Definition And Categories Of Hotel

Published Date: 02 Nov 2017

LITERATURE REVIEW

2.1 Definition and Categories of Hotel

According to Bardi (2003, p.9), the author of Hotel Front Office Management, hotel is a business that usually provides an accommodation and services, which may include reservations, suites, personal service valet, public dining and banquet facilities, specialty shops, housekeeping service, concierge or laundry. Hotel can be categorized by price, function and location and market segment (Barrows & Powers, 2009, pp.273-283), with details are as follows:

� Categorized by price:

- Limited-Service Hotel: This type of hotel mostly only offer bed rooms only, without various facilities and public space and usually offer limited food and beverage facilities Previously this classification of hotels is regarded as a budget hotel.

- Full-Service Hotel: This type of hotel typically over a various range of facilities and amenities, like meeting room and more public space compared with budget hotel. The room rates of this hotel usually equal or slightly above the market room rate.

- Luxury Hotel: These hotels typically have 150 to 400 guest room. Featuring upscale decoration and unique furnishing, this type of hotel usually offer a full range of services and amenities.

� Categorized by function:

- Convention Hotel: These hotels typically are large which provided 500 or more guest rooms. These hotels offer ballrooms and exhibition areas for meeting and function space. Convention hotels are often reserved for MICE (Meeting, Incentive, Convention and Exhibition) and providing facilities for citywide conventions or trade shows.

- Commercial Hotel: Compared with convention hotel, this hotel is smaller which provides 100 or 500 guest rooms. This type of hotel mostly has small public space and meeting space and limited food and beverage services.

� Categorized by location:

- Suburban Hotel: This hotel tend to be smaller which providing about 200 to 350 guest rooms

- Highway/interstate: This hotel is smaller than suburban hotel which providing about 100 to 250 guest rooms

- Airport Hotel: Mainly the targets of this type of hotels are business customers, airline personnel and airline passengers who have overnight travel layovers or cancelled flights. Another offering of these hotels is allowing guest to pay for their room on an hourly basis, instead of daily basis and give free transportation facilities from hotel to airports.

� Another type of hotel:

- Suite Hotel: The main offering of suite hotel is providing guest rooms with a living room and a separate bedroom. Each room in these hotels has guest room in different space within the bedroom and sometimes it also provides simple kitchen which has �in room beverage service� for guest. Mainly the target of this type of hotel is business men which they can work and entertain in an area besides their bedroom.

- Extended Stay Hotel: This type of hotel almost similar with suite hotel, but usually provides kitchen amenities within the bedroom. Guest of this hotel room usually stays longer than five days or more who does not really need service from hotel. Extended stay hotel mostly does not provide F&B services or laundry.

- Bed and Breakfast Hotel: The basic concept of this type of hotel is providing a place for guest who wants to stay at night within a private home. Mostly the owner of the home lives at the same house with their guest and responsible to provide breakfast as well for their guest. Due to the limited service of this hotel, the rate for this hotel is very less than other type of hotels

- Casino Hotel: The main facilities that offered by this hotel are gambling facilities for their guest. Even though the room and other facilities are provided in luxury, but these are provided only as the complements for the casino.

2.2 Classification of Hotel in Indonesia

According to the Indonesia Government Regulation SK: Kep-22/U/VI/78, which was issued by General Directory of Tourism, hotel in Indonesia can be classified based on rating, into the following types, such as:(Dian, 2010, p.13-16)

1. One Star Hotel (*)

� The minimum total number of standard guestrooms is 15 rooms

� Each guestroom has private bathroom

� The minimum floor area of standard guestroom is 20 m�

2. Two Star Hotel (**)

� The minimum total number of standard guestrooms is 20 rooms

� Minimum having one suite guestroom

� Each guestroom has private bathroom

� The minimum floor area of standard guestroom is 22 m�

� The minimum floor area of suite guestroom is 44 m�

3. Three Star Hotel (***)

� The minimum total number of standard guestrooms is 30 rooms

� The minimum total number of suite guestrooms is 2 rooms

� Each guestroom has private bathroom

� The minimum floor area of standard guestroom is 24 m�

� The minimum floor area of suite guestroom is 48 m�

4. Four Star Hotel (****)

� The minimum total number of standard guestrooms is 50 rooms

� The minimum total number of suite guestrooms is 3 rooms

� Each guestroom has private bathroom

� The minimum floor area of standard guestroom is 24 m�

� The minimum floor area of suite guestroom is 48 m�

5. Five Star Hotel (*****)

� The minimum total number of standard guestrooms is 100 rooms

� The minimum total number of suite guestrooms is 4 rooms

� Each guestroom has private bathroom

� The minimum floor area of standard guestroom is 26 m�

� The minimum floor area of suite guestroom is 52 m�

2.3 Budget Hotel Configuration

The initial concept of budget hotel is motel concept that was invented in the 60�s in United States. Then this concept was adopted in European Environment with the named of Budget Hotel in 70�s followed by a creation of brands such as Ibis Hotel or Formule 1.

Until recently, Indonesia Government has not regulated yet about the budget hotel. However based on the TRI Hospitality Consulting publication in Association with BDRC in United Kingdom (2007), a guide to the standard configuration of a budget hotel as compared to an apartment hotel, mid-scale and luxury hotel fall into three indicators such as,

� Bedroom Size

� Indicative hotel construction costs per bedroom

� Rooms revenue as a percentage of total turnover

Table 2.1:The standard configuration of a budget hotel as compared with an apartment hotel, mid-scale hotel, and luxury hotel

Bedroom Zone (including circulation, housekeeping, etc) Public Areas (lounge, restaurant, bars, etc) Conference/ Banqueting Business Areas Leisure Facilities Back of House/ Plant/ Administration Notional Gross Area per Bedroom

Budget Hotel

(Room Size 15-22 m�) 27 m�/room 2 m�/room 0.25 m�/room n/a 3 m�/room 32 m�

Apart.Hotel

(Studio size 28 m�, two bed-apt. 40 m�) 35-50 m�/room 2 m�/room 1 m�/room n/a 2 m�/room 45 m�

Mid-Scale Hotel

(Room Size 24 m�-32m�) 36-42 m�/room 5 m�/room 4 m�/room 6 m�/room 5 m�/room 56-62 m�

Luxury Hotel

(Room size 32 m�-45m�) 60 m�/room 7 m�/room 5 m�/room 8 m�/room 8 m�/room 88 m�

*n/a: Not Available

Source: The TRI Hospitality Consulting publication in association with BDRC in UK, 2007

In terms of budget hotel, because the average customer spending just one and a half waking hours in their bedroom, thus he needs less floor space that means lower initial investment costs and more generated revenue (Tri Hospitality Consulting in Association with BDRC, 2007). Table 2.2 below shows that the initial capital cost of budget hotel per bedroom is lower compared with mid-market and luxury bedroom.

Table 2.2:The indicative construction cost and level of service of a budget hotel as compared with an apartment hotel, mid-scale hotel, and luxury hotel

Budget Bedroom Mid-Market Bedroom Luxury Bedroom

Mid-Low Market Bedroom Mid-Up Market Bedroom

Indicative Construction Costs/bedroom (Rp) Rp 250.000.000 �

Rp 300.000.000 Rp 350.000.000 � Rp 400.000.000 Rp 450.000.000 �

Rp 600.000.000 = Rp 600.000.000

Indicative Construction Costs/bedroom (USD)/3rd Dec 2012 US$26.000 - US$31.000 US$36.000 - US$42.000 US$47.000 - US$62.000 = US$62.000

Level of Service Economy/Limited Service Mid-Range Service World-Class Service

Source: Adapted from data internal Colliers International, 2012

If we compare the standard configuration of Budget Hotel in table 2.1 with Indonesia regulation about the hotel classification, so we can conclude budget hotel includes to the two star (**) hotel.

The detail hotel classification is as follows,

One Star (*)

(Standard Room Size 20 m�) Two Star (**)

(Standard Room Size 22 m�) Three Star (***)

(Standard Room Size 24 m� and Suite Room Size 48 m�) Four Star (****)

(Standard Room Size 24 m� and Suite Room Size 48 m�) Five Star (*****)

(Standard Room Size 26 m� and Suite Room Size 52 m�)

Budget Hotel

(Room Size 15-22 m�) Budget Hotel: Two Star (**) Hotel

Mid-Scale Hotel

(Room Size 24 m�-32m�) Mid-Scale Hotel: Three Star (***) Hotel Mid-Scale Hotel: Four Star (****) Hotel

Luxury Hotel

(Room size 32 m�-45m�) Luxury Hotel: Five Star (*****) Hotel

Table 2.3:The hotel classification based on Indonesia government regulation and United Kingdom hotel market

Source: Adapted from Dian (2010) and the TRI Hospitality Consulting publication in association with BDRC in UK (2007)

2.4 Customer Value

Cravens and Percy, the author of Strategic Marketing (2009, p7) states that the creation of customer value is an important challenge for the organization that should become a core of business in the intense global competition. In the Journal of Faculty of Economics and Administrative Sciences entitled �Role of Innovation in Creating Customer Value in Hotel Establishment: A Study On Manager� by Kanten & Yaslioglu (2012), it was mentioned that Brennan & Henneberg and Fortuin & Omta (Kanten & Yaslioglu, 2012, p.438) described customer value as the main instrument of competitive strategies which closely related to marketing approach and customer-oriented nature of an organization.

This journal has further explained that customer value is a strategic way to attract and retain customers which has become one of the most important factors in the success of both manufacturing industry and service providers.

According to Gr�nroos, the author of Service Management and Marketing A Customer Relationship Management Approach (Kanten & Yaslioglu, 2012, p.439),

�The starting point to understand value is the observation that value is perceived by customers in their internal processes and in their interactions with suppliers or service providers when consuming or making use of services, goods, information, personal contact recovery and other elements of ongoing relationship�

Griffin and Ebert (2006, p.270), defines customer value consist of benefits and costs which resulting from the purchase and use of products/service. Thus, before customers do ultimately make choices, a mostly buyer will have a perceived value or called as the Customer Perceived Value (CPV) that comes from the customer�s assessment on perceived benefit and cost of the outcome on product. (Kotler & Keller, 2006, p.133)

According to the Naumann, from his research entitled �The linkage between customer value, customer satisfaction, customer loyalty and profitability�, the components of customer values is shown on figure 2.1 below,

Source:Naumann, p.3

Figure2.1: The components of customer value

Product quality refers to the tangible benefit that customer evaluates after purchasing the products. Besides product quality, service value also creates value perceptions. This mostly comes from the staff that include the availability, knowledge and helpfulness of employee or staff and could be also from the customer service of call centre, complaint handling and information availability. While the price factors includes the sales prices, acceptance of credit cards, promotion like giving discount or big sale to the customers

Customer will also use brand image or company image to shape their value perception. Customers very often cannot easily evaluate the product, service and price characteristics. Therefore the brand image or the company image can give clue for product and service quality.

Above model which mentioned about the components of customer is adaptable for general industry. As this research is purposed specialized on customer value creation in hotel industry, therefore the components of customer value will only focus to the components that related in hotel industry, which are service, image and price factor.

2.4.1 Service Value

Ruiz et.al (2012) conducted research in hospitality industry and published in the journal of Tourism and Hospitality Management entitled, Creating Customer Value Through Service Experiences: An Empirical Study in The Hotel Industry. This research has purposed to know the relation between customer perceptions of service value which categorized in service value index with service experience components. Some service value measurement in service value index, is as follows

Source: Adapted from Ruiz et.al, 2005, p.44

Figure2.2: Service Value Measurement Model

Ruiz et.al (2012, p.44) mentioned that perceived service quality represents as essential pillar of value that has been found to be major determinants of customer�s behavioural intentions. Service quality consists of employees, processed and servicescape.

2.4.1.1 Employees

Mowen Brown has explained in The Journal of Marketing Research (Ruiz et.al, 2012, p.40) that employees that are customer-oriented are able to empathize with customer and concerned to satisfy their needs. Ruiz et.al has further mentioned that Customer could continue being a customer for a certain service provider not only because of the well performance of service provider, but also because of the commitment that he or she has developed to the service provider and its employees, which triggered by elements of emotionality and friendship. Therefore the interaction between employee and customer will strongly influences the service value, the overall satisfaction and the customer�s level of commitment with a service provider.

2.4.1.2 Processes

Ruiz. et al (2012, p.41) has mentioned that according to Van Raaij & Pruyn (1998),service processes are concerned on the realization of the specified service and involves the service encounter, human contacts, operation and time factors. They further explained that, service reliability is a critical factor of service value, thus, commitment with the promised service, absence of mistakes and flexibility in service delivery has a positive influence between the customer�s evaluation in the benefits and sacrifices that customer associate to service.

2.4.1.3 Servicescape

Simpeh et.al, (2011, p.120) has explained in their research entitled, Servicescape and Customer Patronage of Three Star Hotels in Ghana�s Metropolitan City of Accra, a servicescape is regarded as an environment in which the service and the interaction between service provider and customer is occurred that provided by facilities to facilitate the performance of the service. They have further explained that, servicescape is quite important for service providers, including hospitalities entities, to contribute enhancing the customer satisfaction and increasing repeat purchases. They have mentioned that serviscape as the physical characteristic of an organization which including overall layout, location, exterior or interior design that can influence customer emotionally and physiologically but also influence their behaviour.

2.4.1.4 Service Equity

Ruiz. et al (2012, p.41) has explained that in the context of the services marketing-decision making, service equity focus on how service brands are perceived by consumers and offers an additional source of service value from the customers� experiences of the service define in their perception of the brand. Ruiz. et al (2012, p.41) has further explained that according to Berry (2000) in the journal of the academy of marketing science, brand equity in services is very important given the intangible nature of the invisible purchase that a service represents.

In this research, image that includes to the value creation components according to Naumann, will be regarded as service equity.

2.4.1.5 Price Fairness (Monetary Value)

Adams, the Author of Inequity in Social Exchange has explained that Equity Theory deals with the questions of how people judge what is fair or deserved, and how such judgements will affect behaviour (Ruiz. et al, 2012, p.42). Thus, the fairness of a situation is evaluated by assessing the ratio between the outcome (benefits) and the input (sacrifices/cost).

2.5 The Customer Perceived Value/Benefit in 5 Star Hotel

Sarya, I Nyoman (2011) conducted research for his master�s thesis in hospitality industry and published by SGU (Swiss German University) in Tangerang, Indonesia entitled, The Impact of Hotel Rebranding from International Chain into Local Chain to Improve Business Performance with The Case Study at The Sultan Hotel Jakarta (Formerly Known As Jakarta Hilton International). The Sultan is 5-Star Hotel that has 1.104 guest rooms and various facilities and amenities, such as F&B facilities, sport facilities and MICE (Meeting, Incentive, Convention and Exhibition) facilities.

One of the objectives on his research is to know the customer perceived value when evaluation a perspective hotel. Then he distributed questionnaire to 88 customers in The Sultan with the determinants of customer value consists of,

- Quality

- Reputation

- Price

- Place

- Facilities

- Services

He found out that the quality is the most important value for customer when evaluation a hotel and the price is the least important value for customer, with the ratio as follows,

Source:Sarya, 2011, p.35

Figure2.3: The importance rank of each value at The Sultan by respondents

This researcher found that Sarya�s research founding could be a comparison for this study, because if in 5-Star hotel, the quality is the most important value for customer and the price is the least important value, this result could be different for budget hotel.

2.6 Customer Satisfaction

Whether or not the product/services can meet the customer perceived value (CPV) will affect the customer satisfaction and the possibility that he or she will stay to a certain organization (Kotler & Keller, 2006, p133).

Kotler further explained that satisfaction is a person�s feeling of pleasure or disappointment that result from evaluating a product/service�s perceived performance (or outcome) related with his or her expectations (Kotler & Keller, 2006, p.136). Thus if the perceived value is below customer�s satisfaction, the customer is dissatisfied and if the perceived value matches or above the customer�s satisfaction, the customer is satisfied.

According to Halim-Schneider (2011) research for her master thesis that published by SGU (Swiss German University), Tangerang, Indonesia, about the impact customer satisfaction and loyalty to the customer relationship, she mentioned that based on the Hackl and Westlund�s research the customer satisfaction measurement and modelling are important for two basic reasons: (Halim-Schneider, 2011, p.41)

- It can give reliable information about the values and investment prospects for the shareholder/investor

- It can give valuable information to the management level for good decision making which reflects the market/customer behaviour

Halim-Schneider (2011, p.41) further mentioned that Heckl and Westlund also illustrates in their research, the customer satisfaction measurement and modelling based on the leading paradigm for ECSI (European Customer and Satisfaction Index) and the paradigm for ECSI (American Customer Satisfaction Index) as in figure 2.4,

Source:Halim-Schneider, 2011, p.141

Figure2.4: Customer satisfaction structure based on ECSI model

2.7 Customer Loyalty (Retention)

Kotler and Kohler (2006, p.135) has defined loyalty as,

�a deeply help commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts having potential to cause switching behaviour�

Halim-Schneider (2011, p.42) has also mentioned in her thesis, that according to Storcbacka. et al (year) in International Journal of Service Industry Management, by adding more value to the core product/service, such as improving the product quality or giving good service, companies try to improve customer satisfaction and achieve customer loyalty.

Miremadi (2012), conducted research and published online in International Journal of Marketing Studies entitled, Customer Satisfaction Modelling in Hotel Industry: A Case Study of Kish Island in Iran. This research found that:

- There is a strong and positive correlation between customer perceived value and customer satisfaction, which means better customer perceived value will affect to the higher customer satisfaction.

- There is a strong and positive correlation between customer satisfaction and customer loyalty, which means better customer satisfaction will affect to the higher customer loyalty.

- There is a positive correlation between service quality and customer perceived value, which means better service quality will affect to the higher perceived value.

- There is a relation between customer expectation and perceived value, which means better customer expectation will affect to the higher perceived value.

In this research, Miremadi (2012), adopt two frameworks such as ECSI and SCSB (Swedish Customer Satisfaction Barometer).

2.8 The Linkage of Customer Loyalty and Profitability

Anderson et.al (1994, p.55) stated in Journal of Marketing entitled, �Customer Satisfaction, Market Share and Profitability: Findings from Sweden� that according to �National and Corporate Customer Satisfaction Indices� by Fornell (1991), there are several key benefits of high customer satisfaction for the firm. High customer satisfaction will give several benefit impacts such as:

- Indicating increased loyalty for current customers,

- Reducing price elasticity

- Giving protection of current customers from competitive efforts,

- Giving lower costs of attracting new customers,

- Enhancing the reputation for the firm

Fornell has further explained that by increasing loyalty to the current customers, it will encourage more customers to repurchase (be retained) in the future. And strong customer loyalty will affect the firm�s financial returns because it will ensure a steady stream of future cash flow (Anderson et.al, 1994, p.55).

Anderson et al. (1994, p.55) has also mentioned that according to Garvin (1988), the author of Managing Quality: The Strategic and Competitive Edge, customer satisfaction could reduce price elasticity for current customer.

Satisfied customers are also more willing to pay for the values that they have received and more tolerant of price increasing, that ultimately can implies high margins for the firm and customer loyalty. On the other hand, low customer satisfaction will impact greater turnover of the customer base and higher customer acquisition costs, because the company needs to attract customers who are satisfied purchasing arrival�s service/product. Thus, the less price elasticity will lead to the more profits for a firm which could provide superior customer satisfaction. In addition, if a firm has high customer retention, it does not need to spend as much to acquire new customers each period (Anderson et. al,1994, p.55).

Naumann, in his research entitled �The linkage between customer value, customer satisfaction, customer loyalty and profitability�, has further explained that delivering good customer value will impact to the higher customer loyalty and retention, than impact to the higher market share, than impact to reduced operating cost, then impact to the firm�s profitability and better stock market performance.And this called the value pay-off.

His research model is as follows,

Source: Naumann, p.9

Figure2.5: Conceptual Framework of Naumann�s Study

Naumann explained that high customer value will create customer loyalty and retention. And firm that deliver high value mostly has lower cost structures than their competitors because by keeping the old customers, they can reduce acquisition cost for advertising, sales and marketing expenditures for adding new customer. In addition, high value firms normally will pay more attention to realign their internal value creating process and use customers as their key drivers for their continuous process improvement. Actionable data that was gathered directly from the customers could give a feedback to the process owners, which this process will be more efficient and deliver better value to the customer.

Besides reducing cost, Naumann has shown that there is a positive relationship between customer value and market share. Delivering good value to customer, will improve market share by improving sales and marketing effectiveness.

Naumann has also explained, firm that deliver high customer value are more profitable, relative to the competitors in their industry. They will grow faster and have higher profit margin. And The American Customer Satisfaction Index has done survey to the several hundred firms in numerous industries. Their research result is firms delivering high customer value are consistently more profitable than firms with lower value perception.

Due to all of the company of budget hotel in Jakarta are not published yet in the Jakarta Stock Exchange, therefore the author will take profit margin as a measurement of profitability.

Other ratios than commonly applied by firm to measure profitability level according Titman et. al (2011, pp.88-90), the author of Financial Management Principle and Application, are

Gross Profit Margin = Gross Profit

Sales

Operating Profit Margin = Net Operating Income (EBIT)

Sales

Net Profit Margin = Net Income

Sales

Therefore, in this research, in order to measure the profitability level of budget hotel, the researcher will take the ratios of gross profit margin and net profit margin that refer to the Naumann and Titman et.al. (2011).

2.9 Conceptual Framework

The literature review discussed in this chapter helped construct the conceptual framework for this study. There are four frameworks from past research that will be adapted to this research.

First, in order to measure the customer satisfaction and loyalty, the researcher uses the ECSI. The loyalty in ECSI consists of possibility to do repurchasing, recommending the company�s brand to other and increasing the number of customer. However in the proposed framework on this research, image will be measured in service equity factor, whereas service equity concerns how service brands are perceived by consumers and offers an additional source of service value from the customers� experiences of the service define in their perception of the brand.

Second, in order to determine the category of customer value in hotel industry, the researcher use the framework proposed by Naumann, Ruiz et.al. presented in Figure 2.2 and the third one proposed by Sarya (2011). The independent variables used in this research for customer satisfaction are place value, quality value, monetary value and service value that consist of employees, processes, servicescape and service equity.

Third, in order to measure the profitability level of hotel, the researcher will refer to the model that result of the research by Naumann and additional profitability ratio according to Titman et.al (2011).