Diplomarbeit

Brand Management in the Hotel Industry

and its Potential for Achieving

Customer Loyalty

angefertigt an der

Hochschule Harz

Fachbereich Wirtschaftswissenschaften

Studiengang Internationale Tourismuswirtschaft (Engl.)

vorgelegt von:

Jessica Salver

eingereicht am:

29. Juli 2005

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I

TABLE OF CONTENTS

Table of Contents I

Table of Figures III

List of Abbreviations IV

INTRODUCTION

1

PART A

5

1 The Concept of Brands 6

1.1 Definitions 6

1.2 Brand Functions 9

1.2.1 Company Benefits 9

1.2.2 Consumer Benefits 11

1.3 Product Requirements 13

1.4 Evolutionary Eras of Brand Management 17

2 Branding in the Hotel Industry 22

2.1 The Industry of Hotel Services 22

2.1.1 Economic Position 22

2.1.2 Industry Trends 24

2.1.2.1 Customer Trends 24

2.1.2.2 Suppliers Trends 26

2.2 Characteristics of Hotel Services 27

2.3 The Need for Branding In the Hotel Industry 30

2.4 Unfavorable Conditions for Branding Hotel Services 32

2.4.1 Difficulties Resulting From Involvement of People 33

2.4.2 Difficulties Resulting From Intangibility 34

2.5 Favorable Conditions for Branding Hotel Services 36

2.6 Creating a Hotel Brand 39

2.6.1 Strategic Brand Analysis 39

2.6.2 Brand Identity 41

2.6.2.1 The Brand as a Product 42

2.6.2.2 The Brand as an Organization 44

2.6.2.3 The Brand as a Person 45

2.6.3 Brand Name 46

2.6.4 Brand Symbol 48

2.6.5 Brand Slogan and Stories: The Brand in Words 50

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II

2.6.6 Hotel Employees as a Brand Element 52

2.6.6.1 Brand Culture 54

2.6.6.2 Additional Efforts 56

INTERIM RESULTS

60

PART B

63

3 Conceptual Framework 64

3.1 Benefits of Customer Loyalty 64

3.2 Expressions of Customer Loyalty 66

3.3 The Achievement of Customer Loyalty 70

4 Establishing Customer Loyalty 73

4.1 Consumer Behavior 73

4.2 Customer Buying Process 80

4.3 Loyalty Elements and the Power of Brands 86

4.3.1 Customer Satisfaction 86

4.3.2 Brand Image 92

4.3.3 Sympathy 96

4.3.4 Trust 98

RESULTS & CONCLUSION

100

REFERENCES

105

INDEX

114

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III

Table of Figures

Figure 1-1: Brand Asset Categories 8

Figure 1-2: Functions of a Brand 9

Figure 1-3: Brand Management Evolution Eras 17

Figure 2-1: Hotel Services as an Economic Segment 23

Figure 2-2: Trends in the Hotel Industry 24

Figure 2-4: Dominance of Tangible and Intangible Elements

in Goods and Services 38

Figure 2-5: Dominance of Tangible and Intangible Elements

in the Service Industry 38

Figure 2-6: Brand Identity Structure 42

Figure 2-7: Brand Personality Scale 46

Figure 2-8: Examples of Brand Logos 50

Figure 3-1: Qualities of Customer Loyalty 67

Figure 4-1: Customer Behavior 74

Figure 4-2: Maslow′s Hierarchy of Needs 77

Figure 4-3: Customer Buying Process 80

Figure 4-4: The Origins of Customer Satisfaction 87

Figure 4-5: SERVQUAL Dimensions 91

Figure 4-6: Positioning Map of Service Level versus Price Level 95

Figure 4-7: Positioning Map of Location versus Physical Luxury 95

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IV

List of Abbreviations

AMA

American Marketing Association

CEO

Chief Executive Officer

CIA

Central Intelligence Agency

DEHOGA

Deutscher Hotel- und Gaststättenverband

e.g.

exempli gratia (Latin: for example)

est.

estimated

et al.

et aliter

GDP

gross domestic product

i.e.

id est (Latin: that is)

mgmt.

management

n.a.

no author

n.c.

no city

n.c.

no year

POD

points-of-difference

POP

points-of-parity

SERVQUAL

service quality

TQM

total quality management

USP

unique selling proposition

WTO

World Tourism Organization

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INTRODUCTION

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INTRODUCTION

2

.

Problem Formulation and Research Objectives

Brands are a phenomenon that has been in existence already for centuries.

From its original purpose of marking livestock, the concept was later adopted by

manufacturers for their products and further developed and adapted to changes

in business environments. The original idea of using marks to indicate

ownership and origin, however, can be traced back even for millennia to ancient

Greek and Rome and early Chinese dynasties.1

These days, the number of brands is greater than ever. More and more

businesses have come to realize the power of brands, and the concept of brand

management has consequently gained considerable interest in recent years.

Every year the number of new brands registered increases.2 Fortune magazine

suggests that "In the 21st century, branding ultimately will be the only unique

differentiator between companies."3

Initially, the use of brands, or marks respectively, was limited to physical

products only. Service brands are comparatively new in the long history of

branding.4 The hotel industry ­ along with many other services ­ is lagging

behind manufactured goods by decades.5 For this reason, research on brand

management mainly concentrates on this type of products. Literature on service

brands is comparatively scarce. Nonetheless, there are great potentials for brand

management in the service industry in general and the hotel industry in particular.6

Hotel services differ from physical goods in many ways.7 For this reason,

research findings and approaches to building and managing brands cannot

simply be transferred. The major goal of this work is therefore to examine the

concept of brand management, to adapt and apply it to hotel services.

In today′s ultra-competitive business environment, customer loyalty is a hot

topic. The hotel industry has turned into a buyer′s market. Competition keeps

intensifying at steady pace, resulting in a surplus of capacities.8 As a consequence,

the importance of making guests return becomes a critical issue. It is said that

brands provide the opportunity to encourage the creation of loyalty among

consumers. In comparison to generic products, they are believed to have an

advantage in achieving this goal.9 A second objective of this work is to determine

the connection between these two concepts and to investigate the beneficial

effects of branding hotel services for the process of establishing loyalty.

1 Keller, D.L. (2003), p. 3, 52-55.

2 Compare to Meffert et al. (2001), p. 3.

3 Fortune magazine, cited in Esch, F.-R. (2003), p. 1.

4 Strauss, B. (2004), p. 97.

5 Compare to Morrison, A.M. (2002), p. 10.

6 Compare to Fassnacht, M. (2004), p. 2163; Lambertz, M.; Meffert, C. (2002), p. 587.

7 Henschel, U.K. (2001), p. 80-83.

8 Barth, K.; Theis, H.-J. (1998), p. 3.

9 Compare to Hankinson, G. (2000), p. 484 and Kotler, P. et al. (2003), p. 316.

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INTRODUCTION

3

.

Research Proceedings

The work will be divided into two major parts. The first part is concerned with

brand management in the hotel industry, and the second one deals with

customer loyalty.

First, the general concept of brands will be investigated and later applied to

hotel services. To understand the importance of brands, the author will analyze

the benefits they provide. This investigation will be conducted from different

perspectives in order to comprehend the advantages from a customer as well

as from an organizational point of view. If brands have such a high value by

offering the multitude of benefits they are believed to provide, the question

arises why there are still unbranded products on the market. One reason can

certainly be found in a lack of financial resources on part of the companies.

Branding a product always involves additional costs.10 However, this cannot be

the only reason since it is possible to notice that certain product categories are

more concerned with the absence of brands than others. For some types of

products, only a small number of brands are known (e.g. Dole and Chiquita for

fruits) and the majority is sold anonymously. In even other categories, brand

names are completely unknown (e.g. for produce). For this reason, it will be

researched, which product attributes are favorable to the creation of a brand.

Due to continuous innovations, inventions, and other changes in business

environments, the requirements of brands have been changing over time. Also

the introduction of service brands is a comparatively new practice in the long

history of branding. For this reason, investigations will include a historical review

and a description of the evolvement of professional brand management.

After having investigated the major concepts of branding, the author will

analyze the industry of hotel services. For being able to establish guidelines for

creating a hotel brand, information will first be collected about the current

market situation. In this connection, industry trends on both the supply and

demand side will be analyzed. Then, the particularities of hotel services will be

compared with the previously investigated factors that facilitate branding in

order to determine favorable characteristics and obstacles. Finally, steps and

tasks involved in branding a product will be applied to the lodging industry.

Important brand elements will be described and discussed in order to serve as a

guideline.

The second part of the work begins with some general concepts of

customer loyalty. It starts with an investigation of organizational benefits

resulting from loyal guests. Literature offers a wide range of definitions of

10 Kotler, P. et al. (2003), p. 318

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INTRODUCTION

4

.

loyalty, some of which are supportive of each other, others contradictory.11

For this reason, it will be investigated whether it is possible to distinguish

between different levels or qualities of loyalty.

Nowadays, suppliers of hotel services have to deal with difficult market

conditions.12 As a result, many companies have adopted the idea of offering so-

called "loyalty programs," which were originally invented by the airline

industry.13 However, this approach to achieving loyalty is controversial and not

generally agreed upon.14 As a consequence of disagreement upon definition of

a loyal consumer, literature also provides different options concerning the

causing factors of loyalty. These different viewpoints will be analyzed in order to

establish a set cause-and-effect chain of loyalty for the continuation of this work.

With the overall goal of customer loyalty in mind, the author will then

examine consumer behavior. In order to attempt influencing the components of

the cause-and-effect chain, it is first necessary to understand the traveler and

the factors that determine his/her behavior. The behavioral analysis will be

followed by a description of the buying process that customers go through when

booking a hotel stay. Creation of loyalty is a complex task and therefore

requires attention to and knowledge about each of the steps involved.

Furthermore, it will be researched if and to what extent branding may affect

consumers during each of the stages. Finally, each loyalty element will be

investigated separately in terms of its development. In order to determine the

potentials of hotel brands for achieving customer loyalty, the author will analyze

possible impacts on these elements as a result of branding hotel services.

11 See for example Weinberg, P.; Diehl, S. (2001), p. 26; Esch, F.-R. (2003), p. 78; Hennig-

Thurau, T.; Hansen, U. (2000), p. 6-7 and Sander, I. et al. (2004), p. 276-278.

12 Compare to Henschel, U.K. (2001), p. 43.

13 Compare to Lovelock, C.; Wright, L. (1999), p. 128-129.

14 Compare to Morgan, R.M. et al. (2000), p. 71.

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PART A:

BRAND MANAGEMENT IN THE HOTEL

INDUSTRY

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