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ePROCEEDINGS FOR 2011 INTERNATIONAL RESEARCH CONFERENCE AND COLLOQUIUM Contemporary Research Issues and Challenges in Emerging Economies

A STUDY OF SERVICE QUALITY, CUSTOMER SATISFACTION, CORPORATE IMAGE AND CUSTOMER LOYALTY IN THE HOTEL INDUSTRY IN MALAYSIA.

Cheng Boon Liat INTI International University alex.cheng@newinti.edu.my

Prof. Dr. Md. Zabid Abdul Rashid Universiti Tun Abdul Razak zabid@unirazak.edu.my

ABSTRACT

Evaluation of customers’ perception and satisfaction of service quality is widely acknowledged as being a favourable strategy in the hotel industry. This research aims to provide an assessment of service quality suggested in the European Perspective by empirically examining hotel guests’ perception of process (or functional) quality and outcome (or technical) quality; and the relationships between the perceived service quality, customer satisfaction, corporate image and customer loyalty in the Malaysian hotel industry. The data was collected through self-administrated questionnaire from 500 hotel guests using systematic sampling approach. Structural Equation Modelling (SEM) was used to analyse the reliability and validity of data and the hypothesised relationships in the proposed research model. The findings for this study showed that process quality and outcome quality had positive impacts on guest satisfaction. This study also found that customer satisfaction and corporate image play significant roles in building a strong customer loyalty base. Another noteworthy finding was that corporate image served as a partial mediator in the relationship between customer satisfaction and customer loyalty. These findings would help hotel operators formulate and implement effective marketing management strategies to not only cope with the keen competition in the hotel service industry but also boost their profit margins.

KEYWORDS: service quality, customer satisfaction, corporate image, customer loyalty, hotel industry.

INTRODUCTION The hotel industry in Malaysia has experienced tremendous growth, thanks to the booming travel and tourism trade. The hotel industry will continue to offer copious commercial opportunities for the country and businesses alike. In 2010, tourist arrivals to Malaysia reached a new high of 24 million. It is the highest ever for the sixth straight year. The Tourism Ministry is targeting an increase of 25 million tourists visiting the country in 2011, with a projected tourism revenue of RM60 billion (The Malaysian Insider, 2011). Furthermore, the United Nations World Tourism Organisation (UNWTO) placed Malaysia in the top ten list in terms of tourist arrivals for 2009 (Bernama, 2010). In line with the growing number of tourists, the hotel industry in Malaysia has also stepped up its development and upgrading programmes. By the end of 2010, the Malaysian Association of Hotels (MAH) recorded a total of 515 hotels with 98,238 hotel rooms to cater to tourist arrivals (MAH Press Release, 2010). Its commitment towards the industry is very encouraging, and has stirred many hotel operators to strive harder in improving the quality of their service.

Due to the competitive nature of this industry, it is imperative for hotel operators to constantly seek new ways to improve their services, as well as map out strategies to provide memorable stays for their patrons. They have to maintain a delicate balance between catering to the most basic needs of their guests, and at the same time, pampering them with all the comforts available, thus making their hotel stay an enjoyable and unforgettable experience. Thus, it is important for hotel operators to keep abreast of the

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current and future needs of the ever-evolving industry, and respond to the demands of increasingly sophisticated hotel guests. Innovation and creativity are crucial in maintaining a competitive edge in the hotel industry. Hotel operators need to create unique, distinctive service elements to exceed the hotel guests’ expectations; translating their experiences into a favourable corporate image and creating customer loyalty.

This study explores the impact of process quality and outcome quality on customer satisfaction. Process quality is judged by guests during the process of hotel services being performed, whereas outcome service quality is judged by guests after the hotel services have been performed. This study also investigates the extent to which such perceptions influence customer satisfaction. Secondly, this study examines the inter-relationships of customer satisfaction, corporate image and customer loyalty in the hotel industry. Furthermore, the mediating role of corporate image on customer satisfaction and customer loyalty in the Malaysian hotel industry are evaluated.

LITERATURE REVIEW

Service quality is consumers’ judgment of the excellence and superiority of the service encounter (Zeithaml & Bitner, 2003). The concept of service quality has been increasingly popular since its inception in the late 1970s (Antony, Antony, & Ghosh, 2004). Service quality is vital to the success of any service organization (Shahin & Dabestani, 2010). In recent decades, service quality has become a main area of attention among practitioners, managers and researchers due to its significant impact on business performance, cost, customer satisfaction, customer loyalty and profitability (Seth, Deshmukh, & Vrat, 2005). The importance of service quality in both domestic and international markets is increasingly recognised in parallel with economic development and increasing standards of living. The hospitality industry, especially hotels, which has a high level of customer contact is not an exception to this observation (Claver, Tarí, & Pereira, 2006; Soutar, 2001). Perceptions of service quality are formed when customers experience feelings and attitudes during the receipt of hotel services, and customers form their experiences based on their personal perceptions of the service (Abbasi, Khalid, Azam, & Riaz, 2010; Shahin & Dabestani, 2010). Evaluating customers’ perception and satisfaction of service quality is widely acknowledged as being an effective strategy to boost profitability in the hotel industry.

In order to provide a better service quality, hotels operators found it necessary to have their services evaluated. As a popular instrument to measure organisational service performance, SERVQUAL has become the model with the widest application in service marketing literature, and compels the attention among practitioners and academics (Ting, Boo, & Othman, 2011). Despite being widely cited in service marketing literature, it has been subject to much criticism (Douglas & Connor, 2003; Ting et al., 2011). Numerous scholars have tried to replicate and refute its structure and conceptualisation (Blešić, Tešanović, & Psodorov, 2011). One of the main weaknesses pointed out by its critics is that the SERQVUAL instrument focuses mainly on the service delivery process, that is, process quality (Grönroos, 1990; Kang & James, 2004; Kumar, Smart, Maddern, & Maull, 2008); it neglects the significant role played by outcome quality at the end of the service delivery process. Since it is generally agreed that service quality is a multidimensional or multi-construct structure (Cronin & Taylor, 1992; Ekinci, Dawes, & Massey, 2008; Grönroos, 1990; Kang & James, 2004; Parasuraman, Zeithaml, & Berry, 1985, 1988), it is felt that using the SERVQUAL model does not reflect service quality adequately. According to several researchers (Grönroos, 1982, 1990; Kang & James, 2004; Lehtinen & Lehtinen, 1982), service quality, as perceived by customers, comprises two distinctive components, namely process quality and outcome quality. By leaving out the latter, the SERVQUAL instrument does not give adequate information, resulting in the possibility of arriving at the inadequate conclusions about the service quality of a hotel.

In this respect, Brady and Cronin (2001) noted that service quality theories are dominated by multidimensional and multi-construct structures based on either the American or European perspective. The focus on only process quality attributes is referred to as the American perspective of service quality, whereas the European perspective suggests that service quality should consider both process and outcome quality aspects. Reviews of past literature indicate that much of the earlier research in hotel service quality has concentrated on the SERVQUAL instrument, and consequently, on the process quality

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aspect (Kang, 2006). Less attention has been paid to the European perspective (Ekinci et al., 2008; Kang & James, 2004; Kumar et al., 2008), especially in the hotel industry in Malaysia. As such the first and second hypotheses for the study are postulated as follows:

H1: There is a positive relationship between process quality and customer satisfaction. H2: There is a positive relationship between outcome quality and customer satisfaction.

Customer loyalty is viewed as a deeply held commitment to buy again a preferred product or patronise a service consistently in the future, thereby causing repetitive purchase (Oliver, 1997). Customer loyalty has been well-researched topic in the hospitality industry (Kang & James, 2004; Wilkins, Merrilees, & Herington, 2010). According to these studies, customers display differing degrees of loyalty, commitment or allegiance in various aspects of their daily interactions. Hotel operators need to understand the most influential factors in customer loyalty in order to devise and implement strategies to ensure loyalty from existing and prospective guests (Chitty, Ward, & Chua, 2007; Kandampully & Suhartano, 2000; Wilkins et al., 2010). It is generally agreed that satisfaction is an indicator of customer loyalty. Customer satisfaction depends on the extent of service improvement (O’Neill, 2001). Nevertheless, Pullman and Gross (2004) believe that even though customer satisfaction is vital to the hotel industry, customer loyalty is even more important because it is an indicator of success for the service industry, especially the hospitality sector. Wilkins et al. (2010) stated that if a hotel is able to expand and maintain a large and loyal customer base, its long-term success is ensured. In the hospitality industry, customer loyalty is a treasured asset because of the keen competition. When a hotel guest has positive feelings towards the hotel, he is likely not only to be a repeat customer, but will also recommend the hotel to others (Berry, Will, & Carbone, 2006).

Much research has been carried out to explore the relationship between customer satisfaction and customer loyalty in recent years. The focus is on the importance of predicting customer behaviour, especially with regard to customer satisfaction construct and the satisfaction-loyalty link (Pullman & Gross, 2004; Ramanathan & Ramanathan, 2010). It has been found that customer satisfaction is positively correlated with customer loyalty in the hotel industry (Chitty et al., 2007; Kandampully & Surhatano, 2000; Schall, 2003). In addition, a study carried out in a service factory by Olorunniwo, Hsu, and Udo (2006) found that the correlation between customer satisfaction and customer loyalty was significantly high; the research findings clearly showed that satisfied guests were more likely to remain loyal to the service providers.

However, not all researchers are convinced that customer satisfaction will translate into customer loyalty. Several studies have confirmed this scepticism (Abbasi et al., 2010; Bowen & Chen, 2001; Ladhari, 2009b; Skogland & Siguaw, 2004). Other researchers suggested that satisfaction is a necessary but not a sufficient condition for loyalty, as satisfied customers would turn to other service providers whom they believe could offer better value and quality (Bennett & Rundle-Thiele, 2004; Egan, 2006; Mcllroy & Barnett, 2000). The research findings of Dowling and Uncles (1997) and Yi and Jeon (2003) posed further challenges by indicating that customers become loyal to a loyalty programme instead of the brand behind the programme or the company. Additionally, the SatisfactionLoyalty model presented by Olsen (2002) indicated that a high level of perceived service quality led to a high level of customer satisfaction, which in turn led to customer loyalty. Although the relationships between service quality and loyalty were positively correlated, results varied across various stages of the study. The results of the study did not support customer satisfaction as an indicator of customer loyalty (Olsen, 2002). As such, there is a need to investigate this relationship further. Accordingly, the third hypothesis is postulated as the following:

H3: There is a positive relationship between customer satisfaction and customer loyalty.

Intense competition in the hotel industry worldwide has made operators seek long-term goals to stay profitable. The ability to identify strategies which will give them a competitive edge is crucial. The antecedents of customer satisfaction are no longer confined to the tangible components of the hotel service; the quality of the service is just as important. In fact, if customers are satisfied with the hotel service components, the hotel would enjoy a unique advantage of having a long-term competitive advantage. Therefore, customer satisfaction plays a significant role in helping to sustain customer loyalty and more importantly, enhances the corporate image of the organisation (Han, Hsu, & Lee, 2009).

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The customer’s past experience with the hotel’s services is considered to be the most influential factor in determining corporate image (Kandampully & Surhartanto, 2000). According to Kandampully and Hu (2007), there is a statistically significant relationship between customer satisfaction and corporate image. Several studies have been carried out to investigate the influence of corporate image on customer loyalty in the tourism and hospitality industry (Back, 2005; Chen & Tsai, 2007). Nevertheless, in the hotel industry, the impact of customer satisfaction on corporate image, has not been thoroughly researched. To provide further empirical evidence, especially with regard to the hotel industry in Malaysia, the fourth hypothesis is formulated as such:

H4: There is a positive relationship between customer satisfaction and corporate image.

Corporate image is defined as the perception of an organisation in the customers’ minds, referring to the brand and the kind of associations that customers obtain from a brand, goods, service and/or organisation (Nguyen & Leblanc, 2002; Simoes, Dibb, & Fisk, 2005). According to Faullant, Matzler, and Füller (2008), imagery studies have a long tradition in tourism research. Many studies focus on the measurement of destination image (Echtner & Ritchie, 1993), the structure of destination image (Walmsley & Young, 1998), and the formation of image (Baloglu & McClearly, 1999). Research has shown that corporate image has a significant influence on customer loyalty and that the perception of corporate image drives customer loyalty (Faullant et al., 2008; Han et al., 2009; Kandampully & Hu, 2007; Kandampully & Suhartanato, 2000, 2003). In contrast, a recent study indicated that image had no direct impact on loyalty. Using an exploratory approach, Chi and Qu (2007) tested the impact sequences empirically. Their finding, however, was less persuasive from a theoretical perspective. Hence it is clear that there is little agreement among researchers (Faullant et al., 2008; Ryu, Han, & Kim, 2008) regarding the relationship between corporate image and customer loyalty. This being the case, the fifth hypothesis is postulated as below:

H5: There is a positive relationship between corporate image and customer loyalty.

Much research has been carried to investigate the role played by corporate image in determining customer perception and consequent behaviour. However, there is little empirical evidence to support the relationship between corporate image and customer loyalty (Kandampully & Hu, 2007, Kandampully & Suhartano, 2000, 2003; Han et al., 2009). According to Faullant et al. (2008), although customer satisfaction drives loyalty, it is not a very reliable, and certainly not the only determinant of loyalty. In a study conducted at Alpine ski resorts, Faullant et al. (2008) found that both image and overall satisfaction played a significant role in determining customer loyalty. However, the relationship between customer satisfaction and customer loyalty did not seem to be linear. There are other studies which have indicated doubts about the predictability of loyalty if its measurement is based only on customer satisfaction ratings, not taking into account corporate image. Hence, Kandampully and Suhartanto (2003) advocated the inclusion of corporate image and customer satisfaction in one model as it would highlight the significance of corporate image and would also provide a better understanding of customer loyalty. Taking this suggestion into account, the sixth hypothesis is postulated as follows:

H6: Corporate image mediates the relationship between hotel guests’ satisfaction and their loyalty.

Based on the review of the aforementioned past studies, this study proposes the conceptual model shown in Figure 1.

Figure 1 Conceptual Framework for the Study

Process

Quality

H1
H1
Outcome Quality H2
Outcome
Quality
H2
H3
H3
for the Study Process Quality H1 Outcome Quality H2 H3 Corporate Image Customer Satisfaction 226 H4

Corporate

Image

Customer

Satisfaction

226 H4
226 H4

Customer

Loyalty

H5
H5

ePROCEEDINGS FOR 2011 INTERNATIONAL RESEARCH CONFERENCE AND COLLOQUIUM Contemporary Research Issues and Challenges in Emerging Economies

Source: (Chitty et al., 2007; Kandampully & Hu, 2007; Kang & James, 2004; Kashyap & Bojanic, 2000; Olorunniwo et al., 2006)

METHODOLOGY

This study is explanatory in nature because it seeks to identify the impact of process quality and outcome quality on customer satisfaction, and to explore the interrelationships of customer satisfaction, corporate image and customer loyalty in the Malaysian hotel industry. Five variables consisting of process quality, outcome quality, customer satisfaction, corporate image and customer loyalty are operationalised in order

to test the proposed research model. The data was collected through self-administrated questionnaire,

including multiple scales of each variable and demographic enquiries. The values of Cronbach’s alpha for the scales and measurements adopted from the related literatures were more than 0.70 (ranging from 0.76 to 0.96). Hence, the values were considered acceptable and reliable (Sekaran & Bougie, 2010). At the same time, to enhance validity of the questionnaires, all the borrowed items and scales were sourced from existing literature in which the context of the literature was very similar with the context of this study. Summary of the variables for this study is presented in Table 1.

Table 1 Summary of the Variables for the Study

Variable

Hypothesis

Source

1. Process Quality

H1

Lau et al. (2006) Powpaka (1996) and Lim et al. (2008) Olorunniwo et al. (2006) Kandampully & Suhartanto (2003) Skogland & Siguaw (2004)

2. Outcome Quality

H2

3. Customer Satisfaction

H1, H2, H3, H4

4. Corporate Image

H4, H5, H6

5. Customer Loyalty

H3, H5, H6

Systematic sampling approach was adopted in this study, the sampling units were 500 guests who stayed overnight at the hotels in Malaysia during the survey period. To collect the data required for the purpose

of this study, every tenth traveller leaving the country and passing through the security entrance after

checking-in at the Kuala Lumpur International Airport (KLIA) was approached. A screening question was asked to identify if they had stayed at least one night in the hotels within Malaysia. The researcher proceeded to distribute the questionnaire to only those who had stayed at a hotel; the entire process for one returned questionnaire took about 15 minutes.

Data analysis in this study comprised four main stages, namely, preliminary data analysis, descriptive analyses, reliability and validity tests, confirmatory factor analysis (CFA) and structural equation modelling (SEM). Both Statistical Package for the Social Sciences (SPSS 18) and Analysis of Moment Structure (AMOS 18) were used to analyse the data extracted from the questionnaires.

RESULTS AND DISCUSSIONS

Preliminary data analysis

Preliminary data analysis is essential to ensure the data is suitable for further statistical analyses. Five different preliminary data tests/analyses, including data screening, outliers, normality, linearity and homoscedasticity were conducted in this study. The data collected were entered into SPSS software, and

a preliminary descriptive analysis was conducted to identify case(s) of missing data from the 500

questionnaires collected. The descriptive analysis revealed that 5 cases recorded substantial missing values, and seemed to be at random, and thus these cases were dropped. This was in accordance to the recommendation made by Tabachnick and Fiddel (2007) that a procedure to deal with missing data is to

simply delete the case. After the data screening step, 495 responses were left. The outliers for the respective variables were detected by examining the boxplots in SPSS; and the outliers for the

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combination of variables are assessed with Mahalanobis Distance (D2). 17 cases were identified as outliers and subsequently been eliminated from the sample. As a result, 478 responses were retained.

Based on the results of preliminary data analysis, all the items that make up the variables had absolute values of skewness smaller than 3, and absolute values of kurtosis smaller than 10 indicating the values of skewness and kurtosis of the measurement items do not violate the conservative rule of thumb within the conventional limits of normality criteria (Hair, Black, Babin, & Anderson, 2010; Kline, 2005). Collectively, the significant values for Deviation from Linearity are well above the threshold at 0.05 (Hair et al., 2010). In other words, the independent and dependent variables in this study demonstrate good linear relationships. Furthermore, all the scatter plots demonstrated linear patterns and have substantial R² values that surpass 0.50. In sum, the relationships of the independent and dependent variables in these hypotheses show homoscedastic relationships. Overall, the data collected in this study fulfilled the requirements for further statistical analyses.

Sample Characteristics

The gender distribution of the respondents was quite even, with 48.1% male and 51.9% female respondents respectively. The largest age group of the respondents was between 36 and 45, it followed by age between 46 and 55; and the smallest age group was respondent aged between below 25. 54% of the respondents were Malaysian, and 46.0% were foreign tourists who visited Malaysia during the survey period. The study succeeded in providing respondents who have wide variations on personal characteristics, Appendix 1 presents a summary of the sample characteristics.

Descriptive Statistics

Descriptive statistics in this study consist of mean and standard deviation. The mean scores for the variables are: process quality (5.02), outcome quality (5.01), customer satisfaction (5.02), corporate image (5.02) and customer loyalty (4.40). Besides, the mean scores for the five distinctive dimensions of process quality are: tangibility (5.19), reliability (4.94), responsiveness (5.00), assurance (5.07) and empathy (4.92). In general, all the mean values are above the midpoint of 3.50, indicating that the respondents generally have positive perceptions with the variables in the context of Malaysian hotel industry that are being examined in this study. The values of standard deviation for the variables are:

process quality (1.09), outcome quality (1.23), customer satisfaction (1.35), corporate image (1.18) and customer loyalty (1.28). The standard deviation values for the five dimensions of process quality on the other hand are: tangibility (1.22), reliability (1.18), responsiveness (1.24), assurance (1.21) and empathy (1.22). Collectively, the standard deviation values for the variables in this study are in the range from 1.09 to 1.28. This indicates a narrow spread of data points around the mean, and fulfilled the statistical requirement for confirmatory factor analysis that will be discussed in the next section.

Confirmatory Factor Analysis (CFA)

According to Hair et al. (2010), researchers are now able to assess the validity of a variable in a stricter way with the introduction of covariance structure models and accompanying computer programmes such as AMOS. In this study, confirmatory factor analysis was applied to test the model fit of the five measurement models (variables). Specifically, two models (first and second order CFA models) were developed for process quality (PQ). Next, model fit for the remaining variables, namely outcome quality (OQ), customer satisfaction (CS), corporate image (CI) and customer loyalty (CL) were measured. The results of the measurement models determined how well the items and/or dimensions captured their specific variables in this study. A group of goodness-of-fit indexes were used to determine the fit of the respective measurement models (variables), overall measurement model and the structural equation model in this study. These indexes are: Chi-Squared/Degree of Freedom (χ2/d.f.), Goodness-of-Fit Index (GFI), Root Mean Square Residual (RMR), Root Mean Square Error of Approximation (RMSEA), Normed Fit Index (NFI), Comparative Fit Index (CFI), Tucker-Lewis Index (TLI) and Parsimony Normed Fit Index (PNFI).

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Service quality in this study consists of two main components, namely process quality and outcome quality. Based on the literatures in service quality, process quality in this study refers to the SERVQUAL model developed by Parasuraman et al. (1988). The SERVQUAL model consists of 22 items spread over five key dimensions: tangibility, reliability, responsiveness, assurance and empathy. Prior to test the model fit of the structural model, two goodness-of-fit analyses (in two different models) were conducted in this study. The thresholds for the goodness-of-fit indexes and the model fit for the various measurement models are presented in Table 3. The results show that Model A (Figure 2) appears to have an acceptable fit, and met the statistical requirement for further assessment in a second-order confirmatory factor analysis model. After the relationships among the five main dimensions of process quality and their associated items have been assessed in Model A. A second-order confirmatory factor analysis, Model B (Figure 3) was performed to test whether tangibility, reliability, responsiveness, assurance and empathy (the first-order factors) are the reflective indictors of process quality (the second-order factor). In sum, all the indexes within Model B are well fitted within the thresholds. Thus, the goodness-of-fit is valid for process quality, and will be used in subsequent analyses. Besides, as illustrated in Table 3, values of the indexes represent an acceptable model fit, and indicate that the goodness-of-fit is valid for customer satisfaction.

Figure 2 Process Quality - Model A

customer satisfaction. Figure 2 Process Quality - Model A Figure 3 Process Quality – Model B

Figure 3 Process Quality Model B

Quality - Model A Figure 3 Process Quality – Model B Table 3 Goodness-of-Fit Indexes for

Table 3 Goodness-of-Fit Indexes for the Measurement Models (Variables)

 

χ2/d.f.

GFI

RMSEA

RMR

NFI

CFI

TLI

PNFI

Desired Values

2 - 5

> 0.90

< 0.80

<0.80

> 0.90

> 0.90

> 0.90

> 0.50

PQ (Model A) PQ (Model B) OQ

3.237

0.889

0.068

0.066

0.929

0.949

0.941

0.800

3.254

0.910

0.069

0.070

0.926

0.948

0.941

0.818

6.001

0.976

0.102

0.036

0.984

0.987

0.974

0.492

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OQ (Revised)

3.701

0.993

0.075

0.023

0.995

0.996

0.988

0.532

CS

4.10

0.984

0.078

0.022

0.991

0.992

0.976

0.540

CI

7.570

0.892

0.117

0.066

0.936

0.943

0.927

0.728

CI (Revised)

3.560

0.946

0.073

0.047

0.975

0.982

0.974

0.696

CL

21.033

0.837

0.205

0.154

0.879

0.884

0.825

0.586

CL (Revised)

4.077

0.984

0.078

0.044

0.986

0.989

0.979

0.510

In contrast, as shown in Table 3, certain indexes (highlighted in bold) were below/above the recommended values or beyond the recommended tolerances for other measurement models including output quality, corporate image and customer loyalty. AMOS outputs were examined to identify better model fits for these measurement models. Examinations of the outputs, including factor weights and recommended modification indexes (MI), have identified specific items that contributed to the poor fits. These items were removed from the measurement model: outcome quality (one item), corporate image (two items) and customer loyalty (two items). The fit indexes for the revised measurement models are summarised in Table 3. Overall, the fit indexes indicate good level of model fits. Collectively, on the basis of the improved fit indexes the revised measurement models are accepted and met the statistical requirement for further analyses.

CFA in this study was conducted in a two-step approach recommended by Anderson and Gerbing (1988). After conducting the confirmatory factor analysis for each variable (measurement model), to further assess convergent and discriminant validity of all measures, an overall measurement model is subject to confirmatory factor analysis. According to Hair et al. (2010), the overall measurement model is a model where all the variables are free to correlate with one another; this is presented in Figure 4. As displayed in Table 4, the values of indexes show that the overall measurement model of this study appears to have an acceptable fit, and met the statistical requirements for reliability and validity analyses.

Figure 4 CFA for the Overall Measurement Model

analyses. Figure 4 CFA for the Overall Measurement Model Table 4 Goodness-of-Fit Indexes for the Overall

Table 4 Goodness-of-Fit Indexes for the Overall Measurement Model

χ2/d.f.

GFI

RMSEA

RMR

NFI

CFI

TLI

PNFI

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2.274

0.903

0.053

0.738

0.904

0.944

0.940

0.846

Convergent Validity

Convergent validity refers to the degree to which scores on a test correlate with scores on other tests that are designed to assess the same variable. In this regard, convergent validity tests the items within a specific variable that are expected to be related are in reality related (Hair et al., 2010). In general, there are three main procedures to assess the convergent validity of a set of measurement items in relation to their corresponding variables. These procedures are factor loading, composite reliability and the average variance extracted each variable (Hair et al., 2010; Sekaran & Bougie, 2010). Factor loading for all the items within the five variables are: process quality (0.831 - 0.977), outcome quality (0.747 0.901), customer satisfaction (0.890 0.923), corporate image (0.604 0.874) and customer loyalty (0.769 0.859). Overall, factor loading for the items are above 0.60, and greater than the threshold recommended by Hair et al. (2010). In specific, all the items are well loaded on the respective variables, supporting the convergent validity criteria of the measurement instruments in this study. Composite Reliability (CR) values for the five variables are quite high, arranged in order these values are:

customer loyalty (0.906), outcome quality (0.913), corporate image (0.934), customer satisfaction (0.9470 and process quality (0.977). Overall, the CR values for all the variables in this study are above the cutting point of 0.70 suggested by Hair et al. (2010), indicating that all items within the respective variables being tested in this study met the statistical requirement for further analysis. Average Variance Extracted (AVE) is a measure of the error-free variance of a set of items. In other words, it measures the amount of variance captured by the variable in relation to the amount of variance attributable to measurement error (DeVellis, 2003; Fornell & Larcker, 1981; Hair et al., 2010). The AVE values are: process quality (0.807), outcome quality (0.726), customer satisfaction (0.805), corporate image (0.740) and customer loyalty (0.660). AVE values for the variables are well beyond the recommended guideline of 0.50 (Anderson & Gerbing, 1988). In sum, the AVE for the proposed variables in the research model met the statistical requirement for further analyses.

Discriminant Validity

Discriminant validity indicates how a variable is different from other variables. In other words, discriminant validity describes the degree to which the operationalisation is not similar to (diverges from) other operationalisation that it theoretically should not be similar to (Hair et al., 2010). In this study, discriminant validity is tested with Pearson’s Correlation Coefficient (two-tailed, significant level at 0.01), based on the procedure suggested by Fornell and Larcker (1981). According to the procedure, the square root of the average variance extracted (AVE) for a given variable is compared with the correlations between that variable and all other variables in the model. If the square roots of the AVEs are greater than the off- diagonal elements in the corresponding rows and columns, this suggests that a variable is more strongly correlated with its items than with the other variables in the model.

As shown in Table 5, the diagonal elements in the correlation matrix have been replaced by the square roots of the average variance extracted; and each variable in the model shared more variance with its items in comparison with other variables. As such, discriminant validity is considered adequate and satisfactory at the variable level. Having considered the discriminant validity at the variable level, the respective variables in the model are considered adequate indicating that variables that should not be related are in reality not related; and have met the statistical requirement for further analyses in structural equation modelling.

Table 5 Correlation Matrix for the Overall Measurement Model

1 2 3 4 5

1

2

3

4

5

1.

Process Quality

0.898

2. Outcome Quality

0.837

0.852

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3. Customer Satisfaction

0.786

0.849

.897

4. Corporate Image

0.809

0.836

.844

.860

5. Customer Loyalty

0.627

0.677

.723

.756

.812

Note: Square root of average variance extracted (AVE) is shown on the diagonal and in bold. Correlation coefficients are shown in the off diagonal; all correlations are significant at the 0.01 level.

STRUCTURAL EQUATION MODELLING

The structural equation model analysis was conducted to test the relationships established in hypotheses. Specifically, it examined the interrelationships of process quality, outcome quality, customer satisfaction, corporate image and customer loyalty in the Malaysian hotel industry. Before analysing the structural links, the overall fit of the structural model to the observed data was examined in order to assess whether the model is valid. Collectively, Table 6 shows all the indexes fulfilled the recommended threshold values and tolerances. Specifically, these values show that the structural equation model of this study is adequately fitted to the data. That is, the theory developed fits reality as represented by the sample data collected (Hair et al., 2010). This leads to the conclusion that the structural model is valid and acceptable for the analysis of structural links.

Figure 5 shows a diagram of the structural research model, depicts the standardised path coefficients and path significance for the five hypotheses. Overall, the results as presented in Figure 5 and Table 6 indicate that the five hypothesised paths in the research model are significant at p < 0.001 level. The summary of parameter estimates and hypothesis testing for Hypothesis 1 to Hypothesis 5 are presented in Table 7.

Table 6 Goodness-of-Fit Results for the Structural Equation Model

χ2/d.f.

GFI

RMSEA

RMR

NFI

CFI

TLI

PNFI

2.990

0.916

0.065

0.057

0.918

0.911

0.906

0.822

Figure 5 Structural Equation Model - Standardised Estimate

Process

0.38
0.38
Quality Outcome Quality 0.79
Quality
Outcome
Quality
0.79
0.24
0.24
Estimate Process 0.38 Quality Outcome Quality 0.79 0.24 Corporate Image Customer Satisfaction 0.88 Customer

Corporate

Image

Customer

Satisfaction

0.88
0.88

Customer

Loyalty

0.55
0.55

*p < .001; Critical Ratio > 1.96

Table 7 Structural Equation Modelling Results of Hypothesis Testing

Relationship

ST. EST.

ST. ERR.

C. R. *

Label

Support

CS

PQ

0.378

0.068

6.996

H1

Yes

CS

OQ

0.787

0.048

13.983

H2

Yes

CL

CS

0.241

0.087

21.554

H3

Yes

CI

CS

0.875

0.038

2.799

H4

Yes

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ePROCEEDINGS FOR 2011 INTERNATIONAL RESEARCH CONFERENCE AND COLLOQUIUM Contemporary Research Issues and Challenges in Emerging Economies

CL CI

0.552

0.089

5.945

H5

Yes

Note: PQ: Process Quality; OQ: Outcome Quality; CS: Customer Satisfaction; CI: Corporate Image & CL: Customer Loyalty; ST. EST.: Standardised Estimate (β); ST. ERR.: Standardised Error; C. R.: Critical Ratio. *p < 0.001

In response to the sixth hypothesis postulated, this study adopts three different tests to examine mediating effect of corporate image in the relationship of customer satisfaction and customer loyalty. These tests are Baron and Kenny’s 4 causal steps test, Sobel’s Z test and bootstrapping as suggested by Wood, Goodman, Beckmann, & Cook (2008). Corporate image is claimed to be a partial mediator in the relationship between customer satisfaction and customer loyalty. This is because, the effect of customer satisfaction on customer loyalty is reduced (from b = 0.745 to b = 0.249) but remains significant after corporate image is added as the mediator (Baron and Kenny, 1986). The results of Sobel’s test revealed a change in unstandardised coefficient from 0.749 to 0.249. As the resulting unstandardised coefficient (0.249) is still significant (at p < 0.001), again it shows that corporate image acts as a partial mediator in the relationship between customer satisfaction and customer loyalty in the hotel industry in Malaysia. Moreover, bootstrapping estimates using 1000 samples reveals that the lower bounds (lower limit) of the 95% confidence interval is 0.365, while the upper bounds (upper limit) of the 95% confidence interval is 0.665. These findings indicate that the indirect effect of corporate image on the relationship between customer satisfaction and customer loyalty is significant from zero (Bauer, Preacher, & Gil, 2006; MacKinnon, Lockwood & Williams, 2004). Specifically, customer satisfaction has an indirect effect on customer loyalty that is transmitted through corporate image.

DISCUSSIONS

The findings for this study showed that process quality had positive impact on guest satisfaction This finding is consistent with most of past research which found that the perception of service quality (measured by using SERVQUAL model) is positively related to customer satisfaction in the hotel industry both in Malaysia (e.g., Lau, Akbar, & Yong, 2005, 2006; Sidin, Rashid, & Zainal, 2001; Ting et al., 2011) and other countries (e.g., Dominici & Guzzo, 2010; Marković & Raspor, 2010; Olorunniwo et al., 2006). In consistent with previous empirical studies (e.g., Kim, Jin, & Chang, 2009; Ting et al., 2011), the findings of this study also confirmed that outcome quality indeed had significant impact on customer satisfaction. Nevertheless, in comparison, outcome quality was deemed to have a stronger influence than process quality on customer satisfaction in the Malaysian hotel industry. Process quality is made up of different phases and stages of hotel services judged by guests during the process of hotel services being performed, process quality is critical for the success of hotel industry in Malaysia. Outcome quality is regarded as the final part in the perception of overall hotel service quality that a guest is accorded in a hotel. Thus, it has a more direct impact in determining the satisfaction level of the guest.

Owing to the benefits of customer satisfaction in retaining existing customers, both customer satisfaction and customer loyalty have become increasingly prevalent constructs for hospitality research in recent years, despite the findings from several studies in the hotel industry indicating that customer satisfaction may not always be the most crucial factor in building or strengthening customer loyalty (Bowen & Chen, 2001; Skogland & Siguaw, 2004). Nevertheless, the finding of this study is consistent with most of the findings in previous research, that is, customer satisfaction is an indicator of customer loyalty in the hotel industry (e.g., Chitty et al., 2007; Kandampully & Suhartanto, 2000; Olorunniwo et al., 2006; Schall, 2003, Wilkins et al., 2010). A recent research conducted by Fen and Lian (2010) verified this statement by suggesting that customer satisfaction directly influences the customer’s intentions to repatronage.

In order to understand the corporate image impact in the hotel industry, the researcher presented a number of statements to hotel guests who took part in the questionnaire. These statements incorporated various aspects of corporate image, as suggested by Kandampully and Suhartanto (2003). The researcher evaluated the perception of corporate image of the hotels in Malaysia from different standpoints of the guests. The results indicated that as the level of customer satisfaction among hotel guests increased, so did the degree of positive perception on the corporate image of the hotels. The finding is consistent with a previous research conducted by Kandampully and Hu (2007).

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Despite disagreement among researchers (e.g., Faullant et al., 2008; Ryu et al., 2008) regarding the relationship between corporate image and customer loyalty, the finding of this study supported previous research in the hotel literature that corporate image has a significant impact on customer loyalty (e.g., Faunllant et al., 2008; Han et al., 2009; Kandampully & Hu, 2007; Kandampully & Suharhanto, 2000, 2003). However, it should be noted that this finding did not concur with the finding by Faullant et al. (2008) and Chi and Qu (2007). Their research reported that the relationship between corporate image and customer loyalty did not seem to be linear. Customer satisfaction seems to have a strong influence on customer loyalty. However, as stated earlier, the relationship between customer satisfaction and customer loyalty does not seem to be linear (Faullant et al., 2008).

Many researchers have reported doubts about the predictability of loyalty solely due to customer satisfaction ratings which ignore image as predictor of loyalty. The result revealed that corporate image served as a partial mediator in the relationship between customer satisfaction and customer loyalty in the Malaysian hotel industry. According to Kandampully and Suhartanto (2003), the inclusion of corporate image and customer satisfaction in one model not only serves to highlight the importance of corporate image, but it also provides a better explanation for customer loyalty. They suggest that both image and customer satisfaction should be included when measuring customer loyalty.

CONCLUSION The main objectives of this study were firstly to evaluate the influence of hotel guests’ perception of process quality and outcome quality on customer satisfaction, and secondly, to examine the interrelationships of customer satisfaction, corporate image and customer loyalty in the Malaysian hotel industry. There is compelling evidence that both process quality and outcome quality are essential on service quality improvement to ensure customer satisfaction. In terms of implications for service marketing theory, it is worth noting that a two-construct model (consisting of outcome quality and process quality) is a better measure in the perception of overall service quality than a model that concentrates on merely process quality; as it provides a more detailed description of “what” the customer needs, and “how” the organisation should deliver the services.

The finding of this study confirmed the marketing theory that customer satisfaction is the main driver of customer loyalty. On the other hand, this study is one of the early empirical studies to examine whether there is a significant impact of customer satisfaction on hotel corporate image, specifically in the Malaysian hotel industry. In terms of service marketing theory, the finding of this study confirmed that customer satisfaction leads to a higher perception of corporate image. Another noteworthy finding was that corporate image served as a partial mediator in the relationship between customer satisfaction and customer loyalty. Hence, the finding from this study contributes significantly to the service marketing theory by inferring the mediating effect of corporate image in the relationship between customer satisfaction and customer loyalty in the Malaysian hotel industry. Overall, the findings of this study reinforced the understanding of the strategic marketing theory from the perspective of a developing country in the South East Asian region. By providing evidence from research on the interdependence of service quality, customer satisfaction, corporate image, customer satisfaction and customer loyalty vis-á- vis the hotel industry in Malaysia, and comparing it with previous research conducted in other countries, the similarities and differences of the findings in this study further highlighted the increasing importance of strategic marketing literature from an international perspective.

Customer satisfaction has become very important in present times because of the increasing competition and decreasing profit margins in the hotel industry. Hotel operators should therefore ensure that services offered to guests must impress as well as meet, if not exceed expectations. In view of that, hotel operators need to hire personnel that have proper skills in hospitality, customer care services, accounting, catering and management, among other relevant skills aimed at ensuring and enhancing customer satisfaction. It is clear that increasing or maintaining customer satisfaction is being seen as a critical strategy to move ahead of the competition and to reap the benefits in terms of the life time value of the customer. In the hotel industry, to cultivate customer loyalty as well as stay ahead of their competitors, hotel operators must be able to obtain higher levels of customer satisfaction for the services supplied.

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The competitive nature in the hotel industry has stirred hotel operators to strive harder in improving their respective service standards to exceed the hotel guests’ expectations, this is because high customer satisfaction will translate into a more favourable perception of hotel corporate image. Besides, the findings indicated that perception of corporate image played a strategic role in supporting customer loyalty in the hotel industry. The service marketing implication related to these issues are that the hotel operators should have a long term strategic service marketing plans to maintain and further improve their corporate image, and to maximise their long term business growth by building up a strong and loyal client base. The study demonstrated a partial mediation effect of corporate image in the relationship between customer satisfaction and customer loyalty in the Malaysian hotel industry. The understanding of such relationships is crucial for hotel operators in Malaysia as well as worldwide. Hotel operators must direct their efforts to understand how one component of the hotel service marketing and attribute impacts another. Such information will help to strategise ways to use customer satisfaction and corporate image to build up customer loyalty.

Though this study revealed several noteworthy findings, there were certain limitations. The implication of this study should therefore be considered in the light of these limitations. The main focus of this study was on process quality and outcome quality impact customer satisfaction. However, it did not examine other variables such as customer value and employee performance which could influence customer satisfaction in the hotel industry. By excluding such variables, this study might not have captured the complete domain of hotel customer satisfaction. Future studies should include other variables that may impact customer satisfaction in the hotel industry. This is especially important as the formative measurement model emphasises the complete domain of the variables. Furthermore, the measurement of customer loyalty is based on service quality, customer satisfaction and corporate image. So the findings and recommendations were exclusively based on these variables as discussed. However, there might be several other factors that influence customer loyalty in the hotel industry such as switching barriers, demographic characteristics, cultural differences, duration of stay and hotel star ratings. Switching barriers prevent customers from switching their loyalty from one firm to another. Such barriers have been crucial in internalizing retention of customers as they prevent consumers from switching loyalty. These factors could be explored in the future studies, as the findings would yield valuable information for hotel operators to help them develop effective marketing strategies.

The respondents in the survey for this study were guests who had stayed at least a night in a Malaysian hotel during the survey period. The sample here therefore might not be representative of other guests who patronise hotels in Malaysia during other periods of the year. Thus, the results might only reflect the group from which the sample was taken. A more ideal approach in the future studies would include diversified samples to ensure applicability of the research findings to other different settings. Another limitation of the study was the use of a close-ended questionnaire to collect data for the investigation of the relationships of service quality, corporate image, customer satisfaction and customer loyalty with one another. Responding to close-ended questions might have restricted the feedback collected. The respondents did not have a chance to express freely their opinions on the subjects under investigation. Hence, if open-ended questions were used in the future studies, researchers might be able to collect more feedback to reflect the feelings of hotel guests, and subsequently might have more accurate findings for hotel operators to help them develop effective marketing strategies.

To conclude, this study had contributed several important findings to the hotel industry in Malaysia, especially with regard to consumer behaviour and service marketing. This study emphasised the importance of evaluating service quality perception and customer satisfaction so that more effective strategies could be adopted to strengthen hotel corporate image and to create customer loyalty in the Malaysian hotel industry. In line with the increasing sophistication of customers’ demands, coupled with intense market competition, hotel operators need to rise to the challenge of increasing and strengthening a loyal customer base.

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Appendix 1 Sample Characteristics (n = 478)

Demographic Variables

Frequency

Valid Percentage (%)

Gender:

 
 

Male

230

48.1

Female

248

51.9

Age Group:

 

Below 25

38

7.9

26

35

96

20.1

36

45

120

25.1

46

55

105

22.0

56

65

86

18.0

65

or Above

33

6.9

Nationality:

 

Malaysian

258

54.0

Non-Malaysian

220

46.0

Purpose of Visit:

 

Leisure Business Conference or Seminar Transit

213

44.6

127

26.6

28

5.9

35

7.3

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Visit Friends and Relatives Other Purposes

48

10.0

27

5.6

Marital Status

 

Single or Never Been Married Married Separated Divorced Widowed Others

191

39.9

239

50.0

19

4.0

14

2.9

10

2.1

5

1.1

Monthly Household Income

 

Less than RM3,500 RM3,500 RM5,000 RM5,001 RM6,500 RM6,501 RM8,000 More than RM8,000

48

10.0

76

15.9

133

27.8

125

26.2

96

20.1

Level of Education

 

Primary School or Below Secondary School Certificate or Diploma Bachelor’s Degree Master’s Degree Doctoral Degree Professional Qualifications Others

5

1.0

14

2.9

151

31.6

142

29.7

76

15.9

13

2.8

53

11.1

24

5.0

Employment

 

Employed for Wages Self-employed Professional Homemaker Student Retired Unemployed Others

182

38.1

96

20.1

62

13.0

19

4.0

43

9.0

33

6.9

25

5.2

18

3.7

Hotel Star Rating

 

One Star & Below Two Stars Three Stars Four Stars Five Stars & Above

54

11.3

96

20.1

123

25.7

108

22.6

97

20.3

Length of Stay

 

1

- 3 day

183

38.3

4

- 6 days

223

46.7

7

9 days

49

10.2

10 days or Above

23

4.8

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242