Factors That Influence the Loyalty of a Hotel Customer

Kandampully (2000) defines tourism as a unique product as it is composite in nature, an amalgam of the tangible and intangible which includes everything that tourist’s experience.

Tourism is a fast-growing industry, which now had become one of the industries that playing an important role in financial status of a country. The number of the tourist is growing from year to years. According to Inskeep(1996), Tourism is a fast expanding sector, which brings an important contribution to the foreign exchange earnings of some country nowadays. Tourism industry not only related with government, but public and non government sector also playing a rarely important role in it.

The figure above shows that the country and the total international tourism receipts for the countries from year 2006 to year 2008. As we can see from the figure, the income of the tourism sector of the country is increasing from time to time.

Tourism is particularly adapted to highlight the nature of the upheavals implied by the development of Information and Communication Technologies (ICT) in service activities. With roughly 11 % of the world total employment or Gross Domestic Product (GDP), tourism is often presented as the first worldwide industry. Europe is by far the first tourist continent. This economic strength of tourism, associated to a strong potential of growth, has induced deep competitive processes and significant industrial reorganization. Information Communication Technologies (ICTs) have been changing the global tourism industry rapidly. The implications of the Internet and other growing interactive multimedia platforms for tourism promotion are far reaching and alter the structure of the industry.The tourism does not follow the usual rules of economic theory, or of any other theory; besides, many authors are used to make reference about the “indiscipline of tourism” (Leiper, 2000, Tribe, 1997, Tremblay, 1999).

Tourism is not just a great industry to work in, but it is also a key for a country’s economy. The tourism industry in the UK is more than 4 % of the UK’s Gross Domestic Product, which is worth around £76 billion. It employs 2.1 million people, or almost 7.5% of the working population and approximately 1 in 5 of all new jobs created will be in tourism industry. So the government for UK had invested a huge budget available for tourism promotion and quality development. Tourism industry not only affects public sector management, but also influences business of private sector and it is an income creation for a company.

Tourist can be people from oversea and it can be people from this country as well, but they does not intend to stay permanently. Tourist taking time to visit the places that they don’t normally see.Tourism gathers all the activities dedicated to the satisfaction of the needs of the tourists, and borrows to a multitude of other activities. Tourist products are complex and heterogeneous products, combination of elements separated in time and space (Caccomo and Solonandrasana, 2001). Tourist products also often pre-defined packages assembling interrelated products and services (transport, accommodation services, leisure services). Contrary to the traditional good sectors, tourists have to go to the resources where resources are transformed to be delivered to the customers: whatever their intrinsic qualities, the resources acquire an economic value only with the organization of the traveling of the tourists and development of the activity (Spizzichino, 1991). Tourist products and services are often experience goods, the quality or utility are not known ex ante by the consumers; a system of advices and critics is thus necessary to the formalization of choices (Gensollen, 2003).

The World Tourism Organization predicts that by 2020 tourist arrivals around the world would increase over 200%. Tourism has become a highly competitive business for tourism destination over the world. Competitive advantage in tourism industry it no longer depends only to what we provide to the customer, but it is now increasingly driven by science, information technology and innovation. The volatility of changes in the external and international environment also influences the performance of other business in tourism industry, such as hotel business, restaurant business and many more. An economic upswing or downturn will have an almost immediate impact on its performance.

Tourism industry in Malaysia

Service sector had become an important sector in Malaysia where it contributes approximately 50% of the nation’s real Gross Domestic Product (GDP). Tourism industry had been paying enough attention by the government since the Tourism Development Corporation (TDC) was established in year 1972. The Tourism Development Corporation is build to further expand the tourism through its marketing program and publicity campaigns to both locally and abroad. But the TDC only stand for 20 years and then replaced by Malaysian Tourism Promotion Board with the objective to stimulate and entice the number of visitor and tourist that visit to the country.

The growth of total amount world tourism and Malaysia is one of the potential tourism destinations. It had contributed to the changes and focus in the tourism sector in the country. To enhance the tourism industry in Malaysia, the VMY campaign had been introduced.

The fist Visit Malaysia Year (VMY) campaign was launch by year 1990 and tourism industry had become Malaysia’s third major foreign income exchange earner. But there’s was some downturn in worldwide travel in year 1991 because of the Gulf War and this had causes the number of tourist had decreased moderately. The second Visit Malaysia Year (VMY) campaign was launch on year 1994. The growth rate remained far behind the first campaign despite of an increase of tourist in Malaysia about 10.7% in year 1994.

The overall of the tourism industry in Malaysia showed an upward trend until the happening of the global financial crisis in year 1997.

The total amount of the tourism receipts in year 1995 amounting to Ringgit Malaysia (RM) 9.2 billion had surpassed the target for the year 2000 in the National Tourism Plan which in about RM8.36 billion. Therefore, the investment approved for hotel and tourism-related projects has increased from RM8.801 billion to spur the growth of the tourism industry during the Sixth Malaysian Plan period to RM18.2 billion during the Seventh Malaysia Plan period (Economic Planning Unit, 2001).

In an effort to succeed the tourism industry, Tourism Malaysia had signed a £2 million deal with Manchester United in an effort to promote the visit Malaysia Year 2007 in September 2006. Besides that, Tourism Malaysia also signs a deal with Chelsea Football Club to promote the tourism industry in Malaysia and to succeed the VMY plan.

Hospitality Industry

Hospitality industry is major service sector in world economy and the industry encompasses an extensive variety of service such as food service, tourism and hotels. The hospitality industry can be divided into two parts. One is entertainment part like bar, pub, clubs; another one is accommodation such as resorts, public house, hotels, motels, inn, apartment and motels. Tourism support commercial activities such as travel agents and airline cabin staff are included in hospitality as well.

Hotel Industry

The early evidence of the existence of hotels and the hospitality industry has been recorded as far back as biblical times when Mary and Joseph arrived in Bethlehem during the census, which is during 4 Before Christ (B.C.) of the Julian calendar, where Joseph went to Bethlehem, because he was of the house and lineage of David (Luke 2:1-4). People have start traveled for religion, family, needs, immigration, commerce, education, health, and recreation, since the beginning of time. As a result, hotels and inns had begun catering to the pleasure traveler in an effort to encourage visitors with the influence of the Roman Empire. It was recorded that the first inn located in America was in the year 1607. It leads the way with many other firsts in the hospitality industry (searchandgo.com). The first modern hotel (the Tremont) opened in Boston in year 1809. The first ever publicly held hotel (the City Hotel) was opened in New York in year 1792 and the first business hotel (the Buffalo Statler) opened in year 1908. Following that, a surge of hotels flooded America and the rest of the world with prominent names such as Radisson, Marriot and Hilton.

According to the precious previous research, hotels, which also mean “home away from home” for the travelers and tourist, provide four types of service and product which had accommodation, foods, drinks, leisure or entertainment (Wood, 1997; Knowles, 1998). The hospitality industry is one of the fastest growing industries in the worldwide. The hospitality industry began to utilize information technology (IT) more than three decades ago (Berchiolly, 1997; Hensdill, 1998), well before many other industries. Hotels nowadays are much more than just a place to sleep, as many tourists view them as an integral part of a getaway experience. Spiffed-up budget properties, and novelty accommodations, travelers can choose a hotel that is as much a selling point as the destination itself with the recent boom of boutique hotels (Yashroy, 2008). The industry surge with expansions and new entrants in times of economic growth, with the tourism sector is growing as well.

The hospitality industry was thus as early as the 1960s and 1970s in adopting operational information systems where a room management application was installed at the New York Hilton in 1963 (Sayles, 1963) and a property management system was installed at the Waikiki Sheraton in 1970. But according to Worcester (1997), he found that the main drawback of hospitality information systems was lack of accurate and timely information caused by the need to rekey information from various reports, instead of having access to integrated information managed in one consolidated database. The statement was support by Hensdill (1998), saying that the experts believe that in terms of IT the hospitality industry is about 2 years behind other industries.

To survive in competitive advantage among the hotels, there are some factors that playing a fairly important role in it, such as brand image of the hotel, through the promotions and many more.

Brand image plays a very important role in retaining customer loyalty and fulfill customer’s satisfaction in hotel industry to repurchasing the service again. According to the previous research by Zeithaml and Bitner (1996), image is also considered as a factor that can influence customer’s perception of the services and goods that been provide and also requires the ability to be communicated effectively and consistently to consumers. As a result, information and useful data such as the importance of maintaining a good image to retain loyal customers and also increase the corporate profit will be provide to hotel organization. As mentioned by Chaudhuri and Holbrook (2001), higher customer loyalty entails a higher market share and an ability to demand relatively higher prices compared to competitors. Consequently, the hotel organization would need to focus on customer loyalty in order for hotel organizations to survive. The statement is similar with the previous research by Aaker (1997). With reference to Aaker (1997), increased customer loyalty has many advantages such as reduce marketing costs, solicit more customers, and successfully operate trading leverage. Hence, with factors involving Zeithaml et al. (1996), loyalty factors are crucial to an organization as it is the most reliable success indicators. Besides that, a favorable and famous brand image also helps to reduce the uncertainty of the product’s quality and increase the probability of consumers’ decision to purchase the product. According to Dick and Basu (1994), loyal customers encourage positive word-of-mouth promotion and challenge their competitors’ strategies. Thus, in regards to Fornell and Wernerfelt (1998) and Reichheld et al. (1996), increased customer loyalty will result in generating higher corporate profits.

Strong brands are important to the hospitality industry. There are several issues in developing a brand, one of them is customer’s trust. And it has been suggested that service quality has a direct effect on organizations’ profits since it is positively related with customer retention and customer loyalty (Baker and Crompton, 2000; Zeithaml and Britner, 2000).

Product or individual’s public perception will be evaluating through market research to stresses the importance of modern public relations. After collect the data and challenges are identified, the process of counting and solution will be presented will be presented in a campaign strategy to met goals. Though techniques may different from campaign to campaign but there’s some standard tools used are implemented in forms of press releases, press kits, satellite feeds, pod casts, web casts, wire service distribution of information and internet placement. Besides the technique mention above, other technique which include entertainment product placement (television, events, celebrity), product launches, press conferences, media seminars, producing events, speechwriting, establishing partnerships and more is often required, in which the perception obtain from the public through such means will result in positive views as a goal.

Most of the hotels have different facilities for their customer. According to the research by Bauer et. Al (1993), he examined that the tourist from Asian and Non-Asian countries have different demand and differences for the facilities in hotel. Asian travelers appeared to looking for more entertainment facilities, such as karaoke, while for the Non-Asian travelers, they looking for more concern in health facilities, such as gym and swimming pool. And with the references to previous research, facilities are one of the factors that influence the satisfaction of the customer.

Research Question

Most of the hotel customers decide on which hotel to stay based on the reason below. Many customers repurchase the service after experience it and satisfied with the service they provide. Other factors such as brand image, service quality, public relations perception, service innovation and facilities also should take into consideration before making their decision.

Thus, the main research problem of this study is to examine the factors that influence the loyalty of a hotel customer in Malaysia. To accomplish the study purpose, the following questions need to be responded:

• What are the critical factors that influence the loyalty of the hotel customer in Malaysia?
• Are there any interaction between the critical factors and hotel customer in Malaysia?
• How does the critical factor have an affect on the loyalty of hotel customer in Malaysia?

Objectives of Study

The overall goal or the general objectives of this research is determined and identify the critical factors that influence the loyalty of a hotel customer in Malaysia.

The following specific objectives are established to aid accomplishing the goal of this research:

• To determine the critical factors (brand image, service quality, public relations perception, service innovation and facilities) that influences the loyalty of the hotel customer in Malaysia.
• To examine interaction between the critical factors (brand image, service quality, public relations perception, service innovation and facilities) and hotel customer in Malaysia
• To determine the critical factor (brand image, service quality, public relations perception, service innovation and facilities) have an affect on the loyalty of hotel customer in Malaysia.

Scope of Study

The focus of this study is in hotel industry. This is because the tourism sector had been increase highly and playing an important role in the financial status in a country nowadays. And the number of tourist is increasing from years to years and tourism industry had becoming one of the major industries in Malaysia. The research will be done by the tourist, especially which is having a visit in Malaysia currently.

This study is going to be focused on customers both male and female who patronize hotels in Malacca. The age range would be targeted on customers ranging from the age of 20 until 50. The mentioned age group was chosen as a majority as they are the ones who have a stable job and earn their own income. They are the category of customers who are able to afford to patronize hotels and hold a valuable link to the study. A questionnaire was handed out to the customers to obtain their opinions and views regarding issues that influence their loyalty and satisfaction towards certain hotel brands. The study also focuses on the perceptive viewpoint of the aforementioned age group in which, their loyalty and awareness towards the particular line of hotel brand is measured to determine the effectiveness of brand advertising and public relation media.

Definition of Terms

Customer Satisfaction: A customer’s emotional response react after the usage of a product or service (Oliver 1981). Customer satisfaction is more likely complex human process that involves the cognitive and affective processes and it also involve other psychological and physiological influence (Oh and Parks, 1997).

Customer Loyalty: The loyalty business model assumes the philosophical validity of pursuit of self-interest. True customer loyalty can be defined as customers’ resistance to competitors’ offerings (Gundlach et al., 1995) and the persuasive tactics to attract new customers (Dick and Basu, 1994).

Service Quality: Parasuraman et al. (1985) that views quality as the customer’s perception of service excellence, i.e. quality is defined by the customer’s impression of the service provided.

Brand Image: Brand image is considered to have the ability to influence customers’ perceptions of the goods and services offered (Zeithaml and Bitner, 1996).

Public Relations Perception: Cultip et al., (1985) definition of public relations perception is “the management function that identifies, establishes and maintains mutually beneficial relationships between an organization and the various public on whom its successes or failure depends.”

Structure of Project

The present study is organized into five chapters.

Chapter 1: Introduction

This chapter shows and details the intention and reason for the carrying out of this research. This chapter also consists of sub-topics such as research background, research questions, research objectives, importance of study, scope of study and definition of terms which are aimed to increase reader’s understanding of this whole research.

Chapter 2: Literature Review

This chapter contains more detailed information on the e-commerce and tourism industry. This chapter also detailed information about evaluation of the relationship of service quality, brand image and public relations perception on customer loyalty. The early and present day history of hotel organizations is also included in this chapter. Besides that, this chapter also contains the discussion on the various variables and its validity which will be tested in this study. The findings of previous researchers on these variables are also taken into account.

Chapter 3: Methodology

This chapter entails the methods and approaches that are selected for the testing of variables in this study. This chapter also consists of further discussion on sub-topics such as sources of data, questionnaire design, measurement, sampling method, sample size, data analysis techniques and unit of analysis. The findings from previous studies are also considered in the further understanding of the approaches used.

Chapter 4: Data Analysis

This chapter involves the incorporation of the interpretation of the collected data from respondents via quantitative method. The determination of the acceptance or rejection of the stated hypotheses will also be tested. A software called Statistical Package for Social Science (SPSS) will be used in this research to measure the results.

Chapter 5: Discussions and Conclusions

This chapter explains the outcomes of the testing of the hypotheses determined from Chapter 4: Data Analysis. The acceptance or rejection of the hypothesis is discussed as well. Additionally, the concluded results of the hypothesis testing from this study are compared with results from previous researches to identify the differences and similarities.

Chapter 2: Literature Review

Introduction

The purpose of this research is to determined and to identify the critical factors that influence the loyalty of a hotel customer in Malaysia.

Due to an increase in travel expenditure, the tourism industry has also seen an evident growth over the recent years. Goeldner and Ritchie (2003) have predicted that by 2011, global travel and tourism are expected to generate US$7.0 trillion in economic activity and offer 260 million jobs. Ongoing globalization, in addition to permeable borders and easier transfers between countries has promoted a growth in tourism. They have more varieties of services to choose from In line with the abundant services offered to customers. Therefore, competition among competitors to provide the best services possible is created among the tourism organizations.

Hotel Industry in Malaysia

The hotel nowadays is not only just a place for travelers to sleep, but an integral part of a getaway experience. According to Yashroy(2008), travelers can choose a hotel that is a much a selling point as the destination itself, With the recent boom of boutique hotels, spiffed-up budget properties, and novelty accommodations. As tourism industry is playing an important role in financial status of a country, the hospitality industry in Malaysia too has seen an increase in contributing to the country’s GDP. The example of the Genting Group which represented Malaysia in the hotel, restaurants and leisure industry and was ranked at 1198th position in the Forbes Global 2000 ranking in 2008 (“The Global 2000”, Forbes) has shown to the public that the hospitality industry is beginning to emerge as one of the important service sub-sectors in Malaysia.

The table above illustrates the contribution of various sectors to Malaysia’s GDP from year 2002 to 2007. As we can see from the table, the private service industry’s GDP had increased from 44.7% in year 2002 to 46.4% in year 2007. The private service sector which includes restaurant, hotels, wholesale and retail trade, finance, insurance, real estates and business services sub-sectors. This shows that the services industry is one of the sectors concentrated by the government for improvement as it is gradually contributing a big portion to the country’s GDP. Besides that, Malaysian Association of Hotels (MAH) (hotels.org.my), has recorded that there has been evident growth in the hospitality sector, with average hotel occupancy rates having risen throughout 2007, from the mid-60% range at the beginning of the year to over 70% in 3Q 2007.

The hotel industry nowadays has been recognized as a global industry since the development in the industry had been growing rapidly and steadily. The different lifestyle and culture of the customer have changed over time and the facilities in the hotel such as gym, swimming pool, and restaurant are no longer counted as luxuries but an essential component of their lifestyle. Tourism is a largest global export industry and due to the increasing growth of it, the number of hotels around the world had been increased as well. This had caused the intense competition among the hotels in the marketplace. Strong competition had been faces by the hotel organization to differentiate their organization from others by improve their service and facilities, increased choices, value for their money and also superior levels of service.

As a result, service quality, brand image, public relation perceptions, and innovation of information technology as well as the improvement of the facilities in the hotel are important in catering to customers’ needs and as a strategy to retain them.

Customer Loyalty

According to Dick and Basu (1994), the forces of attitude and behavior had been assumed as factors that can influence the customer’s loyalty. Oliver (1999, p.35) had defined customer loyalty as:

… a deeply held commitment to re-buy or re-patronize a preferred product or service consistently in the future, thereby causing repetitive same-brand set or same brand-set purchasing despite situational influences and marketing efforts having potential to cause switching behavior.

Although there are many variations about the definition of customer loyalty, but seems there’s to be no unanimously agreed of definition for it, according to Jacoby and Chestnut (1978); Dick and Basu (1994); Oliver, (1999).

However, there are instead three popular concepts about customer loyalty as below:

1. Loyalty as primarily an attitude that sometimes leads to a relationship with the brand,
2. Loyalty mainly expressed in terms of revealed behavior (i.e. the pattern of past purchases); and
3. Buying moderated by the individual’s own characteristics, circumstances, and/or the purchase situation.

Many authors also had stressed the existence of a relationship between customer loyalty and business performance (Reichheld and Sasser, 1990; Reichheld, 1993; Sheth and Parvatiyar, 1995) and Barroso Castro and Martin Armario (1999) supported the statement by stated that loyal customers is not only increase the value of the business, but it is also an evident in enable the businesses to maintain the costs lower than those related with attracting new customers. Loyal customers not only help to encourage positive word-of-mouth promotion, challenge competitor’s strategies (Dick and Basu, 1994), but also generate higher corporate profits (Fornell and Wernerfelt, 1988; Reichheld et al., 2000). Besides that, the increasing of customer loyalty entails an increase in the market share and enables the companies to have the ability to demand relatively higher prices for their products or services than their competitors (Chaudhuri and Holbrook, 2001). This statement is supported by Aaker (1997) by stating that the company with higher customer loyalty can help the companies lower their marketing costs while seek more customers as well as successfully operate trading leverage in the same time.

De Ruyter et al. (1998) stated that early customer loyalty studies also solely focused on the behavioral aspect but later shifted to an attitudinal approach. It was added that the latter approach can be studied by means of dimensions such as word of mouth, complaining behavior and purchase intention. There has also been some disagreement between researchers regarding to the attitudinal aspect of loyalty. The conflict focused on the argument was that the needed to be strong “attitudinal commitment” to a brand in order for true loyalty to exist (Day, 1969; Jacoby and Chestnut, 1978; Foxall and Goldsmith, 1994; Mellens et al., 1996; Reichheld, 1996). Dick and Basu (1994) have explained that these attitudes is measured on maybe by questioning people on how much they like a brand, how much of confidence they have commitment to it, will they recommend it to others, and having positive beliefs and feeling about it, as in comparison to other competing brands.

Other than that, the five-item scale which was adapted by Zeithaml et al. (1996) had been used to measure as customer loyalty by earlier researches. However, Berné (1997) has mentioned that loyalty was measured indirectly by using an attitude scale in another research. He also pointed out that it is the most generally used system of measurement as a result of the complexity that is involved in attaining sequential information about repurchase intentions. In line with this, a seven-point, Likert scale was used in that particular research to measure customer loyalty.

Service Quality

Service quality is defined from the marketing fields which give the values to human interaction between a business and its customers. Service is important in business because services not only help the company to remain its customers’ loyalty, but also to enhance the firm’s image in the marketplace. In tourism sector, service quality is an important aspect that customers will look into before they decided to engage in purchasing the service. Therefore, those tourism organizations such as hotel organizations face an intense and fierce competition from their competitors to provide the best service and product to their customers.

The term “service” has been defined in several ways. Service had been defined by Grönroos (2002, p.58) as:

“A service is an activity or a series of activities of a more or less intangible nature that normally, but not necessarily, takes place in the interaction between the customer and service employees and/or physical resources or foods and/or systems of the service provider, which are provided as solutions to customer problems.”

A definition also adopted by Zeithaml and Britner (1996), which stated by Quinn et al. (1987) whom defined services as:

“… all economic activities whose output is not a physical product or construction, is generally consumed at the time of it is produced, and provides added value in forms (such as convenience, amusement, timeliness, comfort or health) that are essentially intangible concerns of its first purchaser. “

On the other hand, Horovitz (1986) had identified the three distinctive characteristics of service quality:

• the consumer will perceive all limitations in quality because most of the services are consumed at the same time as they are produced;
• a service is made up of a set of benefits, but it is predominantly an “experience”; and
• a fundamental aspect of service quality is derived from the quality of relationship between the service provider and the consumer.

Parasuraman et al. (1988) defined service quality as “a global judgment or attitude relating to the overall excellence or superiority of the service”. Although there are many definitions about service quality, but there’s one common definition that accepted by most researchers is the traditional notion provided by Parasuraman et al. (1985). He stated that “views quality as the customer’s perception of service excellence, as quality is defined by the customer’s impression of the service provided”. However, Bergman and Klefsjö (2003) stated service quality as the quality is often related with satisfied or preferably “delighted” customers.

Service quality is important in retaining customer loyalty. Heskett et al. (1994) considered customer loyalty as behavior for increasing the profits and growth of a business. Quality is also the general impression of the relative inferiority or superiority of the organization and its services, according to Bitner and Hubbert (1994). Moreover, when looked at from a tourism organization’s perspective, the functional aspects of services for example, is how they are offered, and has a much higher probability in influencing customers’ emotional feelings, than the technical aspects, for example, what is offered. Besides this, service literature also claims that the major issue of customer satisfaction is perceived quality (Parasuraman et al., 1988; Bitner, 1990; Carman, 1990). However, there are also some authors that giving the opposite relationship, stated that perceived quality is considered an antecedent of customer satisfaction (Cronin and Taylor, 1992; Anderson and Sullivan, 1993).

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