The Role of Pricing in Building Customer Relationships

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The Role of Pricing in Building Customer Relationships

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Introduction

Pricing plays an important role in cementing customer satisfaction, but it has always been ignored for several years. It is high time new researchers went into the area to advance the knowledge on guest satisfaction. Humans offer services in the hospitality sector mostly. Consequently, it is impossible to find two quite similar guest stays. According to suggestions from general marketing research, performance vulnerability across a range of consumption experiences creates more uncertainty (Zeithaml, 2000). This lowers the rate of reliance on previous expectations. In situations such as this, customers are more inclined to use price to gauge performance expectations. Studies have shown that although there has been a substantial increase in hotel room rates in America recently, customer satisfaction with hotel services has decreased significantly (Lomanno, 2000). This paper proposes that pricing policy for hotel rooms might affect the extent of utilizing price information to judge customer satisfaction.

Yield management in the hospitality industry results in room rates that are very different from a particular hotel room based on the time of day, week, or year. For this reason, hotel guests are inclined to experience inconsistencies in price performance depending on when they travel. Put differently, a guest may experience the same levels of service during a number of hotel stays, yet his or her satisfaction levels could differ depending on the charges of the rooms. For instance, a guest having paid a room rate may experience less satisfaction at the same service level compared to when he or she booked the room in advance. In addition, a guest occupying a room during busy periods will be less satisfied with the busyness and the high rates at that time.

Theoretical Framework

Research conducted prior in the hospitality industry have established that price has a crucial role to play in consumer quality perceptions (Walter, Thilo & Helfert, 2002). However, the conclusions on the exact scope and nature of price impact on consumer perceptions are quite inconclusive. For instance, one study established that lodging guests anticipate services of a higher degree when the cost of these services is higher (Yuksel & Yuksel, 2001). On the other hand, other researchers have established a significant positive relationship existing between perceived quality and perceived price among patrons of lodgings (Anderson & Mittal, 2000). Hotel managers have shifted their focus to customer satisfaction for purposes of achieving improved quality. A good understanding of guest satisfaction is highly relevant in the crowded market of today. This is because of the commonly held belief that satisfaction attracts repeat purchases and enhanced word-of-mouth communication of the service (Szymanski & Henard, 2001). The expectancy-disconfirmation paradigm, which is the dominant satisfaction model, conceptualizes satisfaction as the product of discrepancy between actual performance and predictive expectations. On the contrary, the role played by predictive expectations in customer satisfaction is unknown, especially in the hospitality sector (Yuksel & Yuksel, 2001).

This paper proposes that hotel guests utilize price as an indicator of quality both at low and high price levels. It also proposes that predictive expectations drive customer satisfaction at an intermediate level. To be specific, customers will be influenced highly at low or high price levels just by looking at the price information. Where actual performance resembles expectations closely, effects of assimilation could occur. Put differently, guests paying low or high rates perceive low or high service quality. Satisfaction will occur as long as actual performance is within the acceptable range (Walter et al., 2002). On the contrary, there is diminished importance of price information to the customer where the price level is at the medium level. In situations such as this, predictive expectations will control the process of satisfaction formation. Chances are high that the guest will concentrate more on actual performance.

Method

Due to the failure of previous studies to articulate customer satisfaction clearly, this study produced a scale of items by use of a content analysis method. The analysis was conducted from 850 customer reviews for hotel accommodation experiences. Despite the consumer comments (that is, compliments and complaints) not entirely reflecting the whole experiences of the consumers within the hotel facilities at their time of usage, they highlight the essential dimensions of the service quality to a greater extent, and this is the main concern of this paper.

Qualified customer reviews were formatted, numbered, and transferred to Ethnograph 5.0. This is a software that is designed purposely for content analysis. Using the first 100 messages only, two coders worked together to develop 68 initial coding words that constitute the primary facets or themes of the overall customer satisfaction of hospitality services. Two researchers then coded the rest of the anecdotes independently. After that, discussions were held that ironed out all disagreements. An interjudge reliability between coders were calculated using the percentage agreement statistic and stood at 86.6%. This percentage was relatively high in relation to standards normally applicable for the statistical assessment of interjudge reliability of qualitative data coding.

The content analysis came up with 19 dimensions of customer satisfaction. These were sorted out and regrouped further into 5 dimensions, including customer services, security, order fulfillment, product portfolio, and ease of using facilities. Scale items for assessing crucial constructs such as perceived value and customer loyalty were drawn from validated measures of prior studies. The respondents were asked to indicate to what extent they disagreed or agreed based on recent experience at the hotels. They did this by checking the appropriate response to items on the questionnaire. Each item on the questionnaire was weighed on a five-point Likert scale that had a 1 for strongly disagree, a 5 for strongly agree and a 3 for neutral position. Demographics and usage variables were employed in the study. The demographic aspects included education, age, income, and sex. The usage aspect included the frequency of using hospitality services.

The study also utilized a web-based survey. A solicitation letter was sent randomly to 4,000 subjects by e-mail. These subjects were chosen from an emailing list, which was obtained from an e-mail broker. The message in the e-mail described the research purpose. In addition, the message invited the receivers to take part in the survey. Subjects who expressed willingness to take part in the survey were required to click on the URL address given in the invitation e-mail. Out of the sent e-mails, 1101 came back non-delivered. This meant that the actual rate of undeliverability was 27.5%. Responses were obtained from 257 participants. Out of these responses, 22 were struck out because of duplication or incompleteness. The effective sample size, therefore, was 235, which represented a response rate of 8.1%.

Of all the respondents of the study, 80.8% were male. In addition, 76.9% of the respondents were aged between 25 and 54. Moreover, 68.0% had attained a bachelor’s degree onwards. The household income of 49.4% of the respondents was $60,000 and above. Interestingly, the study found out that 74.0% of the respondents were residing in the United States whereas the remaining 26.0% came from 17 other countries.

Results

Sources, constructs, scales & items

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