The dark side of customer relationship management in the luxury segment of the hotel industry.doc

university of nottingham the dark side of customer relationship management in the luxury segment of the hotel industry akshay jaipuria ma management 1 abstract today service organizations are shifting their focus from transactional exchange to relational exchange for developing mutually satisfying relationship with customers extended relationships are reported to have a significant impact on transaction cost and profitability and customer lifetime value serving the customers in true sense is the need of the hour as the customer was is and will remain the central focus of all organizational activities the hotel industry especially the luxury segment hotels needs to be purely customer centric and focus on the customer needs and duly fulfill them customers will not blindly accept poor service quality from a luxury hotel they expect high quality of service in return for the money they spend on luxury hotels this paper is an attempt to explain the dark side of crm in the luxury segment of the hotel industry with the help of the gap model available in literature which suggests that gaps in service occur at various instances the author explains that the gap model is a useful tool to explain the dark side partly there is more to the dark side like privacy issues unwillingness of customers to build a relationship with the service provider and changing tastes and preferences of the customer ritz carlton hotel company l l c has been chosen as a single case study and the research questions have been addressed for the industry at large using ritz carlton as a classic example of superior service quality to the customers some simple measures to reduce the dark side have been mentioned which addresses the third and last research question the project would contribute as a useful guide to luxury hotels giving them some valuable information on what the customer expectations are and if they are duly met then service gaps shall not occur this paper shall provide scope for luxury hotels to improve their overall service quality and strengthen their position in the industry the relevant existing theory has been reviewed and the subject has been explored using the gap model parasuraman et al 1998 mainly based on the research findings and analysis recommendation has been given to reduce the dark side at ritz carlton and luxury hotels in general 2 table of contents abstract 0 table of contents 2 acknowledgments 4 chapter 1 introduction 5 chapter 2 literature review 7 2 1 what is customer relationship management 7 2 2customer satisfaction loyalty and business performance 9 2 3crm and service quality 13 2 3 1 customer s perception of quality 13 2 3 2 the perceived service quality approach 16 2 3 3 gaps between customer expectations and perceptions 17 2 3 4 service guarantee 24 2 3 5 service recovery 26 2 3 6 complaints management 28 2 4 do all customers want a relationship with their service provider 29 2 5 synopsis 31 chapter 3 crm and hotel industry 32 chapter 4 methodology and research design 34 4 1 overview 34 4 2 research objectives 34 4 3 research design 35 4 4 case study an introduction 36 4 5 history of case study 37 4 6 types of case study 37 4 7 choice of case ritz carlton hotel company 38 4 8 components of the case study 38 4 9 data collection 39 4 9 1 documentation 41 4 9 2 focus groups 41 4 9 3 interviews 43 4 10 data analysis 49 4 11 key issues of data collection reliability and validity 50 4 12 synopsis 51 chapter 5 case study 52 5 1 ritz carlton an overview 52 5 2 ritz carlton and the gold standards of service quality 54 3 5 2 1 the credo 54 5 2 2motto 55 5 2 3 three steps of service 55 5 2 4 service values 55 5 2 5 employee promise 56 5 3ritz carlton current reality 57 chapter 6 research findings 59 6 1 focus groups findings 59 6 1 1 does the gap model explain the dark side of crm 59 6 1 2is there more to the dark side of crm than what is explained in the gap model 61 6 1 3 how can the dark side of crm be reduced 62 6 2 in depth interview findings 63 6 2 1 customer interviews 64 6 2 2 employee interviews 67 chapter 7 analysis of research findings 70 7 1 does the gap model explain the dark side of crm 70 7 1 1 ritz carlton and the gap model 70 7 1 2general inference for the luxury hotel sector 75 7 2 is there more to the dark side of crm than what is explained in the gap model 76 7 2 1 willingness to build a relationship 76 7 2 2 general inference for the hotel industry 79 7 3 how can the dark side of crm be reduced 79 chapter 8 conclusion and further research 83 references 85 appendices 93 appendix 1consent form 93 appendix 2crm and atithi devo bhava 94 appendix 3 97 appendix 4 100 appendix 5 108 4 acknowledgments education is a progressive discovery of our ignorance will durant 1885 1981 u s author and historian i would like to thank all those who helped me through the project phase of the ma management program i would like to express my sincere appreciation to my supervisor prof dave wastell for his enlightenment of my knowledge of crm and the hotel industry valuable advice and kind support throughout the process of dissertation completion most importantly i would like to thank my parents and sister who were always there to motivate me i would also like to thank my close friends at nottingham for being around to discuss my ideas and giving me emotional support when i was stressed i would like to thank all the focus group members for giving their valuable time and thoughts to my project i would like to thank all the customers and employees of ritz carlton for sharing their valuable thoughts which helped me shape this project lastly i would like to thank the academic and library staff at university of nottingham for their support throughout this year 5 chapter 1 introduction in the mid twentieth century mass production techniques and mass marketing changed the competitive landscape by increasing product availability for consumers however the purchasing process that allowed the shopkeeper and customer to spend quality time interacting with each other was also fundamentally changed as a result customers lost their uniqueness becoming an account number shopkeepers lost track of their customers individual needs as the market became full of product and service options many companies today are striving to re establish their connections to new as well as existing customers to boost long term customer loyalty chen and popovich 2003 the world has come full circle from selling to marketing and from seller s market to buyer s market the customer today has the option to buy what he thinks he should and from whom being in his best interest product development technological improvement cost optimization and excellent service facility are very important for any organisation but their importance is only if the customer appreciates it for example both diamond and coal are carbon but they are priced differently due to different valuations by the customer therefore any business begins and ends with the customer sugandhi 2002 thus service organizations are shifting their focus from transactional exchange to relational exchange for developing mutually satisfying relationship with customers extended relationships are reported to have a significant impact on transaction cost and profitability and customer lifetime value serving the customers in true sense is the need of the hour as the customer was is and will remain the central focus of all organizational activities the paper explores the dark side of customer relationship management crm in the luxury segment of the hotel industry using the gap model of parasuraman et al 1985 and suggests generic strategies to reduce the dark side the researcher was motivated to choose the hotel industry because of his deep rooted passion for luxury hotels the importance of this research is that it helped the researcher familiarize himself with the use of primary with a blend of secondary research to analyze a given situation this piece of 6 work shall contribute to the academic community as there is not much literature available on the dark side of crm for the luxury hotels it shall also benefit the management of luxury hotels to understand what the customer expects in terms of service quality the aim of this research is to highlight the dark side of crm in the luxury segment of the hotel industry using the ritz carlton hotel company as a classic example of high service quality the research objectives are as follows 1 does the gap model explain the dark side of crm 2 is there more to the dark side of crm than what is explained in the gap model 3 how can the dark side of crm be reduced this paper is divided into seven chapters chapter one is an introduction to the paper chapter two provides the reader with necessary literature available on crm chapter three provides information on crm and the hotel industry chapter four discusses the research design including interviews and focus groups that have been used for primary research chapter five provides an overview of the ritz carlton hotel company chapter six provides a summary of the research findings chapter seven is an analysis of the research findings addressing the research questions one of which provides recommendations to reduce the dark side chapter eight is a conclusion of the paper the following chapter provides the literature review 7 chapter 2 literature review modern marketers are rediscovering the ancient mantras for success in corporate world and blending them with contemporary marketing practices long term survival and competitive advantage can only be attained by establishing an emotional bond with the customers a shift is taking place from marketing to anonymous masses of customers to developing and managing relationships with more or less well known or at least some identified customers gronroos 1994 this section shall provide general literature on crm and its link with customer satisfaction customer loyalty and business performance followed by literature on crm and service quality in details the gap model shall be introduced and literature on service guarantee service recovery and complaint management shall be provided this would lead to the privacy issues related with crm 2 1 what is customer relationship management customer relationship management crm is the core business strategy that integrates internal processes and functions and external networks to create and deliver value to targeted customers at a profit it is grounded on high quality customer data and enabled by it buttle 2004 crm is a business strategy to identify cultivate and maintain long term profitable customer relationships it requires developing a method to select your most profitable customer relationships or those with the most potential and working to provide those customers with service quality that exceeds their expectations mcdonald 2002 an organization s survival depends largely on harmonious relationships with its stakeholders in the market customers provide the life blood to the organization in terms of competitive advantage revenue and profits managing relationships with customers is imperative for all types and size of service organizations a sound base of 8 satisfied customers allows the organization to move on the path of growth enhance profitability fight out competition and carve a niche in the market place bennett 1996 described that crm seeks to establish long term committed trusting and cooperative relationship with customers characterized by openness genuine concern for the delivery of high quality services responsiveness to customer suggestions fair dealings and willingness to sacrifice short term advantage for long term gains schneider and bowen 1999 advocated that service business can retain customers and achieve profitability by building reciprocal relationships founded on safeguarding and affirming customer security fairness and self esteem it requires that companies view customers as people first and consumers second trust commitment ethical practices fulfillment of promises mutual exchange emotional bonding personalization and customer orientation have been reported to be the key elements in the relationship building process levitt 1986 gronroos 1994 morgan 1994 gummesson 1994 bejou et al 1998 crm refers to all business activities directed towards initiating establishing maintaining and developing successful long term relational exchanges heide 1994 reinartz jacoby sheth cited by macintosh reinartz rowley found that customer satisfaction has a significant effect on purchase intentions in all four sectors similarly in the health care sector mcalexander et al 1994 found that patient satisfaction and service quality have a significant effect on future purchase intentions kandampully and suhartanto 2000 customer loyalty can be defines as customer behavior characterized by a positive buying pattern during an extended period measured by means of repeat purchase frequency of purchase wallet share or other indicators and driven by a positive attitude towards the company and its products or services looy gemmel cronin and taylor 1992 those technical economical and psychological factors that influence customers to switch suppliers are considered to be additional prerequisites of loyalty selnes 1993 gremler and brown 1997 recent studies also indicate that the firm s image may influence customer enthusiasm value delight and loyalty bhote 1996 kandampully and suhartanto 2000 loyalty behaviors including relationship continuance increased scale or scope of relationship and recommendation word of mouth advertising result from customers beliefs that the quantity of value received from one supplier is greater than that available from other suppliers loyalty in one or more of the forms noted above creates increased 12 profit through enhanced revenues reduced costs to acquire customers lower customer price sensitivity and decreased costs to serve customers familiar with a firm s service delivery system reicheld and sasser 1990 yi s critical review of customer satisfaction 1990 concludes many studies found that customer satisfaction influences purchase intentions as well as post purchase attitude p 104 customer loyalty can be viewed in two distinct ways jacoby and kyner 1973 the first views loyalty as an attitude different feelings create an individual s overall attachment to a product service or organization see fornier 1994 these feelings define the individual s purely cognitive degree of loyalty the second view of loyalty is behavioural examples of loyalty behaviour include continuing to purchase services from the same supplier increasing the scale and or scope of a relationship or the act of recommendation yi 1990 the behavioural view of loyalty is similar to loyalty as defined in the service management literature in brief there are two dimensions to customer loyalty behavioural and attitudinal julander et al 1997 the behaviour dimension refers to a customer s behaviour on repeat purchases indicating a preference for a brand or a service over time bowen and shoemaker 1998 attitudinal dimensions on the other hand refer to a customer s intention to repurchase and recommend which are good indicators of a loyal customer getty and thompson 1994 moreover a customer who has the intention to repurchase and recommend is very likely to remain with the company kandampully if they are over performed this is positive disconfirmation if they are underperformed this is negative disconfirmation according to gronroos 1984 the quality of service as perceived by customers has two dimensions a technical or outcome dimension and a functional or process related dimension 14 what customers receive in their interaction with a firm is clearly important to them and their quality evaluation this is one quality dimension the technical quality of the outcome of the service production process however as there are numerous interactions between the service provider and customers including various series of moments of truth the technical quality dimension will not count for the total quality which the customer perceives he has received the customer will also be influenced by the way in which technical quality the outcome of the process is transferred to him and this will have an impact on the process experience examples include the accessibility of atm a website appearance and behavior of waiting staff how service employees perform their task what they say and how they do it interestingly other customers simultaneously consuming the same or similar services may influence the way in which customers will perceive a service thus the consumer is also influenced by how he receives the service and how he experiences the simultaneous production and consumption process this is the second quality dimension the functional quality of the process closely related to how the moments of truth of the service encounters themselves and are taken care of and how the service provider functions illustrated in figure 1 there are the two basic quality dimensions namely what the customer receives and how the customer receives it the technical result or outcome of the process technical quality and the functional dimension of the process functional quality an organization s image is an important variable that positively or negatively influences marketing activities image is considered to have the ability to influence customers perception of the goods and services offered zeithaml and bitner 1996 thus image will have an impact on customers buying behaviour image is considered to influence customers minds through the combined effects of advertising public relations physical image word of mouth and their actual experiences with the goods and services normann 1991 similarly gr nroos 1983 using numerous researches on service organizations found that service quality was the single most important determinant of image thus a customer s experience with the products and service