CHAPTER 2

THEORETICAL FOUNDATION

2.1 Service Industry and Hospitality

Service industry is a very dynamic business that varies from time to time.

In recent years, services business grown dramatically in each country in

this world. The very definition of the service itself always changes and

transforms every time, depend on the scope of the subject or research

conducted. As a beginning, the service definition developed by Zeithaml

et.al can give us some overview of the business.

“Service industries and companies, “according to Zeithaml et.al ” include

those industries and companies typically classified within the service

sector whose core product is a service.” (2006: 5) Furthermore, they also

defined service as the whole union of deeds, processes and performances;

or on broader term, service can be distinct as, “all economic activities

whose output is not a physical product or construction, generally

consumed at the time it is produced and provide added valued in forms

that are essentially intangible concern of its first purchaser”

Eventhough there are no exact definition of what is service really meant,

but the above definitions can give an overview that service covers many

factors in the business process that related either directly or indirectly to

the customer, but the most important thing is that service depend much on

its intangibility aspect. An excellent service therefore has to be able to be

felt by the customer and facilitate them while doing some activities.

The application of term “hospitality” itself began with the introduction of

the term “hotel and catering” in United Kingdom on the 1990s. Then,

“hospitality” term imported from the United States of America began to

replace it until now. This term now widely used by many industry players

to define what kind of service that they provide. Basically, the real

definition of “hospitality” has not been found, although there were many

studies conducted according to this issue from early 1910s.

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Dictionary definition from the 1930s to the present tend to stress a central

theme which is summed up in the recent Collins Concise English

Dictionary Plus that define “hospitality” as “kindness in welcoming

strangers or guests” (Hanks, 1989, p.604).

King concluded the “modern” view of hospitality embrace four distinct

characteristic: (1) Conferred by a host on a guest who is away from home.

(2) Interactive, involving the coming together of a provider and receiver.

(3) Comprised of a blend of tangible and intangible factors. (4) The host

provides for the guest’s security, psychological and physiological comfort.

From that information, hospitality described as providing a compensation

for a stranger which provides benefit for the stranger in term of facility,

comfort feeling or others thus help or facilitated them to finish their job or

goal. (Hepple et.al, 1990) (1995: 220)

A new development of hospitality definition also includes the activities

where organizations or people as its member have direct contact with

clients through a range of activities; for example, one-to-one meeting that

engage directly with the customer and also the customer with the product.

(M2 Presswire, 2007:1)

Therefore, hospitality industry is concluded as a business that deals with

relationship process between a guest and host or the act of being

hospitable. Nowadays, this business frequently refers to hotels,

restaurants, resorts, casinos, catering, or other form that positioned itself as

a service provider for tourist.

This research would be focused on hotel business as a part of hospitality

industry. Hotel can be defined as a building or other establishment that

provides paid lodging or accommodation. They usually provide a traveler

or tourist a place to stay on a short term basis with addition of another

service facilities such as restaurant, swimming pool, bar, meeting rooms,

convention hall, ballroom, etc.

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2.2 Classification of Service Business On her thesis, Miranda (2003) addressed Simmon Fitz for the

classification of service business. Generally, service business can be

classified based on its degree of interaction and customization and also its

degree of labor intensity.

Degree of Interaction and Customization Low High

service factory: service shop: Airlines hospitals trucking auto repair hotels other repair services

Low

resort and recreation mass service: professional service: retailing doctors wholesaling lawyers schools accountants D

egre

e of

Lab

our

Inte

nsity

Hig

h

commercial banking architects

Figure 2.1 Service Process Matrixes

Each quadrant shows the level of employee interaction and involvement

with the customer.

Service Factory

The level of employee involvement to customer is low and the

businesses in this quadrant provide standardized service with high

capital investment level. Hotel, which is the main subject of this

research, also placed in this quadrant.

Service Shop

Higher employee involvement by providing some products based on

customer demand (customized product), but still need a high level of

capital investment.

Mass Services

Customer receive undifferentiated services with high intensity of

employee involvement

Professional Services

Relatively high employee involvement with high degree of product

service or customization.

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2.3 Service Characteristic In chapter 9 of Principles of Marketing, Kotler and Armstrong (2006)

mentioned that a company must consider four special service’s

characteristic which determine the uniqueness of the service itself. Those

characteristic furthermore will determine the strategy that should be

implemented by the company due to the differentiation of service

compared with tangible product represented. Those are:

1. Intangibility

A major characteristic that services cannot be seen, tasted, felt, heard,

or smelled before they are bought.

2. Inseparability

Determine that service has to sold, produced and consumed at the

same time. Services cannot be separated from their providers. Both the

provider and the customer affect the service outcome.

3. Variability

Characteristic of service where their quality may vary greatly,

depending on who provides them, when, where, and how.

4. Perishability

It means that service cannot be stored for later use or sale.

2.4 Service Quality One important aspect had by the service firm to differentiate it, is by

delivering consistently higher quality than its competitors do. Each service

provider needs to identify the expectation of target customer concerning

service quality and act based on the identification result. Zeithaml et.al

once stated that “satisfaction is generally viewed as a broader concept,

whereas service quality focused specifically on dimension of service.

Based on this view, perceived service quality is a component of customer

satisfaction”. (2006; 106)

As shown in the Figure 2.2; furthermore, they conclude that: “Service quality is focused on the evaluation that reflects the customer’s perception of reliability-responsiveness-assurance-empathy-tangibles. On the other hand, customer satisfaction is more inclusive. It is influenced by perception of service quality, product quality, and price as well as situational factors and personal factors” (2003; 108)

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Figure 2.2 Customer Perceptions of Quality and Customer Satisfaction

As defined by Parasuraman et.al in Delivering Quality Service, “quality

service can be defined as the extent of discrepancy between customers’

expectation or desires and their perceptions” (1990; 19) then it is obvious

that customer expectation and perceived of the service performance

influence their view of the service provider as a whole company.

On previous research, service quality is obviously determined as the

crucial factor to the success of any service organization (Kandampully,

2000). Therefore it is suggested that enhancing service quality at every

level of service delivery has become a mandatory act for organization

survival. (Lee, Barker, & Kandampully, 2003). Based on that description,

it is noticeable that the better the service quality delivered by the provider,

the greater the customer satisfaction. The judgment of whether the service

quality is high or low depends on how customers perceive the actual

service performance in the context of what they expected. Customer will

then assess service quality by comparing the service they get with the one

they desire before. Hence, it is obviously clear that service quality plays a

critical role in adding value to the overall service experience (Lau, Akbar,

& Gun Fie, 2005: 2)

On further research, such as Pizam and Ellis (1999), this satisfaction issue

will give further contribution to the creation of the customer loyalty for the

company. But this issue will not be addressed in detail in this research.

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2.5 Service Quality Model To address the existence service quality condition in Saung Hotel Resto, a

SERVQUAL model would be use as a holistic measurement model. This

model originally developed by Parasuraman et.al on 1985 and then refined

later on 1988, 1990, 1991 and 1994.

The model was based on the fact that the key to delivering high quality

service is to balance customers’ expectations and perceptions and close all

the gaps between the two, thus the model serve as a framework for service

company to improve its quality service and service marketing to the

customer.

From their study, Parasuraman et.al (1990) found that there are some

critical issue occurs in a company while they are aiming to achieve

effective service quality control. These potential issues then represented in

form of discrepancies or gaps pertaining to executive perceptions of

service quality and the task associated with the delivery of service to

customers. Therefore, there are four major gaps on this model and these

gaps are considered as major causes of the service quality gap customer

may perceive on the business process. On the other hand, Gap 5 is

measured as the discrepancy between the expected and perceived service

from the customers point of view.

Figure 2.3 SERVQUAL Model

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2.5.1 Gap 1: Not knowing what customers expect This gap addresses the issue that service-firms executive may not always

be completely aware of which characteristics indicate high quality to

customers. When the executives or management – who basically in a

position and responsible to make strategic decisions and priorities to the

company – do not fully understand customers’ service expectation, they

may trigger a chain of bad decisions and suboptimal strategy

implementation that in the end result in perceptions of poor service

quality. Being (even) a little bit wrong about what customers want can

mean losing a customers’ business when another company hits the target

exactly. Therefore, this gap was a fundamental basis that should be

analyzed and solved immediately by the management to win the

competition in the business.

2.5.2 Gap 2: The wrong service quality standard After able to exactly address the right customer expectation, it does not

mean that the business can directly run on the right track. Mostly, even

the managers or executives has understand what is customer really

needed, they still make some mistakes while translating that need into

the right service quality specifications and standards. They have to fully

aware that operation standard must be set to correspond to customer

expectation and priorities rather than to company concern such as

productivity or efficiency. (Zeithaml, Bitner, & Gremler, 2006: 38)

2.5.3 Gap 3: The service performance gap This gap is about the discrepancies between development of customer

driven service standard and actual service performance by company

employees. The right service standard must firstly defined accurately by

the management and backed up by appropriate resources and then must

be enforced or evaluated to be effective. This can be done by conduct

some training or other evaluation method to make sure that each

employee has the same vision with the management and support the

sustainability of the excellence service performance on long term period.

2.5.4 Gap 4: When service do not match delivery Gap 4 deals with the differences that occur between the service delivery

which is provided on spot with the service provider’s promises made in

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their external communication to the potential customer. The discrepancy

between actual and promised service will has an adverse effect on the

customer gap.

In the SERVQUAL model, gap 1 and 2 are more likely considered

managerial gaps since it comes from the managements’ lack of

understanding and failure in judging their customer opinion, meanwhile

gap 3 and 4 concern more to the misjudgments made first line service

(customer contact) employee toward their customers.

2.6 Service Quality Dimensions Parasuraman et.al (1985) defined service quality in ten major dimension

which customers use in forming expectation about and perception of

service. In later research (1990), they then revised and identified the

service quality in five dimensions.

Table 2.1 SERVQUAL Dimensions Description

SERVQUAL Dimension Description

Tangible Appearance of physical facilities, equipment, personnel and communication material

Reliability Ability to perform the promised service dependably and accurately

Responsiveness Willingness to help customers and provide prompt service

Assurance Knowledge and courtesy of employees and their ability to convey trust and confidence

Empathy The firm provides care and individualized attention to its customers

2.7 The Influence of Research Context for SERVQUAL Model Basically, SERVQUAL model developed by Parasuraman et.al (1985)

could be directly applied in every context of service industry, such as

banking industry, hotels and resorts, restaurant, telecommunication

provider, etc. However, some improvement might be needed for the

research concerning one specific context. In hotel industry, as used by

Gabbie and O’Neill on SERVQUAL and the Northern Ireland Hotel

Sector: a Comparative Analysis (1996), the improvement of the

SERVQUAL model’s tools occurred in the differences of the questions

used to interviewing the management. This differentiation was caused by

the external factor’s condition on Ireland (such as the tourism ministry

policies regarding to the evaluation of tourism and hospitality in Ireland).

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Hereinafter, it could be concluded that an improvement or modification

applied to the SERVQUAL model proposed by Parasuraman et.al might

be needed by some researcher regarding to the external and internal

condition they faced and also the objectives of their research.

2.8 Customer Satisfaction Pizam and Ellis defined customer satisfaction as “the leading criterion for

determining the quality that is actually delivered to customers through the

product/service and by the accompanying servicing (Vavra, 1997)”

(1999:1) Lovelock and Wirtz defined satisfaction as “an attitudelike

judgment following a purchase act or a series of consumer product

interaction. (Youjae Yi, 1990)” (2004: 44). Customer satisfaction is

recognized as a great importance to all commercial firms because of its

influence on repeat purchases and word-of-mouth recommendation

(Berkman and Gilson, 1986).

Here, customer satisfaction existence could be simply concluded as a very

essential aspect for corporate survival. Related to the discussion before,

one important aspect to create this satisfaction in hospitality industry is by

providing excellent level of service delivery to the customer. Most

hospitality experiences are an amalgam of products and services (Pizam

and Ellis, 1999). Satisfaction with a hospitality experience such as hotel

stay is a sum of satisfaction with the individual elements or attributes of

all the products and services that make up the experience.

By making sure that a company has satisfied their guest, management or

owner can feel a little bit relieved since they know that there is a chance

for that customer to repurchase the company’s product or service. This

condition become so important to give the company another competitive

advantage to a better competition skill in the though business world

nowadays. Many research has prove that the creation of customer

satisfaction can be linked to customer loyalty and profit (Zeithaml et.al,

2006: 114) One study conducted by The University of Michigan found

that on average, every 1 percent increase in customer satisfaction is

associated with a 2.37 percent increase in the firm’s return on investment

(Eugene and Mittal, 2000)

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In order to make sure of the customer satisfaction existence in one

company, the management had to applied a routinely customer satisfaction

measurement program. By doing so, management could asses their

company performance, evaluate their strength and weakness and also

decide crucial decision concerning the customer which will determine the

company sustainability in the future. In addition, to be successful, the

program or decision triggered it must come from and be incorporated into

the firm’s corporate culture (Naumann, 1995: 12)

No firm that seeks long term relationship with either customer or

employees can afford to mistreat them or to provide poor value on an

ongoing basis and of course, this condition also applied to many hotels

spread in many location. Guest satisfaction is furthermore important in

emphasize the good image of each service provider, especially for the

management of the hotel.

2.9 Survey and Sampling Basically, to measure customer satisfaction, a service survey should be

conducted, both to the customers and to the management periodically. It

will track the condition of the service gaps accurately within each period

and give the management some basic data to help them control and

evaluate the service performance.

There are three kinds of survey that commonly used to measure customer

satisfaction:

Personal interview

It includes direct communication between the interviewers with the

research subject. This is the most common method.

Telephone interview

Questionnaire distribution

The implementation of sampling method also provides another advantage

during the investigation. This method cut the cost and time needed to

conduct the survey but still able to provide adequate data needed.

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Ideally, an effective sampling method will have some characteristics

(Paska, 2003):

give a trustable overview from the whole population

simple and accessible

give as many information as possible with lower cost.

There are two kinds sampling method that usually used for conducting a

survey. (Churchill and Iacobucci, 2005: 324)

a. Probability sampling

Simple random sampling

A sampling technique where each element of the population has the

same probability to be chosen as a respondent

Systematic sampling

A sampling procedure where the start point of the sampling randomly

chosen and then every n number of population chosen as the next

respondent

Stratified sampling

In this method, sample was chosen randomly from a sub-population

which has same characteristic

Cluster sampling

A sampling technique which includes a group of individuals (cluster)

as the unit sampling. The criteria to group the cluster are selected

randomly.

Double sampling

There are some steps on this method. The first step is done to get

general information and then the second step will examine the detailed

information.

Area sampling

A sampling which is done in one geographic area such as a region or

country

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b.Nonprobability sampling

Convenience sampling

Here, the selected sample is the one that has the most accessible

character.

Purposive sampling

On this method, sample was chosen because it has the adequate

characteristic

Judgment sampling

A method where the sample is the one who can provide the

information needed by the researcher during the investigation.

Quota sampling

Sample is taken from a sub-population which has some unique

characteristic.

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