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To cite this Article Hua, Wen , Chan, Andrew and Mao, Zhenxing(2009) 'Critical Success Factors and Customer
Expectation in Budget Hotel Segment — A Case Study of China', Journal of Quality Assurance in Hospitality & Tourism,
10: 1, 59 — 74
To link to this Article: DOI: 10.1080/15280080802713702
URL: http://dx.doi.org/10.1080/15280080802713702
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Journal of Quality Assurance In Hospitality & Tourism, 10:59–74, 2009
Copyright # Taylor & Francis Group, LLC
ISSN: 1528-008X print / 1528-0098 online
DOI: 10.1080/15280080802713702
RESEARCH NOTE
WEN HUA
Wenwer.com, Irvine, CA
ANDREW CHAN
School of Hotel & Tourism Management, Hong Kong Polytechnic University, Hong Kong
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ZHENXING MAO
Collins School of Hospitality Management, California State Polytechnic University, Pomona,
CA
59
60 W. Hua et al.
INTRODUCTION
The travel and hospitality industry in China has witnessed a robust growth in
recent years. Inbound travellers, including those for the purpose of
sightseeing, business, and meeting friends and relatives in 2005, reached
120.3 million person/times with an estimated $29.3 billion in revenue,
representing an increase of 10% and 14% over the previous year,
respectively, according to the Yearbook of China Tourism Statistics in 2006.
Budget hotels recently emerged as a popular trend in China’s lodging
market due to its high return on investment (ROI) and demand in China.
According to Mr. Aijun Zhan, a financial analyst for Sina.com, successful
investment in a budget hotel in China may yield more than 20% of profit
margin. The 2008 Olympic Games in Beijing and the upcoming 2010 World
Exposition in Shanghai have stimulated the unprecedented development of
budget hotels in China. For example, Beijing needed to renovate more than
200 no-star or low-class hotels before the end of 2007 to accommodate
more than half million domestic tourists during the 2008 Olympics,
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REVIEW OF LITERATURE
Coping with the rapid growth of China’s economy and business activities,
the budget hotel sector in China, at its early stage, was expanding significantly,
leading to birth and growth of many domestic budget hotel brands, such as
Home Inn, Jing Jiang Inn, etc. Those brands were not only quickly accepted
and recognized by Chinese guests, but also proved to be extremely profitable.
There were approximately 100 budget hotel brands with more than 1000
outlets and over 100,000 guest rooms in operation at the end of 2006 according
to 2007 Annual Report on the Survey of Budget Hotels in China, published by
China Hotel Associate recently. Jin Jiang Inn, Home Inn, and Motel were top 3
brands. Currently, budget hotels account for approximately 10% of the all star-
graded hotels and 1% of all shares in the lodging market in China in light of the
survey by China Hotel Association and Department of Commerce.
budget hotels (see Table 1), which were divided into seven categories: core
product, consistency, customer service, hygiene and quality, strategic control,
pricing, and location. Ultimately, the author created a final model in great
parsimony with two dimensions of accessibility and performance.
Customer Expectation
Numerous studies have been conducted to identify and understand the
needs and expectations of customers to choose the lodging establishment
TABLE 1 Critical Success Factor in United Kingdom Budget Hotels
(Knutson, Stevens, Wullaert, Patton, & Yokoyama, 1991; Wilensky & Buttle,
1988). Their findings suggested that most people may consider the following
attributes when making choice regarding accommodation: location, price,
security, service quality, and the branding reputation (Knutson et al., 1991;
Wilensky & Buttle, 1988). Knutson, Stevens, Patton, and Thompson (1992)
surveyed a group of frequent travelers in three hotel segments: economy,
mid-price and luxury; and found that the important considerations for initial
hotel selection and return of frequent travelers were clean and comfortable
rooms, convenient location, prompt and courteous service, safe environ-
ment and friendly and courteous employees. In another study, Knutson et al.
(1991) used LODGSERV to compare customer expectations with service
quality. Results suggested that reliability and quality assurance appeared to
be important elements anticipated by travelers across the three hotel
segments. Ananth, DeMicco, Moreo, and Howey (1992) surveyed 510
travelers, asking them to rate the importance of 57 hotel attributes in the
hotel choice decision. Price and quality were rated as the most important
attributes across all age categories, followed by security and convenience of
location. Similarly, Atkinson (1988) found that the cleanliness of accom-
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modation, safety and security, monetary value, and the courtesy and
helpfulness of staff, were identified as top attributes for travelers in hotel
choice selection. Rivers, Toh, and Alaoui (1991) examined the hotel selection
decisions of members and non-members of frequent-guest programs. Their
results showed that convenience of location and overall services received
the highest ratings. Wilensky and Buttle (1988) reported that personal
service, the physical attractiveness of the hotel, opportunities for relaxation,
standards of services, an appealing image and value for money were
significantly evaluated by travelers.
Hotel guests’ expectations tend to rise in tandem with the level of hotel
prices. Griffin, Shea, and Weaver (1996) examined how business travelers
discriminated between mid-price and luxury hotels. Their findings revealed
that business travelers staying at mid-priced hotels expected relatively low-
price family restaurants and a pre-arranged bill, whereas travelers staying at
luxury hotels expected a bellman service, a concierge service, gourmet
restaurants, a bathrobe and a hair dryer. By the same token, guests who stay
at the budget hotel may only expect minimal products and services to meet
their basic needs and wants.
RESEARCH METHODOLOGY
Both interview questions and survey instrument were developed based on
the 36 CSFs items identified in Brotherton’s (2004) study with minor
alterations. A thirty-five-item questionnaire was used in this study with a
consideration of China’s situation. Although a similar survey instrument
64 W. Hua et al.
RESULTS
Personal Interviews
Top five CSFs from the viewpoint of the industry professional, the
government authority, and the hotel investor are presented in Table 2.
These CSFs are related to five dimensions, which are discussed next.
Physical Product
All interviewees considered guest bedroom comfort level to be an important
CSF. Different from traditional full-service counterparts, budget hotels
focused on core physical products in lodging business such as the
guestroom bed. Guests in budget hotels in China have shifted their
preferences from exterior curb appeal or deluxe status to physical lodging
products, indicating they are placing personal satisfaction ahead of
traditional social image.
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Service Quality
Both the industry professional and government authority ranked guest safety
and security and speed of guest service top priorities, implying the
importance of service quality to them. Guest security is a fundamental
premise to the lodging business as it is related to safety of life and security of
property. Speed of guest service represents the importance of customer
experience and is a special feature of budget hotels. In addition, the industry
professional listed hygiene and cleanliness, a factor which was considered as
a competitive edge of new budget hotels over some traditional middle- or
low-class hotels. The hotel investor, on the other hand, omitted service
quality factor, as he may place more emphasis on macro or operational
issues such as return on investment (ROI) and sustainable revenue growth.
Price
Monetary value and hotel theme were most valued by the investor and
government authority. The industry professional did not explicitly list this
dimension, reflecting his view that more attention may be paid to service
quality. Nevertheless, all interviewees believed that present price of budget
hotels was reasonable for customers. This was further evidenced by high
room occupancy rate at 90% and higher on for budget hotels in China
according to the government official. As a result, guests had to reserve their
rooms a minimum of 1 week ahead of arrival to ensure the availability of
accommodation, especially during weekends and holidays.
Promotion
Strong brand differentiation was considered as a top factor by the
government authority and hotel investor. They determined the success of
budget hotels mainly from brand names. According to their perspectives,
budget hotel brands differentiated from others in various aspects. Each
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Location
The industry professional listed convenient locations as the top critical
success factor. Budget hotels in good locations may take only 18 months to
recoup the net investment in China, which is very attractive. The hotel
investor believed that central sales/reservation systems as well as geographic
coverage of hotel network were very important to budget hotels. These
virtual locations may sustain the success of budget hotels operations and
development in China.
Other Insights
The industry professional pointed out ambiguous concept of the budget
hotel in China as some hostels and guesthouse accommodations claimed
themselves as budget hotels to attract less-informed travelers. While a budget
hotel is operated on its own or as a franchisee, the fast pace of budget hotel
development may compromise the quality of the hotel brand. Therefore,
when the budget hotel was anticipated to move to inland China on a next
Research Note 67
step, both the quality and quantity of the hotel brand must be carefully
managed. The room rate, currently around RMB 200 or $26 per room, should
be lowered if budget hotels intend to launch more future businesses in
inland China.
The government authority expressed several concerns. Budget hotel
brands, unlike the traditional full service hotels, were very limited in number
and lacked an adequate reservation network. In addition, the budget hotel,
unlike the tourist hotel in China, was monitored by industry and business
bureau rather than tourism and hotel bureau. Unified management under
one tourism and hotel bureau would be more beneficial to business
development.
The hotel investor contributed the rapid growth of budget hotels to the
booming economy in China. Many traditional two or three star hotels were
operating under poor conditions of both service quality management and
physical facility maintenance, leading to higher operation costs and lower
performance. Many budget hotel brands, whether domestic or foreign,
responded well to this demand. They attained competitive advantages over
traditional middle or low class hotels in the areas of standardized services
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Respondents Profile
Table 3 summarizes the demographic profile of respondents. Men and
women were evenly represented among the 142 respondents. Over two-
thirds of respondents were between a 25 and 34 years of age, and 16.9%
were 19 to 24 years old. Those over 35 years of age accounted for the
The mean scores of 35 CSFs were computed, resulting in the top five CSFs:
guest security (4.45), provision of all kinds of amenities (4.41), responsive-
ness to customer demands (4.39), operational flexibility/responsiveness
(4.38), and speed of guest service (4.32). All five CSFs were related to service
quality, indicating that service quality was still the core customer
expectations in China’s budget hotel market. Guest security is no doubt
extremely essential to affect the guest choice of hotels. Thus, good security
systems such as electronic locks, closed-circuit TV (CCTV), fire extinguish-
ers, and the floor plan to direct fire escaping exits were considered essential
in budget hotels. Amenities were also important as budget hotels were
anticipated to provide adequate amenities to guests in China. This
phenomenon was quite different from the expectations of budget hotel
guests in the U.K. or U.S. The gap may be due to differing cultural and travel
habits between Chinese and western visitors. Responsiveness to customer
demands and operational flexibility/responsiveness both emphasized the
attitude of hotel staff providing personal service, implying that guests in
China’s budget hotels still preferred respectful face-to-face services with
human contact involved. Speed of service distinguished budget hotels from
traditional full service hotels when defining quality service.
eigenvalue of 1.00 and the factor loading of .40 were used as criteria to
include a factor and individual items. Results of factor analysis are shown in
Table 4. Five dimensions from 35 CSFs were identified. Factor scores were
computed by averaging the ratings of the items in each factor. Cronbach’s
alpha coefficients were above 0.9, indicating high internal reliability.
Service quality (Factor 1) accounted for 31.36% of the variance. This
factor was loaded with questions from 11 to 22. Physical product (Factor 2)
included ten questions from 1 to 10 and explained 18.84% of variance.
Promotion (Factor 3) was loaded from questions 26 to 30, explaining 12.38%
of variance. Factor 4 was named as location, including 5 questions from 31 to
35 and accounting for 8.89% of variance. The fifth factor, price, consisted of 3
questions from 23 to 25 with ability to explain 6.55% of variance. Service
quality was the most important dimension (M 5 4.30), followed by location
(M 5 4.10), promotion (M 5 3.77), price (M 5 3.75), and physical product
(M 5 3.72). While location and service quality were still considered very
important, the remaining three factors including promotion, price, and
physical product were considered to be less essential to budget hotel guests.
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Demographic Differences
After five dimensions of CSFs were identified, analysis of variance (ANOVA)
was employed to test whether differences among demographics may affect
customer expectation of CSFs in five dimensions. The results from these
analyses showed no significant differences across gender, age, education, or
income at the level of p , .05. Insignificance may be a result of the fact that
budget hotels in China are still at the early stage in the product life cycle, and
customers’ preferences are similar. Additionally, the sample had a fairly
homogenous background as most customers were young people aged 24 to
35 years with annual incomes of RMB 30,000 to 50,001 ($4,000 to $6,600).
CONCLUSION
This study examined the CSFs in China’s budget hotel operations and
development from the perspectives of various stakeholders, namely, the
customer, the industry professional, the government authority, and the hotel
investor. Interviews were conducted to gain a deeper understanding of the
industry professional, government authority and hotel investor.
Questionnaires were utilized used to determine customer expectations.
Three conclusions can be drawn from the study. First, all top five CSFs
identified from customer expectations were service quality related items,
which may reflect the importance of service quality to guests in China’s
budget hotels. Although the main theme of budget hotels is monetary value
for accommodation, hotel guests still considered service quality as the
70 W. Hua et al.
primary factor when they chose where to stay. Price was no longer a decisive
factor among guests who would choose and could afford to stay at the
budget hotel. This study also supported the notion that Chinese hotel guests
prefer quality service, attention, and respect. Enhancement of service quality
may result in more repeat and loyal customers.
An interesting finding of CSFs recognition pattern is that the customer
considered customer service as the most important constituent, and the
industry professional was also very customer-oriented, with a focus on
speed of service and hygiene and cleanliness. By contrast, the hotel investor
focused on organization, with no strong desire for customer service. The
government authority stood somewhere between the industry professional
and the hotel investor with respect to customer service. A customer service
orientation continuum among different stakeholders is illustrated in Figure 1.
Five dimensions from 35 CSFs were derived from this study. They were
service quality, location, promotion, price and physical products, ranked in a
descending order of importance from the customer expectation. Both
physical location (city and district in the city) and virtual location (hotel
reservation network) were rated critical by the customer aside from service
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potential guests with two major criteria: having college experiences and
annual income over RMB 30,000 ($4,000). Therefore, ways to effectively
reach this group should currently be the primary focus of marketing
departments of budget hotels in China.
MANAGERIAL IMPLICATIONS
There are several insights and implications which stem from the findings of
this study. Budget hotels are intended to provide comfortable, convenient,
and clean accommodations for guests, which is a high monetary value for its
target segment. Such economy means not only affordable pricing, but more
importantly, service quality of the property. Therefore, economy hotel
practitioners need to improve and maintain service quality. Franchise hotel
operation to standardize service quality and proper personnel training via
total quality management are suggested to maintain and improve service
quality. Until then, budget hotels in China will be in good shape both in
quantity and quality.
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