Rochester Institute of Technology

The Graduate School

College of Applied Science and Technology

GUEST SATISFACTION AND GUEST LOYALTY STUDY

FOR HOTEL INDUSTRY

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Danijel Carev
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Submitted in Partial Fulfillment of the

Requirements of the

Master of Science in Hospitality-Tourism Management

November 2008
 1460292

Copyright 2009 by
Carev, Danijel

All rights reserved

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1460292
2009
 Rochester Institute of Technology

Department of Hospitality and Service Management

Graduate Studies

M.S. Hospitality-Tourism Management

PRESENTATION OF THESIS/PROJECT FINDINGS

Name: Danijel Carev Date: 11/28/2008 UID#

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Title of Research: GUEST SATISFACTION AND GUEST LOYALTY

STUDY FOR HOTEL INDUSTRY

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Thesis Committee: (1) Dr. James Jacobs, Jr. (Chairperson)
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(2) Dr. Thomas Maier

OR (3)
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Number of Credits Approved: 4

cc. Department Student Record File – Original Student

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 ABSTRACT
Common perception by practitioners in the hotel industry today that

a satisfied guest would become a repeat customer was considered as a

major subject of this research. It determined the extent to which

satisfaction fostered loyalty. Interviewing guests and demonstrating the

expression of visual experience through photography illustrated the

guests´ propensity for recommending and returning to the hotel as a

repeat customer. Using a provided digital camera, participating guests

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were asked to photograph whatever caught their eye to illustrate the

hotel as being meaningful. In examining factors such as ambience,

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service, as well as with the guest’s overall satisfaction with the hotel
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along with their loyalty behavior, this study analyzed the relationship

between customer satisfaction and customer loyalty. Additionally, this

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study explored factors promoting guest loyalty with the purpose of

proposing a method to assist hotels in identifying attributes increasing

customer loyalty.

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 ACKNOWLEDGEMENTS
First, I thank the Ron Brown Fellowship program, which is

sponsored by the U.S. Department of State and administered by the

Institute of International Education (IIE), for giving me the opportunity to

study in the U.S.A. and to experience so many wonderful things. Without

them, this journey would not be possible.

In the same way, I sincerely thank Rochester Institute of

Technology and the School of Hospitality and Service Management for

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welcoming me as one of the first Croatians involved full-time in the

Master of Science Program in Hospitality-Tourism Management.

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Next, my sincere gratitude to Dr. James W. Jacobs Jr., my mentor
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and Chair of Committee, who believed in, encouraged, and supported

me in successfully completing this thesis. With an open mind, he always

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felt very comfortable in sharing valuable information with me. I especially

value his train of thoughts along with his encouragement to question my

logic and to change my perceptions in positive ways. I feel very fortunate

to have had the opportunity to work with him as a student of his classes.

I am very grateful to Dr. Thomas Maier, who served as a member

of my Thesis Committee and for his invaluable comments on final drafts

of this paper.

Finally, I wish to express my gratitude to my parents as well as to

my brother for their unreserved support thought my career.

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 TABLE OF CONTENTS
ABSTRACT ................................................................................................................ iii

ACKNOWLEDGEMENTS........................................................................................... iv

LIST OF TABLES ...................................................................................................... vii

LIST OF EXHIBITS.................................................................................................... vii

CHAPTER 1 – INTRODUCTION .................................................................................1

Common Perception ............................................................................................... 2

Problem Statement ................................................................................................. 4

Purpose of the Study............................................................................................... 4

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Hypothesis .............................................................................................................. 5

Methodology ........................................................................................................... 6
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Significance of the Study......................................................................................... 7

Summary................................................................................................................. 8
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CHAPTER 2 – LITERATURE REVIEW .....................................................................10

Introduction ........................................................................................................... 10
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The Importance of Customer Loyalty in the Hotel Industry ................................... 10

A Definition of Customer Loyalty........................................................................... 12

Loyalty Prerequisites............................................................................................. 16

Guest Satisfaction................................................................................................. 16

Confirmation-Disconfirmation Theory.................................................................... 19

Comparison-Level Theory..................................................................................... 20

Dimensions of Customer Satisfaction ................................................................... 21

Photo- elicitation ................................................................................................... 22

A Better Understanding of Guest Loyalty .............................................................. 25

Summary............................................................................................................... 26

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CHAPTER 3 – METHODOLOGY ..............................................................................27

Qualitative Study Design....................................................................................... 27

Method .................................................................................................................. 29

Construction of the Information Sheet................................................................... 31

Measurement of Satisfaction and Loyalty Scales.................................................. 32

Data Analysis Procedures..................................................................................... 35

Summary............................................................................................................... 35

CHAPTER 4 – DATA ANALYSIS AND RESULTS ....................................................36

Sample.................................................................................................................. 36

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Analysis of the Guest Survey ................................................................................ 39

Loyalty................................................................................................................... 42
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Photo-Elicitation .................................................................................................... 45

Historic Heritage ................................................................................................... 46

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Design Functionality.............................................................................................. 48

Guestroom Experience ......................................................................................... 51

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Negative Impact .................................................................................................... 54

Final Input ............................................................................................................. 56

Hypothesis Discussion .......................................................................................... 56

Summary............................................................................................................... 60

CHAPTER 5 – CONCLUSIONS AND RECOMMENDATIONS..................................62

Management Implications ..................................................................................... 62

Limitations of the Study......................................................................................... 65

Framework for Loyalty Research .......................................................................... 67

Direction for Future Research ............................................................................... 68

Recommendations ................................................................................................ 69

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REFERENCES ..........................................................................................................72

APPENDIX A - THE GUEST SURVEY LETTER .......................................................82

APPENDIX B - THE MODEL OF SURVEY QUESTIONNAIRE.................................83

APPENDIX C - THE SURVEY QUESTIONNAIRE USED IN STUDY........................85

LIST OF TABLES
Table 4-1 Description of the Respondents................................................................ 37

Table 4-2 Source of Information ............................................................................... 38

Table 4-3 The Reason of Arrival............................................................................... 38

Table 4-4 Satisfaction Ratings from the Guest Survey ............................................. 40

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Table 4-5 Indication of the Guest Agreement or Disagreement with the Statements 43

Table 4-6 Summary of Hypotheses .......................................................................... 58

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Table 4-7 Guest Propensity to Repurchase This Hotel............................................. 60
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LIST OF EXHIBITS
Exhibit 1. Historic Heritage ....................................................................................... 47
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Exhibit 2. Design Functionality.................................................................................. 49

Exhibit 3. Guestroom Experience ............................................................................. 53

Exhibit 4. Negative Impact ........................................................................................ 55

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 CHAPTER 1 - INTRODUCTION

The concept of delivering quality service for ensuring guests

satisfaction to achieve guests’ loyalty and subsequent repeat business

has always been a normal assumption on the part of many theorists and

practitioners (Bowen and Chen, 2001). What value does a satisfied guest

really return to the hotel industry? Further, is guest loyalty really critical to

a successful business in the hotel industry?

The main discussion is whether high quality service actually

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encourages to satisfied guests to return for repeat visits to the same

hotel, and conversely, whether low quality service leads to low

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satisfaction, discouraging guests from returning. This assumption is a
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widely-held belief, provided the hotel offers quality service to gain guest

satisfaction and, in return guest loyalty.

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Due to increasing global market competition, many hotel

companies are facing challenges in retaining customers. Some market

researches have proven that most hotel companies in Europe and in the

U.S. will lose half their customers over a span of five years (Ganesh,

Arnold and Raynolds, 2000). By raising satisfaction or quality standards,

companies gradually raise guests’ expectation level, which then makes it

more difficult and more costly to please them. Holding onto a returning

guest is important to a hotel because over time they reduce the cost of

service. A returning guest knows the product; requires less information;

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purchases more services; is will to pay higher prices for those services;

and willingly offers word-of-mouth recommendations to others (Ganesh,

Arnold, and Reynolds, 2000).

Researchers and marketers have begun to question the actual

return on the hotel’s investment; specifically, spending more on quality

improvements with the purpose of satisfying customers (Zeithaml, Berry,

and Parasuraman, 1996). This question continues to surface even

though the market clearly demonstrates that customer always seeks

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quality regardless of how much he or she pays (Gitomer, 1998). In this

light, some researches argue that improving service quality alone does
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not achieve desired customer loyalty. Rather, improvement of overall
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customer satisfaction is what leads to greater loyalty and repeat

customer (Rungting, 2004).

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For this reason and for the purpose of this work, research on

customer loyalty focused primarily on customer satisfaction.

Common Perception
Common dimensions of service satisfaction include: service quality,

product quality, price, and location. Researchers suggest the “people

factor” (i.e., service quality) may be the most salient of these dimensions

in determining overall satisfaction and in securing repeat business in the

service industries (Ganesh, Arnold, and Reynolds, 2000; Yüksel and

Yüksel, 2002). Therefore, satisfaction with a product or service offered

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has been identified as a key determinant for loyalty and, perhaps more

important, a company’s profitability.

It is also commonly known that there is a positive relationship

between customer loyalty and profitability. Reichheld and Sasser (1990)

found that when a company retains just 5 percent more of its customers,

profits increase by 25 percent to 125 percent. Gould (1995) helped

consolidate the interest in loyalty through his research in support of

Reichheld and Sasser’s work. Along that line, marketers are seeking

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information on how to build customer loyalty.

The increased profit from loyalty comes from reduced marketing

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cost, increased sales, and reduced operational cost (Bowen and Chen,
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2001). Loyal customers are less likely to switch because of price. In

addition, they make more purchases than similar non-loyal customers

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(Reichheld and Sasser, 1990). Raman (1999) states, loyal customers

serve as a “fantastic marketing force” by providing recommendations and

by spreading positive word-of-mouth, forming the best available

advertising activities a company can get.

Loyal customers increase sales by purchasing a wider variety of

the hotel’s products and by making more frequent purchases. Bowen

and Shoemaker (1998) found loyal hotel guests had higher food and

beverage purchases than non-loyal guests. They also found loyal guests

cost less to serve; in part because they know the product and require

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less information. They even serve as part-time employees. The authors

have collected anecdotes from service employees, stating how loyal

guests are eager to serve as employees, and in a way, act as positive

Public Relations Agents for the hotel by, telling other guests about the

great restaurants in the hotels. Therefore, loyal customers represent an

information source for the other guests.

Therefore, in this study focusing on the reasons why guests rate

higher scores for satisfaction may lead to better understanding of the

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customer loyalty.
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Problem Statement
Improving customer satisfaction is a critical component of the
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hospitality industry’s value proposition to the guests (Siguaw a. Enz,

1999). Consequently, the hospitality industry spends millions of dollars

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per year to better assess guest satisfaction and understand the elements

of loyalty. With an understanding of what causes guests to stay and to

return, hoteliers can act to increase loyalty.

Purpose of the Study

The main purpose of this study is to examine the relationship

between customer satisfaction and customer loyalty in the hotel industry

in Croatia. The main objectives are to develop and implement a method

for hotels to identify attributes increasing customer loyalty. A second

purpose is to produce a methodology, which can be replicated by other

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hotels. Finally, this study re-examines the antecedents of loyalty to

determine what creates loyalty towards a hotel.

Hypothesis
For the purpose of this study, a loyal guest is defined as a

customer who holds favorable attitudes towards the company; commits

to the repurchase of the product or service; and recommends the product

or service to others.

This research addresses a number of questions, which examine

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the relationship between guest satisfaction and guest loyalty in the hotel

context. Accordingly, we can offer the following hypotheses:

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• H1: Hotel service system design elements are positively related to
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guest loyalty.

• H2: Guest satisfaction with reception, guestroom, food and beverage,

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ambience, and price is positively related to guest loyalty.

• H3: Satisfied guests exhibit higher levels of purchase involvement

than dissatisfied guests.

• H4: Satisfied guests provide stronger positive word-of-mouth

advertising than dissatisfied guest.

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Methodology
To test these hypotheses, research has been conducted at Hotel

Bristol in Opatija, which is located in northwestern part of Croatia. The

hotel is a 4-star property, located in the city centre, across the central city

park and only a few steps from the sea side.

The photo-elicitation technique has been used as a way of

soliciting guest feedback. This technique encourages guests to use

images and descriptions in responding to a hotel’s design and amenities.

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In a photo-elicitation assessment, the hotelier simply gives participating
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guests the use of a digital camera to photograph whatever catches their

eye as being meaningful; both inside and outside of the hotel area. This
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new image-based approach in guest feedback in contrast with traditional

written surveys has been introduced in the hotel property for the first
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time.

Guest participants have been taking the photographs of hotel’s

service system design elements they consider important then discussed

those photographs in a personal interview. Along with use of a digital

camera, guests were asked to complete an information sheet. This

information sheet requested contact information, demographic

information, the use of the hotel (e.g., frequency of stays, length of

relationship, factors considered in making a reservation, and type of

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traveler), as well as responses to a brief set of satisfaction and loyalty

scales. In addition to three items for ambience, service, and overall

satisfaction, scale items measure the loyalty behavior items such as

commitment to repurchase the product/service and recommendation the

product to others.

Significance of the Study

To identify attributes increasing customer loyalty, hotel companies

need to consider what happens before, during, and after the guest

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interacts with the property. In that light, it is important to look closely at

what is measured and the way it is measured.

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Customer satisfaction is a crucial part of loyalty, but customer
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loyalty cannot be achieved by satisfaction alone. An enterprise can offer

satisfaction without loyalty, but not loyalty without satisfaction (Kirkby et

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al., 2003). Thus, this study provides insights into customer loyalty by

examining customer satisfaction and service quality.

The primary goal of the present study was to provide a framework

for other hotels to use in replicating this research process for their own

marketing research.

The short-range consequences of this study were to better

understand current service quality, guest satisfaction, and loyalty of the

hospitality industry with participant observation from visitors of a subject

hotel. It provided managers with insights as to why guests leave satisfied

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or dissatisfied from their property and where short-term improvements

need to be made to retain business and guests.

As a result of this study, long-range consequences were that hotels

should use survey-based feedback on a continuing basis. This result

helps managers make effective operational decisions. In addition, it aids

managers in adjusting service system design elements and amenities so

as to meet or even exceed guest demands.

Summary

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Customer satisfaction has been heavily emphasized in the

hospitality industry. Most recently, more and more researches have

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reported that even though customers had been satisfied or very satisfied
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with their original provider, they still switch to a different provider

(Skogland & Siguaw, 2004). Thus, if the companies want to increase

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customer loyalty, then they need to consider ways to build a relationship

with customers, including the way satisfaction influences their decision to

return to the same hotel.

Chapter One of this paper delineated the purpose and objectives of

the study. It presented research questions, definitions, assumptions, and

delimitations of the study. A review of literature in support of the research

questions follows. The researcher determined that the primary areas of

the study were customer satisfaction and customer loyalty. These areas

were identified as a result of current marketing literature, which strongly

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suggests a connection between customer satisfaction and customer

loyalty.

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 CHAPTER 2 - LITERATURE REVIEW

Introduction
This chapter reviews the literature on loyalty and customer

satisfaction. Although the major focus is on customer satisfaction in

service organizations, this chapter begins with a brief review of the

importance of customer loyalty in the hotel industry. This is followed by a

review of loyalty literature, which results in the construction of a definition

of service loyalty for use in this study. Next, factors thought to influence

the development of loyalty are discussed. In particular, emphasis is on

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customer satisfaction as the most important determinant for loyalty.
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Afterwards, the photo-elicitation approach is explained as a method for
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collecting guest feedback. This chapter concludes with a discussion of

how services differ from each other and how customer satisfaction may

differ across services.

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The Importance of Customer Loyalty in the Hotel Industry

The hotel industry today has been recognized as a global industry,

with producers and consumers spread around the world (Kandampully et

al., 2000). The use of hotel facilities such as: guestroom, restaurant, bar,

spa or wellness services, is no longer considered a luxury. For many

people, these services have become an integral component of their

lifestyle. Moreover, in the last two decades, demand for supply of

hospitality services beyond that of traditional services intended for

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travelers have escalated the growth of the hospitality industry globally,

leading to intense competition in the marketplace (Kandampully et al.,

2000).

According to Kandampully and Suhartanto (2000), one of the

greatest challenges facing hotel organizations today is the ever-growing

volume and pace of competition. Competition has major implications for

the customer, providing increased choice, greater value for money, and

augmented level of service. Additionally, there is little to distinguish one

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hotel’s products and services from another. Thus, it is imperative for

hotel organizations to gain a competitive advantage.

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To gain a competitive advantage, hotel operators are using two
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commonly-known strategies. They are:

1. Providing low-cost leadership through price discounting, and

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2. 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 hotel’s medium- and

long-term profitability. Thus, 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 (Kandampully et al., 2000).

Due to the importance of customer loyalty, companies are trying to

enhance their customers’ loyalty through retention programs and

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relationship marketing strategies (Hallowell, 1996). Customer loyalty is

important because loyal customers bring many benefits to a firm.

According to Reichheld and Teal (1996), the various advantages of

customer loyalty include: a continuous stream of profit, reduction of

marketing cost, growth of per-customer revenue, decrease in operating

cost, increase in referral, increase in price premium, and switching

barriers among loyal customers who do not easily surrender to the

competitors’ promotion efforts. Considering these benefits, customer

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loyalty is a necessary prerequisite for the future survival of hotel

organizations (Reichheld and Teal, 1996; Reinartz and Kumar, 2000; Yi

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an Jeon, 2003).
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A Definition of Customer Loyalty

Customers display varying degrees of loyalty, commitment, or
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allegiance in various aspects of their daily interactions. Loyalty also

occurs in consumption situations, and has received much attention in the

marketing literature (Kandampully et al., 2000). Generally, the term,

customer loyalty, has been described as occurring when customers:

1. Repeatedly purchase a good service over time, and

2. Hold favorable attitudes towards a good service.

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