A Study of Service Quality, Customer Satisfaction, Corporate Image and Customer Loyalty in the Hotel Industry in Malaysia

7/27/2019 A Study of Service Quality, Customer Satisfaction, Corporate Image and Customer Loyalty in the Hotel Industry in

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ePROCEEDINGS FOR 2011 INTERNATIONAL RESEARCH CONFERENCE AND COLLOQUIUMContemporary Research Issues and Challenges in Emerging Economies

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A STUDY OF SERVICE QUALITY, CUSTOMERSATISFACTION, CORPORATE IMAGE AND CUSTOMER

LOYALTY IN THE HOTEL INDUSTRY IN MALAYSIA.

Cheng Boon LiatINTI International [email protected]

Prof. Dr. Md. Zabid Abdul RashidUniversiti Tun Abdul Razak

[email protected]

ABSTRACTEvaluation of customers perception and satisfaction of service quality is widely acknowledged as being afavourable strategy in the hotel industry. This research aims to provide an assessment of service qualitysuggested in the European Perspective by empirically examining hotel guests perception of process (orfunctional) quality and outcome (or technical) quality; and the relationships between the perceived servicequality, customer satisfaction, corporate image and customer loyalty in the Malaysian hotel industry. Thedata was collected through self-administrated questionnaire from 500 hotel guests using systematicsampling approach. Structural Equation Modelling (SEM) was used to analyse the reliability and validity ofdata and the hypothesised relationships in the proposed research model. The findings for this studyshowed that process quality and outcome quality had positive impacts on guest satisfaction. This studyalso found that customer satisfaction and corporate image play significant roles in building a strongcustomer loyalty base. Another noteworthy finding was that corporate image served as a partial mediatorin the relationship between customer satisfaction and customer loyalty. These findings would help hotel

operators formulate and implement effective marketing management strategies to not only cope with thekeen competition in the hotel service industry but also boost their profit margins.

KEYWORDS: service quality, customer satisfaction, corporate image, customer loyalty, hotel industry.

INTRODUCTIONThe hotel industry in Malaysia has experienced tremendous growth, thanks to the booming travel andtourism trade. The hotel industry will continue to offer copious commercial opportunities for the countryand businesses alike. In 2010, tourist arrivals to Malaysia reached a new high of 24 million. It is thehighest ever for the sixth straight year. The Tourism Ministry is targeting an increase of 25 million touristsvisiting the country in 2011, with a projected tourism revenue of RM60 billion (The Malaysian Insider,2011). Furthermore, the United Nations World Tourism Organisation (UNWTO) placed Malaysia in the topten list in terms of tourist arrivals for 2009 (Bernama, 2010). In line with the growing number of tourists,the hotel industry in Malaysia has also stepped up its development and upgrading programmes. By theend of 2010, the Malaysian Association of Hotels (MAH) recorded a total of 515 hotels with 98,238 hotelrooms to cater to tourist arrivals (MAH Press Release, 2010). Its commitment towards the industry is veryencouraging, and has stirred many hotel operators to strive harder in improving the quality of their service.

Due to the competitive nature of this industry, it is imperative for hotel operators to constantly seek newways to improve their services, as well as map out strategies to provide memorable stays for their patrons.They have to maintain a delicate balance between catering to the most basic needs of their guests, andat the same time, pampering them with all the comforts available, thus making their hotel stay anenjoyable and unforgettable experience. Thus, it is important for hotel operators to keep abreast of the


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current and future needs of the ever-evolving industry, and respond to the demands of increasinglysophisticated hotel guests. Innovation and creativity are crucial in maintaining a competitive edge in thehotel industry. Hotel operators need to create unique, distinctive service elements to exceed the hotelguests expectations; translating their experiences into a favourable corporate image and creatingcustomer loyalty.

This study explores the impact of process quality and outcome quality on customer satisfaction. Processquality is judged by guests during the process of hotel services being performed, whereas outcomeservice quality is judged by guests after the hotel services have been performed. This study alsoinvestigates the extent to which such perceptions influence customer satisfaction. Secondly, this studyexamines the inter-relationships of customer satisfaction, corporate image and customer loyalty in thehotel industry. Furthermore, the mediating role of corporate image on customer satisfaction and customerloyalty in the Malaysian hotel industry are evaluated.

LITERATURE REVIEW

Service quality is consumers judgment of the excellence and superiority of the service encounter(Zeithaml & Bitner, 2003). The concept of service quality has been increasingly popular since its inceptionin the late 1970s (Antony, Antony, & Ghosh, 2004). Service quality is vital to the success of any service

organization (Shahin & Dabestani, 2010). In recent decades, service quality has become a main area ofattention among practitioners, managers and researchers due to its significant impact on businessperformance, cost, customer satisfaction, customer loyalty and profitability (Seth, Deshmukh, & Vrat,2005). The importance of service quality in both domestic and international markets is increasinglyrecognised in parallel with economic development and increasing standards of living. The hospitalityindustry, especially hotels, which has a high level of customer contact is not an exception to thisobservation (Claver, Tar, & Pereira, 2006; Soutar, 2001). Perceptions of service quality are formed whencustomers experience feelings and attitudes during the receipt of hotel services, and customers form theirexperiences based on their personal perceptions of the service (Abbasi, Khalid, Azam, & Riaz, 2010;Shahin & Dabestani, 2010). Evaluating customers perception and satisfaction of service quality is widelyacknowledged as being an effective strategy to boost profitability in the hotel industry.

In order to provide a better service quality, hotels operators found it necessary to have their services

evaluated. As a popular instrument to measure organisational service performance, SERVQUAL hasbecome the model with the widest application in service marketing literature, and compels the attentionamong practitioners and academics (Ting, Boo, & Othman, 2011). Despite being widely cited in servicemarketing literature, it has been subject to much criticism (Douglas & Connor, 2003; Ting et al., 2011).Numerous scholars have tried to replicate and refute its structure and conceptua lisation (Blei,Teanovi, & Psodorov, 2011). One of the main weaknesses pointed out by its critics is that theSERQVUAL instrument focuses mainly on the service delivery process, that is, process quality (Grnroos,1990; Kang & James, 2004; Kumar, Smart, Maddern, & Maull, 2008); it neglects the significant roleplayed by outcome quality at the end of the service delivery process. Since it is generally agreed thatservice quality is a multidimensional or multi-construct structure (Cronin & Taylor, 1992; Ekinci, Dawes, &Massey, 2008; Grnroos, 1990; Kang & James, 2004; Parasuraman, Zeithaml, & Berry, 1985, 1988), it isfelt that using the SERVQUAL model does not reflect service quality adequately. According to severalresearchers (Grnroos, 1982, 1990; Kang & James, 2004; Lehtinen & Lehtinen, 1982), service quality, asperceived by customers, comprises two distinctive components, namely process quality and outcomequality. By leaving out the latter, the SERVQUAL instrument does not give adequate information, resultingin the possibility of arriving at the inadequate conclusions about the service quality of a hotel.

In this respect, Brady and Cronin (2001) noted that service quality theories are dominated bymultidimensional and multi-construct structures based on either the American or European perspective.The focus on only process quality attributes is referred to as the American perspective of service quality,whereas the European perspective suggests that service quality should consider both process andoutcome quality aspects. Reviews of past literature indicate that much of the earlier research in hotelservice quality has concentrated on the SERVQUAL instrument, and consequently, on the process quality


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aspect (Kang, 2006). Less attention has been paid to the European perspective (Ekinci et al., 2008; Kang& James, 2004; Kumar et al., 2008), especially in the hotel industry in Malaysia. As such the first andsecond hypotheses for the study are postulated as follows:H1: There is a pos it ive relationship between proc ess qual i ty and cus tom er satisfaction .

H2: There is a pos it ive relationship between outc ome qual i ty and cus tom er satisfaction.

Customer loyalty is viewed as a deeply held commitment to buy again a preferred product or patronise aservice consistently in the future, thereby causing repetitive purchase (Oliver, 1997). Customer loyalty hasbeen well-researched topic in the hospitality industry (Kang & James, 2004; Wilkins, Merrilees, &Herington, 2010). According to these studies, customers display differing degrees of loyalty, commitmentor allegiance in various aspects of their daily interactions. Hotel operators need to understand the mostinfluential factors in customer loyalty in order to devise and implement strategies to ensure loyalty fromexisting and prospective guests (Chitty, Ward, & Chua, 2007; Kandampully & Suhartano, 2000; Wilkins etal., 2010). It is generally agreed that satisfaction is an indicator of customer loyalty. Customer satisfactiondepends on the extent of service improvement (ONeill, 2001). Nevertheless, Pullman and Gross (2004)believe that even though customer satisfaction is vital to the hotel industry, customer loyalty is even moreimportant because it is an indicator of success for the service industry, especially the hospitality sector.Wilkins et al. (2010) stated that if a hotel is able to expand and maintain a large and loyal customer base,

its long-term success is ensured. In the hospitality industry, customer loyalty is a treasured asset becauseof the keen competition. When a hotel guest has positive feelings towards the hotel, he is likely not only tobe a repeat customer, but will also recommend the hotel to others (Berry, Will, & Carbone, 2006).

Much research has been carried out to explore the relationship between customer satisfaction andcustomer loyalty in recent years. The focus is on the importance of predicting customer behaviour,especially with regard to customer satisfaction construct and the satisfaction-loyalty link (Pullman & Gross,2004; Ramanathan & Ramanathan, 2010). It has been found that customer satisfaction is positivelycorrelated with customer loyalty in the hotel industry (Chitty et al., 2007; Kandampully & Surhatano, 2000;Schall, 2003). In addition, a study carried out in a service factory by Olorunniwo, Hsu, and Udo (2006)found that the correlation between customer satisfaction and customer loyalty was significantly high; theresearch findings clearly showed that satisfied guests were more likely to remain loyal to the serviceproviders.

However, not all researchers are convinced that customer satisfaction will translate into customer loyalty.Several studies have confirmed this scepticism (Abbasi et al., 2010; Bowen & Chen, 2001; Ladhari,2009b; Skogland & Siguaw, 2004). Other researchers suggested that satisfaction is a necessary but not asufficient condition for loyalty, as satisfied customers would turn to other service providers whom theybelieve could offer better value and quality (Bennett & Rundle-Thiele, 2004; Egan, 2006; Mcllroy &Barnett, 2000). The research findings of Dowling and Uncles (1997) and Yi and Jeon (2003) posed furtherchallenges by indicating that customers become loyal to a loyalty programme instead of the brand behindthe programme or the company. Additionally, the SatisfactionLoyalty model presented by Olsen (2002)indicated that a high level of perceived service quality led to a high level of customer satisfaction, which inturn led to customer loyalty. Although the relationships between service quality and loyalty were positivelycorrelated, results varied across various stages of the study. The results of the study did not supportcustomer satisfaction as an indicator of customer loyalty (Olsen, 2002). As such, there is a need toinvestigate this relationship further. Accordingly, the third hypothesis is postulated as the following:H3: There is a pos i t ive re la t ionship between cu stomer s at is fact ion and cu stom er loyal ty .

Intense competition in the hotel industry worldwide has made operators seek long-term goals to stayprofitable. The ability to identify strategies which will give them a competitive edge is crucial. Theantecedents of customer satisfaction are no longer confined to the tangible components of the hotelservice; the quality of the service is just as important. In fact, if customers are satisfied with the hotelservice components, the hotel would enjoy a unique advantage of having a long-term competitiveadvantage. Therefore, customer satisfaction plays a significant role in helping to sustain customer loyaltyand more importantly, enhances the corporate image of the organisation (Han, Hsu, & Lee, 2009).


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The customers past experience with the hotels services is considered to be the most influential factor indetermining corporate image (Kandampully & Surhartanto, 2000). According to Kandampully and Hu(2007), there is a statistically significant relationship between customer satisfaction and corporate image.Several studies have been carried out to investigate the influence of corporate image on customer loyaltyin the tourism and hospitality industry (Back, 2005; Chen & Tsai, 2007). Nevertheless, in the hotelindustry, the impact of customer satisfaction on corporate image, has not been thoroughly researched. Toprovide further empirical evidence, especially with regard to the hotel industry in Malaysia, the fourthhypothesis is formulated as such:H4: There is a pos it ive relations hip between cus tom er satisfaction and corp orate image.

Corporate image is defined as the perception of an organisation in the customers minds, referring to thebrand and the kind of associations that customers obtain from a brand, goods, service and/ororganisation (Nguyen & Leblanc, 2002; Simoes, Dibb, & Fisk, 2005). According to Faullant, Matzler, andFller (2008), imagery studies have a long tradition in tourism research. Many studies focus on themeasurement of destination image (Echtner & Ritchie, 1993), the structure of destination image(Walmsley & Young, 1998), and the formation of image (Baloglu & McClearly, 1999). Research hasshown that corporate image has a significant influence on customer loyalty and that the perception ofcorporate image drives customer loyalty (Faullant et al., 2008; Han et al., 2009; Kandampully & Hu, 2007;

Kandampully & Suhartanato, 2000, 2003). In contrast, a recent study indicated that image had no directimpact on loyalty. Using an exploratory approach, Chi and Qu (2007) tested the impact sequencesempirically. Their finding, however, was less persuasive from a theoretical perspective. Hence it is clearthat there is little agreement among researchers (Faullant et al., 2008; Ryu, Han, & Kim, 2008) regardingthe relationship between corporate image and customer loyalty. This being the case, the fifth hypothesisis postulated as below:H5: There is a pos it ive relations hip between corp orate image and cu stom er loyalty.

Much research has been carried to investigate the role played by corporate image in determiningcustomer perception and consequent behaviour. However, there is little empirical evidence to support therelationship between corporate image and customer loyalty (Kandampully & Hu, 2007, Kandampully &Suhartano, 2000, 2003; Han et al., 2009). According to Faullant et al. (2008), although customersatisfaction drives loyalty, it is not a very reliable, and certainly not the only determinant of loyalty. In a

study conducted at Alpine ski resorts, Faullant et al. (2008) found that both image and overall satisfactionplayed a significant role in determining customer loyalty. However, the relationship between customersatisfaction and customer loyalty did not seem to be linear. There are other studies which have indicateddoubts about the predictability of loyalty if its measurement is based only on customer satisfaction ratings,not taking into account corporate image. Hence, Kandampully and Suhartanto (2003) advocated theinclusion of corporate image and customer satisfaction in one model as it would highlight the significanceof corporate image and would also provide a better understanding of customer loyalty. Taking thissuggestion into account, the sixth hypothesis is postulated as follows:H6: Corporate image mediates the relationship between hotel guests satisfaction and their loyalty.

Based on the review of the aforementioned past studies, this study proposes the conceptual modelshown in Figure 1.

Figure 1Conceptual Framework for the Study

Customer

Satisfaction

H1

H5

H3

Process

Quality

Outcome

Quality

Customer

Loyalty

H2 Corporate

ImageH4


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Source: (Chitty et al., 2007; Kandampully & Hu, 2007; Kang & James, 2004; Kashyap & Bojanic, 2000;Olorunniwo et al., 2006)

METHODOLOGY

This study is explanatory in nature because it seeks to identify the impact of process quality and outcomequality on customer satisfaction, and to explore the interrelationships of customer satisfaction, corporateimage and customer loyalty in the Malaysian hotel industry. Five variables consisting of process quality,outcome quality, customer satisfaction, corporate image and customer loyalty are operationalised in orderto test the proposed research model. The data was collected through self-administrated questionnaire,including multiple scales of each variable and demographic enquiries. The values of Cronbachs alpha forthe scales and measurements adopted from the related literatures were more than 0.70 (ranging from0.76 to 0.96). Hence, the values were considered acceptable and reliable (Sekaran & Bougie, 2010). Atthe same time, to enhance validity of the questionnaires, all the borrowed items and scales were sourcedfrom existing literature in which the context of the literature was very similar with the context of this study.Summary of the variables for this study is presented in Table 1.

Table 1Summary of the Variables for the Study

Variable Hypothesis Source

1. Process Quality2. Outcome Quality3. Customer Satisfaction4. Corporate Image5. Customer Loyalty

H1H2H1, H2, H3, H4H4, H5, H6H3, H5, H6

Lau et al. (2006)Powpaka (1996) and Lim et al. (2008)Olorunniwo et al. (2006)Kandampully & Suhartanto (2003)Skogland & Siguaw (2004)

Systematic sampling approach was adopted in this study, the sampling units were 500 guests who stayedovernight at the hotels in Malaysia during the survey period. To collect the data required for the purpose

of this study, every tenth traveller leaving the country and passing through the security entrance afterchecking-in at the Kuala Lumpur International Airport (KLIA) was approached. A screening question wasasked to identify if they had stayed at least one night in the hotels within Malaysia. The researcherproceeded to distribute the questionnaire to only those who had stayed at a hotel; the entire process forone returned questionnaire took about 15 minutes.

Data analysis in this study comprised four main stages, namely, preliminary data analysis, descriptiveanalyses, reliability and validity tests, confirmatory factor analysis (CFA) and structural equation modelling(SEM). Both Statistical Package for the Social Sciences (SPSS 18) and Analysis of Moment Structure(AMOS 18) were used to analyse the data extracted from the questionnaires.

RESULTS AND DISCUSSIONSPreliminary data analysis

Preliminary data analysis is essential to ensure the data is suitable for further statistical analyses. Fivedifferent preliminary data tests/analyses, including data screening, outliers, normality, linearity andhomoscedasticity were conducted in this study. The data collected were entered into SPSS software, anda preliminary descriptive analysis was conducted to identify case(s) of missing data from the 500questionnaires collected. The descriptive analysis revealed that 5 cases recorded substantial missingvalues, and seemed to be at random, and thus these cases were dropped. This was in accordance to therecommendation made by Tabachnick and Fiddel (2007) that a procedure to deal with missing data is tosimply delete the case. After the data screening step, 495 responses were left. The outliers for therespective variables were detected by examining the boxplots in SPSS; and the outliers for the


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combination of variables are assessed with Mahalanobis Distance (D2). 17 cases were identified asoutliers and subsequently been eliminated from the sample. As a result, 478 responses were retained.

Based on the results of preliminary data analysis, all the items that make up the variables had absolutevalues of skewness smaller than 3, and absolute values of kurtosis smaller than 10 indicating the valuesof skewness and kurtosis of the measurement items do not violate the conservative rule of thumb withinthe conventional limits of normality criteria (Hair, Black, Babin, & Anderson, 2010; Kline, 2005).Collectively, the significant values for Deviation from Linearity are well above the threshold at 0.05 (Hairet al., 2010). In other words, the independent and dependent variables in this study demonstrate goodlinear relationships. Furthermore, all the scatter plots demonstrated linear patterns and have substantialR values that surpass 0.50. In sum, the relationships of the independent and dependent variables inthese hypotheses show homoscedastic relationships. Overall, the data collected in this study fulfilled therequirements for further statistical analyses.

Sample Characteristics

The gender distribution of the respondents was quite even, with 48.1% male and 51.9% femalerespondents respectively. The largest age group of the respondents was between 36 and 45, it followedby age between 46 and 55; and the smallest age group was respondent aged between below 25. 54% of

the respondents were Malaysian, and 46.0% were foreign tourists who visited Malaysia during the surveyperiod. The study succeeded in providing respondents who have wide variations on personalcharacteristics, Appendix 1 presents a summary of the sample characteristics.

Descriptive Statistics

Descriptive statistics in this study consist of mean and standard deviation. The mean scores for thevariables are: process quality (5.02), outcome quality (5.01), customer satisfaction (5.02), corporateimage (5.02) and customer loyalty (4.40). Besides, the mean scores for the five distinctive dimensions ofprocess quality are: tangibility (5.19), reliability (4.94), responsiveness (5.00), assurance (5.07) andempathy (4.92). In general, all the mean values are above the midpoint of 3.50, indicating that therespondents generally have positive perceptions with the variables in the context of Malaysian hotelindustry that are being examined in this study. The values of standard deviation for the variables are:

process quality (1.09), outcome quality (1.23), customer satisfaction (1.35), corporate image (1.18) andcustomer loyalty (1.28). The standard deviation values for the five dimensions of process quality on theother hand are: tangibility (1.22), reliability (1.18), responsiveness (1.24), assurance (1.21) and empathy(1.22). Collectively, the standard deviation values for the variables in this study are in the range from 1.09to 1.28. This indicates a narrow spread of data points around the mean, and fulfilled the statisticalrequirement for confirmatory factor analysis that will be discussed in the next section.

Confirmatory Factor Analysis (CFA)

According to Hair et al. (2010), researchers are now able to assess the validity of a variable in a stricterway with the introduction of covariance structure models and accompanying computer programmes suchas AMOS. In this study, confirmatory factor analysis was applied to test the model fit of the fivemeasurement models (variables). Specifically, two models (first and second order CFA models) weredeveloped for process quality (PQ). Next, model fit for the remaining variables, namely outcome quality(OQ), customer satisfaction (CS), corporate image (CI) and customer loyalty (CL) were measured. Theresults of the measurement models determined how well the items and/or dimensions captured theirspecific variables in this study. A group of goodness-of-fit indexes were used to determine the fit of therespective measurement models (variables), overall measurement model and the structural equationmodel in this study. These indexes are: Chi-Squared/Degree of Freedom (2/d.f.), Goodness-of-Fit Index(GFI), Root Mean Square Residual (RMR), Root Mean Square Error of Approximation (RMSEA), NormedFit Index (NFI), Comparative Fit Index (CFI), Tucker-Lewis Index (TLI) and Parsimony Normed Fit Index(PNFI).


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Service quality in this study consists of two main components, namely process quality and outcomequality. Based on the literatures in service quality, process quality in this study refers to the SERVQUALmodel developed by Parasuraman et al. (1988). The SERVQUAL model consists of 22 items spread overfive key dimensions: tangibility, reliability, responsiveness, assurance and empathy. Prior to test themodel fit of the structural model, two goodness-of-fit analyses (in two different models) were conducted inthis study. The thresholds for the goodness-of-fit indexes and the model fit for the various measurementmodels are presented in Table 3. The results show that Model A (Figure 2) appears to have anacceptable fit, and met the statistical requirement for further assessment in a second-order confirmatoryfactor analysis model. After the relationships among the five main dimensions of process quality and theirassociated items have been assessed in Model A. A second-order confirmatory factor analysis, Model B(Figure 3) was performed to test whether tangibility, reliability, responsiveness, assurance and empathy(the first-order factors) are the reflective indictors of process quality (the second-order factor). In sum, allthe indexes within Model B are well fitted within the thresholds. Thus, the goodness-of-fit is valid forprocess quality, and will be used in subsequent analyses. Besides, as illustrated in Table 3, values of theindexes represent an acceptable model fit, and indicate that the goodness-of-fit is valid for customersatisfaction.

Figure 2

Process Quality - Model A

Figure 3

Process Quality Model B

Table 3Goodness-of-Fit Indexes for the Measurement Models (Variables)

2/d.f. GFI RMSEA RMR NFI CFI TLI PNFI

Desi red Valu es 2 - 5 > 0.90 < 0.80 0.90 > 0.90 > 0.90 > 0.50

PQ (Model A) 3.237 0.889 0.068 0.066 0.929 0.949 0.941 0.800PQ (Model B) 3.254 0.910 0.069 0.070 0.926 0.948 0.941 0.818OQ 6.001 0.976 0.102 0.036 0.984 0.987 0.974 0.492


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OQ (Revised) 3.701 0.993 0.075 0.023 0.995 0.996 0.988 0.532CS 4.10 0.984 0.078 0.022 0.991 0.992 0.976 0.540CI 7.570 0.892 0.117 0.066 0.936 0.943 0.927 0.728CI (Revised) 3.560 0.946 0.073 0.047 0.975 0.982 0.974 0.696CL 21.033 0.837 0.205 0.154 0.879 0.884 0.825 0.586CL (Revised) 4.077 0.984 0.078 0.044 0.986 0.989 0.979 0.510

In contrast, as shown in Table 3, certain indexes (highlighted in bold) were below/above therecommended values or beyond the recommended tolerances for other measurement models includingoutput quality, corporate image and customer loyalty. AMOS outputs were examined to identify bettermodel fits for these measurement models. Examinations of the outputs, including factor weights andrecommended modification indexes (MI), have identified specific items that contributed to the poor fits.These items were removed from the measurement model: outcome quality (one item), corporate image(two items) and customer loyalty (two items). The fit indexes for the revised measurement models aresummarised in Table 3. Overall, the fit indexes indicate good level of model fits. Collectively, on the basisof the improved fit indexes the revised measurement models are accepted and met the statisticalrequirement for further analyses.

CFA in this study was conducted in a two-step approach recommended by Anderson and Gerbing (1988).After conducting the confirmatory factor analysis for each variable (measurement model), to furtherassess convergent and discriminant validity of all measures, an overall measurement model is subject toconfirmatory factor analysis. According to Hair et al. (2010), the overall measurement model is a modelwhere all the variables are free to correlate with one another; this is presented in Figure 4. As displayed inTable 4, the values of indexes show that the overall measurement model of this study appears to have anacceptable fit, and met the statistical requirements for reliability and validity analyses.

Figure 4CFA for the Overall Measurement Model

Table 4Goodness-of-Fit Indexes for the Overall Measurement Model



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2.274 0.903 0.053 0.738 0.904 0.944 0.940 0.846

Convergent Validity

Convergent validity refers to the degree to which scores on a test correlate with scores on other tests thatare designed to assess the same variable. In this regard, convergent validity tests the items within aspecific variable that are expected to be related are in reality related (Hair et al., 2010). In general, thereare three main procedures to assess the convergent validity of a set of measurement items in relation totheir corresponding variables. These procedures are factor loading, composite reliability and the averagevariance extractedeach variable (Hair et al., 2010; Sekaran & Bougie, 2010). Factor loading for all theitems within the five variables are: process quality (0.831 - 0.977), outcome quality (0.747 0.901),customer satisfaction (0.890 0.923), corporate image (0.604 0.874) and customer loyalty (0.769 0.859). Overall, factor loading for the items are above 0.60, and greater than the threshold recommendedby Hair et al. (2010). In specific, all the items are well loaded on the respective variables, supporting theconvergent validity criteria of the measurement instruments in this study.Composite Reliability (CR) values for the five variables are quite high, arranged in order these values are:customer loyalty (0.906), outcome quality (0.913), corporate image (0.934), customer satisfaction (0.9470and process quality (0.977). Overall, the CR values for all the variables in this study are above the cutting

point of 0.70 suggested by Hair et al. (2010), indicating that all items within the respective variables beingtested in this study met the statistical requirement for further analysis. Average Variance Extracted (AVE)is a measure of the error-free variance of a set of items. In other words, it measures the amount ofvariance captured by the variable in relation to the amount of variance attributable to measurement error(DeVellis, 2003; Fornell & Larcker, 1981; Hair et al., 2010). The AVE values are: process quality (0.807),outcome quality (0.726), customer satisfaction (0.805), corporate image (0.740) and customer loyalty(0.660). AVE values for the variables are well beyond the recommended guideline of 0.50 (Anderson &Gerbing, 1988). In sum, the AVE for the proposed variables in the research model met the statisticalrequirement for further analyses.

Discriminant Validity

Discriminant validity indicates how a variable is different from other variables. In other words, discriminant

validity describes the degree to which the operationalisation is not similar to (diverges from) otheroperationalisation that it theoretically should not be similar to (Hair et al., 2010). In this study, discriminantvalidity is tested with Pearsons Correlation Coefficient (two-tailed, significant level at 0.01), based on theprocedure suggested by Fornell and Larcker (1981). According to the procedure, the square root of theaverage variance extracted (AVE) for a given variable is compared with the correlations between thatvariable and all other variables in the model. If the square roots of the AVEs are greater than the off-diagonal elements in the corresponding rows and columns, this suggests that a variable is more stronglycorrelated with its items than with the other variables in the model.

As shown in Table 5, the diagonal elements in the correlation matrix have been replaced by the squareroots of the average variance extracted; and each variable in the model shared more variance with itsitems in comparison with other variables. As such, discriminant validity is considered adequate andsatisfactory at the variable level. Having considered the discriminant validity at the variable level, the

respective variables in the model are considered adequate indicating that variables that should not berelated are in reality not related; and have met the statistical requirement for further analyses in structuralequation modelling.

Table 5Correlation Matrix for the Overall Measurement Model

1 2 3 4 5

1. Process Quality 0.8982. Outcome Quality 0.837 0.852


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3. Customer Satisfaction 0.786 0.849 .8974. Corporate Image 0.809 0.836 .844 .8605. Customer Loyalty 0.627 0.677 .723 .756 .812Note: Square root of average variance extracted (AVE) is shown on the diagonal and in bold. Correlation coefficientsare shown in the off diagonal; all correlations are significant at the 0.01 level.

STRUCTURAL EQUATION MODELLING

The structural equation model analysis was conducted to test the relationships established in hypotheses.Specifically, it examined the interrelationships of process quality, outcome quality, customer satisfaction,corporate image and customer loyalty in the Malaysian hotel industry. Before analysing the structural links,the overall fit of the structural model to the observed data was examined in order to assess whether themodel is valid. Collectively, Table 6 shows all the indexes fulfilled the recommended threshold values andtolerances. Specifically, these values show that the structural equation model of this study is adequatelyfitted to the data. That is, the theory developed fits reality as represented by the sample data collected(Hair et al., 2010). This leads to the conclusion that the structural model is valid and acceptable for theanalysis of structural links.

Figure 5 shows a diagram of the structural research model, depicts the standardised path coefficients andpath significance for the five hypotheses. Overall, the results as presented in Figure 5 and Table 6indicate that the five hypothesised paths in the research model are significant at p < 0.001 level. Thesummary of parameter estimates and hypothesis testing for Hypothesis 1 to Hypothesis 5 are presentedin Table 7.

Table 6Goodness-of-Fit Results for the Structural Equation Model


2.990 0.916 0.065 0.057 0.918 0.911 0.906 0.822

Figure 5

Structural Equation Model - Standardised Estimate

*p < .001; Critical Ratio > 1.96

Table 7Structural Equation Modelling Results of Hypothesis Testing

Relationship ST. EST. ST. ERR. C. R. * Label Support

CS PQ 0.378 0.068 6.996 H1 YesCS OQ 0.787 0.048 13.983 H2 YesCL CS 0.241 0.087 21.554 H3 YesCI CS 0.875 0.038 2.799 H4 Yes

Customer

Satisfaction

0.38

0.55

0.24

Outcome

Quality

Customer

Loyalty

0.79 Corporate

Image0.88

Process

Quality


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CL CI 0.552 0.089 5.945 H5 YesNote: PQ: Process Quality; OQ: Outcome Quality; CS: Customer Satisfaction; CI: Corporate Image & CL: CustomerLoyalty; ST. EST.: Standardised Estimate (); ST. ERR.: Standardised Error; C. R.: Critical Ratio. *p < 0.001

In response to the sixth hypothesis postulated, this study adopts three different tests to examinemediating effect of corporate image in the relationship of customer satisfaction and customer loyalty.

These tests are Baron and Kennys 4 causal steps test, Sobels Z test and bootstrapping as suggested byWood, Goodman, Beckmann, & Cook (2008). Corporate image is claimed to be a partial mediator in therelationship between customer satisfaction and customer loyalty. This is because, the effect of customersatisfaction on customer loyalty is reduced (from b = 0.745 to b = 0.249) but remains significant aftercorporate image is added as the mediator (Baron and Kenny, 1986). The results of Sobels test revealeda change in unstandardised coefficient from 0.749 to 0.249. As the resulting unstandardised coefficient(0.249) is still significant (at p < 0.001), again it shows that corporate image acts as a partial mediator inthe relationship between customer satisfaction and customer loyalty in the hotel industry in Malaysia.Moreover, bootstrapping estimates using 1000 samples reveals that the lower bounds (lower limit) of the95% confidence interval is 0.365, while the upper bounds (upper limit) of the 95% confidence interval is0.665. These findings indicate that the indirect effect of corporate image on the relationship betweencustomer satisfaction and customer loyalty is significant from zero (Bauer, Preacher, & Gil, 2006;MacKinnon, Lockwood & Williams, 2004). Specifically, customer satisfaction has an indirect effect on

customer loyalty that is transmitted through corporate image.

DISCUSSIONS

The findings for this study showed that process quality had positive impact on guest satisfaction Thisfinding is consistent with most of past research which found that the perception of service quality(measured by using SERVQUAL model) is positively related to customer satisfaction in the hotel industryboth in Malaysia (e.g., Lau, Akbar, & Yong, 2005, 2006; Sidin, Rashid, & Zainal, 2001; Ting et al., 2011)and other countries (e.g., Dominici & Guzzo, 2010; Markovi & Raspor, 2010; Olorunniwo et al., 2006). Inconsistent with previous empirical studies (e.g., Kim, Jin, & Chang, 2009; Ting et al., 2011), the findingsof this study also confirmed that outcome quality indeed had significant impact on customer satisfaction.Nevertheless, in comparison, outcome quality was deemed to have a stronger influence than processquality on customer satisfaction in the Malaysian hotel industry. Process quality is made up of different

phases and stages of hotel services judged by guests during the process of hotel services beingperformed, process quality is critical for the success of hotel industry in Malaysia. Outcome quality isregarded as the final part in the perception of overall hotel service quality that a guest is accorded in ahotel. Thus, it has a more direct impact in determining the satisfaction level of the guest.

Owing to the benefits of customer satisfaction in retaining existing customers, both customer satisfactionand customer loyalty have become increasingly prevalent constructs for hospitality research in recentyears, despite the findings from several studies in the hotel industry indicating that customer satisfactionmay not always be the most crucial factor in building or strengthening customer loyalty (Bowen & Chen,2001; Skogland & Siguaw, 2004). Nevertheless, the finding of this study is consistent with most of thefindings in previous research, that is, customer satisfaction is an indicator of customer loyalty in the hotelindustry (e.g., Chitty et al., 2007; Kandampully & Suhartanto, 2000; Olorunniwo et al., 2006; Schall, 2003,Wilkins et al., 2010). A recent research conducted by Fen and Lian (2010) verified this statement bysuggesting that customer satisfaction directly influences the customers intentions to repatronage.

In order to understand the corporate image impact in the hotel industry, the researcher presented anumber of statements to hotel guests who took part in the questionnaire. These statements incorporatedvarious aspects of corporate image, as suggested by Kandampully and Suhartanto (2003). Theresearcher evaluated the perception of corporate image of the hotels in Malaysia from differentstandpoints of the guests. The results indicated that as the level of customer satisfaction among hotelguests increased, so did the degree of positive perception on the corporate image of the hotels. Thefinding is consistent with a previous research conducted by Kandampully and Hu (2007).


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Despite disagreement among researchers (e.g., Faullant et al., 2008; Ryu et al., 2008) regarding therelationship between corporate image and customer loyalty, the finding of this study supported previousresearch in the hotel literature that corporate image has a significant impact on customer loyalty (e.g.,Faunllant et al., 2008; Han et al., 2009; Kandampully & Hu, 2007; Kandampully & Suharhanto, 2000,2003). However, it should be noted that this finding did not concur with the finding by Faullant et al. (2008)and Chi and Qu (2007). Their research reported that the relationship between corporate image andcustomer loyalty did not seem to be linear. Customer satisfaction seems to have a strong influence oncustomer loyalty. However, as stated earlier, the relationship between customer satisfaction and customerloyalty does not seem to be linear (Faullant et al., 2008).

Many researchers have reported doubts about the predictability of loyalty solely due to customersatisfaction ratings which ignore image as predictor of loyalty. The result revealed that corporate imageserved as a partial mediator in the relationship between customer satisfaction and customer loyalty in theMalaysian hotel industry. According to Kandampully and Suhartanto (2003), the inclusion of corporateimage and customer satisfaction in one model not only serves to highlight the importance of corporateimage, but it also provides a better explanation for customer loyalty. They suggest that both image andcustomer satisfaction should be included when measuring customer loyalty.

CONCLUSION

The main objectives of this study were firstly to evaluate the influence of hotel guests perception ofprocess quality and outcome quality on customer satisfaction, and secondly, to examine theinterrelationships of customer satisfaction, corporate image and customer loyalty in the Malaysian hotelindustry. There is compelling evidence that both process quality and outcome quality are essential onservice quality improvement to ensure customer satisfaction. In terms of implications for servicemarketing theory, it is worth noting that a two-construct model (consisting of outcome quality and processquality) is a better measure in the perception of overall service quality than a model that concentrates onmerely process quality; as it provides a more detailed description of what the customer needs, andhow the organisation should deliver the services.

The finding of this study confirmed the marketing theory that customer satisfaction is the main driver ofcustomer loyalty. On the other hand, this study is one of the early empirical studies to examine whetherthere is a significant impact of customer satisfaction on hotel corporate image, specifically in the

Malaysian hotel industry. In terms of service marketing theory, the finding of this study confirmed thatcustomer satisfaction leads to a higher perception of corporate image. Another noteworthy finding wasthat corporate image served as a partial mediator in the relationship between customer satisfaction andcustomer loyalty. Hence, the finding from this study contributes significantly to the service marketingtheory by inferring the mediating effect of corporate image in the relationship between customersatisfaction and customer loyalty in the Malaysian hotel industry. Overall, the findings of this studyreinforced the understanding of the strategic marketing theory from the perspective of a developingcountry in the South East Asian region. By providing evidence from research on the interdependence ofservice quality, customer satisfaction, corporate image, customer satisfaction and customer loyalty vis--vis the hotel industry in Malaysia, and comparing it with previous research conducted in other countries,the similarities and differences of the findings in this study further highlighted the increasing importance ofstrategic marketing literature from an international perspective.

Customer satisfaction has become very important in present times because of the increasing competitionand decreasing profit margins in the hotel industry. Hotel operators should therefore ensure that servicesoffered to guests must impress as well as meet, if not exceed expectations. In view of that, hoteloperators need to hire personnel that have proper skills in hospitality, customer care services, accounting,catering and management, among other relevant skills aimed at ensuring and enhancing customersatisfaction. It is clear that increasing or maintaining customer satisfaction is being seen as a criticalstrategy to move ahead of the competition and to reap the benefits in terms of the life time value of thecustomer. In the hotel industry, to cultivate customer loyalty as well as stay ahead of their competitors,hotel operators must be able to obtain higher levels of customer satisfaction for the services supplied.


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The competitive nature in the hotel industry has stirred hotel operators to strive harder in improving theirrespective service standards to exceed the hotel guests expectations, this is because high customersatisfaction will translate into a more favourable perception of hotel corporate image. Besides, thefindings indicated that perception of corporate image played a strategic role in supporting customerloyalty in the hotel industry. The service marketing implication related to these issues are that the hoteloperators should have a long term strategic service marketing plans to maintain and further improve theircorporate image, and to maximise their long term business growth by building up a strong and loyal clientbase. The study demonstrated a partial mediation effect of corporate image in the relationship betweencustomer satisfaction and customer loyalty in the Malaysian hotel industry. The understanding of suchrelationships is crucial for hotel operators in Malaysia as well as worldwide. Hotel operators must directtheir efforts to understand how one component of the hotel service marketing and attribute impactsanother. Such information will help to strategise ways to use customer satisfaction and corporate imageto build up customer loyalty.

Though this study revealed several noteworthy findings, there were certain limitations. The implication ofthis study should therefore be considered in the light of these limitations. The main focus of this study wason process quality and outcome quality impact customer satisfaction. However, it did not examine othervariables such as customer value and employee performance which could influence customer satisfactionin the hotel industry. By excluding such variables, this study might not have captured the complete

domain of hotel customer satisfaction. Future studies should include other variables that may impactcustomer satisfaction in the hotel industry. This is especially important as the formative measurementmodel emphasises the complete domain of the variables. Furthermore, the measurement of customerloyalty is based on service quality, customer satisfaction and corporate image. So the findings andrecommendations were exclusively based on these variables as discussed. However, there might beseveral other factors that influence customer loyalty in the hotel industry such as switching barriers,demographic characteristics, cultural differences, duration of stay and hotel star ratings. Switchingbarriers prevent customers from switching their loyalty from one firm to another. Such barriers have beencrucial in internalizing retention of customers as they prevent consumers from switching loyalty. Thesefactors could be explored in the future studies, as the findings would yield valuable information for hoteloperators to help them develop effective marketing strategies.

The respondents in the survey for this study were guests who had stayed at least a night in a Malaysian

hotel during the survey period. The sample here therefore might not be representative of other guestswho patronise hotels in Malaysia during other periods of the year. Thus, the results might only reflect thegroup from which the sample was taken. A more ideal approach in the future studies would includediversified samples to ensure applicability of the research findings to other different settings. Anotherlimitation of the study was the use of a close-ended questionnaire to collect data for the investigation ofthe relationships of service quality, corporate image, customer satisfaction and customer loyalty with oneanother. Responding to close-ended questions might have restricted the feedback collected. Therespondents did not have a chance to express freely their opinions on the subjects under investigation.Hence, if open-ended questions were used in the future studies, researchers might be able to collectmore feedback to reflect the feelings of hotel guests, and subsequently might have more accuratefindings for hotel operators to help them develop effective marketing strategies.

To conclude, this study had contributed several important findings to the hotel industry in Malaysia,especially with regard to consumer behaviour and service marketing. This study emphasised theimportance of evaluating service quality perception and customer satisfaction so that more effectivestrategies could be adopted to strengthen hotel corporate image and to create customer loyalty in theMalaysian hotel industry. In line with the increasing sophistication of customers demands, coupled withintense market competition, hotel operators need to rise to the challenge of increasing and strengtheninga loyal customer base.

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Appendix 1Sample Characteristics (n = 478)

Demographic Variables Frequency Valid Percentage (%)

Gender:Male 230 48.1Female 248 51.9

Age Group:Below 25 38 7.926 35 96 20.136 45 120 25.146 55 105 22.056 65 86 18.065 or Above 33 6.9

Nationality:Malaysian 258 54.0Non-Malaysian 220 46.0

Purpose of Visit:Leisure 213 44.6Business 127 26.6Conference or Seminar 28 5.9Transit 35 7.3


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Visit Friends and Relatives 48 10.0Other Purposes 27 5.6

Marital StatusSingle or Never Been Married 191 39.9Married 239 50.0Separated 19 4.0Divorced 14 2.9Widowed 10 2.1Others 5 1.1

Monthly Household IncomeLess than RM3,500 48 10.0RM3,500 RM5,000 76 15.9RM5,001 RM6,500 133 27.8RM6,501 RM8,000 125 26.2More than RM8,000 96 20.1

Level of Education

Primary School or Below 5 1.0Secondary School 14 2.9Certificate or Diploma 151 31.6Bachelors Degree 142 29.7Masters Degree 76 15.9Doctoral Degree 13 2.8Professional Qualifications 53 11.1Others 24 5.0

EmploymentEmployed for Wages 182 38.1Self-employed 96 20.1Professional 62 13.0

Homemaker 19 4.0Student 43 9.0Retired 33 6.9Unemployed 25 5.2Others 18 3.7

Hotel Star RatingOne Star & Below 54 11.3Two Stars 96 20.1Three Stars 123 25.7Four Stars 108 22.6Five Stars & Above 97 20.3

Length of Stay1 - 3 day 183 38.34 - 6 days 223 46.77 9 days 49 10.210 days or Above 23 4.8


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Documents

A Study of Service Quality, Customer Satisfaction, Corporate Image and Customer Loyalty in the Hotel Industry in Malaysia