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Critical Success Factors and Customer Expectation in Budget HotelSegment — A Case Study of ChinaWen Huaa; Andrew Chanb; Zhenxing Maoc

a Wenwer.com, Irvine, CA b School of Hotel & Tourism Management, Hong Kong PolytechnicUniversity, Hong Kong c Collins School of Hospitality Management, California State PolytechnicUniversity, Pomona, CA

To cite this Article Hua, Wen , Chan, Andrew and Mao, Zhenxing(2009) 'Critical Success Factors and CustomerExpectation in Budget Hotel Segment — A Case Study of China', Journal of Quality Assurance in Hospitality & Tourism,10: 1, 59 — 74To link to this Article: DOI: 10.1080/15280080802713702URL: http://dx.doi.org/10.1080/15280080802713702

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RESEARCH NOTE

Critical Success Factors and CustomerExpectation in Budget Hotel Segment — A Case

Study of China

WEN HUA

Wenwer.com, Irvine, CA

ANDREW CHAN

School of Hotel & Tourism Management, Hong Kong Polytechnic University, Hong Kong

ZHENXING MAO

Collins School of Hospitality Management, California State Polytechnic University, Pomona,

CA

This study investigates the nature of critical success factors (CSFs)in China’s budget hotel operations and development from theperspectives of various stakeholders, including customers, industryprofessionals, government authorities, and hotel investors.Understanding the differences in CSFs becomes extremely impor-tant to the success of the budget hotel segment in China. Resultsindicated that while all five dimensions of CSFs (i.e., physicalproduct, service quality, price, promotion, and location) weredeemed important by the industry professional, governmentauthority, and hotel investor, the sequence of importance differedsubstantially among these groups. By contrast, customers wereprimarily concerned with service quality issues, indicating servicequality was still the core customer expectation in China’s budgethotel market.

KEYWORDS Budget hotels, China, critical success factors,customer expectation

59

Received 21 February 2008; revised 8 November 2008; accepted 18 December 2008.

Address correspondence to Wen Hua, 8105 Irvine Center 9FL, Mailbox 2–29, Irvine, CA92618. E-mail: [email protected]

Journal of Quality Assurance In Hospitality & Tourism, 10:59–74, 2009Copyright # Taylor & Francis Group, LLCISSN: 1528-008X print / 1528-0098 onlineDOI: 10.1080/15280080802713702

Downloaded At: 07:00 10 September 2010

INTRODUCTION

The travel and hospitality industry in China has witnessed a robust growth inrecent years. Inbound travellers, including those for the purpose ofsightseeing, business, and meeting friends and relatives in 2005, reached120.3 million person/times with an estimated $29.3 billion in revenue,representing an increase of 10% and 14% over the previous year,respectively, according to the Yearbook of China Tourism Statistics in 2006.

Budget hotels recently emerged as a popular trend in China’s lodgingmarket due to its high return on investment (ROI) and demand in China.According to Mr. Aijun Zhan, a financial analyst for Sina.com, successfulinvestment in a budget hotel in China may yield more than 20% of profitmargin. The 2008 Olympic Games in Beijing and the upcoming 2010 WorldExposition in Shanghai have stimulated the unprecedented development ofbudget hotels in China. For example, Beijing needed to renovate more than200 no-star or low-class hotels before the end of 2007 to accommodatemore than half million domestic tourists during the 2008 Olympics,according to Mr. Changjiang Yu, director of Beijing Tourism Bureau.Major budget hotel brands in China, such as Jing Jiang Inn, Home Inn,Super 8, and Ibis, formulated their ‘‘2008 plans’’ and ‘‘2010 plans’’ to cater tothe surging needs.

Although a growing interest in budget hotels has been aroused, few, ifany studies regarding important factors for the success of this sector in Chinacould be found in current research stream. The existing literature on thistopic is rather limited in scope, predominantly to US and United Kingdom(UK). China is different from US and UK markets in that it has hugepopulation, unique culture, and an extremely uneven divide between poorand rich citizens. For instance, Chinese guests tend to focus more on servicequality compared with their western counterparts as self-esteem and socialhierarchy in the oriental culture are considered more important. Identifyingand understanding the operational characteristics and customer expectationsbecome extremely critical to the success of budget hotels in China.

To gain a better understanding of the budget hotel sector in China, thisstudy explored the nature of Critical Success Factors (CSFs) in China’s budgethotel operations and development according to customers, industryprofessionals, government authorities, and hotel investors. In particular,the research questions are:

1. What are the most influential factors effecting the success of budget hotels inChina?

2. What are the different perspectives towards CSFs among customers,professionals, investors, and authorities?

3. What are the profiles of the typical guests in budget hotels in China?

4. What areas should budget hotels focus on to better serve their guests?

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REVIEW OF LITERATURE

Budget Hotel Development in China

The origin of the budget hotel may be traced back to the 1920s in the US(Shen, 2006). While the budget hotel has developed worldwide and theterms ‘‘budget’’ or ‘‘limited service’’ or ‘‘economy’’ are used frequentlythroughout the hospitality industry, there exists no standardized, widelyaccepted definition of this segment (Davidson, 1993; Gilbert & Arnold, 1989;Gilbert & Lockwood, 1990; Justus, 1991; Roper & Carmouche, 1989; Senior &Morphew, 1990). Fiorentino (1995) concluded that the concept of the budgethotel is a difficult and complex hospitality phenomenon to describe.Nevertheless, the nature of the budget hotel shares several genericoperational characteristics: strong branded product; extensive geographiccoverage of the hotel network; easy accessibility; centralized reservationsystem; standardized unit construction and guest bedroom layout/facilities;fixed or promotionally variable room rates; relatively limited service; andhigh monetary value (Bortherton, 2004).

Coping with the rapid growth of China’s economy and business activities,the budget hotel sector in China, at its early stage, was expanding significantly,leading to birth and growth of many domestic budget hotel brands, such asHome Inn, Jing Jiang Inn, etc. Those brands were not only quickly acceptedand recognized by Chinese guests, but also proved to be extremely profitable.There were approximately 100 budget hotel brands with more than 1000outlets and over 100,000 guest rooms in operation at the end of 2006 accordingto 2007 Annual Report on the Survey of Budget Hotels in China, published byChina Hotel Associate recently. Jin Jiang Inn, Home Inn, and Motel were top 3brands. Currently, budget hotels account for approximately 10% of the all star-graded hotels and 1% of all shares in the lodging market in China in light of thesurvey by China Hotel Association and Department of Commerce.

Critical Success Factor

Critical success factors (CSFs) refer to a limited number of dimensions thatensure successful competitive performance for an organization (Rockart,1979). Essentially, CSFs are the factors that must be satisfied to guarantee acompany’s overall goal attainment (Brotherton, 2004). CSFs have twodimensions. Internal CSFs reflect a company’s core capabilities for itssurvival in the market such as people, products, process etc. (Berry, Seiders,& Greshan, 1997; Duchessi, Schaninger, & Hobbs, 1989). External dimen-sions, such as competition and market condition, are less manageable(Brotherton & Shaw, 1996). Nevertheless, external conditions are equallyimportant. At a practical level, CSFs may help researchers and practitionersdistinguish necessary elements critical for organizational success from the

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complex, multi-dimensional reality of business activities (Butler & Fitzgerald,1999). Additionally, companies identifying CSFs and implementing their usage,through proper measurement, feedback, and management, received a higherreturn on equity when compared with companies that did not employ CSFs(Jenster, 1987).

Application of CSFs in business management has existed for some time,especially in the information systems (IS) field (Brotherton & Leslie, 1991;Davis, 1979; Hicky, 1993; Robson, 1994; Rockart, 1979). More recently, CSFshave been applied widely to research in management, particularly in strategyand operation studies. In hospitality, several researchers have carried out fieldor survey-based study to identify CSFs. Goldman and Eyster (1992) conducteda study on CSFs regarding hotel food and beverage leases. Lee (1987)undertook a study of CSFs for the success of restaurants. Croston (1995)investigated CSFs for hotel profitability. Peacock (1995) explored the CSFs forthe successful hospitality managers. Hinkin and Traceys (1998) studied thecritical physical and service factors for effective meetings. Brotherton (2004)identified and categorized CSFs in UK budget hotel operations, an area whichis particularly relevant to this study. The researcher identified 36 CSFs in UKbudget hotels (see Table 1), which were divided into seven categories: coreproduct, consistency, customer service, hygiene and quality, strategic control,pricing, and location. Ultimately, the author created a final model in greatparsimony with two dimensions of accessibility and performance.

Customer Expectation

Numerous studies have been conducted to identify and understand theneeds and expectations of customers to choose the lodging establishment

TABLE 1 Critical Success Factor in United Kingdom Budget Hotels

Central sales/reservation system Customer loyalty/repeat businessConvenient locations Disciplined operational controlsStandardized hotel design Speed of guest serviceSize of hotel network Efficiency of guest serviceGeographic coverage of hotel network Choice of room type for guestsConsistent accommodation standards Guest securityConsistent service standards Low guest bedroom pricesGood value restaurants Limited service levelMonetary value for accommodation Hygiene and cleanlinessRecognition of returning guests Quality auditsWarmth of guest welcome Staff empowermentOperational flexibility/responsiveness Strong brand differentiationCorporate contracts Customer survey/feedbackSmoking and non-smoking rooms Staff trainingDesign/look of guest bedrooms Added-value facilities in guest roomsSize of guest bedroom Staff recruitment and selectionGuest bedroom comfort level Standard pricing policyResponsiveness to customer demands Quality standards

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(Knutson, Stevens, Wullaert, Patton, & Yokoyama, 1991; Wilensky & Buttle,1988). Their findings suggested that most people may consider the followingattributes when making choice regarding accommodation: location, price,security, service quality, and the branding reputation (Knutson et al., 1991;Wilensky & Buttle, 1988). Knutson, Stevens, Patton, and Thompson (1992)surveyed a group of frequent travelers in three hotel segments: economy,mid-price and luxury; and found that the important considerations for initialhotel selection and return of frequent travelers were clean and comfortablerooms, convenient location, prompt and courteous service, safe environ-ment and friendly and courteous employees. In another study, Knutson et al.(1991) used LODGSERV to compare customer expectations with servicequality. Results suggested that reliability and quality assurance appeared tobe important elements anticipated by travelers across the three hotelsegments. Ananth, DeMicco, Moreo, and Howey (1992) surveyed 510travelers, asking them to rate the importance of 57 hotel attributes in thehotel choice decision. Price and quality were rated as the most importantattributes across all age categories, followed by security and convenience oflocation. Similarly, Atkinson (1988) found that the cleanliness of accom-modation, safety and security, monetary value, and the courtesy andhelpfulness of staff, were identified as top attributes for travelers in hotelchoice selection. Rivers, Toh, and Alaoui (1991) examined the hotel selectiondecisions of members and non-members of frequent-guest programs. Theirresults showed that convenience of location and overall services receivedthe highest ratings. Wilensky and Buttle (1988) reported that personalservice, the physical attractiveness of the hotel, opportunities for relaxation,standards of services, an appealing image and value for money weresignificantly evaluated by travelers.

Hotel guests’ expectations tend to rise in tandem with the level of hotelprices. Griffin, Shea, and Weaver (1996) examined how business travelersdiscriminated between mid-price and luxury hotels. Their findings revealedthat business travelers staying at mid-priced hotels expected relatively low-price family restaurants and a pre-arranged bill, whereas travelers staying atluxury hotels expected a bellman service, a concierge service, gourmetrestaurants, a bathrobe and a hair dryer. By the same token, guests who stayat the budget hotel may only expect minimal products and services to meettheir basic needs and wants.

RESEARCH METHODOLOGY

Both interview questions and survey instrument were developed based onthe 36 CSFs items identified in Brotherton’s (2004) study with minoralterations. A thirty-five-item questionnaire was used in this study with aconsideration of China’s situation. Although a similar survey instrument

Research Note 63


was employed, this study significantly differed with Brotherton’s (2004)study in three aspects. Most notably, respondents were different.Brotherton’s study surveyed only hotel operators in UK, which was fromthe supply side. This study on the other hand, collected data in Chinathrough interviews with the hotel investor, the hotel professional, and thegovernment official and surveys of hotel guests. These respondent groupsencompassed all stakeholders of the hotel. The inclusion of additionalrespondents generated a new understanding of budget hotel developmentfrom various perspectives. Second, Brotherton’s study investigated andstudied two subgroups (‘‘Leaders’’ and ‘‘Laggards’’) of budget hotels in UKbased on their relative market position. This study treated the budget hotelas a homogenous group, whereas budget hotels in China are in aburgeoning stage. Finally, this study utilized both quantitative (survey)and qualitative (interview) research methods. While quantitative researchaims to test a theory with numbers using statistical techniques, qualitativeresearch has the goal of understanding problems in a rich and narrativemode.

Semi-structured face-to-face interviews were conducted to identifyCSFs of budget hotel operations and development in China. Thisqualitative interview approach was well suited for gathering richinformation in a time efficient manner. Three qualified individuals wereselected to participate in personal interviews. Each of them representedthe industry professional, the government official, and the hotel investor.Before each interview, individual appointments were made via phone toensure consent and availability of each interviewee. The interviewquestions concentrated on the five most important CSFs and theirunderlying reasons. Upon completion of CSF questions, interviewees werefree to provide additional thoughts regarding budget hotel operations anddevelopment in China.

The quantitative survey approach was more appropriate to aggregatedresponses from the customer. Individual intercept surveys were used toevaluate customer expectations of CSFs. A total of 210 questionnaires wasdistributed in the summer 2006 to seven budget hotels in six areas of China:Beijing, Shanghai, Guangdong, Zhejiang, Jiangsu, and Sichuan. Surveyquestionnaires were placed at the checkout counter in each hotel. Onewhole day was randomly chosen by a front desk manager to distributequestionnaires. Then the front desk manager randomly asked hotel guestswho had just checked out to fill out the questionnaires. To encourageparticipation in the survey, small gifts were given to all those who filled outthe questionnaires. Among the 167 questionnaires returned (79.5%response rate), 25 questionnaires had missing values and were excludedfor analysis. Thus, a total of 142 surveys was retained. The hotel propertiesstudied varied in size, ranging from fewer than 40 rooms to more than 240rooms.

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RESULTS

Personal Interviews

Top five CSFs from the viewpoint of the industry professional, thegovernment authority, and the hotel investor are presented in Table 2.These CSFs are related to five dimensions, which are discussed next.

Physical Product

All interviewees considered guest bedroom comfort level to be an importantCSF. Different from traditional full-service counterparts, budget hotelsfocused on core physical products in lodging business such as theguestroom bed. Guests in budget hotels in China have shifted theirpreferences from exterior curb appeal or deluxe status to physical lodgingproducts, indicating they are placing personal satisfaction ahead oftraditional social image.

Service Quality

Both the industry professional and government authority ranked guest safetyand security and speed of guest service top priorities, implying theimportance of service quality to them. Guest security is a fundamentalpremise to the lodging business as it is related to safety of life and security ofproperty. Speed of guest service represents the importance of customerexperience and is a special feature of budget hotels. In addition, the industryprofessional listed hygiene and cleanliness, a factor which was considered asa competitive edge of new budget hotels over some traditional middle- orlow-class hotels. The hotel investor, on the other hand, omitted servicequality factor, as he may place more emphasis on macro or operationalissues such as return on investment (ROI) and sustainable revenue growth.

TABLE 2 Top Five Critical Success Factors

Industrial Professional Government Authority Hotel Investor

Guest safety and security Strong brand differentiation Strong brand differentiationGuest bedroom comfortlevel

Guest safety and security Central sales/reservation system

Hygiene and cleanliness Value for money accommoda-tion

Geographic coverage of hotelnetwork

Convenient locations Guest bedroom comfort level Value for money accommoda-tion

Speed of guest service Speed of guest service Guest bedroom comfort level

Research Note 65


Price

Monetary value and hotel theme were most valued by the investor andgovernment authority. The industry professional did not explicitly list thisdimension, reflecting his view that more attention may be paid to servicequality. Nevertheless, all interviewees believed that present price of budgethotels was reasonable for customers. This was further evidenced by highroom occupancy rate at 90% and higher on for budget hotels in Chinaaccording to the government official. As a result, guests had to reserve theirrooms a minimum of 1 week ahead of arrival to ensure the availability ofaccommodation, especially during weekends and holidays.

Promotion

Strong brand differentiation was considered as a top factor by thegovernment authority and hotel investor. They determined the success ofbudget hotels mainly from brand names. According to their perspectives,budget hotel brands differentiated from others in various aspects. Eachbrand deployed different exterior and interior hotel design, especially incolor as part of visual identity. Different from traditional two- or three-starhotels, most new budget hotels provided special discounts to individualmembers, mainly middle-class business and leisure guests, to enhancevisitation and maintain brand loyalty. In contrast, the industry professionalbelieved that many similarities existed among different brands and did notview branding as important for the budget hotel.

Location

The industry professional listed convenient locations as the top criticalsuccess factor. Budget hotels in good locations may take only 18 months torecoup the net investment in China, which is very attractive. The hotelinvestor believed that central sales/reservation systems as well as geographiccoverage of hotel network were very important to budget hotels. Thesevirtual locations may sustain the success of budget hotels operations anddevelopment in China.

Other Insights

The industry professional pointed out ambiguous concept of the budgethotel in China as some hostels and guesthouse accommodations claimedthemselves as budget hotels to attract less-informed travelers. While a budgethotel is operated on its own or as a franchisee, the fast pace of budget hoteldevelopment may compromise the quality of the hotel brand. Therefore,when the budget hotel was anticipated to move to inland China on a next

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step, both the quality and quantity of the hotel brand must be carefullymanaged. The room rate, currently around RMB 200 or $26 per room, shouldbe lowered if budget hotels intend to launch more future businesses ininland China.

The government authority expressed several concerns. Budget hotelbrands, unlike the traditional full service hotels, were very limited in numberand lacked an adequate reservation network. In addition, the budget hotel,unlike the tourist hotel in China, was monitored by industry and businessbureau rather than tourism and hotel bureau. Unified management underone tourism and hotel bureau would be more beneficial to businessdevelopment.

The hotel investor contributed the rapid growth of budget hotels to thebooming economy in China. Many traditional two or three star hotels wereoperating under poor conditions of both service quality management andphysical facility maintenance, leading to higher operation costs and lowerperformance. Many budget hotel brands, whether domestic or foreign,responded well to this demand. They attained competitive advantages overtraditional middle or low class hotels in the areas of standardized servicesand facilities, vast geographic coverage of hotel networking, centralreservation systems, strong brand names, and monetary value.

Respondents Profile

Table 3 summarizes the demographic profile of respondents. Men andwomen were evenly represented among the 142 respondents. Over two-thirds of respondents were between a 25 and 34 years of age, and 16.9%were 19 to 24 years old. Those over 35 years of age accounted for the

TABLE 3 Profile of Respondents (N 5 142)

Characteristic Frequency Percentage (%)

Age19–24 24 16.925–34 96 67.635 or above 22 15.5

GenderFemale 71 50Male 71 50

EducationSome college 25 17.6Bachelor 101 71.1Master or above 16 11.3

Annual Income(RMB)30,001–50,000 14 9.950,001–100,000 102 71.8100,000 above 26 18.3

Research Note 67


remaining 15.5%. Therefore, budget hotels were especially attractive andsuitable to young customers in China. Young generations tend to haveembraced this relatively new lodging concept well. Majority (82.4%) of thesample had at least college degree and all respondents had at least somecollege experience. According to Census of China in 2005, the country had apopulation of over 1.3 billion with 67.7 million, or 5.2%, have at least somecollege education. Therefore, the survey population was not a typicalrepresentation of the Chinese population. There could be several reasons forthis phenomenon. People with a college background tend to be exposedand to accept the concept of the budget hotel. Additionally, surveys weredistributed in the most developed area in China, where people were morelikely to receive higher education. Of the 142 respondents, 102 or 71.8% hadannual incomes of RMB 50,001 to 100,000 ($6,600 to $13,000), which was farabove the average annual income for a city dweller according to the 2005China Census.

Five CSFs from Customer Expectation

The mean scores of 35 CSFs were computed, resulting in the top five CSFs:guest security (4.45), provision of all kinds of amenities (4.41), responsive-ness to customer demands (4.39), operational flexibility/responsiveness(4.38), and speed of guest service (4.32). All five CSFs were related to servicequality, indicating that service quality was still the core customerexpectations in China’s budget hotel market. Guest security is no doubtextremely essential to affect the guest choice of hotels. Thus, good securitysystems such as electronic locks, closed-circuit TV (CCTV), fire extinguish-ers, and the floor plan to direct fire escaping exits were considered essentialin budget hotels. Amenities were also important as budget hotels wereanticipated to provide adequate amenities to guests in China. Thisphenomenon was quite different from the expectations of budget hotelguests in the U.K. or U.S. The gap may be due to differing cultural and travelhabits between Chinese and western visitors. Responsiveness to customerdemands and operational flexibility/responsiveness both emphasized theattitude of hotel staff providing personal service, implying that guests inChina’s budget hotels still preferred respectful face-to-face services withhuman contact involved. Speed of service distinguished budget hotels fromtraditional full service hotels when defining quality service.

Dimensions of Customer Expectation

Principle component analysis with a varimax rotation was performed to findunderlying constructs and to classify 35 CSFs into a smaller number ofdimensions. As suggested by Hair, Anderson, Tatham, and Black (2002), the

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eigenvalue of 1.00 and the factor loading of .40 were used as criteria toinclude a factor and individual items. Results of factor analysis are shown inTable 4. Five dimensions from 35 CSFs were identified. Factor scores werecomputed by averaging the ratings of the items in each factor. Cronbach’salpha coefficients were above 0.9, indicating high internal reliability.

Service quality (Factor 1) accounted for 31.36% of the variance. Thisfactor was loaded with questions from 11 to 22. Physical product (Factor 2)included ten questions from 1 to 10 and explained 18.84% of variance.Promotion (Factor 3) was loaded from questions 26 to 30, explaining 12.38%of variance. Factor 4 was named as location, including 5 questions from 31 to35 and accounting for 8.89% of variance. The fifth factor, price, consisted of 3questions from 23 to 25 with ability to explain 6.55% of variance. Servicequality was the most important dimension (M 5 4.30), followed by location(M 5 4.10), promotion (M 5 3.77), price (M 5 3.75), and physical product(M 5 3.72). While location and service quality were still considered veryimportant, the remaining three factors including promotion, price, andphysical product were considered to be less essential to budget hotel guests.

Demographic Differences

After five dimensions of CSFs were identified, analysis of variance (ANOVA)was employed to test whether differences among demographics may affectcustomer expectation of CSFs in five dimensions. The results from theseanalyses showed no significant differences across gender, age, education, orincome at the level of p , .05. Insignificance may be a result of the fact thatbudget hotels in China are still at the early stage in the product life cycle, andcustomers’ preferences are similar. Additionally, the sample had a fairlyhomogenous background as most customers were young people aged 24 to35 years with annual incomes of RMB 30,000 to 50,001 ($4,000 to $6,600).

CONCLUSION

This study examined the CSFs in China’s budget hotel operations anddevelopment from the perspectives of various stakeholders, namely, thecustomer, the industry professional, the government authority, and the hotelinvestor. Interviews were conducted to gain a deeper understanding of theindustry professional, government authority and hotel investor.Questionnaires were utilized used to determine customer expectations.

Three conclusions can be drawn from the study. First, all top five CSFsidentified from customer expectations were service quality related items,which may reflect the importance of service quality to guests in China’sbudget hotels. Although the main theme of budget hotels is monetary valuefor accommodation, hotel guests still considered service quality as the

Research Note 69


TABLE 4 Results of Factor Analysis

Reasons Factor 1 Factor 2 Factor 3 Factor4 Factor5

Factor 2: Physical ProductGood value restaurants (Q1) 0.816Standardized hotel design (Q2) 0.888Size of guest bedroom (Q3) 0.894Guest bedroom comfort level (Q4) 0.616Choice of room type for guests (Q5) 0.827Enough parking area (Q6) 0.816Design/look of guest bedrooms (Q7) 0.820Added-value facilities in guest rooms(Q8)

0.826

Color of hotel exterior and room (Q9) 0.895Smoking and non-smoking rooms(Q10)

0.794

Factor 1: Service QualityOperational flexibility/responsiveness(Q11)

0.829

Responsiveness to customer demands(Q12)

0.859

Speed of guest service (Q13) 0.930Efficiency of guest service (Q14) 0.936Limited service level (Q15) 0.828Hygiene and cleanliness (Q16) 0.809Guest safety and security (Q17) 0.781Provision of all kinds of amenities(Q18)

0.781

Provision of the internet service (Q19) 0.786Convenient and tasty breakfast (Q20) 0.857Warmth of guest welcome (Q21) 0.876Consistent service standards (Q22) 0.805

Factor 5: PriceLow guest bedroom prices (Q23) 0.934Consistent pricing policy (Q24) 0.952Value for money accommodation (Q25) 0.952

Factor 3: PromotionCustomer loyalty/repeat business (Q26) 0.895Attractive advertising or promotions(Q27)

0.961

Benefits for members (Q28) 0.949Corporate contracts (Q29) 0.877Strong brand differentiation (Q30) 0.940

Factor 4: LocationSize of hotel network (Q31) 0.868Geographic coverage of hotel network(Q32)

0.940

Central sales/reservation system (Q33) 0.912Convenient locations (Q34) 0.925Convenient transportation with signs(Q35)

0.526

Eigenvalue 10.98 6.59 4.33 3.11 2.29Variance (%) 31.36 18.84 12.38 8.89 6.55Cronbach’s Alpha (Reliability) 0.96 0.95 0.97 0.92 0.97Mean 4.30 3.72 3.77 4.10 3.75Standard Deviation 0.74 0.90 0.94 0.87 1.04

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primary factor when they chose where to stay. Price was no longer a decisivefactor among guests who would choose and could afford to stay at thebudget hotel. This study also supported the notion that Chinese hotel guestsprefer quality service, attention, and respect. Enhancement of service qualitymay result in more repeat and loyal customers.

An interesting finding of CSFs recognition pattern is that the customerconsidered customer service as the most important constituent, and theindustry professional was also very customer-oriented, with a focus onspeed of service and hygiene and cleanliness. By contrast, the hotel investorfocused on organization, with no strong desire for customer service. Thegovernment authority stood somewhere between the industry professionaland the hotel investor with respect to customer service. A customer serviceorientation continuum among different stakeholders is illustrated in Figure 1.

Five dimensions from 35 CSFs were derived from this study. They wereservice quality, location, promotion, price and physical products, ranked in adescending order of importance from the customer expectation. Bothphysical location (city and district in the city) and virtual location (hotelreservation network) were rated critical by the customer aside from servicequality, implying that convenience is another criterion for guests to choosebudget hotels in China. Promotion, price, and physical products were notdeemed as important as service quality and location. As the economy hotelsector appeared less than a decade ago in China, a timely and appropriatelystandardization of the service quality in China’s budget hotels is still anurgent concern for the expansion of the industry. Total quality managementcould be a solution for the budget hotels. Furthermore, budget hotels inChina should pay more attention to their physical and virtual locations inresponse to the needs of their guests. For newly planned economy hotels,they should place more important on physical location than on the facilityitself. Both existing and newly planned budget hotels may consider anaffiliation with online marketing consortiums such as ctrip.com or elong.comor become franchised to better utilize hotel reservation network systems,improving the quality of virtual location.

Finally, demographic features in this study demonstrated no significantdifferences among CSFs’ five dimensions. While this could be attributed to asmall sample size and biased sample, it may nevertheless convey animportant implication for budget hotel operators in China. The profile ofguests in this study revealed that budget hotels may mainly focus on their

FIGURE 1 Customer Service Orientation Continuum

Research Note 71


potential guests with two major criteria: having college experiences andannual income over RMB 30,000 ($4,000). Therefore, ways to effectivelyreach this group should currently be the primary focus of marketingdepartments of budget hotels in China.

MANAGERIAL IMPLICATIONS

There are several insights and implications which stem from the findings ofthis study. Budget hotels are intended to provide comfortable, convenient,and clean accommodations for guests, which is a high monetary value for itstarget segment. Such economy means not only affordable pricing, but moreimportantly, service quality of the property. Therefore, economy hotelpractitioners need to improve and maintain service quality. Franchise hoteloperation to standardize service quality and proper personnel training viatotal quality management are suggested to maintain and improve servicequality. Until then, budget hotels in China will be in good shape both inquantity and quality.

The concept of budget hotels with limited facilities is accepted by guestsin China. The survey indicated that only bedroom comfort level should beparticularly emphasized by hotel operators with a consideration to controlthe cost during the construction and renovation. Other physical facilities,such as size or design of the guestroom, should not be the focal points ofhoteliers.

Currently, most budget hotels in China are located at business districtssuch as downtown central business districts (CBD), sub-downtown areamain streets, and high technological development areas in major businesscities in the east coast China. Aside from the physical locations at thebusiness districts in inland cities as well as residential areas in major businesscities, full adoption of reliable and well known reservation systems (e.g., anonline or unified reservation phone number) is also essential for the nextround of budget hotel development in China. Hotel managers are advised tokeep in mind that the image of hotel branding should be positioned tocatering to the needs and demand of its major patrons—young people withsome college experience and relative high annual income at or above RMB40,000 ($5,500).

Limitations and Future Research

Several limitations in this study are obvious. First, each perspective of theindustry professional, the government authority, and the hotel investor wasrepresented respectively by a single individual, which may cause somepersonal bias and compromise the validity of this study. Future studies mayinterview more respondents from each stakeholder group to gain additional

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perspectives. Second, the sampling procedure and the sample size ofcustomer survey could be improved. Future studies may encompassrespondents in more budget hotels with diversified locations for a longerperiod of time to generate a more representative sample. Finally, more guestcharacteristics—such as occupation, marital status, and main purpose fortraveling—may be added to further help us understand guest preferences inevaluating the CSFs among budget hotels in China.

REFERENCES

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