crm in sustainable customer loyalty cathay pacific

5/28/2018 CRM in Sustainable Customer Loyalty Cathay Pacific

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The Effectiveness of Customer

Relationship Management in

Sustainable Customer Loyalty: The

Case Study of Cathay Pacific Airways,

Hong Kong

Tinny Ma

Higher Diploma in International Hospitality and Tourism Management

HTMi Switzerland


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Introduction

Cathy Pacific is an airline, awarded Airline of the Year in 2012, which has

focused on building customer-supplier relationships by implementing different

CRM tools (Skytrax, 2012). These CRM campaigns were introduced to make

good use of the receiving personal data to enlarge the customer base also to

build a direct and long-term relationship with selected customers (Peelen, 2005).

Advances in technology allow for consumer benefits by receiving updated

product information with low transaction costs (Middleton, 2001). Customers

are able to have bargaining power to make a direct comparison between wide

ranges of choices in order to maximize their needs and wants; thus, customer

retention becomes harder to achieve. Customer Relationship Management

(CRM) is the most important business strategy in modern marketing, to gain

insights into the guest satisfaction by building brand loyalty and ensuring that

loyal customers have no reason to leave (Kotler et al., 2010). Recently, there has

been increase levels of competition between airlines to attract more frequent

flyers. Different CRM strategies with continuous changes of sales promotion and

marketing activities have been launched to encourage repeat consumer

behaviour from loyal customers (Brakus et al., 2009). Therefore, different

Frequent Flyer Programs and Loyalty Schemes with incentives are given to

consumers in order to achieve a sustainable competitive advantage (Keh and

Lee, 2006). A certain amount of research has indicated that CRM strategies apply

in hotel operations (Sigala, 2005; Wang, 2012) but less in the airline industry

(Liou, 2009; Chang & Chen, 2007; Jarach, 2002).


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Similarly, consumer behaviour, led by loyalty programs, has been analysed (Yoo

& Bai, 2012; Chen & Hu, 2010; Vesel & Zabkar, 2009) but less research has

focused on the marketing strategies of CRM. Further research can be done on

the role of relationship marketing, and how companies can build long-term

relationships with carefully targeted customers from successful CRM. Thus, the

knowledge gap of this research motivates the present study. Apart from the

knowledge gap, the author was also interested in 'The World's Biggest Welcome'

campaign, introduced by Cathy Pacific Airways during the economic downturn,

which offered a lucky draw of 10,000 air tickets to Hong Kong residents (Cathy

Pacific Airways, 2012). Therefore, the author is interested in this research to

evaluate the effectiveness of the marketing strategies of Cathay Pacific Airways

towards nowadays marketing trend in take advantage of information technology

also to target fewer but more profitable customers. As a leading airline

company, Cathay Pacific Airways has effectively adopted CRM to build an

international network and target customer service. The author wanted to

research about the core strengths of marketing business in attracting new

customers, yet avoid losing existing customers and do more business with loyal

customers.

Conceptualisation of Customer Relationship Management

The term Customer Relationship Management (CRM) originated from

relationship marketing in 1990s, which emphasized the development of long-

lasting relationships with customers (Payne, 2006). The use of CRM has become

one of the major marketing strategies used by modern industries (Kolter et al,

2010).


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Organisations no longer simply follow traditional marketing strategies in

focusing on market segmentation or the 4P Marketing Mix, but increase

customer knowledge in mining the right data from databases in order to enable

sustainable customer-supplier relationships without the limitation of time, place

and unexpected challenges (Tapp, 2001).

Figure 2.1.1 The Customer Relationship Management Process (Fjermestad and

Romano, 2006)

According to Figure 2.1.1, the CRM process model is characterized by processing

customer knowledge management and interaction management to attain the

goals of CRM (Fjermestad and Romano, 2006). Companies practicing CRM can

create databases that contain detailed personal data of customers. Kim and Kim

(2009) also added that an effective CRM process combines the application of

customer knowledge management with buyer-seller interaction based on mutual

benefit exchange. CRM is recognized by Stone and Woodcock (2001) as the

marketing efforts to provide a customer-oriented view of an organization to plan

for customer loyalty.


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However, there is modern criticism regarding CRM becomes more difficult to

achieve success than many organisations expected (Smith, 2001). According to

Corner and Hinton (2002), many organisations misinterpreted CRM strategies

and only 30% of organizations were satisfied with the result of developing

permanent customer relationships at a relatively low cost. Sohrabi et al, (2010)

added that 50% of organisations do not apply CRM strategies appropriately.

Likewise, the Giga group (2001) supported that 70% of organisations will suffer

losses from CRM projects. Therefore, it is essential for organizations to

effectively utilize CRM assistance along with information technology and follow

modern marketing trend to have a better understanding of the individual

customer so as to serve the individual needs of targeted customer in achieving

customer loyalty (Lee, 2000).

The strategies of Customer Knowledge Management

According to Peppers et al. (2001, cited in Peelen, 2005, p.143), Customers do

not want more choices, they want exactly what they want. Thus, the customers

perspective becomes an essential element of CRM in allowing organisations to

adapt quickly to constantly changing marketing needs. Guchait et al. (2011) also

stated that both CRM and Knowledge Management strive for the same goal of

constantly improving to satisfy customers needs.


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Figure: Knowledge Management Pyramid (Gebert et al, 2003)

A Knowledge Management Pyramid is introduced by Gebert et al. (2003) defined

four interdependent goals to assist the business process. It explains each

knowledge management readiness stage to achieve effective Customer

Knowledge Management. Notwithstanding, Ip et al. (2005) criticized the

Knowledge Management Pyramid as it had no association with technology

development, and so is not suitable to explain the knowledge management

process in the modern technological based market.

Figure b: Online Customer Knowledge Management model (Su et al, 2006)


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Hence, a recent study added by Su et al. (2006) on Online Customer Knowledge

Management has better illustrated and redefined the categories of customer

knowledge as Knowledge for customers the information needs from customer;

Knowledge about customers knowledge about customer needs and purchasing

history; and Knowledge from customers the information from customer sent

back to organizations in order to improve products and services (ibid). After

looking at the above Knowledge Management models, Figure 2.1.2b the modern

Online Customer Knowledge Management model is more effective than the

traditional Knowledge Management model (Newell, 2003). The Customer

Knowledge Management process incorporated with Information Technology has

been widely used in recognizing consumers behaviour in todays technological

based market. Also, to sketch better future development strategies to obtain

knowledge for customers, knowledge about customers and knowledge from

customers in order to attain a win-win situation for both the customer and the

organization.

Interaction between Customer-supplier Relationship

Two-way communication and mutual benefit exchange, boost the opportunities

for suppliers to collect data on valuable customers and to tailor customised

service and products, in order to build sustainable relationships with existing

customers, that are recognised as more profitable then those with new

customers (Bruhn, 2003). Zablah et al. (2004) also suggested that the customer-

supplier relationship of CRM includes three basic procedures of input, process,

and output. The input element of CRM involves the current data of individual

customer.


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The process of CRM involves interaction management, high quality

communication between customers and suppliers through a network of

communication channels in exchange for mutual benefits. The output component

of the CRM process refers to the qualitative market research based on the

completed customer knowledge in order to develop products in a targeted

manner and achieve the goal of long-term relationships.

Figure 2.1.3 Relationship life cycle (Peelen, 2005)

According to Blau (2009), stated that customer-supplier relationship is an

economic exchange and would not have social benefits involved. On the other

hand, Brennan et al (2011) argued that the relationship life cycle has included

the social components of commitment, reliance, trust and respect and will

influence the performance of customer-supplier relationships. Peelen (2005)

also identified five phases in the relationship life cycle. In order to increase the

level of commitment from ones perspective towards product satisfaction,

attractiveness and switching costs, suppliers should have the ability to

understand the needs from the customers eyes.


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This is similar to the social exchange theory illustrated by Huang and Chen

(2007) suggested that if an exchange of benefits is low or unbalance, customer

may view the customer loyalty negatively. Likewise, if an exchange of benefits

between customers and suppliers is high and balanced, customer loyalty may be

viewed more positively. This can be applied to the fourth phase of the maximum

level of commitment, reliance, trust and respect. In the saturation stage, more

personal and intangible resources may be exchanged between both parties, thus,

increase in the value of the customer-supplier relationship (Green and Ridings,

2002).

CRM in Hospitality Industries

Hospitality is the relationship between the customer and supplier and it includes

the airline industry (Chon and Maier, 2010). Thus, it is worth reviewing the

existing research of CRM in hospitality industries rather than only focus on the

airline industry. Due to the mature nature of the hospitality industry, hotels tend

to boost sales by participating in price wars, launching different products and

joining in different means of distribution (Hui et al, 2009). However, Kolter et al.

(2010) argued that building customer relations is a more efficient way to

maximise profit. There are numerous examples of hotels starting to adopt the

360- degree guest approach in order to build customer loyalty and to better

investigate guests purchasing behaviours (Serenata IntraWare, 2010). Research

done by Ozgener and Iraz (2006) into 318 hospitality organisations which

carried out relationship marketing, 40.9% of them claimed to benefits from

attracting new customer, 38.8% treated the approach as a competitive advantage

for customer retention, 25% made use of their database as a tools for improving

service and 14.8% felt that cost were reduced by the customization of products


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and service. As mentioned before, the failure of CRM is caused by lack of

management and technical support, barriers in data collection and poor

marketing strategies (Bligh and Turk, 2004). Since there is a certain amount of

research has indicated the advantages and drawbacks from adopting CRM, a

knowledge gap still exists in introducing a practical framework for CRM.

CRM in Airline Industry

The global airline industry has become a major generator of tourism with

estimated revenues of up to $631 billion (IATA, 2012). The attributes of CRM in

the airline industry have helped to collect a valuable database and add value

between the customer-supplier relationships in order to prolong customer

loyalty (Kumar et al, 2004). Meanwhile, different CRM strategies, for example

different Frequent Flyer Program and Loyalty Program, are introduced to give

incentives to the consumers in return for competitive advantages in the airline

industry (Keh and Lee, 2006). There are examples of airline companies making

use of CRM in order to customise the market to maximise profit. For instance,

Danish Airlines collected their customer database by giving incentives of two

airway tickets per month (Middleton and Clarke, 2001). Meanwhile, Southwest

airlines also stressed CRM as having an important role within marketing

strategies to recognise customer friendly approach and customer-focused

policies (Lauer, 2010). This competitive approach created the opportunity for

Southwest airlines to generate an increase of 5.4% profit per year (ibid). The

above research motivated the authors interest toward the practical patterns of

CRM.


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Research Company Background: CRM in Cathy Pacific Airways

Cathay Pacific has a lot to gain in terms of public image, customer relations and

business growth (Cheng, 2002, p.1). The vision of Cathay Pacific Focus On The

Customer, Gain Customers has highlighted the company target on building

customer-supplier relationship by implement different CRM approach (Skytrax,

2012). In the successful case of 'The World's Biggest Welcome' campaign,

introduced by Cathy Pacific Airways, which offered an incentive of 10,000 free

air tickets to Hong Kong residents, two million completed forms were returned

to the customer database (Cathy Pacific, 2013). These CRM campaigns utilized

the received personal data to enlarge customer knowledge and provide high

quality interaction management with the selected customers (Peelen, 2005).

Nevertheless, these valuable assets can assist to conduct future development

plans and build up close relationships with targeted customers. To evaluate the

general CRM strategy of Cathay Pacific, the developments of an eCRM approach

also a crucial component in their marketing strategies (Cathy Pacific, 2013). By

operating its eService, Cathay Pacific is able to deliver a wide range of services

and products that are assisted by information technology, for example online

booking, online check-in, notiFLY auto messages customer service and Frequent

Flyer Program in order to help customers handle their flight activities in a

convenient way, hence increasing customer loyalty and building up trust and

satisfaction (ibid).


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Conclusion

CRM becomes the most important business strategies to achieve the principle of

marketing to attract new customers, prevent reducing the current customers and

accumulate loyalty customers. With the constantly changing market,

organisation develop from the traditional marketing by adopt the CRM in

improve the customer-supplier relationship and enlarge the customer database

in order to raise the competiveness against the competitors. The author aims to

analyse the CRM marketing strategies for targeting customers and increasing

customer interaction in order to achieve the goal of company. In this study, the

case study of Cathay Pacific Airways is used to present how the company make

use of these valuable customer data and eCRM approach to gain customer-

supplier interaction and understand the customers needs. To sum up, this

research benefits the further study in assessing the effectiveness of CRM in

follow nowadays marketing trend to take advantage with technological device

and target more profitable customer to build sustainable customer loyalty.

Recommendation

Since the majority findings of this study is based on the secondary research, the

author believe wide range of primary research should also be held in order to

enhance the creditability of the paper and different point of views can be

compare with each other to figure out the best result. Further research can be

done on the development of information technology in assist the CRM, which is

applicable in todays market trend. Moreover, the researchers should consider

the limitations of sampling and data collecting. Besides, for future researchers,

they also need to think about the limitations of the findings such as geography,


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time constraints and limited sampling. Except chosen the companys

management team to participant in the sampling, customers who benefit from

the CRM can also selected to participant in the interview. Therefore, both the

marketing and consumer behaviour perspective towards CRM can be examined

to evaluate the win-win situation between the customer and supplier.


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crm in sustainable customer loyalty cathay pacific

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