The impact of customer satisfaction, customer experience and customer loyalty on brand power: Empirical evidence from hotel industry

Nobar, Hossein Bodaghi Khajeh; Rostamzadeh, Reza Article The impact of customer satisfaction, customer experience and customer loyalty on brand power: Empirical evidence from hotel industry Journal of Business Economics and Management (JBEM) Provided in Cooperation with: Vilnius Gediminas Technical University (VILNIUS TECH) Suggested Citation: Nobar, Hossein Bodaghi Khajeh; Rostamzadeh, Reza (2018) : The impact of customer satisfaction, customer experience and customer loyalty on brand power: Empirical evidence from hotel industry, Journal of Business Economics and Management (JBEM), ISSN 2029-4433, Vilnius Gediminas Technical University, Vilnius, Vol. 19, Iss. 2, pp. 417-430, https://doi.org/10.3846/jbem.2018.5678 This Version is available at: https://hdl.handle.net/10419/317294 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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Published by VGTU Press *Corresponding author. E-mail: [email protected] This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons. org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Journal of Business Economics and Management ISSN 1611-1699 / eISSN 2029-4433 2018 Volume 19 Issue 2: 417–430 https://doi.org/10.3846/jbem.2018.5678 THE IMPACT OF CUSTOMER SATISFACTION, CUSTOMER EXPERIENCE AND CUSTOMER LOYALTY ON BRAND POWER: EMPIRICAL EVIDENCE FROM HOTEL INDUSTRY Hossein Bodaghi Khajeh NOBAR1, Reza ROSTAMZADEH2 1Department of Management, Tabriz Branch, Islamic Azad University, Tabriz, Iran 2Department of Management, Urmia Branch, Islamic Azad University, Urmia, Iran Received 29 June 2017; accepted 18 June 2018 Abstract. This research aims to investigate the impact of customer satisfaction, experience, and loyalty on brand power in the Hotel industry. This study used a descriptive-survey research design based on the correlation method. The selected populations were Pars Hotels’ customers. Sample size was 384, based on Krejcie and Morgan’s sampling table. The structural equation modeling was used to evaluate the causal simulation and to examine the reliability and validity of the measuring model. The research results showed that customer expectation has the most impact on customer satisfaction with path coefficient of 0.74. On the other hand, customer loyalty, with path coefficient of 0.65, is known as an influential factor. This study helps to understand that customer satisfaction and customer expectations are positive drivers of customer loyalty. Customer loyalty also is a strong predictor of brand power in hoteling and tourism industry. By strengthening that part, which you have better resources, you can have a better supply and thus, there would be more opportunities in establishing reputation and increasing visibility. Keywords: Brand power, customer satisfaction, customer experience, customer loyalty, hotel industry, Smart-PLS. JEL Classification: M30, M31, M37, M39, C83. Introduction From consumer’s point of view, key advantages of branding growth in hoteling industry include perceived risks, searching costs reduction, and facilitated purchase decision process. From brand owners’ view point, main advantages include gaining more market share against competitors, and the ability to maintain customer through building loyalty. These items can reduce marketing costs (Javalgi, Martin, & Young, 2006). Tourism industry covers more than 11% of gross domestic product (GDP) of the world. Also, about 200 million people work in the jobs related to tourism industry, and almost 800 million trips in the world occur annually. 418 H. B. K. Nobar, R. Rostamzadeh. The impact of customer satisfaction, customer experience and... It is expected to have these figures doubled up to the year 2020. Regarding the mentioned information, if tourism industry is not the biggest industry in the world, but it is one of the biggest industries (tourism analysis website). Therefore, hoteling is considered as one of tourism subsets, and it gains a significant share of turnover and revenue of this industry. Hotels with a powerful brand can gain most part of the share. Branding is one of most important dominants in the world hoteling industry. In the United States, 70% of brands have equity. This is 40% for brands in Canada and 25% in Europe. Various researches showed that real value does not exist within the product/service, rather it exists in real and potential customers’ mind. The need to influence the customers’ minds is also evident in hoteling industry. In hoteling and tourism industries, in which seasonality phenomenon is one of major problems to deal with, having a powerful brand and brand loyalty is very crucial. Hoteling industry has long been as a revenue resource for different countries. But, unfortunately, it hasn’t grown properly in Iran in recent years, even it has faced with depression. One of the important factors which has led to inappropriate growth of hoteling and tourism industry is a brand that is not familiar, known, and persistent in people’s mind. Pars Hotels Investment Company has faced with the problem of finding an appropriate position in consumers’ mind, and company’s officials believe that their brand is not known for people and individuals don’t value Pars Hotels’ brand. Also, this company is faced with lack of customer loyalty and customers often don’t return to the hotel. By understanding this issue which can be caused by weakness of the brand and consequently causing dissatisfaction and disloyalty to the brand, company’s officials are seeking for appropriate solutions. Thus, regarding the increased importance of brand in Pars Hotel, which can cause customer satisfaction, customers’ loyalty, more profitability and finally increased market share and increased return on investment. This study aimed to investigate the impact of customer satisfaction, expectation and loyalty on brand power in hoteling and tourism industry using structural equation modeling (SEM). It also seeks the answer for the following questions: 1. Based on what dimensions brand power is measured? 2. Based on what factors brand power is measured in hoteling industry? The rest of the paper is structured as follows: in section 1, literature of the study reviewed. In section 2 hypothesis developing process and conceptual model of the research presented. Application of the research method validated in the hoteling industry and results explained thoroughly in section 3. Research discussion and managerial implication outlined in section4. Finally, conclusion section clarifies the research findings. 1. Theoretical background 1.1. Brand power Creating and building a powerful brand is an investment that its goal is creating intangible assets and consequently, ensuring the success of the company in the future. Investing on powerful brand not only provides faster access, but it also provides the company with long term development and growth on a more profitable way (Kottler & Pfoertsch, 2006). Therefore, one of the needs of senior management of each organization is creating powerful Journal of Business Economics and Management, 2018, 19(2): 417–430 419 brands which beside operation to promises and commitments, he or she improves his or her power and abilities over time. Powerful brands are able to improve business performance. What makes a brand powerful? The investigations established by Ogilvy showed that world’s powerful brands have few simple attributes. Understanding and getting to know these attributes are important lessons for business officials. Especially, deep analysis of 4400 brand showed that four factors influence power of brands as follow: 1) Sense of belonging and closeness: this brand name is belonged to me. 2) Challenging: a brand name which challenges common and traditional behaviors and rules, and changes the society. 3) Fame: the most famous brand name in a product category. 4) Price: a brand name which offers a good value to the consumer due to the consumer payments. Through creating a logical attraction for customers, a powerful brand can define multiple touch points among itself and customers. The combination of these two concepts allows the brands to create a significant position for themselves (Keller, 2008). 1.2. Customer loyalty In reality, from a buyer’s point of view, numerous brand connections are seen as signs of “loyalty” (Xie & Heung, 2012). In spite of the fact that customer loyalty (CL) is basic for the survival of service organizations, it should be studied further (Leong, Hew, Lee, & Ooi, 2015). The same number of researches showed that there is a critical relationship between consumer loyalty and client satisfaction. Kumar, Dalla Pozza and Ganesh (2013) stated that the relationship between consumer loyalty and satisfaction is intensely variable relying upon a few elements as the business, client portion concentrated on the presence of various elements that act as mediators, the essence of the independent and dependent variables (Aktepe, Ersöz, & Toklu, 2014). For more illustration regarding the conduct of loyal clients, latest study has tried to move to the idea of client devotion. 1.3. Customer satisfaction Customer satisfaction (CS) is a business philosophy showing the responsibility and ability to meet customers’ needs, managing and forecasting their expectations, and highlights the importance of creating value for them (Lager, 2008). CS may be defined as an individual’s perception either discontent or pleasure by comparing the perceived performance of a product with respect to one’s expectations (Mendoza, Marius, Pérez, & Grimán, 2007). Because hotels are not able to compete effectively without meeting their customers᾽ expectations, so, customer satisfaction is the secret and the determinant of success in the hospitality industry. Therefore, if hotel managers want to improve and develop their businesses, they should clearly understand the factors that provide higher value for customers (Yilmaz, Alpkan, & Ergun, 2005). Because customer satisfaction metrics provide information for hotel managers which is necessary to understand and identify the real needs and requirements of customers, so they can have high value for improving this understanding (Kim, 2008). Hotel performance and competitiveness are significantly depended on their ability to satisfy customers efficiently and effectively. 420 H. B. K. Nobar, R. Rostamzadeh. The impact of customer satisfaction, customer experience and... 1.4. Customer experience Lemke, Clark and Wilson (2011) expressed that customer experience is defined as “client experience quality as its clear superiority or greatness, and the client᾽s subjective reaction to the strange experience and full immediate with the firm”. For the service brands, the customer experience is an important variable. In today᾽s very competitive atmosphere in service business, management of client experience is considered as an important topic (Garg, Rahman, Qureshi, & Kumar, 2012). Client experience consolidates service quality definition parallel to the goal to clarify static estimation of service quality. Client consumes the benefit/item that forms utilization experiences after service transferring (Khan, Garg, & Rahman, 2015). Contemplates contended the reasonable contrast between client encounter and benefit quality and developed new analyses for it (Klaus & Maklan, 2013). Klaus and Maklan (2013) experience measures mix feelings and sentiments in which service quality measures are less extensive than his measures. By a few definitions, one can better understand client experience. As, in Meyer and Schwager’s (2007) point of view, “clients᾽ subjective and inside reaction to any immediate or backhanded contact with the organization over various touch focuses” is as client experience. Gentile expressed that “client experience begins from an arrangement of communications between a client and an item, an organization, or piece of its association, which incites a response. This experience is entirely individual and suggests the client᾽s contribution at various levels (profound, discerning, physical, passionate, and sensorial)”. In Klaus and Maklan’s (2013) view, client experience is “the client᾽s intellectual and full of feeling evaluation of all immediate and circuitous experiences with the firm identifying with their acquiring conduct”. 2. Hypothesis development 2.1. Linking customer experience to customer satisfaction According to electronic communications and transactions (ECT), consumers typically collect and assess product information from mass media or friends and then form their own expectations, before making purchasing decisions. In other words, the expectation is pre-acceptance and thus is unrelated to customer experience levels. By contrast, the post-purchase perceived performance is influenced by first-hand experience, which always varies depending on the customer experience level. This issue is relatively insignificant for experience products, because such products are usually used only once and for a short period of time. Exploring the relationship between customer experience levels and perceived performance is more meaningful for durable products because consumers usually use these products frequently and for a longer period of time (Wang, Du, Chiu, & Li, 2018). Accordingly, the first hypothesis has been formulated as follows: H1: Customer satisfaction is positively influenced by customer experience. 2.2. Linking customer satisfaction to brand power In a study, Huang and Cai (2015) successfully showed that distributive justice results in higher recovery satisfaction than low equity brands, and brand equity balances the relationship Journal of Business Economics and Management, 2018, 19(2): 417–430 421 between satisfaction and service recover. It was said that associations of the favorable and strong quality with high strong brands help customers characterize the service failure as unstable and temporary, which results in lower dissatisfaction. Brady, Cronin and Brand (2002) similarly said that behavioral intentions and customer satisfaction, without considering the connection of equity and the brand, rely on the recovery efforts’ evaluation. By these mixed findings it is clear that there is a need to work more to evaluate the role of brand reputation in customer reactions to service failure. Therefore, our next hypothesis is: H2: Brand power is positively influenced by customer satisfaction. 2.3. Linking customer experience to brand power The power of customer experience is usually underestimate by business leaders. Brand management firm Prophet released a State of the Market study in 2011 showing that only 13 percent of executives believe the purchase experience is the most critical driver of future brand equity, whereas 36 percent said product and service quality would be the top driver. Even though marketing executives think about customer experience, but they also acknowledge that their companies don’t value it as a critical component of the brand experience and develop it as a core competency (Huang & Cai, 2015). Hence our third hypothesis will be: H3: Brand power is positively influenced by customer experience. 2.4. Linking customer satisfaction to customer loyalty Many scholars have supported the idea that customer satisfaction is a significant determinant of customer loyalty (Loureiro, 2010). Chitty, Ward and Chua (2007) postulated that satisfaction with the services provided may result in loyal customers. Kao, Huang and Wu (2008) also tested and confirmed the significant impact of customer satisfaction on customer loyalty in theme parks. Many researches showed that customer satisfaction and loyalty have meaningful and positive relation with each other and they impact the company’s performance. Therefore, the next hypothesize is as following: H4: Customer satisfaction has a positive impact on customer loyalty. 2.5. Linking customer experience to customer loyalty Kim (2008) empirically tested that experiences which are memorable, more probably impact a person᾽s future behavior and he also made a scale to measure memorable experiences and proved that it highly and positively influenced the future behavioral intentions. Yeng and Mat (2013) empirically tested the antecedents of loyalty in Malaysian retail and found that while promotion activity, store atmosphere, product quality, and service quality strongly impact the attitudinal/cognitive loyalty, affective (attitudinal) loyalty is directly influenced by retailer brand equity, loyalty programs, and satisfaction. Therefore, we can summarize that: H5: Customer loyalty is positively influenced by customer experience. 422 H. B. K. Nobar, R. Rostamzadeh. The impact of customer satisfaction, customer experience and... 2.6. Linking customer loyalty to brand power A strong brand name can help consumers to convey and distinguish the quality of a product (Aaker, 1996). Previous study stressed the positive relation between customer loyalty and brand equity. Therefore, the following hypothesis formulated as: H6: brand power is positively influenced by customer loyalty. Therefore, the proposed conceptual framework of this research is shown in Figure 1. Figure 1. Model and hypothesized relationships 3. Research method 3.1. Measurement and data collection Nature of the research is cross-correlation. Social statistics of this research is Pars Hotels’ customers. Sample size is 384 based on Krejcie and Morgan’s sampling table. Questionnaire distribution is done through cluster sampling. Hotels are chosen accidentally among Tabriz and Kerman International Hotel Pars. The customers who have repeatedly and more than 5 times used hotel services, have filled in questionnaires. In order to move closer to the probable sample, these questionnaires were distributed among individuals in different days of the week and hours of the days. In order to design questionnaire, the researcher has used indices from valid articles. They have used the five point Likert spectrum to examine main variables of the research in which 1 is totally disagree to 5 totally agree. Structural equation modelling in PLS software is used for testing the model. From 361 returned questionnaires, 31 were removed because they weren’t complete, and 330 usable surveys were left. A male response rate were 44.5% and female respondents accounted for 56%. Also 0.07% of respondents were under the age of 29, 39% were between 41 and 51, and 44% were over the age of 41. From 2014 to 2015 was the time range of this study. Sample characteristics are provided in Table 1. Table 1. Characteristics of respondents Range Number of customers Percent (a) Gender Female 145 44.5% Male 185 56% Total 330 100% Journal of Business Economics and Management, 2018, 19(2): 417–430 423 Range Number of customers Percent (b) Age 19−29 24 0.07% 30−40 80 24% 41−51 130 39% More than 51 96 29% Total 330 100% (c) Education Diploma 28 9% Associate Degree 35 11% Bachelor’s degree 159 48% Master’s Degree 84 25% PhD 24 7% Total 330 100% 3.2. Data analysis and results The model appeared in Figure 1 was analyzed utilizing Smart PLS. It estimates the parameters of the structural model and it evaluates the psychometric properties of the measurement model taking into record the moderating inactive constructs. In the first place, we run a PLS confirmatory examination. The results showed that things have much higher self-loading than cross-loading. Actuality models with good fit indices may still be considered poor based on other measures such as the factor loadings. The factor loadings for all of the other constructs examined, the loadings were greater than 0.703, suggesting that all of the items were good indicators of their respective components. Looking at the measurement models, all the relationships in the reflective measurement models have high factor loadings (see Table 2). Alpha values range from 0.72 to 0.87, and all values are greater than their commended values of 0.7, which recommends sufficient estimation reliability. At the next step, composite reliabilities were calculate to check measures utilized for the different structure. The composite reliability scores are very acceptable as shown in Table 3. Cronbach᾽s alpha and composite reliability are similar. Third, using by each of the diverse latent constructs in Table 3, we evaluated the average variance extracted (AVE). Every single latent constructs have an average variance extricated higher than 0.5 and it shows that all AVEs are more important than their relationships with different construct. Table 2. Constructs and measuring items Item cods Constructs items α AVE Factor loadings t-value Composite reliability Customer satisfaction: 0.72 0.79 0.868 0.88 TR1 I trust to the services provided by this brand because it is an Iranian brand. 0.870 7.402 End of Table 1 424 H. B. K. Nobar, R. Rostamzadeh. The impact of customer satisfaction, customer experience and... Item cods Constructs items α AVE Factor loadings t-value Composite reliability TR2 This brand is safe to accommodate 0.800 4.087 SBV1 The Management of this brand always try to create value added services for customers 0.845 26.936 SBV2 I receive special offers that suits my needs from this brand 0.823 24.374 Customer experience: 0.77 0.81 0.737 0.91 ASS1 Customer services personnel are knowledgeable 0.812 21.919 ASS2 If initially personnel were not able to answer my queries they immediately start finding answer and get back to me promptly 0.809 20.619 PE1 I am satisfied with provided services by this brand 0.754 23.721 PE2 I will expand using services offered by this particular brand 0.756 24.720 Customer loyalty: 0.78 0.83 0.703 0.92 SQ1 This brand offers services that benefits me 0.773 21.940 SQ2 Services of this particular brand always catches my attention 0.801 26.863 BR1 I believe that this company is contributing to the Society. 0.779 16.832 BR2 The services provided by this brand are well priced. 0.708 23.348 CC1 I believe that this company does not take Advantage of consumers. 0.725 21.218 CC2 Believe that this company and people who stand Behind the brand are socially responsible. 0.786 19.395 Brand power: 0.87 0.67 0.843 0.71 Affinity customers would respond positively to received service 0.815 20.720 I like this brand 0.786 20.853 it appeals more interesting 0.789 31.790 Challenge this brand is growing popular 0.781 29.379 this brand is setting trends 0.725 28.741 Fame The variety of services offered by five star Pars hotels is high among competitors 0.832 27.389 The five star Pars hotels, with well-appointed facilities, provide a memorable stay for customers. 0.868 28.782 The location of Pars El-Gölü Hotel in Tabriz is such that the guests can easily access to other historic sites. 0.870 13.206 Price The price of hotel service is commensurate with the quality of service provided during the stay. 0.800 30.179 The hotel considered a discount for guests to provide tourist services. 0.845 26.494 End of Table 2