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CHAPTER 2 THEORY AND LITERATURE REVIEW

2.1 THE DEVELOPMENT OF TRAVEL AND HOTEL IN CHINA

According to statistics from the National Tourism Bureau, as of the end of 2013, the national

total of 15044 hotels, guest room number about 200 million rooms 300 million beds, of which five

stars Hotel 604, 225261rooms; four Stars Hotel 2596, 53187 rooms. Compared with 2012, five

star level hotels increased 64; four Stars Hotel increased 241; Sam Sung class increased by 365; and

the two star and one star wine have different degrees of reduction. From the overall point of view on

the stock, the majority of domestic hotel group to achieve a rapid growth of the scale in

2012. Compar. Compared with 2012, the total number of domestic hotel group increased by 4, more

than 50 of the number of hotel group has 21, an increase of 3 over 2012, while the international

hotel group, the InterContinental hotel, Shangri-La hotel group, America Starwood Hotels Group

Three multinational giant number of hotel rooms in China has exceeded 2 million. The form table is

from Chinese statistical yearbook 2014.

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Different choice of different grades of hotels market positioning strategy, comprehensive

coverage, high concentration and low concentration of brand pattern has been basically formed.

Domestic hotel management group, the development of high Stars Hotel occupies the dominant

position, four or five Stars Hotel located in the local hotel management group in the proportion of

70%. At the same time, Rujia hotel, GreenTree Inn, 7 days hotel through the expansion

of economic group, have entered the top 50 of the globe hotel group. While the international hotel

management group, most of the international hotels group, or in high-end hotel, only a

few hotels group is the whole class hotel equipped with all-round development, such as IHG, Accor

Group and Wyndham group, they has a same number rooms of the top five stars hotel and the three or

four star in their Chinese market at the same time.

From the type and layout of the hotel's point of view, the group launched a different type of

hotel brand layout and expansion, and gradually formed 3 group camp: ( Chuanwen Zhang, 2012)

First, the brand of hotel group, such as Jinjiang, China Travel International, InterContinental

Hotels Group, Accor Group, hotel type their hotel brands covering tourism resort, conference and

business type, mid-range business type, almost all of the economic quick etc.;

Second, the high-end brand hotel group, such as Kaiyuan Group, BTG Jianguo, Hyatt, Wan Hao,

Shangri-La Hotel, hotel brand positioning and grades they mainly concentrated in the high-end five

star hotel, four Stars Hotel, but each type also mainly in the luxury business, conference and resort

and theme of the hotel boutique.

Third, the low-grade hotel group, such as the GreenTree Inn, such as home, 7 days, they are

mainly in the following three star economic hotel as the main project.

Four, the regional distribution of City Hotel and the pressure of market competition and further

promote the hotel to the two or three line of the city layout, the national market base In this form, but

the level of regional development is not balanced. The first Urban Inn performance indicators,

Shanghai, Guangzhou and Shenzhen in Beijing as the leading have achieved significant growth in

2012, the city of performance indicators or second-line tends to be gentle. Excess supply is still most

of the hotel market Chinese problems.

The main features of the future development of the hotel industry China The main features of the

future development of the hotel industry China: (Wangchong, 2009)

Hotel group development trend: In the increasingly high degree of international hotel industry, and

hotel management group has become the inevitable trend. The future, China need to participate in

international competition of hotel group, otherwise, will seriously hinder the process we become of

great tourism power.

At the same time, we should realize that the Chinese hotel group compared to the state and the

international hotel group, there is still a large gap. Whether it is the scale of operation, visibility, talents

management system, training mechanism, brand, market development, the external image, Chinese

Hotel Group in the future for a long period of time is very difficult with large foreign hotel group to

form a strong competition, therefore, the next period of about five years is the management group in

China the rapid development of the local hotel, a prime time to catch up with the foreign large-scale

hotels group.

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Development of information technology, the trend of intelligent hotel: To master the most

advanced international hotel things, such as application of information technology in the hotel industry,

which we are already doing, but we a lot of enterprises are still at a primary stage (Xunjing, 2005).

Compared with other domestic industries, the hotel industry in line with the international is proud, but

with the international standards, we still need a lot of to grasp and use. With the rapid development of

IT technology and other high-tech, high-tech innovation also show rooms traces, industry information,

networking, intelligent will become the new trend.

Stars Hotel scale and efficiency will be sustained and stable growth：In our country, social stability,

sustained economic growth, per capita income, improve the tourism and leisure has become a fashion,

to create a good foundation for the rapid development of the domestic hotel. The United Nations

Travel Agency forecast, to 2020,China may overtake France as the world 's biggest tourism destination

of the most popular,9500 – 1390million times, the average annual growth rate of 5.7% - 7.75%. In

2020 the world's 16 billion international visitors, Chinese will have 1300 million tourists, to become

the world's first entry.

The rapid development of high-grade hotel: At present, our country is still less than half the

number of Stars Hotel, Germany, Britain, France and Italy, the average level of the total number of

rooms, China Stars Hotel is about23 million, is expected to 5 within 7 years to grow to 50 million.

Chinese hotel market more than American is expected in 5 to 10 years. According to authoritative

estimates, the next ten years the average growth rate of high-end hotel number will be more than 15%,

therefore, to create high-end hotel growth source of future high-end hotel.

Chinese mainstream high-end hotel is to be the development of real estate industry and

multinational brands: The future for a long period of time, China hotel industry high-end hotel market

will continue to be the local real estate industry Multi-National Corporation brand of hotel

management mode of cooperation is the mainstream, the reason is in many aspects of domestic hotel

management group and the international famous hotel management group in the high-end hotel

business experience, mode of operation, reserve of talents and brand there is still a gap between the

construction etc. (Hanyu, Wangna, 2010). Real estate developers with the introduction of

Multi-National Corporation brand of hotel management, so as to enhance the real estate project grade

and added value of the profit model is fueling the prevailing wind, also further weaken the share of

domestic hotel management group in the domestic high-end hotel management market. However, we

should see, local hotel group is also aware of their own gaps and deficiencies in management,

vigorously expand the number of hotel at the same time, but also pay attention to pay close attention to

internal management system, brand construction, personnel training and the introduction of the

mechanism and the construction of information, thereby further reducing between these aspects and

the international hotel management group the gap in the Chinese, high-end hotel management market

to gradually expand its influence.

Resort hotel demand will grow rapidly: With the continuous development of tourism, leisure

tourism has gradually entered people's lives, resort hotels to adapt to the current tourism from

sightseeing to leisure type change in such a big trend. According to statistics, China's resort hotel is not

the world's top products. The hotel in strong demand, many of the world's top hotel management group

is rapid deployment Chinese, is likely to be the birth of a world-class luxury travel products in the next

few years. (Wangsai, 2014)

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Economics Hotel will still need to speed up development, brand integration: In recent years, the

rapid development of the economics hotel and the formation of the three camps: one is the national

domestic economics hotel brand; the two is the regional domestic economics hotel brand; three is the

international brand of economics hotel. Although there have been many economics hotel brand, but

according to statistics, at present the country hundreds of economics hotel brand, chain scale up to

more than 50 only about 15, the size of more than 10 chain is less than 30. In the future 3 to 5 years, on

the one hand, the economics hotel market will continue to struggle, capital development speed contest,

at the same time, the hotel brand competition, service competition and training the comprehensive

management ability of competition will be more and more in the competition dominant position. Those

in capital strength are weak, only pay attention to the scale and the core competitiveness of the

enterprises will face the fate of merger, acquisition. From the static point of view, the two or three line

and the rural market is still China ever bright Hotel development space, and the existence of a large

number of low-end, widespread non brand tourist hotel let also provides a broad market for mergers

and acquisitions, brand driven. State point of view, the future market pattern will be more than 10

well-known hotel brand oriented, market

2.2 LITERATURE REVIEWS AND RELATED THEORIES ABOUT HOTEL MANAGEMENT AND ROOMS

DIVISION OPERATIONS

The primary function of a hotel is to provide lodging accommodation. A large hotel is run by a

general manager and an executive committee that consists of the key executives who head the major

department: rooms division director, food and beverage director, marketing and sales director, human

resources director, chief account or controller, and chief engineer or facility manager (Philip R Kotler,

John T Bowen and James Makens 2014). These executives generally have a regional or corporate

counterpart with whom they have a reporting relationship, although the general manager is their

immediate superior. But hotel management structure differs among larger, midscale, and smaller

properties. The midscale and smaller properties are less complex in their management structure than

are the larger ones. However, someone must be responsible for each of the key result areas that make

the operation successful. The manager has the ultimate responsibilities for all human resources

decisions. The same scenario is possible with each of the following areas: engineering and

maintenance, accounting and finance, marketing and sales, food and beverage management, and so

on.

The larger hotels , the rooms division has several departments that all work together to please

guests. In midsize and smaller properties, those departments may be reduced in size and number, but

they still need to serve guests. The rooms division consists of the following departments: front office,

reservations, housekeeping, concierge, guest services, security, and communications.(John R. Walker,

1996)

Front Office

Front office has been described as the hub or nerve center of the hotel. It is the department that

makes a first impression on the guest and one that the guest relies on throughout his or her stay for

information and service. It’s duty is to enhance guest services by constantly developing services to

meet guest needs. The function of front office are the followings:

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To sell and up-sell rooms

The front office will hand over all the expected arrivals and available rooms after reservations

office closed at 6:00p.m. The front office will try to sell out all the remaining rooms to call-in or

walk-in guests to ensure 100%occupancy. Also, it should apply the yield management that is upselling

the features of a larger room, a higher floor or a better view in higher price for someone booking a

room with shortly notice when the demand of room is high.

To maintain balanced guest account

The office should make use of the property management systems(PMS) and point-of-safe

terminals(POS) to open a guest account for each customer and post all charges from the departments.

This means that guest charges from the various outlets are directly debited to the guest’s account and

payment can be received on guest check out or transferred to the city ledger.

To offer service such as handing mails, faxes, messages and hotel information

Customers always approach the front desk with questions so the front desk employees should have

enough knowledge about the hotel. The front desk is staffed throughout the twenty-four hours by three

shift to provide service. Ever shift has different duties to do. Most likely, the front desk need to note

things and check on the log book to see if there is some guests request for room switches, check on the

room status, number of expected checkouts still to leave in order to update the forecast of the night’s

occupancy and handle guest check-ins and take reservations.

Reservations

The reservation department is one first contact to the guest making the reservation for room. Since

some guests may be shopping for the best value, it is essential to sell the hotel by emphasizing the

hotel’s advantages. It’s main responsibility is to sell all of the hotel rooms for the maximum dollars and

avoid guest resentment of being overcharged. The reservation can be done by a variety of sources such

as telephone, corporate 1-800 numbers, travel agents, internet and walk-in. The central reservations

system interfaces with the hotel’s inventory and simultaneously allows reservations by individual

hotel reservation personnel. There are two types of reservation that the department need to consider.

Confirmed reservation

It is a reservation made with sufficient time for a confirmation slip including confirmed dates,

types of room booked, number of guests and soon. It is to return to the guests by mail or fax so that

they can bring the slip to the hotel to verify the booking. If the guest arrive late, the hotel may have the

right to cancel his or her reservation and sell the room to others.

Guaranteed reservation

The hotel will take the credit card number of the guest to ensure the payment of the room. The

guest chooses to have guaranteed reservation has the promise from the hotel to provide room even if

the guest arrive late. However, if the guest does not show-up, the hotel will charge him for one night

accommodation automatically.

Housekeeping

The four major areas of responsibilities for the executive housekeeper are as follows:

Leadership of people, equipment, and supplies

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Cleanliness and servicing the guest rooms and public areas

Operating the department according to financial guidelines prescribed by the general manager

Keeping records of supplies and equipment to control inventory

Concierge

The concierge is a separate department from the front office room clerks and cashiers. Concierges

serve to elevate a property’s marketable value and its image. They provide the special touch services

that can cater to a guest’s precise needs. They should not only have a detailed knowledge of the hotel

and its service, but also of the city and even the international details. Also, they can speak several

languages. They will assist the guests with a board range of service, such as restaurant reservation,

advice on local activities, tickets to show or VIP’s messages and special request.

Guest service

The guest service department is responsible to give the guest positive first impressions. The staff

consists of door attendant, bell person and concierge.

Door attendants are dressed in impressive uniforms. They greet guests at the hotel front door, assist

in opening or closing automobile doors, removing luggage from the trunk, hailing taxis, keeping the

door entrance clear of vehicles and giving guest information about the hotel and the local area in a

courteous and friendly way.

Bell person is mainly to escort guests and transport luggage to their rooms. They also need to

explains the service of the hotel and points out the features of the room to the guest. For example, the

lighting, TV, air-conditioning, room service etc.

Security

Security department is providing guest protection and loss prevention. And it includes four

elements.

Security officers make regular rounds of the hotel premises, observing the suspicious behavior and

taking appropriate action, investigating incidents and cooperating with local law enforcement

agencies.

Equipment includes two-way radios, closed-circuit television cameras, smoke detectors, fire alarms

and electronic key cards etc. which can provide the guest more safeguard.

Safety procedures are some guidelines for the staffs and the guests to ensure their safety. For

example, security officers should be able to gain access to guest room, store room and office all the

times.

Identification procedure is to offer identification cards with photographs to all employees. The

guests can contact with name-tagged employees that not only project a friendly image for the property,

but also useful for security reasons.

Communication

The communication department will manage the in-house communication, guest communication

and also the emergency center by CBX or PBX technologies. For example, the call billing system will

charge the customer if the customer make a long-distance call placed from the guest room.

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Also, communication department is a profit center. It is because hotels generally add a 50 percent

charge to all long-distance phone calls.

Guest cycle and key performance indicators of hotels

The Guest Cycle

Most likely, the guest cycle consists of four main stages: pre-arrival, arrival, occupancy, departure.

These stages are work in a cycle so these are known as guest cycle in whole. (Cizmar, S., Weber, S.

2000)

Pre-arrival in other words is reservation. It is the stage where the guest chooses the hotel and makes

the reservation. Important information is gathered at this stage, which allows the next stage to run

smoothly. Normal reservation, confirm reservation and guarantee reservation are the three types of

reservation in this stage. Normal reservation means the guest have book the room only. Confirm

reservation is that the customer will receive a confirmation number from the hotel regarding to the

booking for a room at a particular date, and the guest do not need to pay at this stage. Guarantee

reservation will charge the guest for the first room night even if they didn’t occupy the room; however

they will guarantee to have a room at all stage.

The arrival stage is when the guest actually arrives and registers at the hotel (check-in). Here the

guest verifies the information gathered previously at the reservation stage, confirms method of

payment, signs the registration card, and collects the key. The guest will classify for their room type

first, then the hotel will reserve a room from the whole; and hence, after deducting credit limits from

their credit card, the guest will collect the key.

The occupancy stage deals with security of the guest along with the coordination of guest services

to ensure guest satisfaction and try to encourage repeat guests. The front desk plays an important part

at this stage as this is the area where guests will make their requests or raise their problems, to which

the front desk staffs need to respond in a timely and accurate manner. At this stage the front desk need

to keep guest accounts up-to-date so that the final stage of the cycle runs smoothly.

Departure is the moment when the guest is ready to check out. The main objective here is to settle

the guest account, check if there is more guest charges after checking the room, update room status

information, and create a guest history record. In an attempt to ensure repeat guests, it is important to

find out if the guest has enjoyed their stay at this point.

Three key performance indicators:

Percentage of Occupancy: Percentage of occupancy in hotel industry refers to the percentage of

rooms occupied in a hotel at a given time. The occupancy rate helps a hotel’s administrators evaluate

their business and determine whether the hotel has a vacancy for letting out rooms to walk-in guests. A

hotel front-desk clerk or manager should know the information required to determine the hotel

occupancy. (Kotler, Bowen, 2014)

Percentage of occupancy is determined by dividing the number of occupied rooms by the number

of available rooms. Conversely, the vacancy rate is the number of rooms in a hotel that are not rented

out as compared to the total number of rooms in the hotel.

Percentage of Occupancy = (Rooms Occupied/Total Hotel Rooms )x 100%

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For example, if the hotel has 88 rooms and 44 occupied rooms, the formula for hotel occupancy

would be: 44 divided by 88, which equals 0.50 or a 50 percent hotel occupancy. The vacancy rate is

also equals to 0.50 or a 50 percent (44/88)

A 200-room hotel with 150 rooms occupied would have a 75% occupancy rate. And the vacancy rate is

25% (200-150/200)

Double/Multiple Occupancy Percentage: This is the proportion of a hotel’s rooms that are

occupied by more than one person. This percentage indicates that sales mix and helps balance room

rates with future occupancy demand. (Kim, W.G., Lee, Y-K., Yoo, Y-J. 2006)

It is a measure of a hotel’s staff ability to attract more than one guest to a room; the method to

compute double/multiple occupancy percentage is:

(Number of Double Rooms Occupied) or (Number of multiple Rooms Occupied) (Total Number of

Double Rooms) or (Total Number of multiple Rooms).

For example, ABC Hotel has 204 rooms: 45 are triple, 60 are double and the remaining is single.

On the night of May 9th

, the auditor counted 195 rooms occupied, 43 are triple, 58 are double, and the

remaining is single.

Double Occupancy Rate = 58 / 60 *100 = 96.67 %

Triple Occupancy Rate = 43 / 45 *100 = 95.56 %

Average Daily Room Rate (ADR): It is widely used in the hospitality industry to indicate the

average realized room rental per day. Average daily rate is one of the core indicators; it is used to

measure the operating performance of a lodging unit such as a hotel or motel. Hotels use this measure

to calculate the average price at which they are booking hotels each night. (Kim, B.Y. 2008)

Total Rooms Revenue/Total Number of Rooms Sold.

For example, if a hotel has average daily revenue over a calendar quarter of $50,000 and has 500

rooms available per day, the ADR would be $100 (50,000/500). This ADR would be used to compute

the trend over time, particularly in relation to the ADR in the previous calendar quarter and the ADR in

the year-ago quarter. It would also be used as a basis for comparing operating performance against

other hotels that have similar characteristics such as size, clientele and location.

2.3 LITERATURE REVIEWS AND RELATED THEORIES ABOUT MARKETING MIX OF HOTEL

McCarthy (1996) classified various marketing activities into marketing-mix tools of four broad

kinds, which called the four Ps of marketing: product, price, place, and promotion. The same

Marketing mix of hotel four factors (4Ps) marketing: product (Service / Facilities), place and

distribution, room rate or pricing, and promotions and communications. (Dev, C.S, Olsen, M. 2000)

Product (Service / Facilities): This is considered as the first because without this hotel marketing

team will have nothing to deliver to the potential guest/ customers. Hotel industry Offer products like:

guest rooms, food and beverage, banqueting rooms, conference facilities, recreational facilities,

health and wellness facilities, executive lounge, express check-in checkout services, travel desk,

business center, parking facilities etc. Hotels generally cater to different market segments and each of

these market segments has different requirements. E.g.: A leisure guest on a family trip looks for

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recreational and wellness facilities of the hotel where as a business traveler gives importance on

hotels business facilities like business center, video conferencing, good in room internet connectivity

etc. This analysis done by the sales and marketing department can help the top management to

identify these specific requirements and work along with the management to either develop such

facilities or make the required improvements.

Place and distribution: This refers to the accessibility of the products to consumers. When

comparing to other products normally hotels products doesn’t travel to customers but the customers

come to the product. Place or Location of the hotel for example: choices like in city, outskirts of city,

resort area, hill station, or a chain of hotels with presence in multiple locations. Hotel uses either

direct or indirect distribution methods to reach out its potential customers, below are few methods or

channels used by hotels.

Direct methods:

Sales through the hotel sales team

Personal telephone calls

Online pay per click or Banner Advertisements (Google ads, Facebook ads etc.)

Printed media Advertisements

Other Media Advertisements

Hotel Website Booking System (WBS)

Global distribution system (GDS)

Indirect methods:

Travel Agents

Independent Travel agents

Event Planners

Online Travel Agents (Expedia, booking.com etc.)

Online Travel portals (Trip Advisor, Hotel IQ etc.)

Independent hotel representative.

Room Rate or Pricing: Defining the correct pricing strategy is one of the most important aspects

of the marketing mix. If the hotel products like Guest rooms, Food and beverage menu etc. are not

priced competitively then the potential guest may reject the use of hotel services. In this very

competitive market guests are strongly influenced by the pricing and packages. The hotel rate codes

and packages are defined keeping in mind to attract or impress guest. Generally the hotel room rates

are defined as per the below season:

Promotions and communications: The director of Sales & Marketing should work out the most

effective promotion and communication mix for the hotel. Promotion is the way hotels communicate

to target customers. Below are few promotions and communication channels used by hotels:

brochures, television commercials, hotel, websites, twitter channel, Facebook page, google + page,

hotel pens & pencils, scratch pads with hotel logo, billboards, T V commercials

Peak Season: This is the period when demand for a hotel and its services is highest and the

hotel can charge the highest prices to the guest. There is no defined peak period for all hotels

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it vary from hotel to hotel

Valley Season / Off Season: This is the time of the year with the lowest demand for rooms.

Hotels generally offer the reduced rates and packages, for example: Stay for 3 and pay for 2

nights, Discounted Package rates etc.

Shoulder Season: This period falls between peak season and off season, and this time is

considered as the best time to attract new business as the rooms are available and a medium

or highest rates can be charged. The sales and marketing activities should be the highest

during this period

Give the breadth, complexity, and richness of marketing, however-as exemplified by holistic

marketing-clearly these four Ps are not the whole story anymore. If we update them to reflect the

holistic marketing concept, we arrive at a more representative set that encompass modern marketing

realities: people, processes, programs, and performance. (Kotler, Keller, 2012)

People reflect, in part, internal marketing and the fact that employees are critical to marketing

success. Marketing will only be as good as the people inside the organization. It also reflects the fact

the marketers must view consumers as people to understand their lives more broadly, and not just

that they shop for and consumer products and services.

Processes reflect all the creativity, discipline, and structure brought to marketing management.

Marketer must avoid ad hoc planning and decision making and ensure that state-of-the –art

marketing ideas and concepts play an appropriate role in all they do. Only by instituting the right set

of processes to guide activities and programs can a firm engage in mutually beneficial long-term

relationships. Another important set of processes guides the firm imaginatively generating insights

and breakthrough product, services, and marketing activities.

Program reflects all the firm’s consumer-directed activities. It encompasses the old four Ps as

well as rang of other marketing activities that might not fit as neatly into the old view of marketing.

Regardless of whether they are online or offline, traditional or nontraditional, these activities must

be integrated such that their whole is greater than the sum of their parts and they accomplish

multiple objectives of the firm.

Kotler and Keller define performance as in holistic marketing, to capture the range of possible

outcome measures that have financial and nonfinancial implications (profitability as well as brand

and customer equity), and implications beyond the company itself (social responsibility, legal,

ethical, and community related).

Finally, these new four Ps actually apply to all discipline within the company, and by thinking

this way, managers grow more closely aligned with the rest of the company.

2.4 LITERATURE REVIEWS AND RELATED THEORIES ABOUT CONSUMER MARKETS AND

CONSUMER BUYER BEHAVIOR

Roberts, Hauser and Wernerfelt identified a range of market variables and consumer

characteristics that influence the formation of consideration sets, based on a synthesis of eleven

separate studies. The focus of this research is on the role of market variables on an extensive

international data set rather than the characteristics of individuals within a specific national sector –

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the evaluation of consumer characteristics is therefore beyond the scope of this paper (Wernerfelt,

1990). Consumer perceived risk and the use of price comparison engines have both been identified as

strategically important market variables that influence the formation of consideration sets. In

addition, the strength of the retail distribution network is considered based on our empirical research

experiences. ‘Network effects’ is also an important variable but this has already been covered

extensively in the strategy literature.(Roberts, 1989)

Today’s marketplace has become very competitive with thousands of hotels and restaurants. In

addition, during recent years the hospitality and travel industries have undergone globalization. Hotel

companies headquartered in nations as diverse as Germany, the United States, and Hong Kong

compete aggressively in markets such as Singapore and Japan. In the China market, in recent years,

hotel and restaurants development is very rapid, global well-known hotel and local hotel competition

is fierce. The result is a fiercely competitive in China market with companies fighting for their share

of consumer. To win this battle, they invest in research that will reveal what customer want to buy,

which locations they prefer, which amenities are important to them, how they buy, and why they buy.

A model of buy behavior is included marketing stimuli, other stimuli buyer’s black box, and

buyer’s responses (Philip R Kortler 2014):

All the stimuli enter the buyer’s black box, where they are turned into the set of observable

buyer’s responses shown on right: product choice, brand choice, purchase timing, and purchase

amount.

Marketer must understand how the stimuli are changed into responses inside the consumer’s

black box. The buyer’s black box has two parts. Frist, a buyer’s characteristics influence how

consumer perceives and reacts to the stimuli. Second, the buyer’s decision process itself affects

outcomes.

Six Stages to the Consumer Buying Decision Process (For complex decisions). Actual purchasing

is only one stage of the process. Not all decision processes lead to a purchase. All consumer

decisions do not always include all 6 stages, determined by the degree of complexity…discussed

next. The 6 stages are (Kotler &. Keller 2012):

1. Problem: Recognition (awareness of need): Difference between the desired state and the

actual condition. Deficit in assortment of products.

2. Information search: Internal search, memory. External search if you need more information.

Friends and relatives (word of mouth). Marketer dominated sources; comparison shopping;

public sources etc.

3. Evaluation of Alternatives: Need to establish criteria for evaluation, features the buyer wants

or does not want.

4. Purchase decision: Choose buying alternative, includes product, package, store, method of

purchase etc.

Marketing

stimuli

Product

Price

Place

Promotion

Buyer’s black box

Buyer Buyer

Characteristics decision process

Other

stimuli

Economic

Technological

Political

Cultural

Buyer’s responses

Product choice

Brand choice

Purchase timing

Purchase amount

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5. Purchase: May differ from decision, time lapse between 4 & 5, product availability.

6. Post-Purchase Evaluation: outcome: Satisfaction or Dissatisfaction. Cognitive Dissonance,

have you made the right decision. This can be reduced by warranties, after sales

communication etc.

Studies of the dimensions of brand equity on marketing stimuli utilize consumer psychological

aspects as a source of forming brand equity. That is, the dimensions developed by consumer

psychological

processes consist of consumer cognitive, attitudinal, and behavioral aspects. Many researchers have

considered the consumer cognitive aspect as the main element of brand equity, whereas Holden

(1992) has added brand preference as another important element of brand equity, an addition which

Park and Srinivasan (1994) accept. A number of behavioral scientists include brand loyalty as an

element of brand equity. The main dilemma that faces researchers is determining whether or not

elements of behavioral aspects are included in brand equity. Cobb-Walgren, Ruble and Donthu (1995)

argue that consumer behavior is motivated by consumer cognition related to brand equity; therefore,

measurement of consumer behavior could help researchers understand the determinants of brand

equity. However, measuring consumer behavior cannot reveal inherent intention. More specifically,

while understanding brand loyalty as a behavioral aspect can identify both the existence and the

strengths of brand equity, brand loyalty is not considered as the main factor of brand equity. Thus, it

is reasonable to posit that brand loyalty is the outcome of brand equity (Aaker 1991). Considerable

research has focused on advertising as an antecedent of brand equity. The marketing literature has

revealed that advertising has an important effect upon reinforcing perceived performance and usage

experience of a particular brand. Kirmani and Wright (1989) and Kirmani (1990) have investigated

the relationship between advertising expenditures and consumer-perceived performance of a brand.

Their studies have led Kirmani and Zeithaml (1993) to further studies which reinforce the crucial

role of advertising in forming brand equity; more specifically, initial advertising efforts are important

in the formation of brand equity. Furthermore, Krishnan and Chakravarti (1993) reveal that

advertising has an important effect upon improving brand awareness. The more the advertising

creates brand awareness, the more the brand incorporates consumer consideration sets.

Cobb-Welgren et al. (1995) also support that advertising exerts a positive influence upon increasing

consumer preference and purchase intentions since it plays a critical role in forming brand equity.

Despite the negative effects of advertising in modern communication, many companies are still

investing heavily in it, maintaining advertising expenditures, promotions, and events for their brands.

Companies understand that consumers believe that repetitive advertising is closely related to brand

quality (Kirmani and Wright 1989). Intuitively, this makes sense: a consumer may rationalize that if

they have heard of a brand, the company must be spending a significant sum on advertising; if it can

spend much on advertising, it must be reasonably profitable, which means that other consumers must

be buying the product or service and are satisfied with its performance. On the one hand, the level of

advertising spending is directly linked to consumer purchase intentions, playing a positive role in

improving product or service quality (Archibald, Haulman, and Moody 1983). Aaker and Jacobson’s

study (1994) shows that advertising expenditures are closely related to a brand perceived quality,

creating a higher level of brand equity. Advertising also plays an important role in increasing brand

awareness as well as brand association through increasing brand exposure (Yoo et al., 2000).

Furthermore, repetitive advertising can increase consumer choice possibility among competitive

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choice sets, and ultimately improve the choice probability of a particular brand (Hauser and

Wernerfeldt 1990).

2.5 REVIEWS AND RELATED THEORIES ABOUT BUILDING CUSTOMER RELATIONSHIP AND

CUSTOMER LOYALTY

Customer Relationship Management (CRM) and Hotel industry

In this connection, it is worth noting that the concept of CRM can be defined in different ways. It

also means different things to different people; depending on the working environment it has been

used in. Therefore, there is no single correct definition of CRM (Abdullatif et al., 2010; Hamid, 2009;

Nagi, 2005). However, to enrich the literature about CRM, this study will define it as " a strategic

approach that enables organizations to use internal resources (i.e. Technology, people, and process)

to manage the relationship with customers for the whole of their lives cycles, in order to create a

competitive advantage and improve an organization's performance”.

Despite the fact that CRM brings lasting benefits to organizations, as a whole, some of them gain

profits from implementing it more than others; CRM brings benefits to the organizations that

generate a lot of information about customers (Bose, 2000; Kotler, 2002; Mguyen et al., 2007). In

addition to this, Gronroos (2004) that service organizations for their intrinsic characteristics of the

production and consumption are inseparable elements necessary to build relationships with

customers. Accordingly, CRM will be ideally suited to the hotel industry, especially when

implementing it successfully and effectively, taking into our account that hotels receive a lot of data

about customers. Such data can be transformed into useful knowledge about them (Kotler, 2002; Lin

and Su, 2003; Mguyen et al., 2007; Nasution and Mavondo, 2008; Dev and Olsen, 2000). Suffice it

to say that hotel industry, like any business sector has to be highly competitive to be able to do well

in the business environment, therefore, it is of vital importance for it to encourage behavioral

patterns of continuous re-purchase and to retain customers last longer. Thus , it is evident that such

ambitious aims can only be achieved through implementing CRM , which will result in establishing

fruitful relationship between organizations and their customers. Moreover, it goes without saying that

growing customer- acquisition costs, rising customer expectations, price-sensitive travelers, more

sophisticated clients, uncertain market and less brand loyalty are all key factors, which strongly urge

hotels to focus on CRM as a useful strategy. Needless to say, CRM is widely considered as one of

the most effective ways to facilitate developing and expanding the customers' base that , in turn , will

assist in enhancing profitability and guest loyalty (Mylonakis, 2009; Sigala, 2005; Sigala and

Connolly, 2004; Wu and Li, 2011).

It is a proven fact that the multi- dimensions concept of CRM can be considered relatively new, because of

the only few studies, which are made on the CRM dimensions of some service sectors such as banking

(Akroush et al., 2011; Sadek et al., 2011; Sin et al., 2005; Yim, Anderson, and Swaminathan, 2005) and

contact centers (Abdullateef et al., 2010), thus the range of information on this concept is quite limited. To

drive the point home, it can be said that CRM consists of four broad behavioral dimensions (Sin et al., 2005;

Yim et al., 2005). These behavioral dimensions are: key customer focus, CRM organizations, Knowledge

management and technology -based CRM. It is essential that all of these dimensions must work systematically

in an organization to guarantee its improved performance (Fox and stead, 2001; Sin et al., 2005; Yim et al.,

2005). In this regard, Abdullateef et al. (2010) investigation on the impact of CRM dimensions on call

-centers in Malaysia can be taken as a typical example. He declares that customer orientation, as one of the

CRM dimensions, is more comprehensive than key customer focus. His argument receives much support from

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several studies that consider customer - orientation as one of the most important dimensions of CRM (e.g.

Wang, Huang, Chen, and Lin, 2010). Furthermore, several researches highlight the important effects of

conducting studies on CRM dimensions in the hotel sector (e.g. Akroush et al., 2011; Sadek et al., 2011; Sin et

al., 2005). Consequently, this study is being done with the aim of filling the gap that has been left because of

the very little attention given to the above- mentioned dimensions in the hotel industry. Therefore, it is logical

to go into details of about CRM dimensions as follows:

Customer Orientation

It is important in the first instance to confirm that the main purpose behind customer –oriented behaviors

is to increase customer long-lasting satisfaction and to create customer-loyalty. Therefore,

studies have demonstrated that good customer -oriented behaviors, in an organization, definitely ensures a

tremendously positive impact on its performance. Similarly, King and Burgess (2008) reach the conclusion

that customer orientation is a crucial factor in the successful implementation of CRM. Moreover, current

researches have revealed that service firms, like hotels, require a better understanding of customer orientation

and its great importance to such firms and their performance. As in the service oriented organization, the

delivery of service in a hotel occurs when there is interaction between service providers and the service

encounter (Ki Lee et al., 2006). Hence in order to enhance service experience, hoteliers need to focus on

customer interaction. Customer oriented can be achieved through a positive relationship between customer

and service provider. Research has supported that customer orientation leads to increase organizational

performance. Furthermore customer orientation is also one of the market beneficial sources, it helps

organization to understand customer, and hence it helps in delivering an appropriate plan to satisfy customer

needs (Liu et al., 2003) Furthermore, several studies revealed that there is a relationship between customer

orientation and marketing planning capabilities. Besides this, the beneficial influence of customer orientation

strategy on marketing-planning capabilities, this strategy also influences the successful implementations of

marketing actions or innovations (Slater and Narver, 1998). Hence, we note that despite the numerous positive

impacts of customer - orientation on organizations performance, the fact remains that there is still a shortage

of literature about customer - orientation impact on hotel performance (Sin et al., 2006; Tajeddini, 2010).

CRM Organization

First and foremost, to enhance service employees to conduct customer- oriented behaviors, organizations

have to develop an appropriate working environment for service in work, for instance, providing staff with the

modern tools, and technology, customer-satisfaction tracking and complaints management systems,

inspirational leadership, and appropriate rewards systems. As a result of the previous supportive working

conditions, organizations can ensure the required customer - oriented behaviors of their employees (Mechinda

and Patterson, 2011) The researchers also argue that CRM cannot be successful even if the organizations

enjoy the most advanced technology and adapt a customer - oriented approach, unless the project is

completely integrated by them. Further, as a confirmation for this point Ku (2010) stress that CRM success

does not only require technological quality or systems, but it also requires an effective service concept as well

as suitable operation procedures. Thus, the success of CRM implementation relies on the active involvement

of the employees in the organization itself. Therefore, we can say that CRM organization has to be an

essential means through which firms effect fundamental changes in the way they organize their actual

business processes for employees and customers ( Sin et al 2005; Yim et al., 2005). Inevitably, all the

organization resources (such as marketing capabilities, policies, culture, and organization structure) have to be

integrated in order to implement CRM successfully and, in turn, to improve organizations performance.

Previous studies also declare the positive impact of CRM organization on customer retention (Yim et al.,

2005), financial and marketing performance. Moreover, Richards and Jones (2008) argue that CRM

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organization may influence future marketing decisions, such as brand differentiation, price, communication,

and distribution. In this regard, it has also been reported that many hotel chains cleverly and flexibly quote

their room prices according to the customer data that were collected previously (Nunes and Dréze, 2006). It

goes without saying that Knowledge about customers plays a vital role in CRM, taking into our consideration

the fact that the main purpose behind collecting data about customers is to get a clear image about them from

different perspectives. Therefore, organizations can authenticate such data to be able to establish and develop

beneficial relationship with their customers (Zahay and Griffin, 2004).

Knowledge Management

Needless to say that useful information about customers can be gathered through interactions with them or

from different touch points within the organization itself (Brohman et al., 2003), and the criterion for deciding

whether CRM is successful or not , is to effectively transform customer information into customer knowledge.

In this connection, we can say that managing knowledge effectively can greatly help an organization to have

success in building better customer relationship, resulting in a positive impact on organization performance.

We have to take into our account that the success of relationship management is heavily dependent on

collecting and analyzing customers’ information, as such information is used for developing highly

personalized offerings (Sigala, 2005). As a matter of fact, it is necessary for organizations to remain

competitive, and this aim cannot be achieved unless they enjoy wide knowledge about their market, explore

and make use of their existing knowledge about their customers. Hence, Lo et al., (2010) recommend

investigating the impact of knowledge management dimension on hotel industry in future research. In this

case, researchers state that there is limited research that explains the role of knowledge management in the

hospitality context. Meanwhile, hotels that enjoy a lot of customer’s knowledge to be disseminated among

their different departments are more likely to implement successful marketing activities for meeting their

customer needs. Moreover, Fan and Ku (2010) indicate that customer knowledge management is firmly

associated with marketing capabilities, and it greatly enables organizations to take strategic managerial

decisions for improving their performance.

Technology Based CRM

Dutu and Halmajan (2011) are of the opinion that CRM strategy will end in failure if the information

technology is not used properly, thus the suitable use of technology in marketing is one of the greatest

opportunities in hotel industry, because of the fact that it is important to get the right information from the

right people at the right time , so that the right decisions can be made and /or the services can be rendered

(Dev and Olsen, 2000; Moriarty-Jones et al., 2008 ). In support with that view, Kasim and Minai (2009) find

out that CRM technology dimension is firmly related to hotel performance, because hotels need to use

information technology for improving their performance .In this regard, new technologies are considered as

the core drivers for change (Minghetti, 2003). Furthermore, several studies, made about the impact of

information technology on organization performance report similar findings about the positive role of

information technology in CRM strategy. In other words, these studies revealed that many customer-centric

strategies cannot achieve their goals , without the help of information technology. Consequently, CRM based

technology enables organizations to plan and implement successful marketing actions for retaining customers

long-last and making them more profitable , because of the customer database and other information-storing

systems (Roberts, Liu, and Hazard, 2005). Additionally, Chang , Park , and Chaiy (2010) confirm that CRM

technology improves marketing capabilities by providing valuable information about customers, which, in

turn, will help both managers and employees to achieve specific marketing goals much more effectively .

Moreover, they also recommend investigating separately the mediating impact of marketing -planning

capabilities and the implementation of marketing capabilities on the relationship between CRM and

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organizations performance. Therefore, this study is intended to clarify the mediating role of planning and

marketing capabilities in the relationship between CRM dimensions and hotel performance. Additionally , this

study is also designed to be more comprehensive than the study of Chang et al. (2011), because it will

investigate the mediating effect of marketing capability between each dimension of CRM , not only CRM

technology and hotel performance

Customer Loyalty

The term customer loyalty is used to describe the behavior of repeat customers, as well as those

that offer good ratings, reviews, or testimonials. It is not only about customers doing a particular

company a great service b2y offering favorable word of mouth publicity regarding a product/service,

telling friends and family, but also, it is a process, a program, or a group of programs geared toward

keeping a guest happy so he or she will provide more business. According to Iddrisu, A. M. (2011),

Teich (1997) mentioned that loyalty is developed over a period of time from a consistent record of

meeting, and sometimes even exceeding customer expectations. Customer loyalty can therefore be

achieved in some cases by offering a quality product with a firm guarantee or through free offers,

coupons, low interest rates on financing, high value trade-ins, extended warranties, rebates, and other

rewards and incentive programs. The ultimate goal of these is to develop happy customers who will

return to purchase again and persuade others to use that company's products or services. This equates

to great cost savings and profitability to the company through the keeping of current customers as

against attracting new ones (Kotler, P. and Gertner, D. 1996) as well as making stakeholders happy

(Mukherjee, P. 2009). Loyal customers are those who are not easily swayed by price inducement

from competitors, and they usually purchase more than those less loyal customers. However, there

are many factors for such manner of customers to remain loyal.

Relationship Between Service Quality and Customer Loyalty

Various studies have examined the relationship between service quality and customer preference

loyalty. For example in focusing on repurchase intentions as a measure of loyalty, service quality

does not have a significant (positive) effect on repurchase intentions (in contrast to the significant

positive impact of satisfaction on repurchase intention). However, Boulding, W., Kalra, A., Staelin, R.

and Zeithaml, V.A. (1993), focusing on the elements of repurchasing as well as the willingness to

recommend as measures of customer loyalty, found positive relationships between service quality

and repurchase intentions and willingness to recommend (Akbar, M. M. and Parvez, N. 2009).

Nevertheless, some customers may remain loyal due to high switching barriers or the lack of real

substitutes, while others will continue to be loyal because they are satisfied with the services

provided (Lam, R. and Burton, S. 2006). Service providers must avoid being complacent since

retained customers may not always be the satisfied ones and similarly not all satisfied customers may

always be retained. Research has pointed out that perceived service quality has a positive impact on

customer loyalty (Wong, C. B., 2005). This is because service quality has been found to relate to

behavioral outcomes, especially in the form of word-of-mouth, complaint, recommendation and

switching (Al-Rousan , Ramzi, M. and Mohamed, B., 2010). Customer Satisfaction and Loyalty

Customers are said to be satisfied because they have positive feelings which result from a process of

evaluating what has been received against what was expected, including the purchase decision itself

and the needs and wants associated with the purchase. There is a significant positive relationship

between customer satisfaction and customer loyalty. This relationship is further strengthened as

customers get “tremendously satisfied” or “delighted; customer satisfaction, which has become

nothing more than the price of entry to a category is therefore the starting point to build customer

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loyalty. However, customer satisfaction in itself does not guarantee loyalty because in some cases

65% to 85% percent of customers who defect to competitors‟ brands say they are either satisfied or

very satisfied with the product or service they left. Therefore, in order to ensure that customers do

not defect customers must be extremely satisfied. Nevertheless, customers may change providers

because of price, or because the competitor is offering new opportunities, or simply because they

want some variation (Storbacka, K. and Lehtinen, J., 2001). That notwithstanding, for satisfaction to

be effective, it must be able to create loyalty amongst customers because building customer loyalty is

not a choice any longer with businesses, it is the only way of building sustainable competitive

advantage (Bansal, S. and Gupta, G. 2001). Yet not all loyal customers are necessarily satisfied

customers, the level of service quality plays a role (Akbar, M.M. and Parvez, N.2009).