Chapter 2
Review of Related Literature
2.1 Development of the Hotel Industry in Taiwan
The service industry has greatly contributed to the economic growth of Taiwan. Basically, Clark, H. (2001) stated that the hospitality and tourism industry is expected to continue growing within the succeeding years. Actually, the success of the industry is partly attributed to the external factors providing an environment suitable for business such as the political and economic stability of the market and tourism efforts of the government to encourage and draw visitors from other countries and partly from the management and business practices developed and maintained by the individual businesses conducive to customer satisfaction and customer loyalty.
The vibrant hospitality industry developed after passing through an industry cycle due to both external and internal factors affecting the number of tourists whose needs the industry meets. The hotel industry in Taiwan is delineated into international and domestic hotels based on business ownership and domestic hotels are also subdivided into domestic company owned hotels and family owned hotels depending on the scale of operation and ownership of the hotel (Dennis et. al, 2003). These hotels differ in a variety of ways according to the manner that they utilize their available and created resources and business strategies to actualize their business goals.
Despite the differences in the scale of operation, organizational structure and business strategies of international and domestic hotels, the common objective is to utilize and maximize their resources to achieve a high brand equity founded upon efficient and excellent quality of service that results to customer satisfaction and eventually to customer loyalty. According to Nguyen and Leblanc, (2001), international and domestic hotels build a strong industry through their ability to cater to the diverse needs of customers in terms of price, customer relationship, accommodation arrangements, and other diverse hospitality needs of customers. Although there is competition among international hotels, international and domestic hotels, and among domestic hotels it cannot be denied that these hotels provide distinct hospitality services giving customers options for their service preferences.
As discussed, the Taiwan hospitality industry developed after experiencing a business cycle with its initial high during the implementation of the Six-Year National Development Plan applicable for the years 1991 to 1996, but becomes low with the outbreak of severe acute respiratory syndrome in 2003, and a rise again in the performance of the hospitality industry at present (Global Hospitality News Archive, 2003).
During the initial high of the hospitality industry in the mid 90s, the Tourism Bureau of Taiwan reported that building the hospitality industry requires leadership on the part of the government and the leading hotels within the industry to provide both administration and guidance to direct the industry towards growth; comprehensive and holistic facilities planning for the industry; and sufficient goal-oriented training for the employees of the hospitality industry (Chen, 1996). The result of the Six-Year National Development Plan is the increase in the gross domestic product of the country by 1.1 percent for the period 1990 to 1994 (Bailey, 1996) and .7 percent in 1997 (Hsieh, 1998).
The economic growth spurred the development of the hospitality and tourism industry in Taiwan. The 1997 Annual Report on Tourism showed that the composition of the visitors to Taiwan were mostly from other Asian countries who were also experiencing growth. Close to 76 percent of the tourists in Taiwan were Asians with the remaining percentage from North America, Europe and other regions. Apart from international tourism, the economic growth that Taiwan experienced also proved helpful to the hospitality industry by encouraging domestic tourism (Wise, 1993). In 1996, the average number of trips within Taiwan was 2.99 increasing to 3.2 in 1997 as a result of economic growth and the policy of declaring public holidays (Hsieh, 1998). Economic growth translates to income for households and the empowerment to spend not only on their needs but also for leisure activities such as travel. The five-day workweek implemented in 1998 limited the time available for international travels resulting to the consumption of domestic hospitality and tourism industry services.
The Tourism Bureau is strengthening international tourism through innovative leisure resorts and tourism packages. The visitor expenditure of foreign tourists amounted to 3.4 billion in 1997 with a US $193.56 average daily spending for every visitor. The cost of hotel accommodations amounted to around 50 percent of the daily spending. (Lu, 1999) The bureau also sought to create an environment conducive to the hospitality business by releasing a promotional brochure in different languages, using the internet as a marketing strategy, and participating in organizations for international tourism cooperation such as the East Asia Travel Association, American Society of Travel Agents and the Asia Pacific Economic Cooperation. The industry expects to gain external support through government efforts to help the industry grow.
In 2003, the industry experienced a rapid decrease in the occupancy rates because of the outbreak of the severe acute respiratory syndrome or SARS in the region. In the May 2003 new report of the China Post, around 84 percent of hotels in Taiwan had a lower than 30 percent occupancy rate and 96 percent of the hotels in Taiwan incurred losses. In the survey made by Pan Asia Human Resource Corporation, 79 percent of the 2,452 hotels questioned viewed the effect of the SARS outbreak as very severe. The quarantine measure implemented in the Ho Ping Hospital resulted to the deterioration of 79.01 percent of hotels represented by 50 to 60 percent drop in occupancy rates resulting to losses. In an effort to prevent further losses, many of the hotels requested some of their employees to take unpaid leaves or take their annual leave, implemented salary cuts, and suspended the payment of salaries until business performance improves. The owners of firms have asked the government for a bailout plan. (Global Hospitality News Archive, 2003)
In just a few months, the industry development that the government and business owners sought to achieve was brought down by the SARS epidemic. Between April and May, all hotels tried to alleviate their losses by offering large discounts up to 70 percent of the original price in an effort to maintain the operations of the industry. Inter-industry collaborations were also in place such as the offer of a package that includes hotel accommodations as well as air fare for a discounted price. (Dennis et. al, 2003)
The government held an emergency meeting to develop a plan to help the hospitality and tourism industry. A plan to rescue the ailing airline transportation sector was implemented through the reduction of the fees for local airlines at the expense of government revenue. Tax cuts and exemptions were also planned for the other sub-sectors of the tourism industry. The legislature also approved the proposal preventing the local banks from not approving loans needed by the businesses within the tourism industry for short-term financing. (Dennis et. al, 2003)
In 2004, the SARS outbreak has been controlled leaving behind bankruptcies for the hotels and other businesses unable to cope up with the economic cost of the epidemic. By the end of 2004, the hospitality industry in Taiwan is still in the verge of development but fairing well because of the growth in economy with the vibrancy in the different industries after the arrest of the SARS epidemic.
At the end of 2005, the November 12 issues of Asia Times reported that the tourism industry in mainland China, Taiwan and Hong Kong continue to grow as observed through the rampancy of hotel construction in the different business and tourism centers of the country. The rate of arrival of international visitors increased by 16 percent as a result of the increase in occupancy in the hotel industry. The growing hotel industry in Vietnam is expected to grow with China hosting several international events such as the 2005 Miss World and the upcoming 2008 Olympics. With a favorable business environment, the competition is expected to heat up requiring the management of the different hotels to develop and establish management and operations strategies to draw customers and achieve customer satisfaction and loyalty.
2.2 Building Brand Image
International and domestic hotels will be able to keep up with the demands of a growing market for the industry by making the industry service-based instead of price-based. International and domestic hotels set their respective prices based on service and not on price alone. The key component to brand management is the implementation of an integrated approach where companies are able to say what they can offer relative to their competition, do what they offer and promise to customers and confirm it through consistent practice. The value of saying, doing and confirming should be internalized in the company culture. (Cai and Hobson, 2004)
Building brand image to achieve competitive advantage in the hotel industry requires management to treat the service as experience goods (Nguyen and Leblanc, 2001). In treating hospitality service as experience goods, establishments focus on providing a pleasant experience for customers to create the image that the hotel wants to portray to the market. However, the image is only established once the hotel is able to consistently do what it says to the satisfaction of the different needs of customers. Management will then direct all efforts of the company towards the creation of a company culture that provides a satisfactory service that meets the experience requirements of customers and eventually to achieve customer loyalty. It is after the achievement of a good brand image that the hotel can justify its price. The brand image justifies price and not the other way around.
Brand image is one of the factors that hotels should consider if they plan to achieve consumer-based brand equity. Brand image affects the development of a customer base of the hotel and the consequent improvement in financial performance (Kim, Kim & An, 2003). The development of a brand image should be based on the customer’s viewpoint. This means that a hotel should initially have updated information on the current trends in market demand before the company can formulate a plan to develop its brand image through customer satisfaction. The practice of providing total customer satisfaction was developed within the industry from knowing that customers require a hotel service that integrates accessibility and delivery of material needs with service.
Brand image is dependent upon the feelings that consumers and other establishments have about the organization in relation to the evaluation of other competing brands. Marketing activities, such as advertising and promotions, falls under the general image of the organization. Once the organization has built its brand image, it should maintain this image because a negative change in the way that the brand name is regarded reflects on a decrease in customers and consequently of revenue. It takes twice as hard to rebuild a good brand image rather than initially building it.
There are different management areas that the business should focus on in developing a good brand image. The people tasked to build brand image should think of two things in planning a strategy. These things are first is to sell the service of the organization as a short-term goal and second is to build image in the long run. During the process of promoting the brand name, the company should apply integrated marketing communications to ensure the efficient introduction of the quality of service that the organization stands for.
Image is related to the strengths and weaknesses of the organization. The company should integrate all available resources and recognize opportunities such as combining a strong image with an external opportunity to create a strategic advantage. A comprehensive analysis of the image of the organization and its strengths and weaknesses should be integrated to solidify the connection with customers. The brand image should consider the different consumer behavior to be able to introduce a consistent message with the target market.
To be able to effectively communicate the brand image to the public, it is important that within the organization the message and the brand image are clearly defined. The image should identify the values or principles of the organization and the extent that the organization has established its position. The purpose of communicating brand image is to instill a consistent and stable impression among customers. The general impression that hotels should develop is quality of service in terms of amenities, personnel and meeting the particular needs of customers for the market to develop an impression of the organization. The significant perception is that of the consumers rather than the view of the managers about the organization. Brand image is consumer-based because their perception about the organization determines their propensity to make decisions in choosing a particular hotel and in enlisting again the services of the hotel in the future.
Brand image in the hotel industry has different components, which are tangible and intangible. The tangible components include the services offered by the organization; the different hotel branches in terms of location and accessibility; the marketing communications strategy of the organization; the name and logo of the organization representing the brand image; and the employees of the organization who are the forerunners of brand image.
The intangible components include the operational and human resource policies of the organization; the organizational culture determining the beliefs and practices of company personnel; the external environment and location of the company such as the accepted personal and business practices of the particular country where the organization operates; and the publicity that the organization gets especially from the media.
Brand image plays an important role in the perspective of the consumer. The brand image gives an assurance to the customer that the decision to obtain the services of the chosen organization in unfamiliar settings is worth it. Brand image also assures the customer of quality service when the latter has no previous experience of the organization. The image perceived of the organization also lessens the time spent looking for accommodations when the image meets the experience needs of the customer. The brand image also determines the nature and extent of connection that the customer develops with the organization based on the perceived openness of the organization.
Brand image also plays an important role from the point of view of the organization. A good brand image ushers the acceptability of change and developments within the organization such as the introduction of new services and the putting up of new branches in different locations. The brand image determines the ability of the organization to determine the price of its services. A consistent brand image and consistently meeting the needs of customers results to the return of customers and positive endorsements through word-of-mouth. The brand image not only attracts customers but also qualified employees willing to work to maintain the brand image. A good brand image attracts favorable reviews from industry experts.
2.3 Delivering Quality Service
Competitive advantage is achieved by many organizations through their offer of superior service quality (Schmenner, 1995), which is a harder thing to do than offering product quality because there are a lot of service factors that are intangible and cannot be completely controlled such as the decisions and actions of employees and the result of the interaction between employees and different customers. Moreover, the customer judgment on the quality of service is based on the perceptions of the service recipient’s perceptions and expectations causing a difficulty in identifying and correcting service failures. (Hays and Hill, 2000).
Achieving service quality requires the organization to focus on building and transmitting the importance of service quality to the members of the organization. The efforts and contributions of management and personnel should be directed towards a clear vision of delivery of superior service quality. Employees should be motivated to provide quality service in all aspects of the operations of a service organization such as hotels. Outstanding service organizations have strong vision, initially market their offered service internally, evaluate service and publish results. (Albrecht and Zemke, 1985) There are two factors that affect perceived service quality, which are employee motivation and vision and organizational learning (Hays and Hill, 2000).
Quality is a significant predictor not only of profitability but also of the respective market share of organizations in the market (Buzzell and Gale, 1987). The primary actors involved in ensuring quality are the personnel of the organization. The attributes of the personnel of the organization directed towards the achievement of quality plays an important role in consequently achieving customer satisfaction. The attributes emphasized in the field of service are commitment (Farber and Wycoff, 1991), organizational culture (Collier, 1994), and service delivery environment (Schneider, 1980). Employee attributes in the achievement of quality service is significant because service quality starts with people (Hostage, 1975).
The qualities of empathy, courtesy and responsiveness of employees in service delivery when combined in the interaction of personnel and customer influence the perceptions of customers on quality. Service personnel plays a significant role in service delivery that they are perceived to be an integral part of the service. Service employees not only create service but they also form part of service delivery (Czepiel et. al, 1985). This highlights the importance of motivating employees to become conscious of improving their performance and maintaining a standard quality of service based on organizational goals.
Developing a standard quality of service of the organization requires the determination of the goals of the company and the process of learning and improvement until such that the organization is able to establish a service quality that substantiates its brand image. Learning can be done in two ways, which are learning from employees and learning from customers. The organization should implement both an internal and external approach to learning (Marquardt and Reynolds, 1994). The rate that organizations learn constitutes a competitive advantage for the organization (Senge, 1990).
The organization should consider feedback from the employees in evaluating the effectiveness of a service because it is the personnel who directly observe the reaction and hear the complaints and praises of customers. Organization should also consider the views of customers by integrating a feedback system in service delivery. On the part of employees, the regular meetings and evaluations may be considered as the venue for collating employee experiences and comments on the service delivered and the system of delivery. On the part of customers, quality control is a system of getting the feedback of customers (Argyris and Schon, 1978). The hotel can establish a customer service booth or provide a form or a telephone number where their complaints can be voiced and addressed. The organization should use the records of complaints to assess and investigate the validity of claims, determine areas requiring change and device the most effective manner of making the change within a reasonable span of time.
In the delivery of quality service requires both internal and external consideration. Internal consideration involves the creation of an organizational vision, the motivation of employees towards the realization of the visions and the establishment of a system for evaluating performance to facilitate learning. External consideration refers to information on the service expectations of customers, the integration of these expectations in the goals of the organization, and the establishment of a feedback system to solicit the participation of customers in evaluating the quality of service of the organization and enhancing organizational learning. Offering quality service to substantiate the brand image of the organization is primarily used to achieve customer satisfaction and eventually customer loyalty.
2.4 Achieving Customer Satisfaction
Customer satisfaction is what sustains the operations of the organization because an unsatisfied customer will not do business with the organization again and dissatisfaction may also dampen potential referrals to the friends and business associates of the unsatisfied customer. Even if the organization implement the newest technology in building the hotel and designing individual rooms, offer the most expensive items for the use of customers, and train their personnel but if these do not meet the particular needs of customers, then satisfaction is not attained. The measurement of customer satisfaction is through the perception of customers and their propensity to engage the service again.
There is a direct connection between service, satisfaction, sales and profit (Gerson, 1993). However, these cannot be achieved without the imposition of measurements for performance. Measuring the customer satisfaction is important because everything that the organization measures are completed, improved and mastered. Having a measure of customer satisfaction also provides a detailed learning of the factors considered by customers as crucial to their satisfaction that will form the basis for identifying areas for improvement and the efficient change management. Every aspect of customer satisfaction should be centered on the customer.
The definition of customer satisfaction is based on the service that the customer expects to receive to become satisfied. A customer is satisfied whenever an expectation, whether real or perceived, is met or superseded (Gerson, 1993). It is important for the organization to know the expectations of the customer and to know this the organization should ask the customer. This is the reason why in all service organizations, the personnel always ask for the preference of the customer. Starting from the reservation of hotel accommodations, the customer is asked about his or her preferences from the type of rooms, the amenities that comes with the room and other special arrangements. During the receiving and stay of the customer, there may be particular requests that the service personnel have to meet. An organization is able to provide satisfactory service by knowing the preferences of customer and anticipating the possible requests that customers may make.
For the organization to measure the value of customer satisfaction, the company must first measure the cost of delivering a poor service. There are several measures for determining the cost to the organization of poor service. First is lost customer revenue, which refers to the money that the organization will loose because of the loss of customer to a competitor because of poor service. Second is lost opportunity revenue that is the loss of money because of the decrease in the revenue that could have been achieved when the customer engages the services of the organization again and when the satisfied customer refers the service organization to friends and business associates. Third is customer replacement cost, which refers to the expenses that the organization will incur in looking for new customers. If the organization full comprehends the implications of these losses, then the company will start to recognize the role of customer satisfaction and profit. (Gerson, 1993)
In the hospitality industry, customer satisfaction is based on the expected ultimate hotel experience of the customer (Sigala and Leslie, 2005). People no longer engage the services of hotels for board and lodging but customers seek a hotel experience that includes the amenities of the hotel, the services offered, the attitude of personnel, the completeness of service, and the manner that the organization values its customers. Although price still remains to be the consideration of customers, there are customers who are willing to pay a higher price for hotels with an excellent brand image but they also expect top service in return.
A hotel experience becomes measurable in terms of revenue when it is deemed a memorable. The organization increases the value of its services by including memorable experiences to service delivery. This is because the decisions of customers to consume and choosing a particular hotel are determined by hedonistic and psychological aspects (Gretzel and Fesenmaier, 2003). The ultimate hotel experience is that which satisfies the hedonistic expectations of customers. The experience creates a connection between the organization and its brand image and the lifestyle of the customer in the context of the intentions of both parties. There are physical and psychological considerations in achieving the ultimate hotel experience, which are the physical components of the service such as amenities and comforts and the psychological components such as the ambiance of the hotel, attitude of personnel and the drive to fulfill the emotions that people want to feel in a hotel.
2.5 Achieving Customer Loyalty
A loyal customer is a client that engages the hospitality services of a hotel every time an opportunity arises. Customer loyalty refers to the fidelity that a customer has for a particular organization as a result of a consistent experience of satisfaction from the services of the particular hotel. (Bowen and Shoemaker, 1998). Mutual trust develops based on the expectation on the part of the customer that the hotel will consistently meet the needs of the customer and on the part of the organization that the customer will patronize its services.
Achieving customer loyalty and retention involves the implementation of plans that prevent customers from changing their hotel preference. There are three considerations in preventing customers from changing their preference. First is the context of the engagement of the services of the organization. The needs and requirements of customers change depending upon the change in their circumstances and it is important that a hotel can accommodate the expectations of customers despite the changes in the context of the service engagement. The quality of service should still be consistent despite the fact that the customer previously visited the hotel on business and returns for leisure. Second is the control that the organization has on the marketing mix to efficiently maximize resources to provide a pleasurable experience to the satisfaction of customers. Price, location, promotions and services are the different aspects of hotel operations that the organization can control. Management should ensure that the operation of the hotel is synchronized in the direction of achieving customer loyalty. Third is the consideration of the customer in terms of the background and the demographics of the customer. The background of the customer determines the service expectations of the customer, the fulfillment of which determines the propensity of the customer to return to the hotel in the future. Hotels should customize their services to accommodate cultural differences. There are cultures that require separate accommodations for men and women or the particular preparation of food. These aspects should be known and considered by the organization in providing service to international customers. (Morgan and Dev, 1994)
Service considerations include the physical and psychological aspects. The physical aspects include the accessible lay out of the rooms, elevators and stairs, bathrooms, foyers, restaurants and bars, and other significant aspects that contribute to the achievement of loyalty. The technical aspects of functionality also includes cleanliness and orderly placement of furniture in the room, the size and comfort of the bed, wall paper and decorations, quality of bathroom, facilities of the room. The functional aspects of the service include the style of service delivery, the presence of a customer service area, cleaning service and food delivery service. The psychological aspects of service delivery are the friendliness of the service personnel, speed of service, the attitude of employees towards customers, the ambiance of the hotel and the overall service reputation of the establishment. (Lewis and Pizam, 1981)
Price is a factor that contributes to customer loyalty. Pricing a hotel service is difficult because of the intangibility of the thing being valued (Dearden, 1978) Price that the organizations impose for their services primarily depends upon their official rating. A five star hotel has a higher price than a two star hotel. Generally price setting is cost-based. However, there are instances where price can be used as a competitive advantage for some sectors of the market. Whether the pricing system is cost or competition based or both, the organization should consider their target customers and decide based on the pricing that would effectively draw customers and maintain their loyalty. Price is also based on a good brand image that contributes to the motivation for customer loyalty.
The location of the hotel is another factor that contributes to customer loyalty. Hotel location is a significant consideration depending on whether the customer is traveling for business or leisure purposes. A customer engaging the services of a hotel because of a business engagement in the area looks for a hotel that provides all his or her services especially the proximity to the venue of the business engagement. Businessmen travel with considerations for time and they would not ordinarily engage then services of a hotel that is far from the business areas. Leisure customers on the other hand consider the proximity of the hotel to the tourist locations and leisure activities that they want to experience. Location also matters to customers who are passing by the place and merely looking for transient accommodations. The smaller, more homely hotels located near major routes are usually the choice of accommodation for travelers and the small budget groups. (Hall, 1999)
Promotion is the other factor that contributes to customer satisfaction. Promotions in the hotel industry are classified into loyalty strategies, branding and relationship marketing. The common loyalty strategy is the issuance of loyalty cards that represents perks for frequent customers. This may work for some and not for others but if it works then the company expects to gain profit. Retaining 5 percent of customers will increase profit by 100 percent (Reichheld and Sasser, 1990). This is an excellent incentive for organizations to find a promotional program that efficiently retains at least 5 percent of customers for it to gain profit.
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