different approaches to measure customer satisfaction

VIETNAMESE-GERMAN UNIVERSITY

DIFFERENT APPROACHES TO MEASURE CUSTOMER SATISFACTION IN TOURISM INDUSTRY Elective course: Organizational Performance Measurement 5/5/2016

Vo Kha Quoc Hoang Phan Thuy Linh Doan Truc Quynh Nguyen Ngoc Xuan Trang Tran Thi Phuong Ha Chu Nhat Minh

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Executive Summary Customer satisfaction is the key for businesses to gain profitability and success. Therefore, achieving high customer satisfaction plays a main role in creating competitive advantages in modern perfect competition market. There are many approaches attempting to measure customer satisfaction, based on various perspectives, including its determinants and aspects. Measuring SERVQUAL as a determinant, customer loyalty and financial return rates as aspects are some of the renowned approaches. The main aim of this paper is discussing in detail these approaches as well as proposing a case study to illustrate SERVQUAL, a major estimator of customer satisfaction.

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Table of Contents Chapter I: Introduction ...................................................................................................... 1 Chapter II: Customer Satisfaction: Determinants, Aspects, Importance and Trade-off .... 2 2.1 Customer Satisfaction ............................................................................................. 2 2.2 Determinants of Customer Satisfaction ................................................................... 4 2.3 Aspects of Customer Satisfaction ........................................................................... 6 2.4 The Importance of Customer Satisfaction and its Trade Off ................................. 10 2.5 Renowned Customer Satisfaction Measurement Approaches .............................. 11 Chapter III: Approaches to Measure Customer Satisfaction In Tourism Industry ........... 13 3.1 Key Features and Significant Indicators of Customer Satisfaction ........................ 13 3.2 Customer satisfaction measurement in tourism industry - Aspects ....................... 15 3.2.1 Loyalty ............................................................................................................ 15 3.2.2 Financial Return Rate, Profitability .................................................................. 17 3.2.3 Market Expansion - Increase of market share: ............................................... 20 3.3 Measurement of customer satisfaction in tourism industry through service quality .................................................................................................................................... 22 3.3.1 SERVQUAL – The foundation of service quality measurement method ......... 23 3.3.2 Specified customer satisfaction measurement method in tourism industry ..... 25 3.3.3 Quality Function Deployment .......................................................................... 27 3.4 Case study: Summary of A Study in A Business Hotel in Turkey .......................... 35 Chapter IV: Conclusion .................................................................................................. 43 Appendix ........................................................................................................................ 44 References ..................................................................................................................... 47

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List of Figures Figure 1 - Service quality model ..................................................................................... 24 Figure 2 - House of quality - The framework .................................................................. 28 Figure 3 - House of quality - an illustration – Source: Jeong & Oh, 1998 ....................... 31 Figure 4 - Calculation Process of Relative Weight ......................................................... 32

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List of Tables Table 1 Profile of Respondents (n = 234) ....................................................................... 36 Table 2 Values for each attribute obtained through analysis (n = 234) .......................... 38 Table 3 Results of regression analysis (n = 234) ........................................................... 42 Table 4 Results of factor analysis................................................................................... 44 Table 5 Reliability and validity ........................................................................................ 46

Chapter I: Introduction

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Chapter I: Introduction High customer satisfaction, with no doubt, is the first goal of all businesses to achieve long-term profitability and success. Maintaining a high customer-satisfaction level is essential for staying ahead in today’s highly competitive market, since satisfying customers is regarded as the cheapest means of product and service promotions. Thus, customer satisfaction has attracted considerable attention from many researcher sand industry experts in multiple fields. From the tourism perspective, a business remains competitive only if it is able to provide customer with satisfactory products and services. By investing great effort and considerable

resources

to

measure

customer

satisfaction

accurately,

tourism

businesses and firms in related sectors would be able to gain deeper knowledge on how their service performance is perceived by customers and identify issues which need to be fixed or improved. In this paper, we will examine different approaches to measure customer satisfaction, on its theories and methodologies. The objective of chapter II is to deliver the concept, determinants, aspects, importance, trade-off as well as well-known measurement approaches of customer satisfaction. Conducting on foundation concepts, indicators, especially SERVQUAL and financial return rate, are discussed through research studies and empirical observations. Chapter III will discuss thoroughly the context of tourism industry in order to analyze its special features and common approaches used to measure customer satisfaction. Furthermore, a case study in the major of hospitality using SERVQUAL in attempt to measure customer satisfaction is provided as a practical example.

Chapter II: Customer Satisfaction: Determinants, Aspects, Importance and Trade-off

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Chapter II: Customer Satisfaction: Determinants, Aspects, Importance and Trade-off 2.1 Customer Satisfaction First, we have to clarify what “customer satisfaction” is. According to WTO (1985), customer satisfaction is a psychological concept which associated with the feeling of well-being and pleasure, results from obtaining what the customer might assume and expect from an appealing product and/or service. Abraham Pizam Taylor Ellis (1999) has summarized several distinct theories from over thousands of academic and trade articles published on the “customer satisfaction” topic in the past decades, some of these prominent theories are: expectancy disconfirmation, assimilation or cognitive dissonance, contrast, assimilation-contrast, equity, attribution, etc. Among these theories, the expectancy disconfirmation theory (Oliver 1980) is the most widely used for explaining customer satisfaction. This theory covers four elements: expectation, performance, disconfirmation and satisfaction (Lewin 1938). According to this theory, customers purchase goods or services with some pre-performance expectations. Helson (as cited in Oliver 1980, p. 461) stated that expectations are influenced by three elements, which are (1) the product itself including one’s prior experience, brand connotations, and symbolic elements; (2) the context including the content of communications from salespeople and social referents; (3) and individual characteristics

including

persuasibility

and

perceptual

distortion.

Post-decision

deviations from the adaptation level are stated to be caused by the degree to which the product exceeds, meets, or falls short of one's expectations. After products or services have been purchased and used, outcomes are compared against pre-performance expectations. If outcome matches expectations, confirmation will occur. Disconfirmation occurs when there are differences between expectations and outcomes. Positive disconfirmation occurs when product or service performance exceeds expectations. In contrast, negative disconfirmation appears when the performance of product or service is worse than expected.

Satisfaction is caused by confirmation or positive

disconfirmation of one’s expectation, while dissatisfaction results from negative disconfirmation of it.


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In Vavra’s book titled “Improving Your Measurement of Customer Satisfaction: A Guide to Creating, Conducting, Analyzing, and Reporting Customer Satisfaction Measurement Programs” (1997), the author has based on many previous studies to define customer satisfaction in two basic directions: as an outcome or as a process. As an outcome, customer satisfaction is the result of the consumption experience. It could be the consumer’s cognitive state of reward for the cost he bears, an emotional response to the experiences of using specific products or services, or the consumer’s comparison of the rewards and costs of purchase in the relation with anticipated consequences. Customer satisfaction is also considered as a process, emphasizing the perceptual, evaluative and psychological processes contributing to it. According to Eugene et al. (1994), at least two different conceptualizations of customer satisfaction can be distinguished: transaction-specific and cumulative. From a transaction-specific perspective, customer satisfaction is a post-choice evaluative judgment of a specific product or service on purchase occasion. In comparison, cumulative customer satisfaction is viewed as an overall evaluation based on the entire purchase and consumption experience over time. Whereas transaction-specific satisfaction may provide particular data about a specific product or service confrontation, cumulative satisfaction is a more fundamental indicator of the firm’s historical, current, and future performance. Some researchers claim satisfaction process to be subjective in expectations but objective in the perceptions of the product attributes, or outcome. Klaus (1985) defines customer satisfaction as their subjective evaluation of a consumption experience that is based on some relationship between the customer's perceptions and objective attributes of the product. Other studies believe that both expectations and perceptions are psychological phenomena and are easily affected by external influences and manipulation. Sasser et al. (1979) has provided interpretations on how expectations can be explicitly manipulated. For example, some restaurants guarantee the waiting time of the meal in the way that it excess actual time needed to prepare the meal. The customer whose mind is set with that expected amount of waiting time would have a more delightful feeling when the meal is served earlier. Another example is the low expectation strategy. The product or service provider intentionally creates an impression


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such that customer will set a low expectation towards that product or service. Once a customer has experienced a better outcome than what they expected, even if the outcome is just fairly good or reasonable, the customer would still be pleasantly surprised and satisfied. Manipulating perceptions of outcome is also a common practice in marketing products or services. Constantly promoting that the offerings are trusted and recommended by celebrities or experts would create a positive initial impression for the customer. In addition, satisfaction is not a universal state, means that not everyone gets the same satisfaction level out of the same hospitality experience. Different types of customers have distinct wants, needs, objectives and past experiences that influence their expectations. For example, a low-paid worker might find a fast food meal at a crowned and noisy place as a highly satisfying experience, while the same perceived experience could be viewed as totally dissatisfying for a high-class businessman. Therefore it is critical to develop a clear concept of individual customer needs and objectives that correspond to different kinds of satisfactions. This necessitates the segmentation of the market, because there is no service or product that can offer every customer the same degree of satisfaction (WTO, 1985). 2.2 Determinants of Customer Satisfaction To be able to discuss about the approaches used to measure customer satisfaction, it is essential to first address the key factors that affects strongly customer satisfaction. In the service industry, Parasuraman et al. (1985, 1988, 1991) determined five generic dimensions of service quality that are integral factors for delivering customer satisfaction from a firm perspective: (1) reliability - the ability to perform the promised services dependably and accurately; (2) responsiveness - the willingness to help customers and provide prompt service; (3) assurance - the knowledge and courtesy of employees as well as their ability to convey trust and confidence; (4) empathy - the provision of caring, individualized attention to customers; and (5) tangibles - the appearance of physical facilities, equipment, personnel and communication materials. The service quality is defined by the gap between customer's expectations and the service perceived performance. According to Parasuraman et al. (1985), the measurement of service quality is by subtracting customer's perception scores from customer expectation


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scores. Because of the homogeneity between customer satisfaction and service quality, the gap exists between the customers' expected and perceived service is not only a measure of service quality, but is also a determinant of customer satisfaction. The greater positive result, the higher customer satisfaction level and vice versa. Eugene et al. (1994), on the other hand, distinguished customer satisfaction from quality for several reasons and showed an extensive assessment between customer perspective and firm perspective. First, customers need to purchase and use the product in order to determine their satisfaction while quality can be perceived without actual consumption experience (Oliver 1993). Second, their supported the idea that customer satisfaction depends on value, where value can be viewed as the ratio of perceived quality relative to price or benefits received relative to costs incurred (Dodds, Monroe, and Grewal 1991; Holbrook 1994; Zeithaml 1988). Hence, customer satisfaction also depends on price, whereas the quality of a good or service is not generally considered to be based on it. The third argument assumed that quality is more related to customer’s current impression of a good or service rather than customer satisfaction in general, because customer satisfaction is based on not only current experience but also on all past, future and/or anticipated experiences. Finally, there is great empirical support for quality as only an antecedent of customer satisfaction in many studies. Furthermore, satisfaction could be affected heavily by expectations (Cherry et al. 2003; Frank and Enkawa 2009; Blocker and Flint 2011), which showed another customer perspective. The direct impact of expectations can be explained by the assimilation theory of Sherif and Hovland (1961). The theory stated that individuals suffer psychological conflict when they observe inconsistency between perceived performance and prior expectations. Consequently, they tend to adjust perception to match their expectations in order to reduce or completely remove that conflict. Hence, the assimilation effect can be viewed as a tendency to process new consumption experiences in terms of existing expectations. From this point of view, customer satisfaction is defined by customer’s post-purchase assessment of service delivered and adjustment between customer’s expectations and the actual service experience (Spreng and Dröge 2001; Higgs et al. 2005; Del Bosque et al. 2008).


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In conclusion, our study supports the idea that customer satisfaction is the result of an overlapping perspective of both customer perspective (individual components) and firm perspective (intrinsic feature of product or service and the way it is delivered). Furthermore, for a complex type of product such as tourism product, it is vital to add a systemic perspective to determine customer satisfaction (Valentina et al. 2015). Nevertheless, due to limited information about customer satisfaction measurement that accounts systemic perspective, we decided to narrow down our focus on only the first two perspectives. 2.3 Aspects of Customer Satisfaction Customer satisfaction has begun to play an important position in business operation. Measuring the satisfying level of customers about the products or services that they have used brings a lot of benefits to the company, such as improving the strong relationships with the firm’s customers; avoiding those cases which result in displeasure on the products and services shortages; etc. Due to the advantages that customer satisfaction measurement brings, it is necessary to identify how the company measure satisfaction level: whether to base on the factors affecting customer satisfaction, which also known as determinants, or based on the aspects of satisfaction, in other word, based on the results. When measuring customer satisfaction, not only the influential factors that businesses should know, but they should also take the aspects of customer satisfaction into consideration. Firms have to face with many questions, such as “Are the customers satisfied?” / “Would he or she come back and buy a gain?” / “How high the return on equity/ investment rates are?” and so forth. So as to answer, the first thing a company should do is identifying aspects that related to those questions and determine which aspect to focus on, when, and how. There are many aspects that hold a significant role in the success of the company. According to many studies and researches, we have recapitulated five major aspects of customer satisfaction measurement: 1. Overall Satisfaction 2. Customer Loyalty


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3. Customer Retention 4. Financial Return 5. Market Share 2.3.1 Overall Satisfaction First of all, the overall satisfaction measurement is one of the most common method to measure. The experiences of customer are significant predictors of their satisfaction. Thus, in most of the survey questionnaires, for instance, there is always a question: “Overall, how satisfied are you with the X product/service?” This question generally indicates the overall view of consumer’s experiences with the product or service he or she has used. Based on how they felt and what they received from things that they paid for, the customers’ opinions are such great sources of data that helps firms to know whether the customers satisfied or not. According to Agayeva Nurana Yashar (2015), when a customer regrets purchasing a product or service, this means dissatisfaction and firms should not expect to be received such negative complaint. In the other hand, if the answer of the above question, for example, is “I have made a great choice” or “I am glad that I bought and tried it”, the firm has succeeded in bringing the positive satisfaction to its customer.

2.3.2 Customer Loyalty Customer loyalty is an important aspect that every business must have plans to measure. Kay Ranade (2012) stated that: Loyalty can be defined as a customer continuing to believe that your organization’s product/service offer is their best option. It best fulfills their value proposition whatever that may be. They take that offer whenever faced with that purchasing decision. Customer loyalty reflects the attitudes or feelings of consumers, which leads them either to return to a firm, shops to purchase again or to repurchase some certain products or services. Or we can say, customer loyalty shows the possibility to repurchase products or services. The satisfaction of consumer is heavily affected by the performance of product, its quality and value. Susan E. Wyse (2012) had stated that, The difference between customer satisfaction surveys and customer loyalty surveys is that customer satisfaction surveys are focused on measuring customers’ current


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attitudes, whereas customer loyalty surveys focus on predicting customer behavior and attitudes. According to Bob Hayes, the author of “Measuring customer satisfaction and loyalty”, surveying the customer is a subjective measurement approach, which objective to selfreport the customers’ behaviors towards the company. The result might be the sum of scores of these questions, which also known as the core NPS (Net Promoter Score) (Agayeva Nurana Yashar 2015):  Overall, how satisfied are you with X brand?  How possible are you to repurchase the X brand?  How likely are you recommend X brand to a friend of family member? Therefore, loyalty is usually measured as a strengthening of measures consists of the overall satisfaction, possibility to repurchase, and the likelihood of suggesting the brand to a friend or family members. 2.3.3 Customer Retention A customer that purely satisfied still has a wandering mind. Not similar to a really loyal customer, she still can explore the marketplace and try competitors’ products, or services. There is another aspect that a business can use to measure the satisfaction of their customers called customer retention. ‘Customer retention refers to the activities and actions companies and organizations take to reduce the number of customer defections.’ (Molly Galetto 2015). So as to get someone to try a company once is such a challenge, but getting them to repeat purchasing is more difficult. The two main activities which are satisfying the wants and needs of the consumer and getting him to return after his first purchase must go hand-in-hand. In order to have a successful plan to keep a company’s customers, or essentially to prevent a customer from switching to the competitors as well as to maintain the revenue that they contribute, a business should measure the customer satisfaction base on their retention. Customer retention is basically defined as how well the customer stays and stays engaged with the company, or a specific product or service of a company (Ahmad Heshmat 2010).


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2.3.4 Financial Return Beside those methods to measure customer satisfaction, from years to years, many researchers have found the relationship between customer satisfaction and the financial performance of a business. A company can measure customer satisfaction based on its financial return, or in other word, its real profit. Firms believe that customer satisfaction correlates with three profit levers: average annual retention, acquisition costs, and pricing power (J.D. Power 2013). It is clear that higher satisfaction accord with increased average annual retention, higher pricing power as well as reduced acquisition costs, meanwhile the decrease in these three profit levers is due to the lower satisfaction. In order to gauge the customer satisfaction based on the firm’s financial performance, some popular indices are used such as ROE (Return on Equity), ROI (Return on Investment), and sometimes ROS (Return on Sales) is also used. In addition, the ECSI (European Customer Satisfaction Index), ACSI (American Customer Satisfaction Index) and NCSI-UK (National Customer Satisfaction Index-UK) are commonly used as a strategic tool for measuring the competitiveness of a company and foreseeing the profitability in the future. 2.3.5 Market Share Market share and customer satisfaction are the most common indicators that a firm usually uses to appraise its marketplace performance. Therefore, most of managers presume that market share and customer satisfaction have a positive relationship. That is, the customers that are satisfied should be more loyal, they will purchase more and spread positive and confident word-of-mouth. This leads to more new customer attraction and higher market share growth. As well as in the opposite, market share increasing should diminish the perceived risk, hence heighten customer satisfaction (AMA 2013). However, there are still a lot of arguments that it is not clear that high customer satisfaction and high market share are always appropriate. Some researchers claim that the market share not only has no impact on the future customer satisfaction, but these two variables also have a negative correlation. According to Lopo L. Rego, Nel A. Morgan, and Claes Fornell (2013), the authors of the article “Reexamining the Market


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Share-Customer Satisfaction Relationship”, larger companies might have larger target segments of market, therefore they might not be able to meet all the different needs and requirements of their customers. Thus, the relationship between market share and customer satisfaction is still an issue

that needs more studying and greater understanding. In conclusion, there is a close relationship between customer satisfaction and customer loyalty, their retention, financial return and market share. Beside the use of determinants, businesses can use those aspects as a foundation to determine the appropriate approaches to measure customer satisfaction. 2.4 The Importance of Customer Satisfaction and its Trade Off Customer satisfaction plays a very important role in the success of a business. There are many reasons to explain why customer satisfaction is so important for a business, such as: 

Customer Satisfaction is a gateway to gain loyalty



It promotes customer retention



It keeps the firm ahead from competitors



It improves the customer lifetime value



It reduces customer churn



It decreased negative word-of-mouth



It is cheaper to retain customer than getting new ones

These reasons obviously explain why customer satisfaction is such a crucial metric. High customer satisfaction means greater opportunities to gain customer loyalty and promote their retention. Also, it helps identify unhappy customers, reduce churn and increase revenue, as well as attract new customers and maintain the existing number of customers. These advantages contribute to increasing company’s reputation, which means give the company opportunities to keep ahead from competitors. Due to the importance of customer satisfaction, firms need to find out a suitable method to measure it. Thus, measuring customer satisfaction is one of the most importance strategies to maintain the success of a business.


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Beside those obvious benefits that customer satisfaction measurement brings, firms may have to deal with some costs when measuring and managing the satisfaction. The results from conducting survey or from some kinds of method that a company uses to measure may not exactly accurate all the time. This is the reason why there will be always costs from for example, receiving inaccurate information, wrong conclusions, or results when collecting data or calculating features, and so on. This leads the company to make wrong decisions and causes losses. In addition, in order to successfully measure the customer satisfaction, a business should spend a lot of effort, time, and sources to choose the right approach that fits its purposes, culture as well as its scale. 2.5 Renowned Customer Satisfaction Measurement Approaches Since customer satisfaction is an indirectly measurable variable, we have classified customer satisfaction measurement approaches base on its determinants and aspects. SERVQUAL, introduced by Parasuraman et al. (1988, 1991), has been a famous measurement for one determinant – service quality. From this foundation approach, many other approaches emerged with the aim to support measuring different branches such as SERVPERV (Cronin & Taylor 1992), LODGESERV for hotel industry (Knutson et al. 1990) and the hierarchical model of service quality (Brady & Cronin 2001). The efficiency of each measurement approach depends notably on the characteristics of each service industry. Hence, there is no superior approach over others. For the aspect measurement, researchers have adopted various ways to highlight each individual aspect of customer satisfaction. We have summed up some of the most used approaches, such as survey conducting and data analyzing; Customer Retention Rate CRR and Dollar Retention Rate - DRR (measure customer retention); Return on Equity – ROE, Return on Investment – ROI and Return on Sales – ROE (measure financial return). In addition, Customer Satisfaction Index (CSI) scores act as intangible economic barometers and are used to monitor the financial ability of corporates, industries and international trade unions (Fornell 1992). Index models which have been used extensively are the American Customer Satisfaction Index, National Customer Satisfaction Index-UK and European Customer Satisfaction Index. These customer satisfaction measurement approaches mentioned above are just a few among the wide range of different approaches, and their effectiveness and efficiency


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depend on many factors such as purpose, scale and industry’s uniqueness. Thus, choosing the right approach requires serious study and deliberate decision making. In chapter 3, we will discuss in detail our choices of measurement approach for customer satisfaction in the tourism industry.

Chapter III: Approaches to Measure Customer Satisfaction In Tourism Industry

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Chapter III: Approaches to Measure Customer Satisfaction In Tourism Industry 3.1 Key Features and Significant Indicators of Customer Satisfaction In order to present informative and helpful insights of how customer satisfaction is practically measured in reality, this paper shall continue with a focal point in the tourism industry. There are two main reasons why the tourism industry is chosen to be the center of our research. Firstly, tourism makes a perfect case of a service industry whose financial outcome relies heavily on how customers are convinced with the delivered products and/or services. Secondly, the economic impact of tourism industry on the global economy is colossal. According to the World Travel & Tourism Council (2015) , in 2014 economic contribution of the Travel and Tourism sector amounted to 7.6 trillion U.S dollars, which accounted for roughly 10 percent of that year global GDP. Hence, a comprehensive study of tourism industry is expected to generate meaningful knowledge of customer satisfaction. Let’s start by defining the term tourism and determining some of its important characteristics. As defined by Gilbert (1990): Tourism is one part of recreation which involves travel to a less familiar destination or community, for a short-term period, in order to satisfy a consumer need for one or a combination of activities. Acknowledging tourism as a collection of recreation activities, it is also essential to see tourism as a mix of various service activities. Therefore, tourism inherits all the characteristics of a service. 

Intangibility: tourism service provides customer with a package of

intangible products. For instance, during the trip, tourists’ enjoyment from gentle hotel services, a beautiful view from the hotel room or chilly breeze in the early morning, these experiences cannot be fully captured or reused after the service is delivered.




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Inseparability: this means that the production and consumption of tourism

services occur simultaneously, such as a passenger is consuming a flight and its service at the time the flight is happening. 

Perishability: tourism services and products cannot be saved for later

consumption. For example, an empty seat on the flight or an empty room at a hotel today is lost forever. On the other hand, there are some remarkably particular characteristics of tourism that should be considered. 

High fixed costs of services operation: tourism services fixed costs,

especially those related to hotels and accommodation, must be paid upfront and independent of the number of customers buying the services. Moreover, the seasonality of demand of tourism is adding more pressuring on management of firm’s resources. 

Immobility: the success of a business working in tourism service sector

depends significantly on the attractiveness of the location, as well as the surroundings and accessibility and conveniences for the tourists. From these characteristics, it is apparent that one cannot easily measure satisfaction of the customers in tourism industry. For example, the intangibility, inseparability and perishability of any services offered make it extremely difficult for the customers to evaluate and make judgement about their experience during consumption of the services (Frochot and Hughes, 2000). In addition, the inconsistent seasonality of demand as well as unpredictability of what might happen to the surroundings of tourism industry also make it harsh for ones to compare the satisfaction of customers between different periods (Barrington and Olsen, 1987). However, there are some great tools, as previously mentioned in chapter 2, which can be used to help with the assessment and evaluation. In the later parts, we will discuss into details some approaches of measuring customer satisfaction regarding the tourism industry, namely services quality, customer loyalty, financial return indices and market share.


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3.2 Customer satisfaction measurement in tourism industry - Aspects 3.2.1 Loyalty Tourism industry has certain characteristics to help building bonds between businesses and customer. One is its inconsistency; without large difference in term of price and quality, it is impossible to compare which service is better, while personal experience can be bias. Also, a tour taken is considered to be a luxury personal good, which is consumed only once in a while in an average customer lifetime and switching cost can be high. All of these significant features lead to a loyal state of customers, once they are satisfied with one service. Business operators in tourism industry should also distinguish the term “managing customers for loyalty” from “managing customers for direct profit measurement”, for investment on products’ characteristics/features customers desire in order to win and sustain customers’ loyalty can lead to dangerous high cost and negative temporary profit. This left manager with a headache problem of how far they can go pursuing customer satisfaction. However, this paper will only discuss the subject of customer loyalty to the extension of measuring it for satisfaction estimate. About the basis of loyalty, Cronin and Taylor (1992) found that consumer satisfaction has a stronger influence on a customer’s intent to purchase than service quality. The intent to repurchase is so critical because consumers form an attitude about a service provider on the basis of their prior expectations about the performance of the firm and this attitude affects their purchase intentions (Oliver, 1980). The general thought is that satisfaction mediates the relationship between perceived service quality and firm performance (Fornell, 1992). Several studies in tourism indicate a positive relationship between tourist satisfaction and a desire to return as loyal customers (Kozak, 2001; Bigné, Sánchez, & Sánchez, 2001; Yoon & Uysal, 2005). Most tourist’s initial trial experience land in satisfaction, if there are no serious fault in term of quality, due to the lack of experience to be compared with. Kozak (2001) claims that an increase of satisfaction at some level will result in increased repeat visits, with the assumption of the totally absence of counter moves by competitors. However, a major challenge of maintaining superior service in tourism is pointed out by Kandampully (2002), for the tourist is consuming a combination


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of partially independent services in a continuous chain from beginning to the end of the trip (Kandampully, 2002). This may cause serious bias in customer satisfaction measuring as well as loyalty measuring for each fundamental service. Breaking it down on to the case of tourism industry, success is an attribute of satisfied customers who intend to return to both the service and the destination. It is unclear as to whether the services or the destination serve as the primary source of repeat visitation. In our context, the intention to return may be focused on either the place, the service, or both. This make the process of measuring customer satisfaction through loyalty much more complicated than observing economic numbers such as rate of customer retention. Objective of many researches was to develop a model of measuring customer loyalty and relationship value which increases profits in the hospitality industry, which aim to reveal any correlation between customer satisfaction and customer loyalty. No matter how the approaches may vary, those main basic concepts to build on are: “1. Increased customer loyalty was the end result, the desired benefit of all businesses. 2. Customer loyalty was the result of well-managed customer retention programs; customers who are targeted by a retention program demonstrated higher loyalty to a business. 3. All customer retention programs relied on communicating with customers, giving them encouragement to remain active and choosing to do business with a company” (G. Mage, 2010). Hence, to measure to the timid quantity of customer satisfaction, variables of the model may consist of: Customer Loyalty, Goodwill, Value for money, Product (Service), Location, Past experiences, Attitudes, Lifetime value, etc. which is included of inputs (Service,Value for money, Reputation), uncontrollable determinants (Location condition, Past experences, Attitude) and output (Loyalty). Various parameters which were used to develop a model for determining customer loyalty was established. Therefore, the hospitality industry can identify key variables to measuring customer loyalty, mechanisms of ensuring sustainability, and a surveying tool which is relatively easy to design, understand and credible enough that employee performance and compensation can be attached, and also provide reports for management actions, most importantly facilitating managerial decision making processes which address creation and provide ways of sustaining customer satisfaction and loyalty. However, to measure accurately to some extend of those parameters, it


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would make the cost unbearable. Organizations usually combine the model solution with inference from indexes covariance (American Customer Satisfaction Index Score for local tourism industry with local tourist retention rate) to make reliable conclusion on customer loyalty to certain service/sight. The American Customer Satisfaction Index (ACSI) is an economic indicator that measures the satisfaction of consumers across the US. Data is built through interviews with Americans on large scale annually about their satisfaction with goods and services they have consumed include durable goods, services, non-durable goods, federal government services, and so forth. Data collected by ACSI survey-form questionnaire of scoring from 1-10 is to be deprived and analyzed, so that it provide a common, comprehensive, comparable index. Research groups, quality associations and universities in several countries have adopted the ACSI model to create customer satisfaction indices for their own national economies. The method of comparing ACSI to any other index itself doesn’t provide reliable evidence for any inference; however, it does raise a clear links to long term performance. The ACSI score is a useful tool for asserting the relationship between customer satisfaction and some other lagging indicators, financial return to organizations, for example. 3.2.2 Financial Return Rate, Profitability Not surprisingly, as firms attempt to measure customer satisfaction to get a glimpse of how the business is doing, profitability and value of firm have been considered one of the most prominent indicators. Anderson, Fornell, and Rust (1997), on this aspect, also argue that services are more likely than goods to have trading offs between customer satisfaction and profitability. Therefore, the profitability and value of a hospitality firm would make the firm more vulnerable to customer satisfaction than any other industry. Profitability in term of an instrument to measure the effects of marketing strategies and performances as a whole, together with SERVQUAL, is the best key to turn an ambiguous term such as “satisfaction” to something measurable. To examine how researchers use financial return rates and indexes as a measure parameter, we shall look at some empirical studies. Considering the unique differences from other industries (e.g., intangibility, variability, etc.), it has long been assumed that the hospitality industry will be more vulnerable to customer satisfaction than any other


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industry in terms of the firm’s profitability and value. Based upon this presumption, we take on one of the studies (K. Sun and D. Kim, 2012), which empirically examines whether the customer satisfaction index (CSI) influences the companies’ financial performance in the hospitality and tourism industry (i.e., hotels, restaurants, and airlines), in attempting to estimate the influences. This study uses two separate measures that show the financial short-term and long term performance of firms, one measure looks at profitability and the other looks at value. In terms of the data analysis, this study employs a linear regression model where profit margin (PM), return on assets (ROA), and return on equity (ROE) are used for predicting profitability, and Tobin’s q and MVA (Market Value Added) is used for measuring a firm’s value. The independent variable is the American customer satisfaction index (ACSI). Debt to equity ratio as a proxy for leverage, the increase rate of sales, firm size, capital intensity, and liquidity were adopted as control variables. Since a majority of previous studies revealed relationships between CSI and profitability and value, this study focuses on investigating the relationships of rate of annual change, instead of the original scores and ratios. This however, leads to a more specific path of knowing how an improvement in customer satisfaction leads to a rise in profit. Findings suggest that the impact of customer satisfaction is only reflected in the return on equity (ROE) which is proxy of a firm’s profitability. The results of a series of regression analyses reveal that ACSI is significant in predicting the firm’s profitability only for ROE. On the other hand, ACSI was not reflected in other indices such as PM, ROA, Tobin’s q and MVA. The findings are consistent with previous studies (Fornell et al., 2006). This result eliminates the hypothesis of any inference from those indices to the level of customer satisfaction. The findings in this study indicate that the effect of ACSI on ROE can be utilized in understanding the relationship between customer satisfaction and a firm’s profitability. The fact that customer satisfaction has a direct and indirect impact on financial outcome indicators (ROE), demonstrates the economic value of customer satisfaction, according to researches done by Fornell et al., 2006. This implies that the increase of customer satisfaction by marketing activities significantly improves a firm’s operating performance. However, it also indicates that a firm’s short-term profitability can simply vary by the


19

effects of marketing strategy; this may not have a link to customer satisfaction at all. The study may provide persuasive evidence on how customer satisfaction level affects firms’ performance, it, in contrary, does not prove any vice versa point. Let’s back to a broader perspective of how people have presumably take indexes as a quantified ruler to measure customer satisfaction. Based upon the understanding of the customer satisfaction index (CSI) and financial performance in revenue management within the context of hospitality and tourism, people examine whether CSI influences the financial performance in the hospitality and tourism industry (i.e., hotels, restaurants and airlines) through many models of calculation. In order to overcome the nature of survey data collected from managers and employees, many recent studies have based on presumably more objective sources of information such as ROA (Return on Assets), ROE (Return on Equity), and stock market performance. ROE illustrates how well a company uses investment funds to generate earning growth (Ross, Westerfield, & Jaffe, 2008). Although there exist many ratios (i.e., PM, ROA, and ROI) and each ratio has an essential meaning and implication, according to him, ROE is considered one of the best indices for comparing companies in terms of their financial performance. One of the usual way of measuring customer satisfaction to organization other than SERVQUAL, surveys for CSI score is looking into the financial numbers. If in a period of time, they somehow gather more revenue, more profit than the last period with same scenario (same season of the year, unchanged economical stage, etc.), they can assume that they did well to bring up customer satisfaction. However, this raise a question of whether they did well last season, which bring back customer or did they did well this year and satisfied customer so much that they would spend more money on services. It is a disadvantage of historical data, which show lagging effects and those data does not keep up to date. It also cause confusion, since customer satisfaction is not the only factor that lead to the variety of firms’ profitability. As found in Fornell’s research (2006) and K. Sun and D. Kim (2010), short-term profitability can easily vary under some changes of the practical scenario, sometime changes of uncontrollable externalities. This reduces the accuracy of the measurement to some point of the set assumptions.


20

However, as a main domain of service industries, most hospitality firms are producing intangible products and have been trying to satisfy their customers with their services in accordance with their operating goals, as they invest in unprofitable projects to raise customer satisfaction. Hence, customer satisfaction is the very first step of hospitality company's’ main operation and it is the very direct outcome of their services. In the hospitality industry, a motivation for the increase of customer satisfaction is more able to be the provision of a reliable signal of customer satisfaction with links to long-term performance (Fornell et al., 1996). Some economists found that customer satisfaction improves the ability to predict future cash flows, stock performance, long-term financial measure, and shareholders’ value (Aksoy, Cooil, Groening, Keiningham, & Yalçın, 2008). In fact, a study by Anderson, Fornell, and Mazvancheryl (2004) found a positive association between a firm’s current level of customer satisfaction and simultaneous financial market indexes, such as Tobin’s q, stock, and market-to-book ratio. Logically thinking, the firm’s profitability at t1 may not make a clue of inference on customer satisfaction at t1, however, a significant impact of change in customer satisfaction during time t and t+1 on change in a restaurant’s profits during time t+1 and t+2 is proved (Bernhardt, 2000). Specifically, restaurants with change in satisfaction within certain range had significant improvement in profit over an average performer. Unfortunately, Bernhardt et al. (2000) is one of the few studies that provides this time-series perspective. Cross-sectional studies, while useful, may suffer from endogeneity bias. The effects of customer relationship on firms’ performance as well as long-term financial measure are proved, but not yet the way around. While there are a handful of studies that take this perspective, we need more research in this area to enable us to. 3.2.3 Market Expansion - Increase of Market Share Of all approaches attempting to measure customer satisfaction, the changes of market share is one of the most used. However, it is also known to be the method with least accuracy. So, why people keep using the rate of market expansion of one firm to evaluate its customer satisfaction, and what market share has to offer as persuasive evidence of customer satisfaction in the context of tourism industry?


21

First, we need to distinguish the two terms: “increase in market share” and “market expansion”. A growth in market share is the increase of percentage of market the firm claims to own. In other words, when the number of consumed goods offered by the organization increase over the total goods consumed all over the market, the organization declare a gain in market share. However, market expansion, on a larger scale, aims to define an enlargement of firm size in terms of good chains, mass produced, reputation, etc. While market share percentage is more on the comparability side, the market expansion rate is more on the firm inner potential. The significance of market share offer a feature of a satisfaction parameter: A higher market share also means that if the market expansion, the leader gains more than the others. By the same token, a market leader - as defined by its market share - also has to expand the market, for its own growth. In traditional marketing, it has for long been perceived that, market share is a measure of the consumers' preference for a product over other similar products. A higher market share usually means higher customer satisfaction, which presumably leads to greater sales, less effort to sell more and a strong barrier to entry for other competitors. By logically thinking, people can guess how better customer satisfaction leads to more market share. Apparently, the better service offered, the more customer they get. Tourism industry is hardly dependent to reputation and the power of words-of-mouth shall not be underestimated in the context. The actual process is, as t0 the organization offer better service, satisfy more customer, then in t1, under certain constant assumption, the piece of market share of the organization is expected to grow. Research done by Lopo L. Rego, Neil A. Morgan, and Claes Fornell (2013) has found that, for every 1% increase in customer satisfaction, a company can expect a 12% increase in profitability, part of it is through growth of market share. On contrary point of view, modern marketing, based with recent studies and researches, claims that market share have no impact on future consumer satisfaction, in facts, many study proves from empirical view that the two variables actually show negative correlation. Breaking it down to the process, people recognize larger companies usually have difficulties satisfying larger market with customers based with different needs and demands. This leads to the loss of customer satisfaction score. Besides, there are risks


22

of losing customer that larger company shall seriously mitigate, fierce rivalry, for example. When assessing an organization to its rivals, even with the same customer satisfaction score, the company is facing risk of losing market share, as the customer are indifferent between the two brand, though tourism is the industry with high tendency of customer loyalty. By looking at two points of view, manager apparently spot out the key of asserting customer satisfaction through market reaction. It is the customer satisfaction that brings up market share, but having large market share with incompatible management and operation system can cost an organization dissatisfied customer. Market share is asserted as an unreliable parameter of customer satisfaction measurement. It is also a down-drive of satisfaction in some cases, which indicated clearly that market share growth and customer satisfaction is not two compatible goals for short-term organizations’ strategy. In the other hand, people still rely on marketing information to make plan, build strategy and measure customer preference. They simply look on another parameter: market expansion rate. As defined, market expansion indicates enlarging of firm size in terms of good chains, mass produced, reputation, etc. It also means breaking down the large company to smaller entity for better aim to specific niche of market. By conducting a segmentation of customer, the company faces less trouble meeting requirements of appropriate target group of customer, which leads to higher customer satisfaction level, under assumption of proper marketing and product development. 3.3 Measurement of Customer Satisfaction in Tourism Industry through Service Quality As we have mentioned in chapter 2, customer satisfaction is a latent variable, which means that it cannot be directly calculated. To figure out the level of customer satisfaction, we have to measure and derive the result from its factors, such as the quality of service, customer perceived value and impacts from other externalities. As widely agreed by many researchers, service quality plays the most important role in defining customer satisfaction, especially in the field of tourism. Service quality is a measure of how well the service level delivered matches customer expectations (Lewis


23

and Booms, 1983). While customer expectations are abstract and beyond management control, service quality can be investigated and improved to increase customer satisfactions. Thus, making effort to managing service quality becomes the ideal choice for companies. Service quality is considered to have two aspects: technical quality and functional quality (Christian Grönroos, 1984). Technical quality of service is what is included in the service offered by the organizations. The quality of function, on the other hand, focuses on the way the service is delivered. He believes that the latter concept is more vital for the companies, especially in tourism industry. Czepiel et al. (1985) also provides demonstration about the two elements of satisfaction, which are functional element and performance-delivery element. On the other hand, Reuland et al. (1985) supposes that hospitality services should be a mixture of three dimensions: the material product, the behavior and attitude of the employees as well as the environment. For instance, in the context of the hotel, the material product is the room itself; the manner and attitude of the receptionist, the cleaner and other staffs who are serving the guest; the environment is the view of the hotel, the decoration as well as the lighting, etc. 3.3.1 SERVQUAL – The Foundation of Service Quality Measurement Method The most well-known method is SERVQUAL instrument, which was introduced by Valarie Zeithaml, A. Parasuraman and Leonard Berry. These researchers suggest five main dimensions of service, which they refer as “service quality determinants”: assurance, empathy, reliability, responsiveness and tangibility. Since service is an intangible performance, its quality is defined based on the discrepancies in perceptions of the customers, executives and staffs that are in charge of delivery the services. Thus, the main purpose of all managers is to minimize these differences in order to provide the customer exactly and even better what they actually want. Those gaps are: 

Gap 1: between customer expectation and management perception: This

gap shows how incorrect the managers perceive the expectation from customers.




Gap

2:

between

management

perception

and

24

service

quality

specifications: This gap arises when the manager fails to transform his perceptions into appropriate offerings. 

Gap 3: between service quality specifications and service delivery: A poor

personnel training program may be the reason for this discrepancy.

Figure 1 - Service quality model



Gap 4: between service delivery and external communication to

customers: The difference between actual service and what is advertised on media channel causes the changes in satisfaction of customer. 

Gap 5: between expectation and perceived value of service performance:

The fifth gap is a combination of all four above gaps, when the organization fails to deliver appropriate service. This distinction may also due to customer misinterpretation of service quality.


25

As described in Figure 1, customer expectation plays a leading role to define quality since the estimation is based on whether service meets the expectation of customers or not. There are three main factors to build up one’s expected service: Word-of mouth, personal needs and past experiences. 

Word-of-mouth can be a story, experience or advice from whomever in

customer network that has a strong effect on customer expectation. Companies can take advantage of viral marketing to gain awareness of customers. However, it is like holding two-edge sword, bad experience with customer can be worse when malicious rumor keeps spreading wider. 

Personal need forms a desire service.



Past experiences impact customers’ expected service (Parasuraman, A.,

1990). On his or her revisit, customer wants to receive at least the standard that he or she used to experience in last purchase. Thus, the improvement of performance is vital for the development Discussion on SERVQUAL In previous part, we have introduced SERVQUAL - the founding concept in measuring service quality. However, SERVQUAL is not a perfect method for the whole tourism industry, despite its pioneering abstraction. It is because tourism product is “complex” by definition (Smith, 1994). This industry has a big scope of operation, which varies from restaurants, hotels, to tour operators and tourist destinations’ management. Different business must build their own customer satisfaction management system. Generally, to determine customer overall satisfaction, we must measure satisfaction with individual attributes. As each branch in tourism industry has its own features, the components building the overall satisfaction are not the same. In consequence, there are many different method specified for each type of business. 3.3.2 Specified Customer Satisfaction Measurement Method in Tourism Industry In this part, we review some methods to quantify customer expectation through service quality in tourism industry as well as review an approach to apply the research into realistic strategy. However, we have to keep in mind that there is no best method which fits all industries.


26

As we have mentioned, A. Parasuraman et al. suggest 5 determinants of service quality in their SERVQUAL model, which are assurance, empathy, reliability, responsiveness and tangibility. However, its practice in tourism industry is suspected. A number of researches were conducted with the focus on SERVQUAL model and its application (Parasuraman et al., 1988, 1991, 1994a, Tsang and Qu, 2000; Fick and Ritchie, 1991; etc.). Based on their finding, SERVQUAL is mostly criticized for its use of expectation and gaps scoring. In addition, some of its original five dimensions of service quality in this model are different from those found in hotel industry (Juwaheer, 2004; Ekinci et al., 2003; Mei et al., 1999; Akan, 1995, A. Akbaba, 2006). However, SERVQUAL serves well as a foundation to develop customized customer measurement method for each industry. Mei et al. (1999) suggest a scale called HOLSERV specified for hotel industry. They found out three components of customer satisfaction in this type of business are “employees”, “tangibles” and “reliability”. In another research, Knutson et al. (1990) introduces LODGSERV, which also based on SERVQUAL, with the focus on hotel industry. The five dimensions emerged are “reliability”, “assurance”, “responsiveness”, “tangible” and “empathy”. They proved that “reliability” is the best predictor. Cronin & Taylor (2012) also recommend the new tool called SERVPERV. In the restaurant service, DINESERV is a developed to measure service quality (Knutson et al., 1995). On one hand, the five dimensions discussed in this model are similar to those in SERVQUAL. On the other hand, the ranking of importance of each factor is different. All in all, there is no solution for the whole tourism industry to measure customer expectation. Depended on the particular service being offered and different measures should be developed for different service contexts. To summarize, service quality determines most of customer satisfaction. The mission of any organizations, especially in tourism industry, is not only to design a customer-oriented product, but also to maintain the quality through stages of delivering process till it reaches their customers. For tourism industry, this is undoubtedly a challenge, since it involves many different staffs to serve just one customer. As we all know, different interest of many people as well as their varied levels of perception lead to unpredicted actions. Thus, provided


27

quality from top manager to receptionist must be kept as consistent as possible to eliminate all gaps. 3.3.3 Quality Function Deployment Though there are many researches on finding the perception of customer on service, few company-specific guidelines on implementing of service quality to gain customer satisfaction could be found (Jeong and Oh, 1998). Acknowledged this shortage, these two researchers introduce new illustrative model for lodging industry based on Quality Function Deployment (QFD), which is able to build a connection between customer needs and internal service management requirement. 3.3.3.1 Concept and Origin QFD was first introduced in 1972 in Japan and initially used for manufacturing companies for the purpose of developing new product. Nevertheless, it is argued that QFD could be used for non-manufacturing industry such as hotels, airlines and utilities (Ansari and Modarress, 1994). QFD is “a systematic approach mapping the customer’s needs into definable and measurable product and process parameters, using matrices and other quantitative and qualitative techniques” (Bicknell and Bicknell, 1995). 3.3.3.2 House of Quality and Its Components House of quality is the core matrix framework of QFD overall process. Customer needs, service requirements, management goals and competitive product evaluations are integrated. House of quality consists of many different components. To perform the house of quality effectively, we must follow these step orderly. For example, as described in Figure 2, we must firstly identify customer needs. Next, we compare those needs and set priority for some of them to be the management requirements in step 2. Then, from the perspective of an organization, service design and management requirements across all relevant functional units of the organization must be specified. In step 4, we determine the contribution made by each of the service design and prioritize them in step 5. Finally, we identify the interactions between pairs of service designs/ Management requirements.


28

Figure 2 - House of quality - The framework

3.3.3.3 Illustration of QFD Model in The Case of Hospitality Jeong and Oh demonstrate an illustration to visualize QFD model in the context of lodging service and other hospitality industries. An explanation of QFD process development is showed below: 

Step 1: Identifying customer needs: Information of customer needs can be

gathered through survey research, focus groups discussion, or personal interview. The key question in this step is “what” the customers in their product/service. The concept of SERVQUAL could be applied here to segment these attributes. For instance, the services done right the first time, correct billing and problem handling are divided based on reliability dimension. Likewise, customer needs can be measured on responsiveness dimension, which include promptness of services and willingness to help. Tangibility dimension is


29

demonstrated by modern equipment, visual appearance of facilities, and professional appearance of employees. 

Step

2:

Prioritizing

customer

needs

and

conducting

competitive

benchmarking: o

The customer value column represents the importance of each

attribute rated by the customers. The value of the needs is evaluated based on the 7-point scalewith “1 = not at all important to 7 = very important”. For instance, customers rate correct billing with 7-point as very important while modern equipment is not as significant as the correct bills. o

We can compare the performance of our organization to that of the

competitors through columns service performance, competitor A/B. These values indicate the perception of customers or management of the current performance or ability to perform (in the case of new service design) by company and its competitors in each of the customer need attribute. 7point scale is also used here as the measure for current performance or ability to perform. For example, the company receives 5 point for willingness to help from the staffs, while the competitors A and B receive 5 and 6, respectively. o

Performance goal can be set by the management for each need of

the customer. These goals should be wisely based on organization’s ability. Performance goal can be measured again based on 7-point scale with “1 = poor to 7 = excellent”. Sale point indicates the impact of each attribute on the sale. This point is ranked according to a 3-level scale with 1.5 as the highest influence and 1 as no influence. o

The improvement ratio is the ratio between performance goal and

service performance. In the present example, the improvement ratio of 1.2 for the service done right the first time is computed by diving 6 for performance goal by 5 for current performance. o

The raw importance weight combined three elements, which are

customer value, the improvement ratio and the sales point. The raw weight of problem handling of 10.8 is obtained by multiplying customer value of 6, improvement ratio of 1.5 and sales point of 1.2.


o

30

The relative weight is proportion individual raw important weight of

each attribute to the total sum of raw weight. As an example, relative weight of visual appearance of facilities – 7, is calculated by dividing 5 by the column sum 74.5, times 100. Prioritizing service design/ management requirements to meet customer needs is effectively based on relative weight. o

After

obtained

relative

weight,

a

graphical

competitive

benchmarking can be visualized to address the important of customer needs and a comparison of current performance between the company and its competitors. 

Step 3: Developing service design/ management requirement: Service

design/ Management requirements are grouped by organizational functions. The key question in this part is “how” to deliver the service efficiently to satisfy customer needs. To illustrate this point, the hotel management divides company operation into three main sub-sectors: Front desk, housekeeping and food and beverage. The responsibility of front office staffs is to focus on courtesy, fast check in and handle the complaints from customers. Similarly, cleanliness, timely arrangement and room items in order are aimed at by the housekeeping department. The most important features of restaurant area are sanitation, friendliness of employees and the price of food and beverage.


Figure 3 - House of quality - an illustration – Source: Jeong & Oh, 1998

31




32

Step 4: Constructing the relationship matrix between customer needs and

service design/management requirements: In this step, the correlation between the service design/ management requirements and customer need attributes is estimated. Thus, it demands a strong cooperation and high effort from the whole functional units, based on their profession and experience with service (Jeong and Oh, 1998). The measurement scale applied here is based on the extent, to which the requirements contribute to meeting customer needs for the attributes: “0 = no relationship, 1 = possible relationship, 3 = moderate relationship, 10 = strong relationship” (Cohen, 1988). For example, price is supposed to have significant influence on customer need for correct billing, while cleanliness has no relationship with this attribute. 

Step 5: Prioritizing service design/management requirements: Based on

the relationship matrix and the relative importance of each customer need attributes, the raw importance and relative of each service design/ management requirement are computed. Hence, the quality of step 5 depends heavily on the relationship matrix. The raw importance weight of each service design/ management requirement is the sum across the products of the relationship level and the relative weight of the customer need attribute. Jeong and Oh (1998) demonstrate the calculating process of the important weight of sanitation in food and beverage function requirement in Figure 4:

Figure 4 - Calculation Process of Relative Weight

This value represents the connection between customers’ needs attribute and service design/management requirements.

From this calculation, a relative

weight can be drawn by dividing the raw important weight of each attribute by its


33

total sum. As shown in Figure 4, employees’ friendliness turns out to be the most important element which accounts for 16%. Relative weight determined the key service design/ management requirements that play a leading role to deploy organization’s strategies to satisfy customer needs. A graph can be sketched from these ratios to provide insight into key requirements. Step 6: Determining interactions between pairs of service design/management requirements: In this part, management determines the strength of correlation between each pair of service design/ management requirements, which can be based on the degree of necessary collateral efforts between the two functional units involved. In this case, the relationship between each pair is ranked from “none”, “possible” to “moderate”, and “strong”. For instance, cleanliness of the hotel is supposed to have strong relationship with sanitation and have no correlation with food quality. The relationships pointed here have two functions: if they are recognized early in the QFD process, they show the required level of cooperation between two functional division managers in building the house of quality; if these relationships are identified after the QFD process completed, they demonstrate the degree of cooperation among the managers in service delivery to meet the desired level of satisfaction from customers (Jeong and Oh, 1998). 3.3.3.4 Applications of QFD QFD provides a company-guideline to improve internal operation to gain customer satisfaction. Hence, the management can implement QFD applications to design customer-oriented strategy. First, QFD demonstrates concrete importance structure of customer needs and service design/ management requirements. To put it another way, QFD transform customer expectations into concrete missions for the organization to fulfill. Second, QFD also gives the management a visualized comparison of firm current performance among its competitors. Moreover, QFD is able to illustrate how cooperation among functional units inside organization can boost customer satisfaction. This is a differentiated advantage which other methods cannot provide. Using QFD can help the management to increase cross-functional plans to increase company efficiency.


34

3.3.3.5 Advantages of QFD First, QFD integrates external customer needs and internal firm operation. Thus, when adopted carefully, QFD can be an effective instrument to close all the five-gap mention in SERVQUAL model (Jeong & Oh, 1998). The beginning steps of QFD identify customer need attributes and their importance erases Gap 1. The strong cooperation between different functional division managers to develop the relationship matrix plays an important role to minimize gap. Finally, the ultimate purpose of QFD is to design a strategy to deliver service that meet customer expectation, which means that Gap 5 would be closed in the long run if QFD is applied sufficiently. (Jeong & Oh, 1998) Second, QFD demonstrate action-oriented guidelines which make it easier for the company to follow. Berry et al. (1994) suppose that it be a challenge to design service delivery process. Hence, QFD would be an ideal choice for manager to constructing their plans. Third, the structured method of QFD enables the management to proactively design quality into process (Murgatroyd, 1993). The external customer need attributes can be addressed as company service design//management requirements thanks to the use of QFD. Companies with limited resources can benefit from this model as through relative importance weight ratios, the management is able to attribute their capital more efficiently. Fourth, QFD enhance the cooperation between different functional units inside the company to construct the relationship matrix. Teamwork is promoted in this model to improve the overall customer satisfaction. Finally, QFD also illustrate a general view of current competition of the company. The company strategy can be easier and earlier adjusted based on the data gained from QFD.


35

3.3.3.6 Weaknesses Despite its superior strengths, QFD also has some limitations. First, it depends heavily on the quality of data collected from market research and from the quality of functional managers’ discussions. Next, QFD demands time, effort and huge participation from many divisions of the firm, which may demotivate company to apply QFD into their service design process. Though easy-to-expand feature can be QFD’s advantage, the chart may become quickly out of control. A solution for this problem is to limit the scope of these attributes to specific key items.

3.4 Case study: Summary of A Study in A Business Hotel in Turkey 3.4.1 Methodology With the purpose of analyzing the service quality expectations and perceptions of the customers who stay at the chosen hotel, the study prepared a questionnaire based on use of SERVQUAL instrument (Akbaba, 2006). The questionnaire consisted of three main parts: The first part concentrated on capturing the expectation and perceptions of the respondents with regards to 29 attributes of the quality of services available for them at the hotel; The second part was designed to determine the respondent’s perceptions of the overall service quality; and the last part comprised of questions about the respondent’s demographic information. However, it is noticeable that the questionnaire was designed a little different from the standard SERVQUAL scale, with a customization of two five-point scales placed on the left and right sides of each attribute in the first part. This customization was done deliberately to help make the questionnaire more interesting and avoid confusion for respondents when answering. A pre-test was launched to evaluate the reliability of the attributes used in the questionnaire. With twenty respondents participated in the pre-test, some minor revision and adjustment were made to improve the comprehensibility. A reliability analysis was also exercised to verify the internal consistency of all used attributes. The analysis presented quite high Cronbach’s α coefficients of all expectation and perceptions attributes, with a range from 0.9150 to 0.9486. This result ensured the internal consistency and reliability of the questionnaire as well as all attributes.


36

This study was officially carried out at a hotel for business passenger in Turkey in autumn 2002. The study employed a convenience sampling approach and sent out a total of 250 questionnaires to those customers who were leaving the hotel after their stay and were willing to participate in the study, and each respondent was personally accompanied by researcher. With that ultimate approach, all 250 questionnaires were sent and received right after respondent’s completion. However, only 234 of those were applicable for further analysis, the other 16 questionnaire were disqualified because of incompleteness. The collected data was analyzed with the assistance of the Statistical Package for the Social Sciences version 11.0. Moreover, other validity, reliability as well as internal consistency test and analysis were also carried out to confirm the reliability of the results. 3.4.2 Findings and Discussion

Table 1 Profile of Respondents (n = 234)

Variables Gender

Age

Marital status

Occupation

Frequency (s)

Percentage of total (%)

Male

176

75.2

Female

58

24.8

18-24

29

12.4

25-34

92

39.3

35-44

59

25.2

45-54

34

14.5

55-64

15

6.4

65 and over

5

2.1

Married

163

69.6

Single

64

27.4

Other

7

3.0

Executive/manager

35

15.0


Education

37

Self-employed

73

31.2

White collar

33

14.1

Blue collar

19

8.1

Retired

13

5.6

Housewife

16

6.8

Student

10

4.3

Others

35

15.0

No school education 1

0.4

Elementary school

16

6.8

Junior high school

13

5.6

High school

67

28.6

Junior college

15

6.4

Bachelor’s degree

83

35.5

Master’s degree

31

13.2

Doctorate degree

8

3.4

Frequency of stay at Less than once a 26 hotels year

11.1

Once a year

15

6.4

Twice a year

29

12.4

Three times a year

27

11.5

Four times a year

29

12.4

Five times or more a 108 year

46.2

The demographic information of respondents is shown in table 3.1. According to the results, 75.2% of the respondents are male, and 24.8% is female. Of those 234


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respondents, 92 people were from 25 to 34, accounted for just below 40%, followed by the year age group of 35 to 44 (25.2%). More than two thirds of the respondents were married. Regarding occupation, the largest proportion of the respondents was selfemployed (31.2%), followed by executive/manager and white collars with 15% and 14.1% respectively. With respect to the education level, roughly fewer than 60% of the respondents achieved higher education. Concerning the frequency of staying at hotels, it was reported that almost half of all respondents stayed at hotels at least five times a year. In order to determine and assess customer’s expectations and perceptions, various methods of descriptive statistical were applied. For each of 29 attributes appearing in the questionnaire, the means, standard deviations and the difference scores were calculated. The gap scores were calculated by subtracting the expectation means from the perception means (PM-EM). This gap score can be used to initially determine customer’s satisfaction with the service quality, for example, a positive score indicates high satisfaction since perception is better than expectation and vice versa, while a zero point means only satisfactory experience. Additionally, so as to determine the significant difference between the means of expectation and the means of perceptions, paired ttest was performed, and the results proved that the two means were significantly different (t