Service quality gap analysis toward customer loyalty: practical guidelines for casino hotels

Hospitality Management 24 (2005) 465 472 www.elsevier.com/locate/ijhosman Research note Service quality gap analysis toward customer loyalty: practical guidelines for casino hotels Shiang-Lih Chen McCain a,, SooCheong (Shawn) Jang b, Clark Hu c a School of Hospitality Management, Widener University, One University Place, Chester, PA 19013, USA b Department of Hotel, Restaurant, Institution Management and Dietetics, Kansas State University, Manhattan, KS, USA c School of Tourism and Hospitality Management, Temple University, Philadelphia, PA, USA Abstract Based on 192 completed surveys from casino players, the authors conducted a gap analysis between loyal customers and potential switchers in evaluating casinos service quality attributes. It was found that the top three gaps were all related to the functional quality (interactions between customers, and casino employees), not technical quality (e.g., the casino s variety of games, better odds, or preferred rules). This study offered an approach to help improve service quality toward customer loyalty. r 2005 Elsevier Ltd. All rights reserved. Keywords: Casino industry; Service quality; Customer loyalty; Hard-core loyal customers; Potential switchers 1. Objectives Marketing researchers acknowledge that service quality has both direct and indirect effects on customer loyalty (Olsen, 2002). However, although, the service Corresponding author. Tel.: +1 610 499 1110. E-mail addresses: scm0302@mail.widener.edu (S.-L. Chen McCain), jangs@ksu.edu (S. (Shawn) Jang), clark.hu@temple.edu (C. Hu). 0278-4319/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.ijhm.2004.09.005

466 S.-L. Chen McCain et al. / Hospitality Management 24 (2005) 465 472 quality-customer loyalty linkage has been studied extensively (McMullan and Gilmore, 2003; Olsen, 2002), very little effort has been observed in providing practitioners with the practical guidelines of service quality to enhance customer loyalty in the casino industry. In this regard, it is crucial to discover service quality attributes that can build loyal relationships with customers of casino hotels. Using a gap analysis, this study identified the specific service attributes that are significantly important for improving customer loyalty. 2. Study background and theory Previous studies on customer loyalty have indicated that there is a positive relationship between loyalty and profitability. For example, customer loyalty contributes to the bottom line and a relatively small percentage of loyal customers can result in a relatively large increase in profitability (Gould, 1995; Reichheld, 1996). To business operators, these studies echo the notion that distinct benefits can be derived from loyal customers. Therefore, howto develop, maintain, and enhance customer loyalty has been the primary interests of marketers (Dick and Basu, 1994; McIntyre and Peck, 1998; Nowak and Washburn, 1998). An effort to build loyal relationships with customers should be made particularly in today s casino industry, where competition has considerably increased (Thompson, 1998). As the gaming industry matures, the competition for players money and attention has grown profoundly (Ammenhauser, 1999). Gaming destinations such as Las Vegas and Atlantic City have begun to realize that it is no longer efficient to spend enormous advertising budgets to promote casinos and to lure in first-visit customers. As cited by Binkley (2000), Loveman (CEO of Harrah Casino Corporation) reported that the Las Vegas casino industry has neglected creating repeat customers, and instead, has spent millions of dollars in building mega-resorts to drawnewcustomers. 2.1. Customer loyalty Loyalty has been defined as repeat purchase behavior led by favorable attitudes or as a consistent purchase behavior resulting from the psychological decision-making and evaluative process (Jacoby and Kyner, 1973). According to Jacoby and Chestnut (1978), customer loyalty is generated through a belief (service quality), affect (satisfaction), and cognitive (customer loyalty) process. Oliver (1999) further suggested that the development of consumer loyalty followthe cognitive affective conation action pattern. During this process, a consumer can become loyal at each of these four phases. The first phase is cognitive loyalty. In this stage, consumers recognize that one brand is better than other alternatives and form preferences based upon their evaluations of service quality. The second phase is affective loyalty, in which the liking of the product and a positive attitude toward the brand are developed based upon continuous experiences of product satisfaction. In the third loyalty phase, conation loyalty, a brand-specific commitment to repurchase

is generated and the intention to return is formed. Finally, the return intention is transformed into readiness to act at the action loyalty phase (Oliver, 1999, p. 36). In the loyalty development process, it is vital to note the importance of the cognitive loyalty as the starting point that leads to subsequent loyalties. This study primarily addressed the cognitive loyalty by evaluating service quality attributes of casino hotel operation. 2.2. Service quality ARTICLE IN PRESS S.-L. Chen McCain et al. / Hospitality Management 24 (2005) 465 472 467 Quality often can be viewed as product features or freedom from deficiencies. Kotler et al. (2003) consider that quality consists of two parts: technical and functional quality. Technical quality refers to tangible aspects of the service. It describes what is delivered to the customers or what core product features customers receive in the service encounter (Brady and Cronin, 2001; Kotler et al., 2003; Murgulets et al., 2002). A high-quality casino must possess the required core product features, such as a good location, a variety of games, and good restaurants. However, the preferable product features expected by slot players may be different from those sought by table-game players. For example, the technical quality that must be present for slot players might be the variety of machines, higher pay-out percentages, and a friendly points system. On the other hand, table-game players may search for better odds, variety of table games, and preferable house rules to augment their pleasure in the gambling. Hence, a casino should deliver the particular core product features (technical quality) to customers in each different segment. Functional quality refers to the intangible aspects of the service. It describes how the service is delivered. More specifically, it means the interaction between employees and customers during the service encounters (Brady and Cronin, 2001; Kotler et al., 2003; Murgulets et al., 2002). According to Brady and Cronin s qualitative study (2001), there are three aspects of functional quality perceived by customers: attitude, expertise and behavior. First, in terms of the attitudinal aspect, casino managers should educate all employees, whether they work in table games, slots, or cage departments, to be friendly and courteous to the players since each interaction with any casino employees is part of the players entire casino gaming experience. Second, in the expertise aspect, casino workers level of knowledge about their jobs plays an important role in the customer s casino gaming experience. Third, regarding the behavior aspect, it is essential to make players feel that they receive special (customized) treatments because the more customized services the customers receive from the service providers, the closer relationships they will have with the service providers (Parasuraman et al., 1991). 3. Methodology Before data collection, a survey instrument on service quality attributes and customer loyalty was developed based on an extensive literature review and in-depth interviews with casino customers. Casino players were contacted at four interview

468 S.-L. Chen McCain et al. / Hospitality Management 24 (2005) 465 472 sites on the Las Vegas strip through an on-site self-administrated survey instrument. A filtering question at the beginning of the survey questionnaire ensured that the sample consisted of self-perceived loyal customers who visited their favorite casinos whenever they visit Las Vegas. Of 704 questionnaires that were distributed to casino players, 192 valid responses were collected (i.e., response rate=27.27%). The respondents answered a series of questions about service attributes and customer loyalty by marking their answers on a 7-point scale (1=strongly disagree, and 7=strongly agree). 4. Results Even though the respondents in the sample answered that they were self-perceived loyal customers in the filtering question, their levels of loyalty might be different. They could be hard-core loyal customers and potential switchers (Yim and Kannan, 1999). Thus, this study made a comparison between two different groups of loyal customers: hard-core loyal customers who answered that they would definitely come back to their favorite casinos when they come back to Las Vegas (rating: 7); and potential switchers who indicated that they might or might not come back to their favorite casinos (ratings: 2 6). The service quality ratings by the hard-core loyal customers could be good references for managers to consider in enhancing their service quality up to a true loyalty level. The results of study indicated that there were statistically significant differences in ten out of 16 service quality features (Table 1). Among the ten features, the top four, which had the largest gaps between hard-core loyal customers and potential switchers, were related to functional quality that refer to interactions between customers and casino employees. For example, the result of the attribute, When an employee (host person) at this casino says s/he will do something, I am sure it will get done, showed the largest mean difference of 1.03 between loyal customers and potential switchers (Mean=5.69 vs. 4.66). The next largest mean difference was found in the attribute, If I make request at this casino, no matter howtrivial that request is, it gets taken care of for which a gap of.98 (Mean=5.58 vs. 4.60) was found. Another gap of.98 existed in the third attribute, I believe my play (slot player s card or table game playing time and average bet) is evaluated accurately (Mean=5.70 vs. 4.72). The fourth largest gap is the management of this casino knows the casino business (Mean=5.76 vs. 5.05). The other six attributes found statistically significant were all related to technical service quality (Table 1). 5. Implications for practitioners The results of the gap analysis suggested that potential switchers did not have confidence in the employees. Therefore, to obtain customer loyalty, the foremost thing that casino managers should do is to train their employees to fully satisfy the customers needs and wants, and thereby to earn customers trust. In addition,

Table 1 Differences in service quality attributes between loyal customers and potential switchers Type Service quality attributes Hard-core loyal customers FQ FQ FQ When an employee (host person) at this casino says s/he will do something, I am sure it will get done. If I make a request at this casino, no matter howtrivial that request is, it gets taken care of. I believe my play (slot player s card or table game playing time & average bet) is evaluated accurately. Potential switchers Gap p-value 5.69 4.66 1.03.001 5.58 4.60.98.001 5.70 4.72.98.001 FQ This casino is in a good location. 6.19 5.30.89.001 TQ This casino has a variety of games. 6.18 5.35.83.001 TQ This casino has lots of ancillary facilities (show, theater, shopping mall). 5.46 4.66.80.004 TQ This casino has good food specials and buffets. 5.31 4.57.74.005 TQ I can spend less and play longer at this casino. 4.63 3.92.71.012 TQ The management of this casino knows the casino business. 5.76 5.05.71.005 TQ This casino has better odds or my preferred rules. 5.02 4.37.65.013 TQ TQ When I make change or cash in chips at this casino, I don t need to count it carefully. It is acceptable for this casino to change the dealer when the dealer loses hands continuously. 5.21 4.82.39.115 4.46 4.07.39.207 TQ I believe this casino runs games honestly. 5.35 5.04.31.176 TQ It is acceptable for this casino to change the promotional slot pay-out percentage 4.11 3.92.19.207 after its promotion time. FQ The casino employees recognize me when I gamble there. 3.11 2.96.15.579 FQ This casino s employees keep me informed of its promotions all the time. 3.77 3.72.05.696 Note: (1) FQ=functional quality; TQ=technical quality. (2) Significance level: o.01; o.05. S.-L. Chen McCain et al. / Hospitality Management 24 (2005) 465 472 469 ARTICLE IN PRESS

470 S.-L. Chen McCain et al. / Hospitality Management 24 (2005) 465 472 according to Parasuraman et al. (1988), employees knowledge and courtesy would earn customers trust and confidence. In this sense, casino managers need to train employees to be knowledgeable about their jobs and to possess the techniques and skills to successfully perform their jobs. The customers trust can also be enhanced by effective employees interactions with customers. To effectively interact with customers, employees should have a professional appearance and behave in a professional manner; keep customers apprised of any relevant information; assure customers that problems will be taken care of soon; be considerate of customers property; and have customers best interests at heart (Parasuraman et al., 1985, 1988). Employees should also respond to customers requests promptly, no matter howtrivial the requests are. Furthermore, employees should always honor their words to customers. Once employees say that they will do something for the customers, they must keep their words (Bowen and Shoemaker, 1998; Sharma and Patterson, 1999). By doing so, casino hotels ensure functional service quality and thereby gain customers trust and loyalty. One interesting thing is that many of the technical attributes need large monetary investment to improve service quality. On the other hand, functional service quality could be enhanced by much less investment, such as employee training and education. Most casinos realize that the professionalism and competency of the employees, as well as the interaction between employees and customers, plays a crucial role in gaining customer loyalty. Harrah s Entertainment, Inc., a nationally operated casino company, requires its front and back of house employees to take the FOCUS training before they start working. This training program familiarizes the employees with the policies and procedures of the organization and also the appropriate way to interact with customers. Each letter in FOCUS has meaning F: fast and flawless, which means that the employees should solve customers problems as quickly as possible and the situation should be solved to perfection. O stands for offers and rewards, which means that employees should also inform customers what rewards they deserve. C stands for chance to win, which signifies that the casino needs to let customers feel lucky so that they will enjoy their time in the property. U stands for you knowme, which indicates that customers like to feel special and employees should make each customer feel as if they are unique individuals. S stands for spotless, which means that employees should take ownership of the property and make sure all areas are clean at all times. After employees have worked for a few weeks, a test of FOCUS skills is conducted and all employees are required to score 85% or beyond on the test in order to continue their employment. To effectively upgrade employees service quality, casino managers should pay attention to the reward and recognition of employee accomplishment in addition to education. Employee incentives and reward program must be put in place. For instance, some casinos reward their employees with money, gift certificates, or prizes when the employees demonstrate extraordinary service or employees names are mentioned in the comments cards for going extra miles to serve customers. Moreover, casinos may have more systematic rewarding system, tying employees wages to the performance of quality service.

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