The Essay On Service Quality And Customer Loyalty In The Hotel And Spa Industry.

The Service Profit Chain

The hotel and Spa industry focuses on the provision of services. The continuity businesses in the hotel industry are based on building a long-term relationship with their customers. Therefore, there is the importance of maintaining the loyalty of the customers. There is a strong connection between loyalty and service quality. Customers can only return to a given hotel when service quality exist. In this respect, Hotel, Resorts, and Spas invest their time and resources to manage their relationships with their customers. By maintaining the service quality, service provider businesses focus on turning short-term and new customers into long-term loyal customers (Cohen & Bodeker, 2008, p. 67).

The successful operations of Resort and Spa organisations depend on the continuous improvement of service quality which matches the customers’ expectations. Today factors such as price, reliability, services and quality are crucial to organizations and customers. First, considering that the services provided in the hotel industry cannot be differentiated easily, services quality is important in attracting new customers as well as retaining the existing ones. Second, with the increasing competition and dynamism, companies are now focusing on creating, managing, determining and increasing the loyalty of the customers (Sloan, et al., 2008, p. 121). This paper focuses on an extensive study of the Service-Profit Chain as applied in the service providing industry like in the Hotel and Spa Industry. 

The service-Profit chain brings out the relationships between customer loyalty, company’s profitability and employees loyalty, productivity, and satisfaction. Customer loyalty is the existing link between revenue growth and profitability (as shown in the service- profit diagram above). Customer loyalty comes as a result of their satisfaction. In the other customer satisfaction is influenced by the value of services offered to them. Conversely, value comes from loyal, productive, and satisfied employees. Likewise, employees’ satisfaction arises from quality policies and services which support employees in providing satisfying services to the customers (Gardetti & Torres, 2016, p. 65).

The service profit chain can be defined from the leadership/ management perspective. The management treats each customer and employee with high importance. For instance, a Company CEOs take their time to interact with their customers and employees. When the management understands service delivery from each stakeholder’s perspective they will work on policies and business goals that align with quality service delivery. Likewise, much top management personnel is slowly becoming “servant leaders” where they lead with examples and not with decisions and policies as before (Lockyer, 2007, p. 119).

This section analysis each element of the service profit chain and then establish the link between that which makes the chain a whole.

Analysis of the Service-Profit Chain

External service value is also known as customer service. Likewise, “external” means addressing the issues that concern customers or clients who choose to buy the products or services provided by a company. The external service value is highly influenced by the internal service value (provided by the employees). When the employees are treated with respect and good payment, they are motivated and take pride in producing strong external services to the customers (Lovelock & Wirtz, 2011, p. 79). Basically, external value services refer to responding to the questions and queries from the customers in a polite and friendly manner as well as assisting them with their purchases. In a restaurant, for instance, the service associates who assist customers in making orders and billing services provide external value services.

External service value is crucial because it drives organization’s service. It is a major contributor to the clients’ satisfaction and competitive edge. The elements that encompass outstanding external service value are response time, consistency, assurance, and empathy. Companies are expected to train their employees on the importance of external service value in regards to personal and organizational growth (Lovelock & Wirtz, 2011, p. 87).  

Customers have become value-oriented. For customers to spend their money on a product or service, such a product or service must present the value equivalent to its cost. Customer’s satisfaction occurs when the achieved value after using a product or services is equivalent or surpasses the perceived value. Today, most customers use their tablets or smartphones to search for best hotels prior to their visits. The compare factors such as reading reviews by other customers and prices. Therefore, hotels create informative websites as the first step of creating customers value (Lockyer, 2007, p. 91). It should be noted that customers make their choices when the perceived value matched the cost of service (s). In this regards, External services value created by the company and its employees is a primary drive for customers’ satisfaction.

Customer Satisfaction

Satisfaction is described as the post-purchase determinant of whether or not customers like the products or services. Satisfaction refers to the discrepancy between the prior expectations by customers and perceived performance after using a product/ service. After using a product or service, customers compare their experience with other alternative products or services used prior which make them create a “worse than” or “better than” perception (Cohen & Bodeker, 2008, p. 96).

Improving the service quality in additional to improving the psychological and emotion reactions of customers is considered to be important aspects of the hospitality industry. Although hotels and Spas have an ultimate goal of increasing their profit by improving the technical components of their products and services this is not enough to retain their customers. Hospitality businesses invest more time to improve the customers’ perception of services. The positive perception created by the businesses is important because satisfied customers will spread the good news within their social circles (Sloan, et al., 2008, p. 112).  

External Service Value

There are several techniques used by hospitality businesses to improve customer satisfaction. First, creating dynamic services and memorable experiences which surpass customer expectations. Second, delivering on the promises given to the customers. Customers feel frustrated and dissatisfied when the services provided to them are inconsistent. And third, letting the customers vent their negative experiences. The business representatives should listen to the concerned customers attentively and then make a point of correcting the issues raised (Lovelock & Wirtz, 2011, p. 153).

Customer satisfaction leads to their loyalty to a given product or service. Satisfaction occurs when a given level of services quality value is achieved consistently. Likewise, customer loyalty increases with the increase of their satisfaction. On the other hand, customer loyalty reduces when the level of satisfaction decreases. In other words, highly satisfied customers are more loyal that the dissatisfied ones. Satisfied customers keep buying products or services continuously as well as spreading positive word of mouth to their fronds and social circles. Therefore, there is a positive association between customer satisfaction and their loyalty (Hoffman, et al., 2009, p. 113). 

1. Customer Loyalty
2. Definition

Customer loyalty is defined as the decision made by the customer to continuously buy a particular product or use a certain service. Customer loyalty to an organization is built from the perception that those companies offer best products and services in the industry. High level of loyalty among customers prevent customers from switching to substitute products or services by the competitors. Loyalty overcomes factors like better advertisements or prices by competitors. Loyalty is created through satisfaction, experience with a brand and consistency of service quality (Gardetti & Torres, 2016, p. 123). Maximising the loyalty of the customers forms a focal point for a business. Loyalty brings about the high level of customer retention. Creating high customer loyalty is more cost effective than investing in new technological acquisitions. This factor is more applicable in the Hospitality industry where businesses compete in building loyalty and improving customer retention rate (Cohen & Bodeker, 2008, p. 154).

 The attitudes and feelings experienced by clients after using the products and services provided by the hospitality businesses form a perception about the quality of the product or service. In the Hospitality industry, customer loyalty is measured on the basis of customers purchasing the same products or services repeatedly and they should be willing to recommend the same services to their friends and families. In the long run, loyalty generates a larger market share, quantifiable and positive financial results. Some of the benefits of customer loyalty are market share and high customer retention.

External Service Value as a Drive of Customer Satisfaction

However, not all loyal customers, in the hospitality industry, are driven by satisfying services. In has been established that some of them choose to remain loyal because of high price incurred when switching from one service provider to another. Second, customer loyalty does not translate to a 100% customer retention. Some customers prefer switching from one service provider to another so as to create new experiences with different service providers. Service quality has a direct impact on the customer loyalty. The quality of services provided is directly related to behavioural outcomes such as the word of mouth, switching, complaints and recommendations (Lockyer, 2007, p. 112).

To maintain customer loyalty and improve the retention rate of customers, the business employs several techniques. Some of the familiar methods used are;

1. Creating a brand value

Building loyalty and improving retention rate, businesses focuses on expressing their brand value to their customers. In simple terms, brand value is concerned with specifying the company values as well as the products or services offered. Brand value specifically the importance of the products and services provided and why they cannot be obtained somewhere else. The probability of customers switching to the products or services offered by competitors is the brand value is quantified to their satisfaction (Hoffman, et al., 2009, p. 132).

1. Creating loyalty programs

Loyalty programs should focus on rewarding customer loyalty. Apart from being inexpensive, these programs dramatically increase the product or service value and lifetime. When loyalty programs are effective enough, the customers’ rate of retention increase by reducing the value of purchases made by the competitors.

1. Pursuing the LostCustomers

Hospitality businesses are becoming personal when it comes to relating to their customers. This is an important step towards reclaiming their lost customers. For example, these companies have opened online service sites where there can interact with their customers. When a regular customer does not make a purchase for more than three months, the company representatives send them reminder emails. The customers feel appreciated and are likely to redeem their loyalty to the company. Communicating directly with the lost customers will definitely increase customer retention (Gardetti & Torres, 2016, p. 88).

1. Letting customers know exactly what is being offered

This is done by mailing newsletters to customers or making phone calls to them. Whichever the method of communication chosen, the point is that the company need to tell its customers exactly what they offer.  Businesses should not assume that customers are aware of them. Rather, the communication should be detailed with information about the products or services provided. This kind of communications helps in creating an emotional connection between the customer and the company, its products or services.

Customer Satisfaction

There is a positive correlation between customer loyalty and increased business revenue and profitability. Profit is calculated by subtracting expenses from revenue. To maximize revenue growth and profit, companies has two options; One maximising the revenue, and two, minimising the expenses. Customer loyalty has a huge influence on increasing revenue and reducing expenses. In terms of increasing revenue generation, loyal customers stick with the company longer compared to average customers. They buy more products or services. They make referrals which in return contribute to increased revenue generation and profitability (Gardetti & Torres, 2016, p. 132).

The second focus is no customer loyalty and minimising expenses. Studies have shown that it’s Nine times cheaper to support and maintain loyal customers compared to average customers. Supporting and maintaining employees is turn through conducting aggressive marketing and advertisement. Companies spend a lot of money, in terms of advertisement and marketing, to lure new customers. On the other hand, it does not require aggressive advertisement and marketing to convince loyal consumers because they have already formed an emotional connection with the products or services (Gardetti & Torres, 2016, p. 141).

Customer loyalty is not all about making the customers happy. Loyalty is key to maximising company’s profitability. According to a study conducted by Gardetti & Torres, (2016, p. 143), it cost nine times much to acquire a new customer than to maintain the current ones. Take a scenario of two companies. One focusing on customer loyalty while the second one focussing on acquiring new customers. The company selling to the loyal customer will obtain a higher profitability compared to the one trying to pursue the new customers. The scenario shows the value of promoting customer loyalty. Likewise, focusing on acquiring new customers to the expense the existing ones is considered as losing proposition especially in the competitive hospitality industry.

It is estimated that a company loses an average of 10% of its loyal customers every year. If the percentage loyal customers lost each year is reduced to 5%, then the profitability of the company would be increased by a range of 25% to 45% depending on the industry the business operate in. Likewise, 80% of the company’s revenue is realized from only from 20% of the existing customers. More Over, according to KISSMetrics, a leading global marketing research Company, the average cost of losing one customer is US$243 per annum. Therefore, the value of keeping loyal customers satisfied cannot be ignored. The probability of selling a product or service to an existing customer stands between 60% and 70%. On the other hand, the probability of selling the same product or service to a new customer stand between 5% and 20% (Lovelock & Wirtz, 2011, p. 133).

Customer Satisfaction as a Drive of Their Loyalty

Companies should forego short-term increase of sales and focus on building customer satisfaction which in return build customer loyalty. When a company focuses on making short-term sales at the expense of losing their customers, the cost of earning the trust of these lost customers would be huge in the future. Businesses should take the value of customer loyalty more seriously. Therefore, there is a positive correlation between customer loyalty and revenue growth and profitability. Customer loyalty increases the revenue growth and profitability by encouraging customers to buy repeatedly, reduce the business operating cost, generate referrals and establish favourable price premiums (Lockyer, 2007, p. 101).

Conclusion

Nevertheless, there is the need to connect other components of service profit chain with revenue growth and profitability. Even though businesses work hard to gain new customers, they should also put emphasises on retaining the current ones. The current customers are fundamental to the future of any business. Customers’ satisfaction occurs when a given level of services quality value is achieved consistently. On the other hand, the value proposition is represented by the products or services offered to the customers which help them to form an emotional and psychological connection. Likewise, customer loyalty increases with the increase of their satisfaction. When customers need and wants are precisely met by a product or service offered to them, there will buy them repeatedly. Repeated use of a product or service is referred to as loyalty. Loyal customers are connected to the company brand and become a fundamental part of the businesses future and continuity. Loyal customers spread a positive word of mouth about the company, brand value, and the product/ service to their friends and families who in return become new customers. Company’s profitability and revenue growth increase. All these components make the Supply-profit chain complete. External service value, customer satisfaction, customers loyalty and revenue growth and profitability are crucial to the continuity of any company especially those operating in the hospitality industry. 

References List

Cohen, M. & Bodeker, G., 2008. Understanding the Global Spa Industry. Chicago: Oxford: Butterworth-Heinemann.

Gardetti, M. A. & Torres, A. L., 2016. Sustainability in Hospitality: how innovative hotels are transforming the industry. Aizlewood’s Mill. New York: Greenleaf Publishing.

Hoffman, K. D., Bateson, J. G., Wood, E. H. & Kenyon, A. J., 2009. Services Marketing: Concepts, Strategies, & Cases. London: Cengage Learning.

Lockyer, T., 2007. The International Hotel Industry: Sustainable Management. Binghamton: Haworth Hospitality.

Lovelock, C. & Wirtz, J., 2011. Services Marketing: people, technology, strategy. 7 ed. Upper Saddle River: Pearson.

Sloan, P., Legrand, W. & Chen, J., 2008. Sustainability in the Hospitality Industry. 2 ed. Oxford: Elsevier/Butterworth-Heinemann.