Customer loyalty in vietnams hotel industry, the role of service quality, customer satisfaction, hotel image and customer delight

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business -Do AnhQuan CUSTOMER LOYALTY IN VIETNAM’S HOTEL INDUSTRY: THE ROLE OF SERVICE QUALITY, CUSTOMER SATISFACTION, HOTELIMAGE AND CUSTOMER DELIGHT ID: 22120025 MBUS 3.1 MASTER OF BUSINESS (Honors) SUPERVISOR: Prof Nguyen Dong Phong Dr Nguyen Phong Nguyen Ho Chi Minh City - 2015 ACKOWLEDGEMENT I would like to express my sincere gratitude to Prof Nguyen Dong Phongand Dr Nguyen Phong Nguyenfor their advice and supervision to complete the thesis I wish to thank you for my colleagues, friends and family for their support and encouragement during the process of thesis writing I would like to thank allstaff from International School of Business-UEH for their time with providing me necessary information ABSTRACT The purpose of this research is to contribute to the understanding of how customer loyalty is developed within the context of the Vietnam’s hotel industry.A questionnaire is developed based on previously measurement scales and then sent to 3-star hotel guests in central of Ho Chi Minh and Ha Noi City Theresearch provides an insight into the role of service quality, customer satisfaction, image and customer delight in enhancing customer loyalty The result proposes that loyalty of hotel guests influence the most by customer delight, which is followed by customer satisfaction and hotel image Keywords: hotels, restaurants, service quality, customer satisfaction, image, customer delight, customer loyalty TABLE OF CONTENTS TABLE OF CONTENTS Chapter INTRODUCTION 1.1 Background 1.1.1 The crucial role of hotel industry in Vietnam 1.1.2 Benefits of customers loyalty 1.2 Research gap 10 1.3 Research objective 11 1.4 Research scope 11 1.5 Contributions and implications 12 1.6 Structure of the thesis 12 Chapter 13 LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 13 2.1 Theoretical background 13 2.2 The hypothesis development and proposed model 19 2.2.1 Relationship between service quality and customer loyalty 19 2.2.2 Relationship between customer satisfaction and customer loyalty 20 2.2.3 Relationship between hotel image and customer loyalty 20 2.2.4 Relationship between customer delight and loyalty 20 2.2.5 The proposed model 22 Chapter 23 RESEARCH METHODOLOGY 23 3.1 Measurement scales 23 3.2 Sampling 26 3.3 Data collection methods 27 3.4 Data analysis method 27 3.4.1 Statistical method 27 3.4.2 Descriptive statistics 27 3.4.3 Reliability analysis 28 3.4.4 Exploratory factor analysis (EFA) 28 3.5.5 Multiple regression analysis 28 CHAPTER 29 DATA ANALYSIS 29 4.1 Descriptive analysis 29 4.2 Assessment and refinement of measurement scale 29 4.2.1 Cronbach’s Alpha 30 4.2.2 Exploratory Factor Analysis (EFA) 33 4.3 Pearson Correlations 34 4.4 Multiple Linear Regression 35 4.4.1 Test of assumptions 35 4.4.2 Regression analysis 36 4.5 Discussion of findings 38 CHAPTER 41 CONCLUSION 41 5.1 Summary of research finding and limitation 41 5.2 Managerial implications 41 5.2.1 Implications for hoteliers in Vietnam 41 5.2.2 Implications for educators in local higher education institutions 44 5.3 Limitation and further research direction 47 APENDICES Appendix A: Questionnaire Appendix B: EFA’sresults Appendix C: Test of assumption LIST OF FIGURES Figure 2.1: The proposed model 22 Figure 3.1: Measurement scales 25 LIST OF TABLES Table4.1: Descriptive analysis 29 Table4.2: Reliability Analysis of Dependent Factor 30 Table4.3: Reliability Analysis of Independent Factor 31 Table4.4: Pearson Correlations result 34 Table4.5: Regression analysis result 36 Table4.6: Hypotheses testing results 38 Chapter INTRODUCTION 1.1 Background 1.1.1 The crucial role of hotel industry in Vietnam Since the economic reform in 1986, Vietnam had achieved the dramatic development in all aspects including economy, education and culture The entry into ASEAN in 1995 and WTO in 2007 brought a boost to the hotel industry of Vietnam, a developing country with free-market-oriented economy Over the past years, the hotel industry has made strong development and gradually integrates into the global development process In the Grant Thornton Vietnam’s “Vietnam Lodging Industry - Executive Summary of the Hotel Survey 2013” in June 2014, they report that Vietnam welcomed7,572,352 international visitors, increasing by 10.6% in comparison with 2012, exceeded the expected 7.2 million international tourist arrivals for the year Together with that, a combination of strong economic growth, rising income levels, a growing middle class, a sizeable and growing youth population, and increasing exposure to Western lifestyle has fueled the rapid growth of the lodging sector in Vietnam The sector is expected to continue to growin years to come as the government continues to emphasize tourism in their economic growth plans, from exploring the “hidden charm” to developing “timeless charm” of the country Nonetheless, Vietnam is not ready for a large influx of tourists as well as domestic sizeable youth population at the moment as there are a number of constraints hindering its development, and innovations in retaining customers is one of the most important aspects that hotel industry in Vietnam should manage effectively The tourism has been considered playing important role in creating jobs, developing the country’s economy In fact, as travel has been developing rapidly with series of beautiful landscapes, specialties and very friendly locals, together with more businesses are being dealt with, the request for temporary accommodations has been increased.However, in this emerging market, not only many multinational groups have been entering the market, but also a number of startups founded by local businesspeople or Vietkieu have been finding their path to gain the market share Effort by the government and media has educated the population become smart consumers; especially those in urban areas like Ho Chi Minh City and Hanoi, where the consumers have a variety of choices for lodging services Hundreds of new hotels which have met the standards of serving international tourists have been built (up to 686 hotels from to 5-start hotels in 2013, according to Grant Thornton Vietnam’s report 2014) The art of retaining customers has been in the urgent need of all the players in this competitive playground, and identifying factors affecting customer loyalty in light of service quality has become significant than ever before 1.1.2 Benefits of customers loyalty Kotler and Amstrong (2001) proposes that if companies lose a customer, they may lose the customer throughout his/her purchasing lifetime.It is obvious that loyalty has effect on financial health through steady cash-flow and repeated customers Patterson (1997) reassures this point by stating that companies with large group of loyal clients can earn more seven percentages in price, as customers are less price sensitive Furthermore, Cheng et al (2011) and Tu et al (2011) also agree that companies will spend at least five to nine time in attracting a new customer rather than retaining an old one; and the company profit can be increased 25-85% once loyalty is up by five percent effectively Therefore, long-term strategy should emphasize on customer retention than obtaining new ones in order to reduce the expenditures on money and time This strategy will bring a long-term or short-term profit by maintaining a long-term relationship with customers Dharmalingam et al (2011) are of the same opinion and point out some advantages of customer loyalty: 10 (1) cheaper service cost than obtaining new customers, (2) possibility of paying higher cost for a set of products, and (3) acting as a word-of-mouth marketing agent Tu et al (2011) summarizes the benefits of loyal customers as follows: (1)more frequent purchases, (2) expenditure on trying new products or services, (3) recommendations on products and services to others, and (4) sincere suggestions Although the arguments about benefits of loyalty are evident, hotels in the emerging market like Vietnam are struggling on how to create real commitment of customers illustratting by the motivation of purchasing services without any encouragement In light of the above observation, the research will identify factors that affect customer loyalty in Vietnam’s hotel sector; specifically, it will test the positive relationship of service quality, customer satisfaction, hotel image and customer delight on consumer loyalty in the mentioned context Somerecommendations based on the findings will benefit both hoteliers and educators in Vietnam 1.2 Research gap Factors affecting customer loyalty in hotel sector has become interest of many researchers However, due to their own essentials and restrictions, or the difference of the sample sizes of the survey, cultural values of every country, environment, income and emotions of respondents at the time of filling surveys, there is no common research model and implication within those researches Besides, the model is also different from context to context and the relationship between those variables has been in different ways Moreover, the influence of those factors is also different between hotel and service sector and the researcher hardly found study comparing those two sectors Hoteliers should identify and develop factors that will give them the opportunities in long-term competitive advantages, i.e factors affecting customer loyalty Those drivers are no longer the tangible offer; they are also the intangible ones like service quality leading to image and satisfaction enhancement (Kandampully& Hu, 2007) 42 consideration the strategy of maintaining a certain type of relationship to ensure a positive outcome Among many choices, the study suggests a strategy to focus on developing core competency of frontline staff since they are the contact point between hotels and customers (i.e the first communication channel to explore what customers demand and expectation from a service provider) Among many ways to enhance performance of frontline employees, empowerment and job satisfaction are two recommended ways to stimulate the customer delight, as in hospitality environment, the service provider should always be proactive in serving customers Besides, hoteliers should emphasize job satisfaction to earn higher level of customer delight Keiningham and Vavra (2001) once agree on the parallel between long-term relationship with customers, with employees and customer delight That means hoteliers should not only hire satisfied employees but also strive to satisfy employees to delight them for a better service performance At the very beginning, hoteliers are supposed to shortlist the right people possessing the awareness of satisfying customers and potential personality to so when being hired Definitely, people with mentioned ability usually express intrinsic traits of delivering empathy, ability to anticipate needs, and the drive and desire to please Afterwards, hoteliers should focus on culture fit and training program with the target of retaining and developing employees, especially frontline ones to a certain level of international standard Once the foundation of human resources is strong enough, hoteliers can confidently build a corporate culture emphasizing on delighting customers all the time, which will become motto of their hotels This should be a long-term strategy and would be evident in the recruiting plan, marketing plan, and in all aspects of customer service and customer loyalty program The hoteliers can also consider implementing Management Trainee program to recruit potential talents straight from universities and train them to become loyal employees from the early stages By this 43 way, the hotels will save time of training thereafter when those interns become fulltime staff in the future The second implication is that hotel operators should focus on enhancing hotel image of long-term strategy for developing loyalty There are many tools and tactics to implement this task Back (2005) suggests that hotels should develop a consistent marketing information system to monitor their perceived image towards target customer group Hotel image can be built via advertisement, decoration, architecture or personnel appearance Among many choices, the study suggests that innovative and attracting physical facilities and e-marketing should be the center of building image strategy.Mattila (1999) found that travellers really take into consideration a hotel’s physical environment (including the guest room) in their evaluation of a hotel Similarly, Oh (2000) states that physical surroundings are significantly related to customers’ perception on the reasonableness of price they need to pay to get the benefit; moreover, this perception is likely to combined with positive functions of brand awareness and quality Besides, in the era of technology, customers nowadays find it is quite easy to express their feeling even compliment of a service provider like hotel in the form of a forum review, blog story, tweet or Facebook post; and sadly, people have a tendency to believe those review rather than the professional and official review from experts.Therefore, hotel operators should keep up-to-date customers’ review and try to manage hotel image of these channel as well The third implication is that hotel operators should focus on increasing customer satisfaction of long-term strategy for developing loyalty Among many choices, the study suggests that hotel operators should focus on offering a reasonable price range or loyalty program to customers in order to turn satisfaction to customer delight 44 5.2.2 Implications for educators in local higher education institutions The result implies the importance of educating and training soft-skills for hospitality students from school stage Specifically, Hillage and Pollard (1998) states that individual employability depends on four factors so called individual’sknowledge, skills and attitudes, the ways these are being used anddeployed, the presentation to employers and the context within which theindividual seeks work Although there is no universal acceptable definitive list of soft-skills, Septames and Baldock (2004) preferred soft-skills were “those attributes that enable effective teamwork, communication, presentation, leaderships, customer services andinnovative problem solving” Evidently, though the skills are intangible yet add value to the various sectors, especially in a service provider like hotel Over the last few years, the witness of an extremely increasing demand of employers on soft-skilled graduates has been inevitable, from the way those skills are put on Job Description as a must, to the way the interviewers create many situation to test such that skills of the interviewees However, it seems that the lack of soft skills has been contributed greatly to unemployment rate of local graduates in Vietnam, especially of freshmen who have the intention to work in hotel industry Frankly, to some extent, many lecturers are lack of industry working experience which leads to the link between theory and practice in their lessons; they think that the purpose of education should be somehow focused on “learning” and not “earning” and that educationists should not parallel tothe marketplace (Dzulkifli, 2009) This should be one of the factors leading to the gap between employers’ requirement and fresh graduate’s employability, even creating a higher rate of unemployment in the developing country like Vietnam Therefore, it is worth revisiting to identify the gap between currently implemented curriculum and what is going on the market 45 Although jobs in this sector has not been considered as a “hot career” as before, no one can deny the attraction of it, especially when tourism in Vietnam transforms from “hidden charm” in 2014 to “timeless charm” to 2015 Specifically, when attractions like Trang An Grottoes (Ninh Binh) or Ha Long Bay (Quang Ninh) has been become popular across the globe and hundreds of multinational brand names in hotel industry have been landed in Vietnam, the role of vocational schools and higher education institutions is remarkable Considering the reality of teaching skills related to the mentioned sector, it can be said that students studying in those institutions have not been received sufficient skills to thoroughly develop to international standard That is the reason why many young people interesting in working in this sector have chosen to study abroad in developing countries like New Zealand or Australian However, in the long-term strategy, this might lead to “braindrain” where talents will not come back to Vietnam for establishing their career The role of educators in hospitality field becomes crucial in teaching students to be professionals by the way they can contribute to develop essential skills, capabilities and attitudes toward hotels and restaurants careers The first thing needed to be considered is to change those educators’ mindset, and then the closer collaboration between higher education institutions and practitioners should be in action As a result, educators will realize how to train their students related soft-skills matching with industry needs; in exchange, students will acknowledge how important soft-skill set is and make such skills become their core competency in the hunting job process This will lead to the second action, in which students will be educated and trained about the vital role of soft-skills in the development of their career path Although the main challenge for higher education institution is to produce best-matching graduates to integrate across disciplinesand skills (hard and soft skills) (Hagmann&Almekinders, 2003), the author believe that the above recommendation with the emphasis on enhancing soft-skill set for 46 university students will somehow prepare them to be ready for work, increase their employability, and evidently will decrease their unemployment rate – which is also the purpose of educators and higher education institutions 5.2.3Implications for government agencies The tourism and hospitality in Vietnam are on the need of developing an internationalstandard of safety and environment protection Especially, 3-star hotels have been struggling themselvesin keeping up with international benchmark To so, the government agencies can be the great support with implementing nationwide evaluation system, improving infrastructure, or even making the investment in Vietnam is more attractive for foreign investors Further than that, the authorities should take into consideration the way they support business enterprises in both hotel and tourism industry, once the hoteliers and travel agents are offered with the appropriate tools to business in Vietnam, they will think up with more effective way tocollaboratewith each other, which in turn contributes to the upgraded performance of the hotel industry Moreover, a more favorable public policy can be considered to improve the quality of labor force in Vietnam’s hotel industry For local labors, it would be nice if the salary system can keep up with the increasing quality of life in Vietnam, especially in the two biggest cities like Ho Chi Minh and Ha Noi For expats, working in Vietnam would be more possible if the society is safer and stable, or more policiesonprotecting their economic rights are being implemented Hopefully, more jobs can be created, more talents will devote their life in the country, and with the power from both facilities and people, tourism in general, hotel sector will be provided necessary facilities to develop to certain standard and compete with competitors in the area as a strong player 47 5.3 Limitation and further research direction Although the study offers many theoretical and practical implications which can be easily applied in Vietnam’shotel industry, there are some limitations and recommendationsfor further research Firstly, data 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