Customer loyaltyin vietnam’s hotel industrythe role of service quality, customer satisfaction, hotelimage and customer delight

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UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Do AnhQuan CUSTOMER LOYALTY IN VIETNAM’S HOTEL INDUSTRY: THE ROLE OF SERVICE QUALITY, CUSTOMER SATISFACTION, HOTELIMAGE AND CUSTOMER DELIGHT ID: 22120025 MBUS 3.1 MASTER OF BUSINESS (Honors) SUPERVISOR: Prof. Nguyen Dong Phong Dr. Nguyen Phong Nguyen Ho Chi Minh City - 2015 2 ACKOWLEDGEMENT I would like to express my sincere gratitude to Prof. Nguyen Dong Phongand Dr. Nguyen Phong Nguyenfor their advice and supervision to complete the thesis. I wish to thank you for my colleagues, friends and family for their support and encouragement during the process of thesis writing. I would like to thank allstaff from International School of Business-UEH for their time with providing me necessary information. 3 ABSTRACT The purpose of this research is to contribute to the understanding of how customer loyalty is developed within the context of the Vietnam’s hotel industry.A questionnaire is developed based on previously measurement scales and then sent to 3-star hotel guests in central of Ho Chi Minh and Ha Noi City. Theresearch provides an insight into the role of service quality, customer satisfaction, image and customer delight in enhancing customer loyalty. The result proposes that loyalty of hotel guests influence the most by customer delight, which is followed by customer satisfaction and hotel image. Keywords: hotels, restaurants, service quality, customer satisfaction, image, customer delight, customer loyalty 4 TABLE OF CONTENTS TABLE OF CONTENTS ................................................................................. 4 Chapter 1 ........................................................................................................... 8 INTRODUCTION ............................................................................................ 8 1.1 Background ............................................................................................. 8 1.1.1 The crucial role of hotel industry in Vietnam .................................. 8 1.1.2 Benefits of customers loyalty ........................................................... 9 1.2 Research gap ......................................................................................... 10 1.3 Research objective ................................................................................ 11 1.4 Research scope...................................................................................... 11 1.5 Contributions and implications ............................................................. 12 1.6 Structure of the thesis ........................................................................... 12 Chapter 2 ......................................................................................................... 13 LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT ............. 13 2.1 Theoretical background ........................................................................ 13 2.2 The hypothesis development and proposed model ............................... 19 2.2.1 Relationship between service quality and customer loyalty .......... 19 2.2.2 Relationship between customer satisfaction and customer loyalty ........................................................................................................................... 20 2.2.3 Relationship between hotel image and customer loyalty .............. 20 2.2.4 Relationship between customer delight and loyalty ...................... 20 2.2.5 The proposed model....................................................................... 22 5 Chapter 3 ......................................................................................................... 23 RESEARCH METHODOLOGY ................................................................... 23 3.1 Measurement scales .............................................................................. 23 3.2 Sampling ............................................................................................... 26 3.3 Data collection methods ....................................................................... 27 3.4 Data analysis method ............................................................................ 27 3.4.1 Statistical method............................................................................... 27 3.4.2 Descriptive statistics .......................................................................... 27 3.4.3 Reliability analysis............................................................................. 28 3.4.4 Exploratory factor analysis (EFA) .............................................. 28 3.5.5 Multiple regression analysis .......................................................... 28 CHAPTER 4 ................................................................................................... 29 DATA ANALYSIS ........................................................................................ 29 4.1 Descriptive analysis .............................................................................. 29 4.2 Assessment and refinement of measurement scale .............................. 29 4.2.1 Cronbach’s Alpha .......................................................................... 30 4.2.2 Exploratory Factor Analysis (EFA) .............................................. 33 4.3 Pearson Correlations ............................................................................. 34 4.4 Multiple Linear Regression .................................................................. 35 4.4.1 Test of assumptions ........................................................................ 35 4.4.2 Regression analysis ....................................................................... 36 4.5 Discussion of findings .......................................................................... 38 6 CHAPTER 5 ................................................................................................... 41 CONCLUSION............................................................................................... 41 5.1 Summary of research finding and limitation ........................................ 41 5.2 Managerial implications ....................................................................... 41 5.2.1 Implications for hoteliers in Vietnam ............................................ 41 5.2.2 Implications for educators in local higher education institutions 44 5.3 Limitation and further research direction ............................................. 47 APENDICES Appendix A: Questionnaire Appendix B: EFA’sresults Appendix C: Test of assumption 7 LIST OF FIGURES Figure 2.1: The proposed model. .................................................................. 22 Figure 3.1: Measurement scales ................................................................... 25 LIST OF TABLES Table4.1: Descriptive analysis ...................................................................... 29 Table4.2: Reliability Analysis of Dependent Factor .................................... 30 Table4.3: Reliability Analysis of Independent Factor .................................. 31 Table4.4: Pearson Correlations result ........................................................... 34 Table4.5: Regression analysis result ............................................................ 36 Table4.6: Hypotheses testing results ............................................................ 38 8 Chapter 1 INTRODUCTION 1.1 Background 1.1.1 The crucial role of hotel industry in Vietnam Since the economic reform in 1986, Vietnam had achieved the dramatic development in all aspects including economy, education and culture. The entry into ASEAN in 1995 and WTO in 2007 brought a boost to the hotel industry of Vietnam, a developing country with free-market-oriented economy. Over the past years, the hotel industry has made strong development and gradually integrates into the global development process. In the Grant Thornton Vietnam’s “Vietnam Lodging Industry - Executive Summary of the Hotel Survey 2013” in June 2014, they report that Vietnam welcomed7,572,352 international visitors, increasing by 10.6% in comparison with 2012, exceeded the expected 7.2 million international tourist arrivals for the year. Together with that, a combination of strong economic growth, rising income levels, a growing middle class, a sizeable and growing youth population, and increasing exposure to Western lifestyle has fueled the rapid growth of the lodging sector in Vietnam. The sector is expected to continue to growin years to come as the government continues to emphasize tourism in their economic growth plans, from exploring the “hidden charm” to developing “timeless charm” of the country. Nonetheless, Vietnam is not ready for a large influx of tourists as well as domestic sizeable youth population at the moment as there are a number of constraints hindering its development, and innovations in retaining customers is one of the most important aspects that hotel industry in Vietnam should manage effectively. The tourism has been considered playing important role in creating jobs, developing the country’s economy. In fact, as travel has been developing rapidly 9 with series of beautiful landscapes, specialties and very friendly locals, together with more businesses are being dealt with, the request for temporary accommodations has been increased.However, in this emerging market, not only many multinational groups have been entering the market, but also a number of startups founded by local businesspeople or Vietkieu have been finding their path to gain the market share. Effort by the government and media has educated the population become smart consumers; especially those in urban areas like Ho Chi Minh City and Hanoi, where the consumers have a variety of choices for lodging services. Hundreds of new hotels which have met the standards of serving international tourists have been built (up to 686 hotels from 3 to 5-start hotels in 2013, according to Grant Thornton Vietnam’s report 2014). The art of retaining customers has been in the urgent need of all the players in this competitive playground, and identifying factors affecting customer loyalty in light of service quality has become significant than ever before. 1.1.2 Benefits of customers loyalty Kotler and Amstrong (2001) proposes that if companies lose a customer, they may lose the customer throughout his/her purchasing lifetime.It is obvious that loyalty has effect on financial health through steady cash-flow and repeated customers. Patterson (1997) reassures this point by stating that companies with large group of loyal clients can earn more seven percentages in price, as customers are less price sensitive. Furthermore, Cheng et al. (2011) and Tu et al. (2011) also agree that companies will spend at least five to nine time in attracting a new customer rather than retaining an old one; and the company profit can be increased 25-85% once loyalty is up by five percent effectively. Therefore, long-term strategy should emphasize on customer retention than obtaining new ones in order to reduce the expenditures on money and time. This strategy will bring a long-term or short-term profit by maintaining a long-term relationship with customers. Dharmalingam et al. (2011) are of the same opinion and point out some advantages of customer loyalty: 10 (1) cheaper service cost than obtaining new customers, (2) possibility of paying higher cost for a set of products, and (3) acting as a word-of-mouth marketing agent. Tu et al. (2011) summarizes the benefits of loyal customers as follows: (1)more frequent purchases, (2) expenditure on trying new products or services, (3) recommendations on products and services to others, and (4) sincere suggestions. Although the arguments about benefits of loyalty are evident, hotels in the emerging market like Vietnam are struggling on how to create real commitment of customers illustratting by the motivation of purchasing services without any encouragement. In light of the above observation, the research will identify factors that affect customer loyalty in Vietnam’s hotel sector; specifically, it will test the positive relationship of service quality, customer satisfaction, hotel image and customer delight on consumer loyalty in the mentioned context. Somerecommendations based on the findings will benefit both hoteliers and educators in Vietnam. 1.2 Research gap Factors affecting customer loyalty in hotel sector has become interest of many researchers. However, due to their own essentials and restrictions, or the difference of the sample sizes of the survey, cultural values of every country, environment, income and emotions of respondents at the time of filling surveys, there is no common research model and implication within those researches. Besides, the model is also different from context to context and the relationship between those variables has been in different ways. Moreover, the influence of those factors is also different between hotel and service sector and the researcher hardly found study comparing those two sectors. Hoteliers should identify and develop factors that will give them the opportunities in long-term competitive advantages, i.e. factors affecting customer loyalty. Those drivers are no longer the tangible offer; they are also the intangible ones like service quality leading to image and satisfaction enhancement (Kandampully& Hu, 2007). 11 InVietnamese context, only a few publicized studies research about customer loyalty in hotel sector. For instance, Khuong et al. (2015) on their study about factors of affecting guests’ satisfaction and loyaltyof Vietnam’s luxury hotel sector, they aim at testing the effect of service quality and hotel image on the satisfaction and loyalty.Another study that somehow related to loyalty is study of Tuan and Linh (2014), in which they show the positive relationship between customer service and satisfaction of a5-star hotel in Hanoi City. From these evidences, it is worth noting that study about 3-star hotel in Vietnam is not easy to be found. Besides, in the competitive market like in Vietnam recently, hotels should take into consideration the importance of “customer delight” to enhance the level of loyalty. Therefore, this study aims at testing the factors affecting customer loyalty of 3-star hotel in Vietnam, adding “customer delight” as a direct factor of customer loyalty. 1.3 Research objective The primary objective of the research is to examine the degree to which service quality, customer satisfaction, hotel image and customer delight influence on customer loyalty. 1.4 Research scope The research targets at individuals who are using services at hotels in big cities like Ho Chi Minh City and Hanoi, mainly among medium-price market segment; specifically, 3-star hotels are chosen in the study.Questionnaires were delivered to hotels in the center of the cities as well as to well-known places in the cities. The reason of not choosing 5-star or 4-star hotels as sample size of study is that the limited access to respondents of hotels inthis market segment and interest of the authors in 3-star hotels as hoteliers of 3-star hotels. Experiencing inhotel industry, the author is interested in finding the most effective approach to enhance customer loyalty at his own enterprise, as well as to gain an insights into customers’ needs and wants of the market. 12 1.5 Contributions and implications This research provides insights into customer loyalty in Vietnam’s hotel sector as well as introduces a factor predicting such the loyalty called “customer delight”; additionally, the study also tests the ability and applicability of proposed research model and the usability of constructs’ measured items in Vietnam’s background. Its generalizability can specifically guide educators and hoteliers in the country. 1.6 Structure of the thesis The research has been structured in the following manner: it begins by reviewing the literature for each variable considered in the study (service quality, customer satisfaction, hotel image, customer delight and customer loyalty) and then goes on to formulate the hypotheses for the proposed model. Then, the author describes the methodology and design aspects of the research. Chapter 1 “Introduction” includes a brief overview of the researchbackground, problems and objectives, methodology as well as the implication.Chapter 2“Literature review” comprises ofdefinition related to restaurant services, deep review of previous researches on customer loyalty, corporate image, service quality and customer satisfaction and the basis ofbuilding the conceptual model.Chapter 3 “Research methodology” presents the research process,measurement scale, preliminary assessment of measures and data collectionprocedures as well as the data analyses process.Chapter 4 “Data analysis” consists of the officialassessment of measures, hypotheses testing, data analysis results andinterpretation.Chapter 5 “Conclusion” concludes the findings and providing managerial implications and proposing specificrecommendations for improving customer loyalty in hotel sector in Vietnam. 13 Chapter 2 LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 2.1 Theoretical background Service quality.Among the service industries, tourism and hospitality is one of the most sensitive fields to quality issues, so there is an ongoing need for original empirical research on certain aspects of quality (Atilgan, Akinci&Aksoy, 2003). Furthermore, Kandampully and Suhartanto(2000) stress the importance of quality of hospitality firms as a main driving force to come up with competitive challenges. Similarly, Hu, Kandampullyand Juwaheer(2009) view service quality as mean assisting companies to differentiate from competitors to contribute to market share; thus, the service quality has become avital factor for the survival and competition of a firm. Hudson, Hudson and Miller (2004) prove that service quality receives increasing attention in the literature, yet there is no consensus of which measure offers the greatest validity. Grönroos (1984) identifies two dimensions of service quality: functional quality (“how” service is performed) and technical quality (“what” the customer receives from the service experience). The three main measurements to analyze the concept of quality in service industry are the Importance-Performance Analysis (IPA), SERVQUAL and SERVPREF. Introduced in 1977 by Martilla and James, IPA is originally applied to the service department of an automobile dealer and has been applied to the healthcare market, dental practices, banking services, hotel industry, adult education, tourism policy and tourist destination (Hudson et al., 2004). The currently popular measurement of service quality can be traced to the research of Panasuraman, Zeithaml, and Berry (1985) in which they defines service quality as a difference between what customersexpect from service performance and their perceptions of what is delivered. Moreover, the evaluation of service quality is more difficult than product quality as service needs a whole process to be evaluated. Therefore, to develop determinants of service quality, 14 the authors implement a series of focus group sessions and determine that service quality has 10 determinants. Later on, in 1988, they recast those determinants into five specific components: tangibles, reliability, responsiveness, assurance, and empathy called SERVQUAL scale. In the scale, service quality is measured by identifying the gaps between customers’ expectations and their perceptions of the actual service performance by seven-point Linkert scale with 22 items grouped into five dimensions as follows: • tangibles – physical facilities, equipment and appearance of personnel; • reliability – ability to perform the promised service dependently and accurately; • responsiveness – willingness to help customer and provide prompt service; • assurance – knowledge and courtesy of employees and their ability to inspire trust and confidence; • empathy – caring, individualized attention the firm provide to its customer. However, the validity of the two mentioned scale has been questioned. Oh (2001) points out that the main limitation of IPA is in the survey instrument where the Linkert scale cannot differentiate between level of importance and importance of performance. SERVQUAL scale is argued about the consistency of the five components when subjected to cross-sectional analysis (Carman, 1990) and SERVQUAL conceptualization is only adopted in only a few industries(Cronin & Taylor, 1992). They all agree that performance-based measures of service quality should be used. Cronin and Taylor (1992, 1994) confirms that the performancebased scale developed (SERVPREF) is more efficient than SERVQUAL scale since it explains more of variation in service quality. In light of this opinion, the study suggests that performance-based scale should be implemented in measure service quality. 15 Hotel image.Bitner (1990) and Nguyen (2006) identify image as an important predictor of customers’ evaluation of a company and is the first thing customers think about when hearing a company’s name.Nguyen and LeBlanc (1998) consider image as a combination of product characteristics differentiating from physical product, as subjective knowledge and as an attitude. Furthermore, what customers stored in memory about ideas, feelings, and previous experiences with an organization will comprise image. Similarly, Barich and Kotler (1991) agree on the representative ability of image for the impressions and associations, the beliefs and attitudes that customers may memorize when experiencing with a company.Mazanec (1995) also reports that there is a positively relationship between image and customer preference (a dimension of customer loyalty). Kandampully and Hu (2007) argue that there are two principal components of corporate image, one is functionalis related to easily-to-measure tangible characteristics, one is emotionalassociated with feelings and attitudes towards an organization.To be more specific, Keller (1993) refers that brand image is associated with a series of perception of a specific brand that consumers may formulate through activities related to that brand. Brand image is recalled once customers experience some features of product or service and is considered as the symbolic meaningsof that brand (Padgett & Allen, 1997). Additionally, Low and Lamb (2000, p.352) defines brand image as “the reasoned or emotional perceptions consumers associate to specific brand”. The implication of various aspects of the hotel operation, including seven services marketing variables (product, place, promotion, people, process, and physical evidence) may directly affect hotel image. Therefore, hotel should manage the marketing activity in accordance with the image. Altogether, this study refers hotel image as the sum of the emotional perceptions, ideas and symbolic characteristics when customer encounter service of hotel or restaurant. 16 Customer satisfaction.Customer satisfaction is believed to be a leading factor of customer loyalty since it enhances the company’s profit (Kim, Vogt & Knutson, 2013). Yi (1990) is also on the same page as the author agrees that customer satisfaction is a central concept of marketing as if firms know how to deliver a product together with satisfaction to customer, i.e. meet the needs and wants of customers, then the company will obtain profit in return. Hunt (1977) defines satisfaction as “an evaluation rendered that the consumption experiences was at least as good as it was supposed to be” (p.459). Oliver (1981) observes that satisfaction is the confirmation or disconfirmation of customers’ perception of service performance when comparing with the expectation, i.e., hedefines satisfaction as “a summary psychological state resulting when the emotion surrounding disconfirmed expectations is coupled with the consumers’ prior feelings about the consumption experience” (p.27). He differentiates between satisfaction and perceived service quality in which satisfaction is related to a specific transaction whereas service quality is involved in the superiority of the service, i.e. satisfactionis the emotional response from a cognitive process of judging the service received against the costs of obtaining the service. The common belief of customer satisfaction is an overall attitude towards a service provider. Customers really want a common feature between their values (needs and wants) and the objects of their evaluations (Parker and Mathews, 2001). Furthermore, Kotler (2003) argues that satisfaction is the feelings of pleasure or disappointment when they compare between perceived performance and their expectations; therefore, their feeling is based on the compatibility between perceived performance and expectations, from dissatisfaction, neutral stage or satisfaction. In light of all previous researches, the studyconsiders satisfaction is an overall evaluation of customers towards the difference between what they expect and what they actually perceive of a service performance. 17 Customer delight.Customer satisfaction has been researched and convinced as premium goal in service industry, yet the researches about satisfaction leading to customer loyalty has been challenged these days (Skogland&Siguaw, 2004; Voss, Roth & Chase, 2008). The researchers are interested in finding a factor that takes into consideration both emotional aspects and peak experience called “customer delight” (Torres, Fu &Lehto, 2014). Torres and Kline (2006) suggest that in recent literature, firms strive to not only achieve loyalty from satisfaction but also transform themselves to a higher level of satisfying customers – delighting customers to earn more loyalty and higher profit.There are three approaches to definition of customer delight in current literature, one definition stresses the confirmation–disconfirmation paradigm, one stressesaffect-based approach, and the last one stresses on human needs. The first approach proposes that customer delight is achieved when customers encounter services that can please them beyond the level of satisfaction (Patterson, 1997), i.e. customer delight will be generated at the degree beyond the tolerance thresholds of customers (Keinningham et al., 1999). The second approach proposes that customer delight consists of the emotions of joy, thrill, and exhilaration (Kumar et al., 2001) and it really is an emotional response resulting from surprising and positive levels of performance (Finn, 2005). The last approach proposes that customer delight is a function of the satisfaction of three human needs: security, justice, and self-esteem (Schneider and Bowen, 1999).Based on the literature review, this study supports the conceptualization of customer delight as an emotional response which is based on joy, thrill, and exhilaration. Customer loyalty.Setó-Pamies (2012) observes that loyalty is genuinely described as a type of customer behavior towards a particular brand over time. Oracle Corporation (2005) considers loyalty is generated from a series of interaction between customers and companies during customers’ purchasing experience and it will ensure the future purchase. Once companies earn customers’ loyalty, there will 18 be a lower chance of finding potential alternatives and a higher chance of consistentre-patronize (Marshall, 2010). Therefore, Bagdonienė&Jakštaitė (2007) suggest that companies should focus on enhancing customer loyalty through effective marketing strategy as a primary strategy. The implementation of this strategy is to make customers feel involved in a win-win situation which leads to a more favorable perception toward the company and word-of-mouth, lower price sensitivity, less expenditure on obtaining new customers and higher profit. Loyalty is not only in the form of behavior but also in a deeper form, attitude. In the former, customers are not considered as loyal in case they keep using the services because they have no alternatives to the sources of providers. The latter assists the idea of repatronizing customers even when they have potential alternatives. The emotional background of loyalty is in the form of combination between feelings, expectations and relations with staff, whereas the rational background is associated with thinking, availability ofinformation and its understanding, cognition of organization activities’ processes.McCain et al. (2005) assert that customer loyalty is summated by the process of cognitive–affective–conation–action pattern and a consumer can become loyal at any of these four phases. Customers firstly evaluate one brand’s service as superior than other alternatives and then find way to experience the service to develop a positive attitude toward the brand. In the third loyalty phase, customers commit to return to patronize, which is followed by the last phase transforming the intention into readiness to act. In light of previous research, the study defines a customer as loyal when they possess repurchase intention, price insensitivity, positive word-of-mouth and frequent purchase and no switching behavior. 19 2.2 The hypothesis development and proposed model 2.2.1 Relationship between service quality and customer loyalty There are many studies prove the positive relationship between service quality and customer loyalty. Kandampully et al. (2011) says that service quality is one of the most crucial factor for survival and development for hotels, once a hotel can acquire high level of service quality, it can meet the requirements of a successful competition like loyalty and profitability. Panasuraman and Grewal (2000) agrees that customers have been no longer compromised with the quality offered by service providers, hence the enterprises should better stand from the crowd with their unique standard of service and that the competitors cannot duplicate with. If the indicators of customer loyalty are repurchase intention or positive word-of-mouth recommendation, numerous studies have investigated the positively direct relationship between quality and loyalty(Parasuraman et al., 1991; Getty & Thompson,1994;Kangis& Zhang, 2000). Similarly, Chow et al. (2007) figure out that a high level of service quality is associated with frequent patronage.However, some studies agree on both direct and indirect relationship between service quality and customer loyalty. For instance,Cronin et al. (2000)prove on their study that the direct relationship appears in fast‐food services, spectator sport, participative sport, and entertainment, and the indirect one does so in long‐distance carrier and health‐care services. In hotel industry,Baker and Crompton (2000) andAlexandris et al. (2002) support the theory of positively direct relationship between service quality and behavioral intent - which is very closely to loyalty.On the basis of the above discussion, the following hypothesis is proposed: H1: Service quality positively affects customer loyalty. 20 2.2.2 Relationship between customer satisfaction and customer loyalty Thomas (2013) clarifies the positive relationship between satisfaction and repurchase intentions or likelihood of recommending a product or service, i.e., satisfaction can lead to repurchase and word-of-mouth communication, which in the long run will become customer loyalty. Anton (1996) and Cronin and Taylor’s (1992) finding reveals that satisfaction is a significant antecedent of positive behavioral intention in service sector; hence, a dissatisfied customer are likely to spread negative word- of-mouth and spending less while a satisfied customers act in a vice versa way.In hotel industry, Kandampully and Suhartanto(2000, 2003) find that among housekeeping, reception, F&B and price, satisfaction with housekeeping is the strongest factor in determining customers’ intention to repurchase and recommend. Riadh (2009) explores that emotionsatisfaction significantly impact on loyalty in a direct manner. From that, the following hypothesis is proposed: H2: Customer satisfaction positively affects customer loyalty. 2.2.3 Relationship between hotel image and customer loyalty The overall image of the service firm is influenced by service quality and customer satisfaction (Hu et al., 2009). Heung, Mok, and Kwan (1996) explore that hotel image is an important contributing factor to enhancing customerloyalty. Furthermore, Kandampully and Suhartanto (2000, 2003) and Kandampullyet al. (2011) reassure the positive role of image on the level of loyalty of hotel guests. As proved earlier in this paper, many evidences prove a strong role of image as an antecedent of customer loyalty and the following hypothesis is proposed: H3: Image positively affects customer loyalty. 2.2.4 Relationship between customer delight and loyalty In recent years, instead of customer satisfaction, the attention has been shifted to customer delight to be one of the strongest predictor of managing guest relations
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