Perception of Service Quality

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Perception of Service Quality

    VESNA BABIĆ-HODOVIĆ, Ph. D., Associate Professor

    ELDIN MEHIĆ, Mr. Sc., Senior Teaching Assistant

    AMRA KRAMO, B.Sc., Teaching Assistant

    School of Economics and Business, Sarajevo



    Summary The paper attempts to investigate the perception of marketing managers about the use of services marketing and the relative value of service quality through the offer of varied hotel services in hotel industry of Bosnia and Herzegovina. Questionnaires were mailed to the marketing managers of registered hotels in B&H, in order to find perception of specific issue of hotel industry marketing and importance of service quality in creating total hotel service. Based on results, we created proposals for management, specifically in marketing area, client‟s relationship and strong relationship with clients, based on fulfilling customer expectations.

    This study is based on the valid premise that conventional marketing strategies, useful in the marketing of tangible goods, cannot be applied successfully to the marketing of services, which are fundamentally different. The goal is to find the level of marketing managers‟ recognition of services marketing strength and its relations with value added created for clients. Its role and importance will grow together with market development and increasing of customer awareness of the value of the products that they receive in return for the price paid and growing competitive pressure from domestic or regional hotels. Key words: hotel industry, service quality, service marketing


    At the end of the last century, the world lodging industry market was

    characterized by an atmosphere of fantasy, luxury, status and an image. Hotel

    marketers perceived consumer expectations to be extremely extravagant. They sought

    to meet these expectations by focusing on bonuses, award programs, giveaways and the

    proliferation of costly room and bath amenities.


    On the other side, as the discretionary income, leisure time, educational and

    experience level of the contemporary consumers and tourists increased so did their level of sophistication; the typical consumer was growing increasingly less tolerant of poor services and mediocre goods. Marketers competed with one another mostly through the offering of various room amenities, intended to impress customers. Lodging operators at all market levels (budget, middle-priced and luxury) competed by seeking to exceed one another's luxurious amenities and extravagant experiences. In many instances, marketing in this manner became so spendthrift that consumers' actual needs were satiated and budgets spent on room amenities were wasted.

    At the same time, after the aggression on Bosnia and Herzegovina, investors

    and builders of lodging properties erected more and more hotels and motels through heavy debt, financing without fear of market saturation or economic turbulences. Demand for hotel rooms increased steadily throughout the late 1990s and the beginning of 21 century. By 2005, the industry (Bosnian as well as international) found itself in a state of oversupply. As a new tourist destination, Bosnia and Herzegovina, faces three considerable challenges stemming from the following factors: competition from similar or already established resorts; an economic system that has not traditionally emphasized service quality and an unstable political environment (post-war and Dayton agreement consequences).

    Consumers, experiencing the initial effects of economic crisis and problems

    on world market, are becoming more price-conscious and starting to limit overall levels of travel. On the other side, number of visitors, coming from different international organizations and companies, has started to decline. Average occupancy rates, which had reached more then 60 % before the war (thanks to the fact we had less hotels and other lodging properties) fell more than twice. Sarajevo, as the most visiting one, reported 16% occupancy of the hotels during 2006.

    With increasing competition, the key to hotel‟s survival is its ability to cater

    hotel services to the changing needs and lifestyles of ever-demanding customers. Such needs include greater access to amenities, comfortable rooms, fast check-in/check-out, courteous treatment, high speed Internet/fax access, and reasonable prices. Unless hotel management continuously improves the service standard, in such a way that it meets changing customer needs, a hotel would lose its competitive advantage. Under such conditions, hoteliers and tourism institutions should seek effective means of monitoring and evaluating whether or not Bosnia and Herzegovina is delivering the quality and range of services, activities and experiences necessary to satisfy the visitors.


    Growing segmentation between potential visitors and costumers is very

    important for the hotel and other organization supply. Several new lodging products, developed during the 1980s and 1990s at the world hotels‟ market and during last 10

    years in Bosnia and Herzegovina, seek to satisfy specific groups of consumers by customizing services (the extended-stay, all-suite property serves the long-term business travelers). The needs of these travelers differ from those of general consumer travelers and even the average business traveler. The extended-stay business traveler is


    1 In contrast, the a relatively small segment of the market which is predicted to grow.general business traveler, most often traveling on account, is the largest group of

    travelers that operators in the European and consequently Bosnian hotel industry will

    seek to satisfy during last years. Some of the survey shows that the location of a

    property (proximity to traveler's business transactions) is most important to the 2business traveler. Secondly, value for cost of room, as defined by such things as on-premise parking, good food and room service, overall cleanliness and good service, in-

    room bathrobes, hairdryers and mini bars, was reported as most important to the

    business traveler. In efforts to sell value to such customers, the industry's leaders also

    have begun to further differentiate their services. The industry also has responded to the

    needs of the business traveler by creating on-site business centers that offer FAX,

    secretarial, copy and mail services at minimal charges. Other lodging properties

    targeted exclusively at the business traveler have installed such conveniences as an in-3room computer port with modem and fax, and specialized message services.

    The business traveler is just one group of consumers that lodging operators

    will have to target in the 1990s and beyond in order to stimulate demand. Other

    segments include children, families, group travelers, foreign travelers, senior citizens

    and couples. A study of relevant literature confirms that customer vary in terms of their 4profitability. Costumers contribute to a firm based on the revenue they generate over the time, relative to the costs of acquiring and serving them. The pattern of revenue

    could be quite different for any two customers, depending on the nature of the 5customers‟ priorities and spending patterns and a firm‟s pricing strategies.

    Kaplan and Narayanan noted that understanding customers‟ profitability is

    especially valuable for service companies that offer a full line of services to distinct 6customer groups. They argued that customer-profitability information is more important in the lodging industry than is a product or department profitability, because

    the costs of providing a service in the lodging industry are usually determined by the

    customer‟s behavior.

    In their efforts to target different consumer groups, hotel marketers are

    differentiating their types of services to meet the individual needs of different types of

    guests. Some of the hotels had implemented a program called "Family Friendly", which

    provides safer rooms for kids, free diapers and playpens. The others have directed

    promotions and marketing toward the leisure travel segment, a group of consumers

    who take their free time very seriously and are seeking to fill it with the most value for

     1 Marcella M., Yucelt, U. (1995) Perception of Service Quality in the U.S. Lodging Industry, Journal of Hospitality & Leisure Marketing, Vol. 3 (2) 1995, 46. 2 Weaver, P. A. and McCleary, K.W. (1991), “Basics Bring „Em Back” Hotel and Motel Management, June 24, 29-30, 32, 38. 3 Marcella M., Yucelt, U. (1995) Perception of Service Quality in the U.S. Lodging Industry, Journal of Hospitality & Leisure Marketing, Vol. 3 (2) 1995, 47. 4 Malcolm S. and Snahe, D. (1995), „Customer Profitability Analysis: An Activity-Based Costing Approach,“ Management Auditing Journal 10, no. 7 , 3-7 Dunn, K. D., and Brooks, E.D., (1990), „Profit Analysis: Beyond Yield Management,“ Cornell Hotel and Restaurant Administration Quarterly 31, no. 3 (November), 80-90 5 Karadag, I., and Kim G. W., (2006) „Comparing Market-segment-profitability Analysis with Department-Profitability Analysis as Hotel Marketing-decision Tools“, Cornell Hotel and Restaurant Administration Quarterly, May 2006, 157. 6 Kaplan, R. S. and Narayanan, V.G., „Measuring and Managing Customer Profitability,“ Journal of Cost Management 15, no.5 (September-October 2001), 5-15


their money. Resort marketing is also based on leisure concepts and is very often 7 directed toward the increasing aging population.Luxury hotels compete internationally; their target market is a demanding

    group of upscale consumers, as various industry executives, meeting and corporate

    travel planners and other affluent travelers. Operations in this segment of the market

    are founded on value-addition. Affluent travelers, paying a premium room price, expect

    a great deal of value for the price that they pay. In the luxury market, the expansion of

    the line of services offered is difficult due to the fact that luxury properties traditionally

    offer an unlimited level of very personalized impeccable services. As a result, efforts to

    further appeal to and satisfy the affluent consumer are based on the improvement of

    service quality and the installment of service quality standards. But other hotels have to

    try to create adequate supply for other segments of visitors and consumers; specifically

    at the location has no such type of accommodation. On the other side they have to

    prepare hotel services level which will be acceptable for similar highly requested


    Specific group will be repeat customers, specifically because of different type

    of business occasions they are traveling for. That is the reason, lodging operators have

    helped to create target those group of customers by implementing many forms of

    reward bonus programs for repeat customers. As a market segment, the repeat customer

    group consists of experienced consumers whose lifestyles or occupations require them

    to travel far more than the average consumer. Such an individual finds the rewarded

    frequent-guest programs, offered by such companies as Marriott and Hyatt, very

    attractive. In return, these reward programs allow these companies to further strengthen

    their relationships with most favored guests and ensure increased repeat business and


    Finally, since hotels are offering intangible and perishable personal service

    encounters, managing those services must be a paramount concern of any hotel

    business. Intangibility and perishability, as well as high level of demand fluctuation

    create significant problems for services and consequently lodging companies and


    Intangibility of hotel services influence on higher level of risk perception

    before customer visit and during the process of decision making. It will be influence on

    growing level informal and external communications which hotels‟ management 8cannot control. At the same time this will influence on the management perception

    they have to create appealing visual physical elements in order to persuade customers

    to make their choice. Perishability and demand fluctuation on the other side create

    problems of matching demand and supply, especially in the period when the level of

    demand is higher contrary hotel capacity.

    Those influence on the fact that service quality and customer satisfaction are

    becoming crucial moment for successful hotel and tourism business. Recognizing that

    delivery of high service quality is the shortest path to increasing customer satisfaction,

    reducing complaints and decreasing operational costs, hotels are focusing their energies

    on identifying means of providing high service quality to their guests. When used in a

    cohesive and systematic manner, operations management tools can significantly impact

     7 Davis, J. C. (1989), „Globalization of hotel market is going strong: segmentation is meeting the needs of the 1990's“, National Real Estate Investor (December); 59-76 8 Babić-Hodović, (2001), Strategy and Implementation Services Marketing, Faculty of Economics, Sarajevo


a hotel‟s ability to achieve substantial gains in such widely promulgated service quality 9 and aid hotel managers in dimensions as performance, responsiveness and reliabilityresponding to customer demands effectively and efficiently. Since the quality and

    customer satisfaction is highly correlated, specifically as the tool to create desirable 10business outcome, we have tried to realize the study of Bosnian hotels‟ management

    attitudes regarding the most significant dimensions of quality for visitors and marketing

    tools they use for building their competitive position.

Figure 1. Quality, satisfaction and business outcome relationship

    Service Quality


    Increased Desirable

    Customer Business

    Satisfaction Outcome Product Quality


    Critical Relationship

Source: Loizos, C., and Lycourgos, H., „A Customer's Expectation and Perception of Hotel Service Quality in Cyprus“, FIU Reivew, Vol. 23,


    In recent years, hotel industry in Bosnia and Herzegovina has encountered

    difficult economic times due to increasing customers demand and strong internal

    industry development competition. The hospitality industry‟s main concern globally is

    to serve its customer‟s needs and desires, most of which are addressed through personal

    services. Hence, the hotel businesses that are able to provide quality services to its

    ever-demanding customers in a warm and efficient manner are those businesses which

    will be more likely to obtain a long term competitive advantage over their rivals.

    Ironically the quality of services frequently cannot be fully appreciated until something

    goes wrong and then, the poor quality of services can have long lasting lingering

    effects on the customer base and, hence, often is translated into a loss of business.

    Even contrary application of room discounting applying at the new average

    hotels was a direct result of these new market conditions. Although this practice is

    remedial in the short run, it destroys brand image and detracts from the value of the

    lodging product in the long run. On the other side, starting from the different types of

    risks customers face with when they decide of buying services, lower prices could

     9 Zeitahml, Parasuraman and Berry (1990) Delivering Quality Service Balancing Customer Perception and Expectations, The Free Press, New York 10 Loizos, C., and Lycourgos, H., „A Customer's Expectation and Perception of Hotel Service Quality in Cyprus“, FIU Reivew, Vol. 23, pp. 45


    11 That is the reason managers at the service sector communicate lower level of quality.should think about meaning of each type of marketing mix their hotels offer to the

    potential visitors.

    This study attempts to investigate the marketing tactics used in "services marketing strategy," strategic marketing methods which actually cultivate lodging

    business for the long run by forging strong relationships between the lodging property

    and its customers. Services marketing strategy is based on trust and commitment to the

    lodging consumer and is exemplified when a lodging property is able to provide high

    levels of satisfactory service to the lodging consumer.

    The process of pursuing and applying services marketing strategy involves internal marketing strategies, relationship marketing strategies (based on database

    marketing), and the addition of value to the intangible lodging product through the

    offering of more services. The problem of managing expectations still is standing

    unsolved. If hotels create higher level of expectations they‟ll have problems to fulfill

    them, and possibly they can create unsatisfied customers. If they use lower expectation

    strategy (precisely more realistic promises) they won‟t be attractive enough compared 12to their competitors.

    This study researches the hypothesis that the most progressive hotel industry marketers are most aware of the value of services marketing strategy, but unfortunately

    more based on their instincts than overall implementation of marketing services

    strategy. These marketers expect to attribute their survival in the competitive market

    and much of their future success to the utilization of services marketing strategy.

    During this research we wanted to identify and describe those lodging properties and marketing segments where services marketing strategy and differences

    of services industry are most valued and utilized. We expect the results of this study

    provide relevant, useful information for hotels and lodging marketers at BH market.


    The survey was consisted of 20 multiple choice questions. Letter of invitation and instruction how to filled questionnaire, including the questionnaire, was mailed to

    all registered hotels and other lodging properties at the official register published by

    Tourist association of Bosnia and Herzegovina. The list had 217 e-mail addresses.

    Therefore, an equitable representation of the concentration of the total lodging market

    and the differing sizes of lodging products exists among the responses, similar to the

    structure of data we found at official statistic data. The survey was completed during

    September-October 2007 and we‟ve got 53 usable responses. Data was analyzed using

    the SPSS computer program and methodology employed in the analysis of the data

    collected from these responses directly relates to the design of the survey. Limitations

    to this research were presented by the fact that some of the electronic mail addresses

    weren‟t correct which influence on the high level of returned messages and survey.

     11 Babić-Hodović, (2001), Strategy and Implementation Services Marketing, Faculty of Economics, Sarajevo 12 Babić-Hodović, (2001), Strategy and Implementation Services Marketing, Faculty of Economics, Sarajevo


    Table 1.

    Type of lodging properties No %

    Hotels 36 68%

    Motels 12 23%

    Bad and Breakfast 5 9%

    TOTAL 53 100%

    4. RESULTS

    The survey data were tabulated and summarized by frequency charts. The respondents represented 36 hotels, 12 motels and 5 inns. The descriptive data collected

    from the survey classified the survey respondents as representing mostly medium-sized

    (50%) or small-sized (30%) and full service average level (51%) or luxury (26%)

    lodging facilities. The majority of responding companies were located in the Federation

    of Bosnia and Herzegovina (85%) and other 15% were located at the other entity

    (Republic Srpska). Speaking about most attractive tourist destination, the majority of

    responding companies were located at Sarajevo canton which is the most visited

    location in Bosnia and Herzegovina (29%) and Herzegovina-Neretva canton (where

    Mostar is located and the single seaside town Bosnia and Herzegovina has) (27%).

    The majority of the respondents reported that they organization was privately owned (80%). The other 12% of the responses were privatized companies (sold during

    the process of privatization in BH) and 2% of them owned by corporate capital or other

    options (without specifications 6%).

    The current range of average occupancy rates predicted by industry analysts is very low 16% at Sarajevo canton to 75 to 80% at the coast during the season. Forty-six

    percent of the respondents indicated that their property carried occupancy rate between

    50 to 75 % and the other between 25 to 50 %. Only 7% of them reported occupancy

    rate between 75 and 99 %. Comparing these results with the structure of respondent we

    can found some inconsistencies, especially because of the number of respondents

    located at Sarajevo canton. This data give us reasonable doubt that some of the hotels

    or lodging properties using different data of occupancy for official (tax and government

    bodies) and for the survey.

    When asked about the annual flow of business to support these occupancy rates, less then half of respondents (36 %) reported experiencing a steady annual flow

    of business with some peak periods. Some respondents (53 %) described their annual

    flow of business as seasonal but fairly steady. Most respondents (53 %) explained their

    flow of business as consisting of a variety of business travelers, general consumer

    travelers, and tourists/vacationers. Many respondents (47 %) classified the majority of

    their guests as being single business travelers, while another 23 % of respondents

    indicated that their guests were usually tourists and vacationers. (Responses had

    opportunity to give more than one answer).

    Survey results showed that 62 % of respondents represented organizations which most often quoted middle-priced rack rates somewhere between 25 euros and 50


euros. Another 23 % of respondents reported posting a rack rate slightly higher,

    between 50 euros and 75 euros. Nine percent of the survey respondents‟ companies carry a rack rate between 75 euros and 100 euros, and 2 % showed a rack rate of more

    than 100 euros. Many respondents (40 %) reported that these rack rates did not differ

    much from their corporate rates. But 30% of them reported offering a fairly substantial

    discount in their corporate rate of 13 euros to 25 euros off the rack rate.

    Concerning the use of a variety of marketing tactics other than advertising, the

    respondents provided an overwhelming indication that a large variety of marketing

    tactics other than advertising are being utilized in the industry. Responses had

    opportunity to give more than one answer. Table 2 displays the percentage of

    respondents who indicated that they used a specific tactic in the marketing of their


    Table 2.

    % of the pull of Marketing tactics No. respondents

    Room Discounting 37 70%

    Room Upgrading 17 32%

    Promotions/incentives 17 32%

    Service Guarantees 5 9%

    Specialized Services 11 21%

    Focus on Customer Service 13 25%

    Joint-Marketing Programs 9 17%

    Database Marketing 10 19%

    Yield-management 6 11%

    Consistent with the industry research, this question revealed that room

    discounting, used by 70% of the respondents, is definitely a widespread industry

    marketing tactic. Twenty five of respondents indicated that they maintained a focus on

    customer service throughout their property. This percentage can be explained by the

    respondents representing limited-service properties. Two more widely used marketing

    tactics were room upgrading and promotions/incentives. Yield-management and

    service guarantees are the marketing tactics used by 11% and 9% respectively BH

    hotels and managers.

    The survey requested that respondents indicate whether their organization

    added new services or service to guarantees in 18 different areas of their lodging

    property during the last five years. Responses could give more than one answer and we

    calculated percentage of them reported to use each of dimensions we offered. Most

    respondents (75%) indicated that their property has improved their level of service with

    respect to the quality of room and room reservation.


    A high percentage of respondents (68%) also reported improving services and service guarantees in their food and beverage outlets. Other notable figures (64%)

    indicate that respondents' companies also placed importance in making' improvements

    in the areas of security and technology equipped rooms such as TV, stereo and

    telephones in the rooms and next 49% improved accommodation for business travelers

    (equipped rooms and hotels with faxes copy machines and online connections).

    Many respondents (47%) indicated that they have made some kind of improvement in accommodations to foreign travelers. Some of the improvements in

    these accommodations include multilingual menus, concierges or reservations


    With regard to importance to service marketing and the offering of new types of services and service guarantees, the majority of responding organizations (64 %)

    stated that service marketing is important to their organization but it is as equally

    important as other marketing tools. Only 4% of respondents described service

    marketing as being centrally important to their organization. 28% of respondents

    declared services marketing as being only somewhat important to their organization,

    and 4 % stated that services‟ marketing is of no importance at all.

    Multiple discriminant analysis was applied to the survey data in an effort to determine relationships between the grouping variables and marketing tactics employed.

    The five grouping variables that the analysis revealed are: Level of Service, Type of

    Ownership, Regional Location, and Size of Property. The widespread practice of room

    discounting used as a tactic to market or promote one's lodging property is related to

    the type of lodging property and its regional location. Room discounting proves to be

    used more by hotels than by motels or inns. Also, this practice is used more often by

    properties outside Sarajevo and coast and out of season (at the coast). Also, utilization

    of room upgrading was found to be more evident in those properties classified as

    medium in size.

    The use of promotions and incentives is related to three independent variables: Size of Property, and Regional Location. The strongest relationship was found between

    hotels, large-sized properties and properties located in the Sarajevo.

    The marketing tactic of maintaining a committed focus on customer service throughout one's organization was found to be relative to a property's level of service.

    This seems to be a natural relationship; properties having higher levels of service were

    also found to be maintaining the strongest focus on customer service. But this we found

    unusual correlation lodging properties with full coverage service showed higher level

    of implementation of customer focus, comparing with the luxury hotels. It could be

    partially explained by the fact that competition between this types of supplier is much

    higher, comparing to the few luxury hotels in B&H. But for sure that is the

    consequence of the fact the luxury hotels put much more stress at the physical evidence

    and luxury atmosphere than personal contact and interaction (which is typical for those

    type of hotels operated in developing countries).

    A property's level of service was also found to be related to its choice to utilize joint-marketing programs. Those properties that were found more likely to be

    utilizing joint-marketing programs were the full-service properties. One may postulate

    that joint-marketing programs offered through a full-service property are an ideal

    method of adding value and optional levels of service to lodging outlets which

    characteristically provide more convenience than service.


    13 predicted that a hotel, which failed to understand and meet its Salomoncustomers‟ service standards, would be out of business in 7 to 9 years. It seams hotel‟s

    managers recognize this fact. Namely, service guarantees, value-adding contracts

    between the customer and the operator, were found to be heavily used by hotels and

    motels. The analysis also revealed that the properties most likely to be involved in the

    specialization of services for targeting to specific consumer groups are the corporate

    singularly owned and the franchised.

    Responding organizations ranked six concepts or qualities with respect to their

    perception of the value that these qualities give to their customers. The underlying

    assumption of this survey question is that marketers would use their knowledge of the

    qualities that they perceive as being most important to their customers in the

    formulation of new services and service guarantees. Table 3 shows the six qualities and

    the corresponding percentages. One can see that quality of product was reported as

    being of utmost importance to the lodging customers. The second most important

    concept that respondents reported as being highly valued by the customers was

    efficiency of employees and comfort/convenience, with 57% respectively. A small

    number of responding organizations ranked special value-adding services and after that

    price as being the most important to their customers. However, brand-name recognition

    was recognized as important by a 43 % of respondents.

    Table 3.

    1-the most important, 6-the least important

    Quality concepts perceived by 1 2 3 4 5 6 managers

    30 8 5 2 4 4 Comfort/Convenience 57% 15% 9% 4% 8% 8%

    30 8 5 2 1 7 Efficiency of Employees 57% 15% 9% 4% 2% 13%

    18 13 10 4 5 3 Price 34% 25% 19% 8% 9% 6%

    9 9 19 7 6 3 Special Value-Adding Services 17% 17% 36% 13% 11% 6%

    31 8 5 2 3 4 Quality of product 58% 15% 9% 4% 6% 8%

    23 9 4 7 4 6 Image/Brand-Name Recognition 43% 17% 8% 13% 8% 11%

    With regard to market segmentation, responding organizations stated that

    business groups and business travelers would be the focus of their organization's effort

    to offer new services and service guarantees (81.1% and 69.7%). The second largest

    customer segment represented by the data is tourists/vacationers (67.9%). 28.3% of

     13 Salomon, A. (1994), „Focuson quality or fail“, Hotel and Motel Management, Vol. 209, NO. 13, 3-4


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