News for the Hospitality Executive
Research within the hospitality industry suggests that price plays a significant role in the perception guests have towards the value and quality of the hospitality product they are buying (Mattila et al., 2003, p. 329). Guests simply expect to receive a higher level of service when they pay more for the service (Matzler et al., 2006, p. 181). Within the hotel and cruise industry, this in essence means that higher performing yields result in higher guest expectations. Assuming the product delivery and service quality is static regardless of price variations, higher expectations also often consequentially result in lower guest satisfaction. This article will explain the impact price has on guest’s price perception, and it will also explain how guest’s value perception, loyalty and expectations are related to the price they pay.
Studies report that price perception directly influences guest’s buying behavior (Matzler et al., 2006, p. 180). One study found that more than half of guests switched because of poor price perception (Ibid). This essentially means that hotel and cruise line guests could choose not to buy from select hotel companies or cruise lines if their value perception is negative. Emerging from Keaveny’s study are results which suggest that price perception directly influences guest satisfaction, repurchase intentions and the likelihood of recommending to others (Cited in Matzler et al., 2006, p. 180). Several other studies also found that price can serve as a cue for guests to decide the quality of an offer (Ibid). This means that when paying a high price for an experience, guests have high expectations towards service quality.
The importance of price to guests is supported by a market profile study conducted by CLIA, which collected data through 2,482 U.S. national online interviews. The question whether price was paramount in a vacation decision was asked. On a 10-point scale where “10” was “most influence” and “1” was “did not influence at all”; survey participants rated price as the number two most important factor (average 6.8) in the decision making process (CLIA, 2006). This points toward the importance of price-value or what can be referred to as the value perception guests have towards the hospitality product and service offered. However, one should note the importance of price-value is more individualistic then both satisfaction and quality, and Zeithaml argue that it involves the benefits received for the price paid (Petrick, 2004, p. 397).
Through a study, Zeithaml identified four definitions of value which are interesting to note:
1. Value has low price
2. Value is whatever one wants in a product
3. Value is the quality that the guest receives for the price paid
4. Value is what the guest gets for what they give
(Cited in Petrick, 2004, p. 398).
Fornell et al. (1996) conducted studies in several sectors which examined the impact of price and perceived quality on overall satisfaction. Each of the studies concluded that price plays an important role, and was in two out of seven studies found to be even more important than perceived quality (Cited in Matzler et al., 2006, p. 181). Further to this, a study on the role of price in service industries by Voss, Parasuraman and Grewal (1998) found that perceived performance impacts satisfaction more when there is price-performance consistency. Whereas price plays a more important role and has greater impact when there is a price-performance inconsistency (Cited in Matzler et al., 2006, p. 181).
Value and loyalty
It is argued that price perception should influence value more than quality (Matzler et al., 2006, p. 181). This theory refers back to the prospect theory which argues that guests tend to show signs of loss aversion, i.e. “losses loom larger than gains” (Ibid), which would suggest that price satisfaction has a stronger influence on loyalty than quality satisfaction (Ibid).
Jones and Suh (2000) supports the idea of ‘overall satisfaction’ meaning more than ‘moments of truth’ by suggesting that there are two distinct types of guest satisfaction (Cited in Gilbert et al., 2006, p. 300). They state that there is the ‘transaction specific satisfaction’ and ‘overall satisfaction’. Where ‘transaction specific satisfaction’ is a specific encounter with an organization whereas ‘overall satisfaction’ is a cumulative construct summing satisfaction which more represents the guest’s general attitude towards the products or services received (Ibid). It was also found that this ‘overall satisfaction’ was relatively stable over time (Ibid). Research also shows that loyalty, satisfaction and service quality is closely linked (Ibid). The reason this research is valuable is because it also shows that loyalty is associated with more favorable price tolerance among guests (Ibid). Hospitality companies such as hotels and cruise lines can use this loyalty as a competitive advantage if they can display distinct levels of superior service over the competition (Presbury et al., 2005, 360). This is supported in research by Reichheld (1996) which show that there indeed is a positive linear relationship between loyalty and profitability for hospitality companies (Cited in Presbury et al., 2005, p. 360).
Another study argue that affective gratification is the main consumption goal for hedonic services such as leisure travel, including hotel and cruising. Thus it is proposed that guest’s affective responses are directly related to perceived value (Duman et al., 2005, p. 311). The study continues to propose that guest satisfaction should therefore mediate the relationship between affect and value (Ibid).
Based on research by Petrick (2004), one could expect to find that expectations have a linear relationship to value. Therefore low price paid for a hospitality experience could lower expectations and the other way around. Monroe (1990) supports this theory by stating that “Buyers’ perception of value represents a trade-off between the quality of benefits they perceive in the product relative to the sacrifice they perceive by paying the price” (Cited in Matzler et al., 2006, p. 181).
Further, “guest’s expectations are derived from their own build-up of contacts with services provided to them in all walks of life” (Gilbert et al., 2006, p. 298). This means the expectations guests in general have, are based on their day-to-day experiences as customers (Ibid). It can therefore be difficult to gauge expectation levels. Research also suggest that other factors that influence guests expectations are word of mouth, personal needs, external communications, and past experiences (Williams et al., 2003, p. 63). These factors alone of course make it difficult for a hospitality company to fully understand what the individual guest expectations are. It is particularly difficult to gauge what new guests expect as one cannot possibly know what the specific expectations are of each first-time guest (Williams et al., 2003, p. 63).
There is also challenge surrounding the expectation paradigm within the hospitality industry as a whole. Guests have over the past decade come to expect services of a higher standard and superior value (Presbury et al., 2005, p. 359). With more discerning and demanding guests it is difficult to over longer periods of time gauge whether satisfaction is increasing or decreasing compared with expectations. The hospitality industry as a whole has understood this increase in expectation and forced an increase in service standards, better amenities and lower price i.e. higher value, which none has necessarily yielded higher profits (Presbury et al., 2005, p. 360). Repeat guests in particular are believed to be increasingly demanding as they become more seasoned travelers.
This power shift now enjoyed by guests often determines whether they will stay at particular hotels, or sail on specific cruise ships (Ibid). Thus, research suggests that guest satisfaction is one of the most valuable recourses a company can possess, mainly due to its relationship to guest retention and loyalty (Ibid).
In conclusion, studies show that perception influence guest’s purchasing decisions, and more than 50 percent of guests switch to other companies if they experience a poor price perception. Poor price perception also has an adverse effect on overall satisfaction and loyalty.
In a US national study, price was found to be the second most important factor in making a booking decision. This confirms the need for hospitality companies to offer a very strong price-value proposition, which includes superior service. Price has even been found to be more important than perceived quality, particularly when there is a price-performance inconsistency.
The price guests pay tend to influence value more than quality, which suggests that price satisfaction has a greater influence on loyalty than quality. However, it is important to understand that loyalty, which is a product of overall satisfaction (service, quality and price), is associated with more favorable price tolerance. This means that hospitality companies with more satisfied and loyal guests may charge a higher premium for the experience they offer.
CLIA (2006). CLIA 2006 Cruise Market Profile: Report of Findings. [Online]. Available from: http://www.cruising.org/Press/research/2006%20Market%20Profile%20Study.pdf (Accessed: December 29, 2007).
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Mattila A. & O’Neill J.W. (2003). ’Relationships between Hotel Room Pricing, Occupancy, and Guest Satisfaction: A Longitudinal Case of a Midscale Hotel in the United States’, Journal of Hospitality & Tourism Research, 27 (3), pp. 328-341, Sage Publications [Online]. DOI: 10.1177/1096348003252361 (Accessed: December 29, 2007).
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About the Author:
Patrik Hellstrand is a recognized hospitality consultant, and is the Managing Director at SQInsight Hospitality Consulting, a firm that provides hospitality consulting services to the hotel and cruise industry.
Visit http://sqinsight.com for links to additional articles published by SQInsight Hospitality Consulting, or to get in touch with a hospitality consultant.
Guests’ True Opinions More Accurately / Patrik Hellstrand / July
and Demographic Impact on Guest Satisfaction / Patrik Hellstrand /