• Marriott Starwood Megamerger: Why and What’s the Likely Impact?

    Marriott International has announced that it will acquire Starwood Hotels & Resorts for $12.2 billion, creating the world’s largest hotel chain. This is the largest hotel merger deal since the Blackstone group acquired Hilton hotels for about $26 billion in 2007.

    Why the megamerger now? Starwood stock has been languishing for a while now as investors felt it has not grown fast enough, especially in the affordable hospitality segment. It had explored a sale with Intercontinental Group and Hyatt being possible suitors. Marriott, under CEO, Arne Sorenson has been growing with acquisitions, including the recent purchase of Delta hotels of Canada. It considered Starwood as an opportunity to acquire earlier but found a stock price of $84 to be too expensive. At Starwood’s current price of $72, however, Marriott found it attractive to buy. The combined hotel chain will be in 100 countries with 5,500 properties and 1.1 million guest rooms. Marriott hopes to achieve a cost savings of $200m over two years.

    What is the business rationale for the merger? First, scale is becoming important in the lodging industry. Being able to leverage a larger reservation system to improve occupancy rate and raise Revpar (revenue per available room) is key to profitable growth. Marriott and Starwood are best positioned to combine their strengths in this regard. Second, both these brands can consolidate their loyalty programs and improve loyalty rate and customer lifetime value. Third, the biggest hotel chain will have greater bargaining power over its suppliers and control over its costs. Fourth, because technology is redefining customer experience in the hospitality industry and is capital intensive, the merged company will have a greater ability to shape customer experience.

    What kind of impact will it likely have on travelers and the industry? Like when two big airlines merge, travelers will have the opportunity to benefit from enhanced status when Marriott and Starwood loyalty programs combine.  Customers can search more efficiently for properties under one roof. However, in the past, they might have had choices between competing brands with better prices. Now, they might find the prices of different hotel brands to be coordinated. The combined entity might also retire some brands if it concludes that they are too expensive to maintain as separate brands. The industry will have an 800 pound gorilla that would make it harder for chains like Hyatt and Wyndham to compete. It might offer more opportunities for the companies to innovate around customer experience and business processes.

    Given that the merger needs approvals at several levels, it may be too early to predict what might happen. But it is a watershed event in the hotel industry and we can’t wait to see what lies ahead.

    http://cnb.cx/1lr91RG

  • Customer Value, Satisfaction, Loyalty, and Switching Costs: An Illustration from a Business-to-Business Service Context

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    by Shun Yin Lam, Venkatesh Shankar, Krishna Erramilli, and Bvsn Murthy

    This article was published in Journal of Academy of Marketing Science, 32 (Summer 2004), 293-311.

    Although researchers and managers pay increasing attention to customer value, satisfaction, loyalty and switching costs, not much is known about their interrelationships, in particular, in the business-to-business (B2B) context.  Prior research has examined the relationships within subsets of these constructs, mainly in business-to-consumer (B2C) environment.  We extend prior research by developing a conceptual framework linking all of these constructs in a B2B service setting.  We also advance the notion that customer loyalty is best conceptualized as a two-dimensional construct comprising repeat patronage and word-of-mouth recommendation.  Based on the cognition-affect-behavior model, we hypothesize that customer satisfaction mediates the relationship between customer value and customer loyalty and that customer satisfaction and loyalty have significant reciprocal effects on each other.  We also examine the relative strengths of the drivers of customer loyalty, and explore potential interaction effect of satisfaction and switching costs and the quadratic effect of satisfaction, on loyalty.  We test the hypotheses using structural equation modeling on data obtained from a courier service provider in a B2B context.  The results support most of our hypotheses and in particular, confirm the mediating role of customer satisfaction.  We discuss how the results can help managers enhance customer loyalty.

  • Customer Satisfaction and Loyalty in Online and Offline Environments

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    by Venkatesh Shankar, Amy Smith, and Arvind Rangaswamy

    This article was published in the International Journal of Research in Marketing, 20 (2, 2003), 153-175.

    In this paper, we address the following questions that are becoming increasingly important to managers in service industries: How are the levels of customer satisfaction and loyalty for the same service different when chosen online versus offline? What are the unique drivers of online customer satisfaction? How is the relationship between customer satisfaction and loyalty in the online environment different from that in the offline environment? We propose a conceptual framework and develop hypotheses about the drivers of customer satisfaction and loyalty, the relationship between satisfaction and loyalty, and the role of the online medium. We test the hypotheses through a simultaneous equation model using two data sets of online and offline customers in the lodging industry.

    The results show that whereas the levels of customer satisfaction for a service chosen online is the same as when it is chosen offline, loyalty to the service provider is higher when the service is chosen online than offline. Service encounter satisfaction for a service chosen online is higher when information content at the web site is deeper. In addition, the online medium also strengthens the relationship between overall satisfaction and loyalty, and appears to foster a reciprocal relationship between loyalty and satisfaction, such that satisfaction increases loyalty, which in turn, reinforces satisfaction.  These results suggest that, contrary to popular fears, the online medium provides an attractive opportunity for service providers to acquire loyal customers. The results imply that online service providers should not only invest in service quality improvement initiatives, but also maintain web sites that offer a good online experience for their customers. They should also focus directly on loyalty-building initiatives, such as frequent online user reward programs.