee is working should provide safety measures across
the workplace (Kim, 2018). These features allow the employee to work effectively without
having disturbance of any fear. This increases the concentration of an employee across the
workplace. Therefore the organisation should try to provide safety measures such as fire
extinguisher, guards, prohibition of any arm etc.
Belongings and love
After the fulfilment of the psychological and safety needs, now is the turn of belongings and
love of the employee. In order to be more motivated the management of hotel industry should
provide these needs to the employees within an organization (Luo and Qu, 2016). The
management of any organization should be more affectionate and passion ate about these needs
of the employee. This will motivate it for doing extra work for the welfare of hotel.
Esteem needs
These are the needs which are accompanied by the employee at the workplace. These needs
include self respect, independence and freedom. These needs provide sufficient motivation for
the employee at the workplace.
Self-actualization needs
These are the abilities which motivates the employee at the workplace by opportunities,
realisation of potential etc (Mathe, Scott-Halsell and Roseman, 2016). All of these needs when
fulfilled motivate the employee to work hard for the organization. This motivation will help them
to satisfy their needs and wants.
Process theory of motivation
In order to understand the process theory of motivation, Vroom's expectancy theory is being
explained in the context of hotel industry. This theory is based on choosing the available actions.
This theory defines that the motivation is the process of adopting behaviour. In order to motivate
the employee following are the three main factors:
Expectancy: If a person will belief that ore efforts will leads to success than this concept
will work (Makanyeza and Chikazhe, 2017). In order to motivate the employee in the hotel

industry, it should ask a question with itself, “Whether I am capable of making good
performance at the workplace.”
Instrumentality: If a person will belief that there is a connection between the activity and
goal than the motivation can be achieved. This theory is basically based on taking actions at th
workplace. The result of action will motivate the employee.
Valence: it is known as the degree thorough which a person values the reward, the result of
success. In this step, if a person will value the reward than it can motivate itself for doing better
performance at the workplace.
Part 3 Correlation between customers loyalty and customer satisfaction
According to Dana Severson, 2017, customer satisfaction is part of customer's experience
which directly expose behaviour of suppliers on customer's expectations. Thus, satisfactions are
related to the several business aspects such as quality of products and services, marketing,
product manufacturing, engineering, complaint management, post delivery services and so on.
For an hospitality industry it is necessary to directly interact as well as communicate with
customer on regular basis for increasing level of satisfaction (Palacios-Marques, Guijarro and
Carrilero, 2016). Because respective sector is working for the providing services to customers
thus, for them satisfaction play important role. If guest are not satisfied then it will directly give
negative impact on overall industry through decreasing sales, negative talk, effect on brand
image and so on.
Customer satisfaction = Customer perception of the service received – Customer expectation
from the service (Pereira, de Fátima Salgueiro and Rita, 2016). Apart from this, there are several
reason because of that customer satisfaction is beneficial for hospitality industry. Explanation of
these are as follows :-
 Increase customer loyalty – This one of major benefit hospitality industry gain by
satisfied customers because satisfaction result in more likely to stay with business for
long term. It will directly result in enhancing sale volume as well as profitability over
time.