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Jay Kandampully: Associate Professor, Faculty of Business, Economics and Law, University of Queensland, Australia
Dwi Suhartanto: Lecturer, Administrasi Niaga, Politeknik Negeri Bandung Jl. Gegerkalong Hilir, ciwaruga, Bandung, Indonesia
Introduction
The hotel industry today has been recognised as a global industry, with producers and consumers spread around the world. The use of hotel facilities such as: room, restaurant, bar, nightclub or health club; is no longer considered a luxury. For many people these services have become an integral component of lifestyle. Moreover, in the last two decades, demand for and supply of hospitality services beyond that of the traditional services intended for travellers have escalated the growth of the hospitality industry globally, leading to intense competition in the market-place. One of the greatest challenges facing hotel organizations today is the ever-growing volume and pace of competition. Competition has had major implications for the customer, providing:
- increased choice;
- greater value for money; and
- augmented levels of service.
Additionally, there is little to distinguish one hotel's products and services from another. Thus it has become imperative for hotel organizations to gain a competitive advantage.
There are two strategies most commonly used by hotel managers in order to gain a competitive advantage; they are:
1 low-cost leadership through price discounting, and
2 developing customer loyalty by providing unique benefits to customers.
Hotels that attempt to improve their market share by discounting price, however, run the serious risk of having a negative impact on the hotel's medium- and long-term profitability. As a result, it is quality of service rather than price that has become the key to a hotel's ability to differentiate itself from its competitors and to gain customer loyalty.
Numerous examples illustrate that it is important that the hotel industry develop customer loyalty, as opposed to relying solely on pricing strategies. Researchers have shown that a 5 per cent increase in customer loyalty can produce a profit increase of 25 per cent to 85 per cent (Reichheld and Sasser, 1990).
Hence a dedicated focus on customer loyalty is likely to become a necessary prerequisite for the future survival of hotel organizations.
Hospitality managers believe that firms can improve their profits by satisfying customers. Studies show, however, that satisfying customers alone is not enough, since there...