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

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).

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 longlasting 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).

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.

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.

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)

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 customersupplier relationship of CRM includes three basic procedures of input, process, and output. The input element of CRM involves the current data of individual customer.

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.

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

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.

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).

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 customersupplier 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,

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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