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University of Nottingham The Dark Side of Customer Relationship Management in the Luxury segment of the Hotel Industry Akshay Jaipuria MA Management Abstract Today, service organizations are shifting their focus from “transactional exchange” to “relational exchange” for developing mutually satisfying relationship with customers. Extended relationships are reported to have a significant impact on transaction cost and profitability, and customer lifetime value. Serving the customers, in true sense, is the need of the hour as the customer was, is and will remain the central focus of all organizational activities.
The hotel industry, especially the luxury segment hotels needs to be purely customer-centric and focus on the customer needs and duly fulfill them. Customers will not blindly accept poor service quality from a luxury hotel. They expect high quality of service in return for the money they spend on luxury hotels. This paper is an attempt to explain the dark side of CRM in the luxury segment of the hotel industry with the help of the ‘gap model’ available in literature which suggests that gaps in service occur at various instances.
The author explains that the gap model is a useful tool to explain the dark side partly. There is more to the dark side like privacy issues, unwillingness of customers to build a relationship with the service provider and changing tastes and preferences of the customer. Ritz- Carlton Hotel Company, L. L. C. has been chosen as a single case study and the research questions have been addressed for the industry at large using Ritz- Carlton as a classic example of superior service quality to the customers.
Some simple measures to reduce the dark side have been mentioned, which addresses the third and last research question. The project would contribute as a useful guide to luxury hotels, giving them some valuable information on what the customer expectations are and if they are duly met then service gaps shall not occur. This paper shall provide scope for luxury hotels to improve their overall service quality and strengthen their position in the industry. The relevant existing theory has been reviewed and the subject has been explored, using the ‘gap model’ (Parasuraman et al 1998) mainly.
Based on the research findings and analysis, recommendation has been given to reduce the dark side at Ritz-Carlton and luxury hotels in general. Table of Contents Abstract0 Table of Contents2 Acknowledgments4 Chapter 1: Introduction5 Chapter 2: Literature Review7 2. 1 What is Customer Relationship Management? 7 2. 2Customer satisfaction, loyalty and business performance9 2. 3CRM and Service Quality13 2. 3. 1 Customer’s perception of quality:13 2. 3. 2 The Perceived Service Quality approach16 2. 3. 3 Gaps between customer expectations and perceptions:17 2. . 4 Service Guarantee24 2. 3. 5 Service Recovery26 2. 3. 6 Complaints management28 2. 4 Do all customers want a relationship with their service provider? 29 2. 5 Synopsis31 Chapter 3: CRM and Hotel Industry32 Chapter 4: Methodology and Research Design34 4. 1 Overview34 4. 2 Research objectives34 4. 3 Research design35 4. 4 Case study: An introduction36 4. 5 History of case study37 4. 6 Types of Case Study37 4. 7 Choice of case: Ritz-Carlton Hotel Company38 4. 8 Components of the Case Study38 4. 9 Data collection39 4. 9. 1 Documentation41 4. 9. Focus Groups41 4. 9. 3 Interviews43 4. 10 Data Analysis49 4. 11 Key issues of Data collection: Reliability and Validity50 4. 12 Synopsis51 Chapter 5: Case study52 5. 1 Ritz-Carlton: An Overview52 5. 2 Ritz-Carlton and the “Gold Standards” of Service Quality54 5. 2. 1 The Credo54 5. 2. 2Motto55 5. 2. 3 Three Steps of Service55 5. 2. 4 Service Values55 5. 2. 5 Employee Promise56 5. 3Ritz-Carlton: Current Reality57 Chapter 6: Research Findings59 6. 1 Focus groups findings59 6. 1. 1 Does the gap model explain the dark side of CRM? 59 6. 1. Is there more to the dark side of CRM than what is explained in the gap model? 61 6. 1. 3 How can the dark side of CRM be reduced? 62 6. 2 In-depth interview findings63 6. 2. 1 Customer Interviews64 6. 2. 2 Employee Interviews67 Chapter 7: Analysis of Research Findings70 7. 1 Does the gap model explain the dark side of CRM? 70 7. 1. 1 Ritz-Carlton and the ‘Gap model’70 7. 1. 2General Inference for the luxury hotel sector75 7. 2 Is there more to the dark side of CRM than what is explained in the gap model? 76 7. 2. 1 Willingness to build a relationship76 7. . 2 General Inference for the Hotel Industry79 7. 3 How can the dark side of CRM be reduced? 79 Chapter 8: Conclusion and Further research83 References85 Appendices93 Appendix 1Consent Form93 Appendix 2CRM and ‘Atithi Devo Bhava’94 Appendix 397 Appendix 4100 Appendix 5108 Acknowledgments Education is a progressive discovery of our ignorance. Will Durant (1885-1981) U. S. author and historian I would like to thank all those who helped me through the project phase of the MA Management program. I would like to express my sincere appreciation to my supervisor, Prof.
Dave Wastell for his enlightenment of my knowledge of CRM and the hotel industry, valuable advice and kind support throughout the process of dissertation completion Most importantly, I would like to thank my parents and sister who were always there to motivate me. I would also like to thank my close friends at Nottingham for being around to discuss my ideas and giving me emotional support when I was stressed. I would like to thank all the focus group members for giving their valuable time and thoughts to my project.
I would like to thank all the customers and employees of Ritz-Carlton for sharing their valuable thoughts which helped me shape this project. Lastly, I would like to thank the academic and library staff at University of Nottingham for their support throughout this year. Chapter 1: Introduction In the mid-twentieth century, mass production techniques and mass marketing changed the competitive landscape by increasing product availability for consumers. However, the purchasing process that allowed the shopkeeper and customer to spend quality time interacting with each other was also fundamentally changed.
As a result, customers lost their uniqueness becoming an “account number”. Shopkeepers lost track of their customers’ individual needs as the market became full of product and service options. Many companies today are striving to re-establish their connections to new as well as existing customers to boost long-term customer loyalty (Chen and Popovich, 2003). The world has come full circle from selling to marketing and from seller’s market to buyer’s market. The customer today has the option to buy what he thinks he should and from whom, being in his best interest.
Product development, technological improvement, cost optimization and excellent service facility are very important for any organisation but their importance is only if the customer appreciates it. For example, both diamond and coal are carbon but they are priced differently due to different valuations by the customer. Therefore, any business begins and ends with the customer (Sugandhi, 2002). Thus, service organizations are shifting their focus from “transactional exchange” to “relational exchange” for developing mutually satisfying relationship with customers.
Extended relationships are reported to have a significant impact on transaction cost and profitability, and customer lifetime value. Serving the customers, in true sense, is the need of the hour as the customer was, is and will remain the central focus of all organizational activities. The paper explores “The Dark Side of Customer Relationship Management (CRM) in the Luxury segment of the Hotel Industry” using the ‘gap model’ of Parasuraman et al (1985) and suggests generic strategies to reduce the dark side. The researcher was motivated to choose the hotel industry because of his deep rooted passion for luxury hotels.
The importance of this research is that it helped the researcher familiarize himself with the use of primary with a blend of secondary research to analyze a given situation. This piece of work shall contribute to the academic community as there is not much literature available on the dark side of CRM for the luxury hotels. It shall also benefit the management of luxury hotels to understand what the customer expects in terms of service quality. The aim of this research is to highlight the dark side of CRM in the luxury segment of the hotel industry using The Ritz-Carlton Hotel Company as a classic example of high service quality.
The research objectives are as follows: 1. Does the gap model explain the dark side of CRM? 2. Is there more to the dark side of CRM than what is explained in the gap model? 3. How can the dark side of CRM be reduced? This paper is divided into seven chapters. Chapter one is an introduction to the paper. Chapter two provides the reader with necessary literature available on CRM. Chapter three provides information on CRM and the hotel industry. Chapter four discusses the research design including interviews and focus groups that have been used for primary research. Chapter five provides an overview of The Ritz-Carlton Hotel Company .
Chapter six provides a summary of the research findings. Chapter seven is an analysis of the research findings addressing the research questions, one of which provides recommendations to reduce the dark side. Chapter eight is a conclusion of the paper. The following chapter provides the literature review. Chapter 2: Literature Review Modern marketers are rediscovering the ancient mantras for success in corporate world and blending them with contemporary marketing practices. Long term survival and competitive advantage can only be attained by establishing an emotional bond with the customers.
A shift is taking place from marketing to anonymous masses of customers to developing and managing relationships with more or less well known or at least some identified customers (Gronroos, 1994). This section shall provide general literature on CRM and its link with customer satisfaction, customer loyalty and business performance followed by literature on CRM and service quality in details. The ‘gap model’ shall be introduced and literature on service guarantee, service recovery, and complaint management shall be provided. This would lead to the privacy issues related with CRM. 2. 1 What is Customer Relationship Management?
Customer Relationship Management (CRM) “is the core business strategy that integrates internal processes and functions, and external networks, to create and deliver value to targeted customers at a profit. It is grounded on high-quality customer data and enabled by IT” (Buttle, 2004). CRM is a business strategy to identify, cultivate, and maintain long-term profitable customer relationships. It requires developing a method to select your most profitable customer relationships (or those with the most potential) and working to provide those customers with service quality that exceeds their expectations. McDonald, 2002) An organization’s survival depends largely on harmonious relationships with its stakeholders in the market. Customers provide the ‘life-blood’ to the organization in terms of competitive advantage, revenue and profits. Managing relationships with customers is imperative for all types and size of service organizations. A sound base of satisfied customers allows the organization to move on the path of growth, enhance profitability, fight out competition and carve a niche in the market place.
Bennett (1996) described that CRM seeks to establish long term, committed, trusting and cooperative relationship with customers, characterized by openness, genuine concern for the delivery of high quality services, responsiveness to customer suggestions, fair dealings and willingness to sacrifice short term advantage for long term gains. Schneider and Bowen (1999) advocated that service business can retain customers and achieve profitability by building reciprocal relationships founded on safeguarding and affirming customer security, fairness and self esteem.
It requires that companies view customers as people first and consumers second. Trust, commitment, ethical practices, fulfillment of promises, mutual exchange, emotional bonding, personalization and customer orientation have been reported to be the key elements in the relationship building process (Levitt,1986; Gronroos, 1994; Morgan,1994; Gummesson,1994; Bejou et al,1998 ). CRM refers to all business activities directed towards initiating, establishing, maintaining, and developing successful long-term relational exchanges (Heide, 1994; Reinartz & Kumar, 2003).
One of the results of CRM is the promotion of customer loyalty (Evans & Laskin, 1994), which is considered to be a relational phenomenon, (Chow & Holden, 1997; Jacoby & Kyner, 1973; Sheth & Parvatiyar, 1995; cited by Macintosh & Lockshin, 1997). The benefits of customer loyalty to a provider of either services or products are numerous, and thus organizations are eager to secure as significant a loyal customer base as possible (Gefen, 2002; Reinartz & Kumar, 2003; Rowley & Dawes, 2000).
Recent developments in Internet technology have given the Internet a new role to facilitate the link between CRM and customer loyalty (Body and Limayem, 2004). It is common knowledge that a dissatisfied and unhappy customer will share his unfortunate experience more than a satisfied customer. It is also observed that a fraction of unhappy customers choose to complain while others simply switch their loyalty to others service providers. Loss of customer is loss of business along with the opportunity for business growth and profitability.
Feedback collection from the customer is essential for the supplier to ascertain customer satisfaction and scope for improvisation (Sugandhi, 2002). The fundamental reason for companies aspiring to build relationships with customers is economic. For survival in the global market, focusing on the customer is becoming a key factor for companies big and small. Establishing and managing a good customer relationship is a strategic endeavor. Having a CRM software installed does not ensure a successful customer relationship. For this to happen business processes and company culture have to be redesigned to focus on the customer.
CRM software can be only a tool to implement a customer strategy. It is known that it takes up to five times more money to acquire a new customer than to get an existing customer to make a new purchase. Improving customer retention rates increases the size of the customer base. Thus, customer retention is essential. (Baumeister, unknown). 2 Customer satisfaction, loyalty and business performance The rationale for CRM is that it improves business performance by enhancing customer satisfaction and driving up customer loyalty (see figure 4).
There is a compelling logic to the model, which has been dubbed the ‘satisfaction-profit chain’ (Anderson and Mittal, 2000). Satisfaction increases because customer insight allows companies to understand their customers better, and create improved customer value propositions. As customer satisfaction rises, so does customer repurchase intention (Anderson, 1994). This in turn influences actual purchasing behaviour, which has a significant impact on business performance. [pic] Figure 4: Customer satisfaction, customer loyalty and business performance (Buttle, 2004)
Customer satisfaction has been the subject of considerable research and has been defined and measured in various ways (Oliver, 1997). Customer satisfaction may be defined as the customer’s fulfillment response to a consumption experience, or some part of it. Customer satisfaction I a pleasurable fulfillment response while dissatisfaction is an unpleasurable one (Buttle, 2004). Satisfaction and dissatisfaction are two ends of a continuum, where the location is defined by a comparison between expectations and outcome. Customers would be satisfied if the outcome of the service meets expectations.
When the service quality exceeds the expectations, the service provider has won a delighted customer. Dissatisfaction will occur when the perceived overall service quality does not meet expectations (Looy, Gemmel & Dierdonck, 2003). Sometimes customer’s expectations are met, yet the customer is not satisfied. This occurs when the expectations are low (Buttle, 2005). For example, the customer expects the flight to be late and it gets late. Customer satisfaction is considered to be one of the most important outcomes of all marketing activities in a market-oriented firm. The obvious need for atisfying the firm’s customer is to expand the business, to gain a higher market share, and to acquire repeat and referral business, all of which lead to improved profitability (Barsky, 1992). Studies conducted by Cronin and Taylor (1992) in service sectors such as: banking, pest control, dry cleaning, and fast food; found that customer satisfaction has a significant effect on purchase intentions in all four sectors. Similarly, in the health-care sector, McAlexander et al. (1994) found that patient satisfaction and service quality have a significant effect on future purchase intentions. Kandampully and Suhartanto, 2000) Customer loyalty can be defines as “customer behavior characterized by a positive buying pattern during an extended period (measured by means of repeat purchase, frequency of purchase, wallet share or other indicators) and driven by a positive attitude towards the company and its products or services” (Looy, Gemmel & Dierdonck, 2003). Practitioners and researchers have not clearly identified a theoretical framework, identifying factors that could lead to the development of customer loyalty (Gremler and Brown, 1997).
However, there is a consensus amongst practitioners and academics that customer satisfaction and service quality are prerequisites of loyalty (Gremler and Brown, 1997; Cronin and Taylor, 1992). Those technical, economical and psychological factors that influence customers to switch suppliers are considered to be additional prerequisites of loyalty (Selnes, 1993; Gremler and Brown, 1997). Recent studies also indicate that the firm’s image may influence customer enthusiasm: value, delight, and loyalty (Bhote, 1996). (Kandampully and Suhartanto, 2000)
Loyalty behaviors, including relationship continuance, increased scale or scope of relationship, and recommendation (word of mouth advertising) result from customers’ beliefs that the quantity of value received from one supplier is greater than that available from other suppliers. Loyalty, in one or more of the forms noted above, creates increased profit through enhanced revenues, reduced costs to acquire customers, lower customer-price sensitivity, and decreased costs to serve customers familiar with a firm’s service delivery system (Reicheld and Sasser, 1990).
Yi’s “Critical review of customer satisfaction” (1990) concludes, “Many studies found that customer satisfaction influences purchase intentions as well as post-purchase attitude” (p. 104). Customer loyalty can be viewed in two distinct ways (Jacoby and Kyner, 1973). The first views loyalty as an attitude. Different feelings create an individual’s overall attachment to a product, service, or organization (see Fornier, 1994). These feelings define the individual’s (purely cognitive) degree of loyalty. The second view of loyalty is behavioural.
Examples of loyalty behaviour include continuing to purchase services from the same supplier, increasing the scale and or scope of a relationship, or the act of recommendation (Yi, 1990). The behavioural view of loyalty is similar to loyalty as defined in the service management literature. In brief, there are two dimensions to customer loyalty: behavioural and attitudinal (Julander et al. , 1997). The behaviour dimension refers to a customer’s behaviour on repeat purchases, indicating a preference for a brand or a service over time (Bowen and Shoemaker, 1998).
Attitudinal dimensions, on the other hand, refer to a customer’s intention to repurchase and recommend, which are good indicators of a loyal customer (Getty and Thompson, 1994). Moreover, a customer who has the intention to repurchase and recommend is very likely to remain with the company. (Kandampully & Suhartanto, 2000 and Hallowell, 1996) Customer attitude being difficult to measure, for financial and practical purposes, customer retention is widely used as an indicator of customer loyalty. Researchers have combined both views into comprehensive models of customer loyalty.
Dick and Basu (1994) came up with a two-dimensional model of customer loyalty identifying four forms of loyalty according to relative attitudinal strength and repeat purchase behavior. The true loyal are those who have high levels of repeat purchase behavior and a strong relative attitude. Spuriously loyal customers tend to be more motivated by impulse, convenience and habit i. e. if the conditions are right. Latent loyalty applies to those customers who are loyal simply because they have no other choice. Lastly, there will always be some customers who shall not be loyal to any particular brand. 2. CRM and Service Quality Service quality is essential for an organization’s survival and growth. Interest in service quality emerged in 1970s. Ever since, the topic has attracted substantial attention among researchers and practitioners (Gronroos, 2001). Service quality is a form of attitude representing a long-run, overall, evaluation, which is different from customer satisfaction, a more short term, transaction specific judgment. The level of customer satisfaction is a result of the customer’s comparison of the service quality expected in a given service encounter with perceived service quality.
This implies that satisfaction assessments require customer experiences while quality does not (Caruana, Money and Berthon, 2000). 2. 3. 1 Customer’s perception of quality: Quality of a particular service is whatever the customer perceives it to be. Service quality as perceived by the customer may differ from the quality of the service actually delivered. Services are subjectively experienced processes where production and consumption activities take place simultaneously. Interactions, including a series of moments of truth between the customer and the service provider occur.
Such buyer-seller interactions or service encounters have a critical impact on the perceived service. The Nordic Model, originated by Christian Gronroos and developed by others, adopts a disconfirmation of expectations approach. This claims that customers have certain expectations of service performance with which they compare their actual experience. If the expectations are met, this is confirmation; if they are over performed, this is positive disconfirmation; if they are underperformed this is negative disconfirmation.
According to Gronroos (1984), the quality of service as perceived by customers has two dimensions; a technical or outcome dimension and a functional or process-related dimension. What customers receive in their interaction with a firm is clearly important to them and their quality evaluation. This is one quality dimension, the Technical Quality of the outcome of the service production process. However, as there are numerous interactions between the service provider and customers, including various series of moments of truth, the technical quality dimension will not count for the total quality which the customer perceives he has received.
The customer will also be influenced by the way in which technical quality- the outcome of the process is transferred to him and this will have an impact on the process experience. Examples include the accessibility of ATM, a website, appearance and behavior of waiting staff, how service employees perform their task, what they say and how they do it. Interestingly, other customers simultaneously consuming the same or similar services may influence the way in which customers will perceive a service. Thus, the consumer is also influenced by how he receives the service and how he experiences the simultaneous production and consumption process.
This is the second quality dimension, the Functional Quality of the process, closely related to how the moments of truth of the service encounters themselves and are taken care of and how the service provider functions. Illustrated in figure 1, there are the two basic quality dimensions, namely, What the customer receives and How the customer receives it; the technical result or outcome of the process (technical quality) and the functional dimension of the process (functional quality. An organization’s image is an important variable that positively or negatively influences marketing activities.
Image is considered to have the ability to influence customers’ perception of the goods and services offered (Zeithaml and Bitner, 1996). Thus, image will have an impact on customers’ buying behaviour. Image is considered to influence customers’ minds through the combined effects of advertising, public relations, physical image, word-of-mouth, and their actual experiences with the goods and services (Normann, 1991). Similarly, Gronroos (1983), using numerous researches on service organizations, found that service quality was the single most important determinant of image.
Thus, a customer’s experience with the products and services is considered to be the most important factor that influences his mind in regard to image. For instance, if the service provider shares a positive or favorable image in the minds of the customers, minor mistakes will probably be overlooked or forgiven. However, if the image is negative, the impact of any mistake will often be considerably greater than it otherwise would be. This entire combination shall lead to total quality. [pic]Figure 1: Two service quality dimensions (Gronroos, 2001) 2. 3. 2 The Perceived Service Quality approach
Gronroos (1982) introduced a service oriented approach to quality with the concept of Perceived Service Quality and the model of Total Perceived Service Quality. This approach is based on research into consumer behavior and the effects of expectations concerning goods performance on post-consumption evaluations. In previous sections, the two basic quality dimensions (the what and the how) in the minds of the customers has been discussed. However, the quality perception process is more complicated. It is not the experiences of the quality dimensions alone that determine whether quality is perceived as good, neutral or bad.
Figure 2 illustrates how quality experiences are connected to traditional marketing activities resulting in a Perceived Service Quality. Good perceived quality is obtained when the experienced quality meets the expectations of the customers i. e. the expected quality. If expectations are unrealistic, the total perceived quality will be low, irrespective of the experienced quality measured in an objective way being good. As illustrated in figure 2, the expected quality is a function of factors, namely, marketing communication, word of mouth, company/local image, price, customer needs and values.
Marketing communication includes advertising, direct mail, sales promotion, websites, internet communication and sales campaigns. These are directly under the control of the company unlike the image and word of mouth factors which are indirectly controlled by the company. Image of the company plays a central role in customer perception of service quality. Thus, it is imperative that image be properly managed. External impact on these factors could possibly occur, but they are a basically a function of the previous performance of the firm, supported by for instance advertising.
Lastly, the needs of the customers as well as the values that determine the choice of customers also impact on their expectations. Thus, the level of total perceived quality is not determined simply by the level of technical and functional quality dimensions, but rather by the gap between the expected and experienced quality. [pic] Figure 2: Total Perceived Quality (Gronroos, 2001) 2. 3. 3 Gaps between customer expectations and perceptions: There exists a gap between expected service quality and perceived service quality.
In an attempt to explain such gap, Parasuraman et al (1985), came up with a ‘gap model’ which is intended to be used for analyzing sources of quality problems and help managers understand how service quality can be improved. The model is illustrated in figure 3. Figure 3: The Gaps Model (Source: Parasuraman et al, 1988) Firstly, the model demonstrates how service emerges. The upper portion of the model includes phenomena related to customers, while the lower portion includes phenomena related to the service provider. The expected service is a function of the customer’s past experience and personal needs and of word of mouth communication.
It is also influenced by the market communication activities of the firm. The service experienced, which in this model is termed as perceived service, is the outcome of a series of internal decisions and activities. Management perceptions of customer expectations guide decisions regarding service quality specifications to be followed by the company when service delivery (i. e. the execution of the service express) occurs. The customer experiences the service delivery and production process as a process-related quality component and the technical solution received by the process as an outcome-related quality component.
As illustrated, marketing communication can influence the perceived service and also the expected service. This basic model demonstrates the steps that have to be considered during analyzing and planning service quality. The five discrepancies (so-called quality gaps) between the various elements of the structure are a result of inconsistencies in the quality management process. The ultimate gap (Gap 5) i. e. the gap between expected and perceived (experienced) service is a function of other gaps that possibly occurred in the process.
The five gaps are discussed below: 1. The Management Perception Gap (Gap1): This gap occurs when the management perceives the quality expectations inaccurately due to inaccurate information from market research and demand analyses, inaccurately interpreted information about expectations, nonexistent demand analysis, bad or nonexistent upward information from the firm’s interface with its customers to management and numerous organizational layers which stop or change the information that may flow upward from those directly involved in customer contacts.
Necessary action to open up or improve the various internal information channels has to be taken in such situations. 2. The Quality Specification Gap ( Gap 2): This gap signifies that service quality specifications are not consistent with management perceptions of quality expectations due to planning errors or insufficient planning procedures, bad management of planning, lack of clear goal-setting in the company and insufficient support for planning service quality from top management.
The planning related problems vary depending on the size of the first gap. However, even if there is sufficient accurate information on customer expectations, planning of quality specifications may fail due to lack of real commitment to service quality among top management. Commitment, dedication and devotion to service quality among management as well as service providers are of highest importance and priority in closing the Quality Specification Gap. 3.
The Service Delivery Gap (Gap 3): This gap means that quality specifications are not met by performance in the service production and delivery process due to specifications which are too complicated and/or too rigid, employees not agreeing with the specifications and therefore not fulfilling them, specifications not being in line with the existing corporate culture, bad management of service operations, lacking or insufficient internal marketing and technology and systems not facilitating performance according to specifications.
The possible problems here are many and varied and usually the reasons for the existence of a Service Delivery Gap are complicated and so are the cures. The reason for this gap can be divided into three categories: management supervision, employee perception of specifications and rules/customer needs and wishes, and a lack of technological/operational support. Management and supervision related problems may be varied too. For instance, supervisors may not be encouraging and supportive of quality behavior or the supervisory control systems may be in conflict with good service or even with quality specifications.
In an organization where control and reward systems are decided upon separately from the planning of quality specifications, which is the case often, there is inherent risk of a Service Delivery Gap occurring. Often non-essential or important activities are controlled, perhaps even rewarded; and activities that contradict quality specifications are encouraged by the control system. Control and reward systems partly determine the corporate culture, and goals and specifications that do not fit the prevailing culture tend not to be well executed.
The cure here involves changes in the way managers and supervisors treat their subordinates and in the way supervisory systems control and reward performance. Since the way in which performance requirements of the specifications, on one hand and existing control and reward systems on the other hand, are in conflict with each other, an awkward situation may arise for personnel when a customer contact person realizes that a customer requires different behavior on the part of the service provider than that expected according to the company’s specifications.
It must be noted that situations where the service provider is aware of the fact that the customer is not receiving what he expects and may feel that the demands and wishes of the customer are justified and perhaps could be fulfilled, however, the service provider is not allowed to perform accordingly, may ruin the motivation for quality-enhancing behavior among personnel. The skills and attitudes of personnel may cause problems if the wrong people are recruited.
For instance, the firm may have employees who are unable to adjust to the specifications and systems that guide operations. Furthermore, the workload perceived by employees may be a problem. For example, there may be too much paperwork or some other administrative tasks involved, so that quality specifications cannot be fulfilled and a result of which, the service provider does not possess time to attend to customers as expected.
Lastly, the technology or the systems of operating, including decision making may not be suitable to employees. The problem may be the employees, but it is quite probable that technology and operational and administrative systems have been introduced inappropriately. Perhaps the technology and systems do not support quality behavior, or they have been improperly introduced to the employees. To close the Service Delivery Gap, the problems need to be dealt with effectively and efficiently. 4.
The Marketing Communication Gap (Gap 4): This gap occurs when promises given by market communication activities are not consistent with the service delivered due to market communication planning not being integrated with service operations, lacking or insufficient coordination between traditional external marketing and operations, the organization failing to perform according to specifications, whereas market communication campaigns follow these specifications and an inherent propensity to exaggerate, and, thus, promise excessively.
The reasons for Marketing Communication Gap can be divided into two categories: the planning and executing of external market communication and operations and a company’s propensity to over-promise in all advertising and marketing communication. The cure in the first situation could be creating a system that coordinates planning and execution of external market communication campaigns with service operations and delivery. For instance, every major campaign could be planned in collaboration with those involved in service production and delivery for Dual goal to be achieved.
First, promises in market communications become more accurate and realistic and second, a greater commitment to what is promised in external campaigns could be achieved. The second category of problems i. e. over-promising can be dealt with by improving planning of marketing communication and/or closer management supervision. 5. The Perceived Service Quality Gap (Gap 5): This gap signifies that the perceived or experienced service is not consistent with the expected service resulting in negatively confirmed (bad) quality and a quality problem, bad word of mouth, a negative impact on corporate or local image and lost business.
However, this gap may also be positive, which leads either to a positively confirmed quality or over-quality. If a Perceived Service Quality Gap occurs, the reason could be any one or a combination of those discussed above or other additional reasons. Addressing these gaps could be a basis for developing service processes in which expectations and experience consistently meet and a good perceived service quality will enhance. Some of the possible strategies that could be adopted by organizations to close these quality gaps are tabulated in Table 1. Gaps |Possible strategies to close gaps | | | | |1 |Change of management (in extreme situations), otherwise normally, learn from front-line customer contact | | |staff, flatten the hierarchical structure, include expectations data in consumer records, market research| | |for improvement in the knowledge of the characteristics of service competition, etc. | | | |2 |Change in firm’s priorities, Commitment to develop service standards wherever possible, feasibility | | |assessment of customer expectations, develop a standards documentation process, automation of processes | | |wherever possible and desirable, activities outsourced wherever competencies are lacking, development of | | |service quality goals, etc. | | | |3 |Investment in people: (recruitment, training and retention), investment in technology, redesigning | | |workflow, encourage self organized teams; improve internal communication, clear job specifications to | | |avoid ambiguity, reward service excellence, etc. | | | |4 |Brief the advertising agency of the company, external communication of what the customer can expect | | |through advertising, training employees not to over-promise, penalize employees who over-promise, | | |encourage customers to sample the service experience, excel at service recovery, encourage and manage | | |customer complaints, etc. | Buttle, 2004; Gronroos, 2001 and Looy, Gemmel & Dierdonck, 2003) 2. 3. 4 Service Guarantee An organization tries to balance its customers’ expectations with the delivered service. A service guarantee promises the customers a certain service quality and backs up such promise with a payout, making services more ‘tangible’, reducing the perceived risk of purchasing a service. “A service guarantee makes the customer a meaningful promise and specifies a payout and an invocation procedure in case the promise is not kept. Each of these elements is equally important in making a guarantee successful” (Looy, Gemmel & Dierdonck, 2003)
The key elements of this definition are discussed below: The Promise Through introduction of a service guarantee, an organization makes a credible promise to its customers. For example, PTT Telecom promise to connect new telephones within three working days and to fix telephone lines within a day and a half. This promise is a credible one in a European context, where shorter lead times are highly desirous by customers (Looy, Gemmel & Dierdonck, 2003). In defining a promise, a company should be careful not to promise what would be expected anyway.
This may negatively signal that service failures are likely to be expected. Some promises are limited in scope i. e. guarantee only less important service aspects or are highly conditional, excluding all major causes of service failure. For example, Lufthansa guarantees that its customers will make their connecting flights if there are no delays due to weather or air-traffic control problems. Ironically, these two problems cause in total 95 percent of all flight delays. Furthermore, the guarantee is applicable only if all flights including connecting flights are with Lufthansa (Lufthansa airlines, 1987).
The presence of a service guarantee can support the perception of service reliability, which is one of the most critical determinants of customer satisfaction. However, sometimes a guarantee may give out a negative message, indicating that service failures may occur due to customers wondering why it is necessary to provide a guarantee. For example, Lufthansa promises its customers that their luggage will arrive with them. However, this created the perception that lost luggage is more a problem with Lufthansa than its competitors (Lufthansa airlines, 1987).
The effectiveness of communicating a service guarantee also depends on the source of the message, especially if the form has a history of service problems, making it difficult for a service firm with bad service reputation to send out credible message. The Payout In a situation where promises are not kept, the customer shall receive a payout which will encourage the customer to communicate all service failures, which has a double effect: • Service recovery: The customer who claims his payout is less likely to defect or spread a negative word of mouth. Hence, service recovery becomes a possibility. Service quality improvement: Each claim represents valuable information about quality errors and their possible causes, but the avoidance of future payouts functions as an incentive to all staff to participate in improvement projects. In order to achieve service recovery, the payout has to be meaningful to customers. It should not only make up for all the damage and inconvenience suffered but also make the customer ‘whole. ‘ For example, the payout offered by the Dutch bus service organization, “Interliner,” makes their customer ‘whole’ by guaranteeing that their passengers will reach their connecting flights and buses.
A refund would not adequately compensate the passenger who missed a connection. Therefore, any passenger who would have to wait for more than fifteen minutes for a connection due to delay by Interliner would be taken to his destination by taxi at Interliner’s expense (www. interliner. nl). A payout can also be too high. For example, in India atleast, Domino’s Pizza offers customers its pizza free of charge if they were not delivered within thirty minutes from ordering. The Invocation Procedure The final aspect of the service guarantee is the invocation procedure.
Invocating a guarantee should be either easy or proactive. For example, supermarkets Hoogvliet (Netherlands) and Match (Belgium) promise short queues at their checkouts. If all tills are not manned and if some customer is the third one (Hoogvliet) or the fourth one (Match) in the queue, he does not have to pay (Hoogvliet) or receives a significant discount (Match). An example of unconditional satisfaction guarantee which is easy to invoke is that of Superquinn’s Goof Card System. Superquinn is the leading supermarketing chain in the Greater Dublin area.
Periodically, customers who participate in the loyalty saving system called ‘Superclub’ receive a ‘Goof Card’. Each time Superquinn ‘goofs’ i. e. produces a service failure, the customer simply has to point it out to any member of staff, and he shall receive thirty bonus points worth ? 1. The guarantee offers unconditional satisfaction guarantee as customers are able to define the goof themselves, however, for further help to customers, Superquinn lists ten examples of goofs. The invocation of PTT Telecom’s guarantee for example is proactive as well.
After each connection or repair, PTT Telecom makes an after-sales call to the customer trying to assess customer’s satisfaction. If there is a failure of promise, the customer is immediately informed of the payout (Looy, Gemmel & Dierdonck, 2003). 2. 3. 5 Service Recovery The real test of the customer orientation of a service provider takes place when service failure has occurred. Ideally, quality should be high throughout and failures should not occur in the service processes. However, in reality employees makes mistakes, systems break down, customers in the service process may cause problem for other customers, etc.
Service recovery is a strategy for managing mistakes, failures and problems in customer relationships (Gronroos, 2001). As defined by Tax and Brown (2000) (in gronroos 2001), “Service recovery is a process that identifies service failures, effectively resolves customer problems, classifies their root cause(s), and yields data that can be integrated with other measures of performance to assess and improve the service system. ” Service recovery includes all actions taken by company when there has been a service failure.
Services fail for different reasons- sometimes technical service fails; sometimes functional service quality (Keaveney, 1995 in Buttle, 2004). Problems caused by a service failure are two-fold; factual and emotional problems (Gronroos, 2001). In a problematic situation when service recovery is called upon, customers are often frustrated, possess high expectations and tend to have a narrower zone of tolerance that normal (Tax et all, 1998). Therefore, service recovery could be risky (Smith and Bolton, 1998) and needs to be well managed.
Service recovery performance can be better if the employees are more committed to the visions, strategies and service concepts of the firm. Moreover, empowered employees can be expected to perform better in recovery situations, inclined to deal quickly and effectively with service failures (Boshoff and Allen, 2000). When companies resolve problems quickly and effectively there are positive consequences for customer satisfaction, customer retention and word-of-mouth (Tax et al, 1998). Service recovery process should be developed and exercised to maximize fairness as perceived by the customer (Ruyter and Wetzels, 2000).
In addition to mistake correction, quick response and adequate compensation are considered crucial elements of service recovery (Johnston and Fern, 1999). It has been discovered that customers who have been let down, then well recovered, are more satisfied than customers who have not been let down all (Hart et al, 1990). A well managed recovery has positive impact in development of a trusting relationship between a firm and its customer and may also deepen the customer’s commitment towards the service provider (Tax et al, 1998).
Service recovery is an important factor influencing perceived service quality and is a criterion which can have a positive effect on functional quality. Satisfaction with the service can be increased through good service recovery (Spreng, Harrell & Mackoy, 1995). According to Patrick Mene, Director of Quality at the Ritz-Carlton Hotel Company “1-10-100 rule of service recovery”, what costs the firm one pound, euro or dollar to fix immediately will cost ten the next day and hundred later on (Patlow, 1993). An example of quick service recovery is an incident that took place at the Ritz-Carlton Hotel in Phoenix, Arizona.
A group of four MBA students from Europe had attended a seminar at the hotel and wished to spend a few hours of leisure time at the swimming pool before leaving for the airport. When they arrived at the swimming pool around mid afternoon, they were politely told that the pool area was closing because the area was to be prepared for an evening reception and dinner. The students explained that during their stay at the hotel, that was the only time they could spend at the pool before returning to the freezing temperature of their country and they had been looking forward to this opportunity.
The waiter requested them to wait while he sorted out the situation. After a short while, a supervisor arrived to inform them that the hotel unfortunately had to close the entire pool area for evening preparation. However, he added that a limousine was waiting for them outside the main entrance to take them and their luggage to Biltmore Hotel where the pool area would be at their disposal. This limousine was at the Ritz-Carlton’s expense undoubtedly. This delighted the group and their already favorable perception of the hotel was improved further.
They also engaged in considerable amount of positive word-of-mouth communication (Gronroos, 2001). 2. 3. 6 Complaints management Customers complain under one or both of the conditions: their expectations being underperformed to a degree that falls outside their zone of tolerance or unfair treatment. Complaints management process should be developed to take a positive view of customer complaints. Customers who complain provide an opportunity for the service firm to identify root causes of problems as well as win back unhappy or dissatisfied customers to retain their future value (Buttle, 2005).
A complaints management process should allow company to capture complaints before customers spread a negative word-of-mouth or take their business elsewhere (Buttle, 1998). Up to two-thirds of customers who are dissatisfied do not complain to the organization (Richins, 1983). However, they may complain to their social networks. Dissatisfied customers are likely to inform twice as many people about their experience than customers with a positive experience (TARP, 1995 in Buttle, 2005).
According to Wilson (1991), only 4 percent of the dissatisfied customers actually complain, providing valuable feedback to the company. The remaining 96 percent choose to simply leave the business and go elsewhere. Companies choose to deal with complaints efficiently to bring about customer retention, continuous improvement in service quality and build a customer- focused organization (Looy, Gemmel & Dierdonck, 2003). The customers choose not to complain for some reasons listed in table 2 below. They do not know how to register a complaint |They believe complaining will be useless because the company don’t care| | |about them or their complaints | |They believe it is not worth the time or trouble |They fear retribution. For example, many people are reluctant to | | |complain about the police. | (Wilson, 1991 and Buttle, 2005) Now, we shall move into the section of the literature review where we shall highlight the privacy issue with CRM. . 4 Do all customers want a relationship with their service provider? It is clear that companies want relationships with customers, but it is far less clear that customers universally want relationships with their suppliers. In a business to customer context, relationships may be sought when the customer seeks benefits over and above those directly derived from acquiring, consuming or using the service. The benefits include recognition, personalization, power, risk reduction, status and affiliation (Buttle, 2004). Examples of each such benefit are mentioned below Recognition: A customer may feel more valued and important when recognized and addressed by name • Personalization: For example, over time, a hotel manager may understand a customer’s particular preferences or expectations • Power: For instance, some of the power asymmetries in relationships between banks and their customers may be reversed when customers feel that they have personal relationships with their bank officers and managers. • Risk reduction: Risk may be in the form of performance, physical, financial, social or psychological. High levels of perceived risk are uncomfortable for many customers.
A relationship has the ability to reduce, or even eliminate risk. For example, a customer may develop a relationship with a garage to reduce the perceived performance and physical risk attached to having a car serviced. The relationship provides the assurance that the job has been skillfully accomplished and the car is safe to drive. • Status: For example, customers may feel that their status is enhanced by a relationship with an organization, say, the Hilton. • Affiliation: people’s social needs can be met through relationships. For example, many people join particular forums or associations to be a part of a community.
However, there are some customers who would be satisfied with the service quality and perhaps decide to be loyal, but not want a relationship as such with the supplier for privacy issues. It is a known fact that suppliers wish to increase their sales to customers. In order to know and analyze their customers, companies collect extensive data on their customers through various channels. One popular rather common channel is through loyalty programs and cards. Examples include Tesco loyalty cards, Hilton hhonors program, British Airways frequent flyer cards, etc.
The companies provide some benefits to customers and collect data like contact name, history of purchase, money spent in the past on company’s services, etc. However, if the data is mishandled or incorrectly handled, it can destroy the trust and loyalty in the relationship. (Vargas, 2006) Privacy and data protection are key concerns of customers, who are increasingly concerned about the amount of information that organizations have about them and the uses to which information is put. In reality, most customers are unaware of the quantity of information available to companies.
Some customers may wish to simply not join any loyalty programs in order to secure their privacy and prevent intrusion into personal information. 2. 5 Synopsis This section has provided available literature about CRM. The gap model explained shall be a strong basis for explaining the dark side of CRM. Privacy issues shall be given importance as well. The customers’ perception of service quality is to be given supreme priority by the hotel industry. It is important how customers perceive the service quality to be. What they receive and how they receive corresponding to their expectations helps them judge the service quality to a large extent.
Chapter 3: CRM and Hotel Industry The hotel industry today has been recognized as a global industry, with producers and consumers spread around the world. The use of hotel facilities such as: room, restaurant, bar, nightclub or health club; are no longer considered a luxury. For many people these services have become an integral component of lifestyle. Moreover, in the last two decades, demand for and supply of hospitality services beyond that of the traditional services intended for travelers have escalated the growth of the hospitality industry globally, leading to intense competition in the market-place.
One of the greatest challenges facing hotel organizations today is the ever-growing volume and pace of competition. Competition has had major implications for the customer, providing increased choice, greater value for money and augmented levels of service. Additionally, there is little to distinguish one hotel’s products and services from another. Thus it has become imperative for hotel organizations to gain a competitive advantage.
There are two strategies most commonly used by hotel managers in order to gain a competitive advantage, which are low-cost leadership through price discounting and developing customer loyalty by providing unique benefits to customers. Hotels that attempt to improve their market share by discounting price run the serious risk of having a negative impact on the hotel’s medium- and long-term profitability. As a result, it is quality of service rather than price that has become the key to a hotel’s ability to differentiate itself from its competitors and to gain customer loyalty.
Getty and Thompson (1994) studied relationships between quality of lodging, satisfaction, and the resulting effect on customers’ intentions to recommend the lodging to prospective customers. Their findings suggest that customers’ intentions to recommend are a function of their perception of both their satisfaction and service quality with the lodging experience. However, satisfying customers alone is not enough, since there is no guarantee that satisfied customers will return to purchase.
It is now becoming apparent that customer loyalty is significantly more important than customer satisfaction for success. Numerous examples illustrate that it is important that the hotel industry develop customer loyalty, as opposed to relying solely on pricing strategies. Researchers have shown that a 5 per cent increase in customer loyalty can produce a profit increase of 25 per cent to 85 per cent (Reichheld and Sasser, 1990). Hence a dedicated focus on customer loyalty is likely to become a necessary prerequisite for the future survival of hotel organizations.
In the hotel industry, Customer relationship management (CRM) is more than the practice of collecting guest-centric data. It’s the art of using historical, personal, and experiential information to personalize a guest’s stay while generating incremental revenue opportunities. For instance, knowing a traveler is an avid sports fan creates the opportunity to market tickets to a game; knowing a guest had a less-than-memorable experience in the hotel restaurant gives you a chance to win them back the next time they are in town.
With the latest offerings in CRM, hoteliers can develop comprehensive guest profiles from reservation information and demonstrate to guests that the property is in touch with their needs, drive guest-centric data down to the transaction level, allowing employees and guest-facing technology to deliver greater value to the guest, generate a realistic profile on the spending and stay patterns of guests, allowing the property to create guest-centric marketing for increased loyalty and spending, etc. Microsoft, 2006). To summarize, the shift in the sales and marketing landscape requires the hotel companies to be as advanced as technology will allow in managing their customer relationships. “There will be a sea change from management of customer data to management of customer relationships”. Hotel companies must carefully consider how they store, track, analyze and act upon every aspect of their relationships with their guests and booking customers. ” The emphasis should be on using the data intelligently to predict consumer behavior, such as loyalty and usage patterns, and to use the customer knowledge to anticipate the customer needs or problems (EURHOTEC, 2000). Chapter 4: Methodology and Research Design 4. 1 Overview
Methodology can be defined as (i) “a body of methods, rules, and postulates employed by a discipline”, (ii) “a particular procedure or set of procedures or (iii) “the analysis of the principles or procedures of inquiry in a particular field”, the common idea being the collection, the comparative study, and the critique of the individual methods that are used in a given discipline or field of inquiry (Wikipedia, 2006). This chapter of the paper provides an overview of the research design (i. e. the case study) used for research about the hotel industry.
The objectives of the research have been mentioned followed by a definition of research design and the qualitative approach of the case study. The researcher then presents his justification for choosing Ritz-Carlton Hotel Company as his case example leading to methods of data collection for the research conducted along with each method’s strengths and weaknesses. This chapter concludes with discussion on data analysis and the reliability and validity issues with data collection 4. 2 Research objectives A review of the present literature is a stepping stone in compiling the objectives behind the research.
In this regard, the literature review enabled an understanding of how can the hotel industry improve its business performance through service quality, customer satisfaction and customer loyalty. The service quality is provided by hotels to ultimately satisfy the customers and the hotel managers must know what their customer wants rather than blindly assuming. Even though the service quality may be satisfactory, there may be a gap between the expected service quality by the customer and their experienced service quality.
The hotel management has to strive to bridge these gaps to improve service quality and customer satisfaction and attempt to bring about customer loyalty which in turn would impact business performance. The literature review also highlighted that there is possibly a ‘dark side of CRM’ which refers to privacy issues of the customer and doubts about customers willing to build relationships in the long run. There is also not ample literature available on the customer’s perspective i. e. how he customer feels about what the hotel provides him with, if the hotel actually provides them with what they promise to deliver, if the customers value all they receive and how much, the privacy issues and possibly customers’ reaction to certain experiences during their stay, just to name a few not so explored sides of CRM. Inspired by the above, the research objectives are as follows: 1. Does the gap model explain the dark side of CRM? 2. Is there more to the dark side of CRM than what is explained in the gap model? 3. How can the dark side of CRM be reduced? . 3 Research design A research design can be explained as the “detailed blueprint used to guide a research study toward its objectives” (Aaker, Kumar and Day, 2003). Research design provides the “glue that holds the research project together. A design is used to structure the research, to show how all of the major parts of the research project — the samples or groups, measures, treatments or programs, and methods of assignment — work together to try to address the central research questions” (Social research methods, 2006)
The process of designing a research study requires some interrelated decisions to be made. The most significant decision is the choice of research approach which determines how the information will be obtained. The choice of research approach is dependant on the nature of the research to be conducted. Research approaches can be categorized into one of the three general categories of research i. e. exploratory, descriptive and casual (Aaker, Kumar and Day, 2003).
Exploratory research: This type of research is undertaken when one is seeking insight into the general nature of a problem area, the possible decision alternatives and relevant variable that are to be considered. The research methods are loosely defined, highly flexible, unstructured and qualitative. The researcher begins without firm preconceptions as to what will be the outcome. The absence of structure allows a thorough pursuit of ideas and clues about the problem situation. Such research is conducted because a problem has not been clearly defined.
Explor