Budget hotels was firstly born in the United States in the 1960s and introduced in United Kingdom in the mid 1980s with the opening of the first Little Chef Travel Lodge and the Ibis (Senior and Akehurst, 1991; McCaskey and Symes, 2004). Since then it has become the most developed and beneficial hospitality area to investors (Senior and Akehurst, 1991). Budget hotels normally have 50 to 80 rooms (Lincoln and Pettigrew, 1997) are called as medium-sized hotels with the popular names of Lodges, Motels, Inns or by more specific product names like Arcade (Lawson, 1995). Sometimes, the number of rooms of medium-sized hotels could be up to 120 rooms with an independent restaurant (Lawson, 1995).
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According to the latest report of Mintel (2009), in the UK market alone, the budget hotel segment is worth over 1 billion pound with no less than 90,000 economy rooms. Moreover, Mintel (2009) also estimated that about 54% of the domestic traveller has stayed in budget hotel and with over 31 million overseas tourists visiting to UK per year, making this segment is very potential for investing.
Budget hotels is wanted by people because suppliers offer a good deal letting guests can get the facilities is equivalent to two-three star hotels, and the locations are safe and always in or near city centre (Imrie and Fyall, 2001). Therefore, it is easily seen that the budget hotel segment will become the stronger and more developed segment in the hospitality industry in the future.
As the table below shows, the increase in the number of rooms between 2001 and 2009 of the four leading budget hotels in UK. There is a remarkable rise in the number of both hotels and rooms of branded budget hotels in spite of the economic recession started in 2008, such as the leading budget hotel, Premier Inn has had increased from 23,300 rooms in 2001 to 40,000 in 2009, almost double times.
Table 1:
Source: Caterersearch.com (figures up to 31 August 2009)
Additionally, with 31% of fans who are interested in staying budget hotels and up to 37% customers who can stay wherever (Mintel, 2009).
Graph 1:
Source: Mintel, 2009
However, the high percentage of people who can stay any place makes budget hotel managers need to carefully consider into their marketing strategy to answer the question of how to pull customers back or in other words, how to remain the stable number of customers and probably turn them into loyal customers.
Marketing strategy of the main UK leading budget hotels
In term of marketing, the showed warranty helps new customers make decision with less worry and enriches existing customers’ loyalty (McCaskey and Symes, 2004). It is believed that doing marketing for small-medium sized hotels is more complicated and difficult than the bigger sized hotels (Moriarty et al., 2008).
However, the stronger growth shows that the UK budget hotels are on the right track of attracting customers, especially the leading budget hotels such as: Premier Inn (the leader of budget hotel), Travelodge, Express by Holiday Inn, and Ibis. Because of the unique characteristics of budget hotels, the typical marketing plan could not be applied. Budget hotel owners lure customers by showing improved facilities, competitive prices, and promotional campaigns (Mintel, 2009; Imrie and Fyall, 2001; McCaskey and Symes, 2004).
As Mintel (2009) reported that in the mid-2009, the tourism season, Premier Inn offer £29 for two nights in conjunction with “800 top family attractions” which offered kids stay free and two for one treats.
Travelodge, in the early 2009, introduced a free iPhone application known as iBooker to make customers feel easier and more comfortable with the booking service of the hotel. Besides, the hotels gave out a business account card which contains an eight-week credit facility for repeated customers.
Ibis and Express by Holiday Inn also made some moves to attract new customers and keep existing guests. Express by Holiday Inn is the first budget hotel in UK offered free breakfasts for sleepers, called “Breakfast Express”. While Ibis advertised for their improved facilities: a new bed designed by Simmons Company and toiletries from Ecolable, known as with the slogan of “I care, Ibis cares”. Additionally, Ibis opened games to endorse its room rate sales.
All marketing campaigns have tried to impress consumers with competitive price and promotion but they still can get comfortable facilities.
Aims and objectives
It is recognised that the budget hotel segment in general and the UK budget hotel segment in particular is becoming the bigger and bigger hotel industry and getting more and more profit than any other industries.
The target markets they choose are businessman of nearby firms and/or SMEs. Besides, guests are all kinds of leisure tourists coming to UK such as youth tourists, travellers, non-organised tourists, and budget or economy tourists (Nash et al., 2006), which are mostly price-sensitive travellers with aged range from 15 to 60.
Despite the fact that the budget sector has developed remarkably so far and the amount of target market is quite huge and potential, the studies involving in service quality management, customer satisfaction, and customer repurchasing behaviour after experiencing in budget hotels are limited. Moreover, most of people think that choosing budget hotels just because of the best price they offer customers and/or are an option of budget-conscious travellers. People do not think that budget hotels could give them a good quality services. The budget hotels are believed that cheap price does not go with good service quality. So what is the reason making the UK budget hotel sector has developed like today? What is the attributes encourage customers to become budget hotel’s fans?
Reasons why the study is conducted to find out:
Realizing the key driver for the customers’ choice to budget hotels
After experiencing, what factors customers highly appreciate and feel satisfied most, price, facilities, location, or service encounters?
Most importantly, to identify the close relationship between customers’ experience and customer repeat purchasing behaviour. Making guests satisfied whether or not is enough to retain them?
Normally, these previous studies were conducted to measure and investigate the service quality and customer satisfaction depending on a comparison between customer expectation and customer experience. Customer will be satisfied only when their experience is at least similar to what they expect before. Additionally, most these studies largely focus on service quality in high-end hotel industry. There are few studies on deeply investigating on budget hotel segment. If there is, researchers mostly concentrate on the development of budget hotel sector: reasons and potential growth plan. Service quality, customer satisfaction, and post-purchase in budget hotel sector have had little attention from professional experts.
Hence, this study wants to know what customers feel satisfied after using the budget hotels through technical and functional outcomes. Besides, the study tried to investigate that what the key driver for customer when they choose to stay in budget hotel: cheap price or facilities or other factors? In addition, when they have a good experience whether or not they will come back to stay in that hotel? That is the big question the study wants to answer and link this to the future development in the UK budget hotel segment.
The important of the study
Since budget hotel segment was introduced into UK in mid-1980s and has reached about 50,000 rooms in 2001 and up to 104,180 rooms in 2009 (Mintel, 2009; McCaskey and Symes, 2004; Frewin, 2008). The incredible increase is resulted from the rise in cost-conscious traveller when the cheap airlines were born as a formula. Consequently, they can enjoy a flight travel with low-cost why they cannot enjoy an accommodation having both conformable facilities and affordable price. Furthermore, businessman, especially in SMEs, have paid more attention to and been aware of the travelling price than before.
With over 31 million overseas tourists visiting to UK including 6,532 thousand people for business travel purpose. For this reason, the UK budget hotel segment turns out to be the potential and beneficial investment area with the huge target market.
Graph 2: Value of budget hotel market, 2002-2012
Source: Mintel, 2009/ Market re-forecast- Leisure Travel-UK
The above graph shows the remarkably increasing value of budget hotel segment in UK so it is really meaningful to investigate how to remain the existing customers and attract the new ones with the aim of making this value keep rising even higher.
Chapter 2: Literature review
Background of the budget hotel segment
Comparing to other products, budget hotels are quite new product so they don’t have a fully comprehensive ‘budget hotel’ definition. There was a simple definition of budget hotels that are often small properties with basic and limited facilities served with standard low prices (Roper and Carmouche, 1989). Only one year later, in 1984, Lee added that budget accommodation was one of the fastest- growing segments of the industry which offers tidy, basic room, and a restaurant coffee shop is in most cases located nearby. Some years later, budget hotels was said to be a lodging with limited services offering the benefit of good value for money in standardised modern accommodation: their quality is as good as three or four star hotels and rates are 25% to 30% cheaper (Gilbert and Arnold, 1989).
In general, most of the researchers’ definitions have been quite similar that budget hotels offer minimal restaurant, no costly amenities like food and beverage services, meeting-room facilities, fitness centres, or other recreational areas but accommodation standards are good. Thef important thing budget hotels say to budget-conscious travellers is that although they provide the basics: no-frill hotels, it only costs very small amount of money and consumers still enjoy their sleep. Like the budget hotel model (appendix 1) showed budget hotel owners try to cut cost effectively and reasonably as much as they can. For example, like food and beverage segment they try to use vending machines or in-house bar that mean they still satisfy customers’ demand and keep the cost low. Budget hotels usually charge on per room, not on per person and no breakfast involving in room rate.
Budget hotels are known as medium-sized hotels and normally have minimum of 50 rooms, which offer reasonable and affordable price to most kinds of travellers (Jones, 2002; Mintel, 2007). Budget hotel segment is considered as a brand new hospitality product and its growth is mainly depended on three factors: branded product notion, service reliability, and value for money (Brotherton, 2004).
This sector has many different calls but people mostly know with the names of lodges, Inns, and motels (Brotherton, 2004; Mintel, 2007). However, it’s all understood that this kind of accommodation offers limited services and economy accommodation with low prices.
Its locations also range from beside main roads and/ or high- traffic sites to city centres where gathers a lot of office buildings and tourist attraction sites (Mintel, 2007). These locations are aimed at luring guests of businessman and tourists.
That’s why the budget hotels have got a fast growth after their appearance since 1970s. For example, alone American market, with 20,00 rooms the budget hotels accounted for 30% in 1970, then got an incredible rise in 1990, after two decades, this segment had 520,000 rooms (Fiorentino, 1995). UK market started later than USA, from 1985, but since then the segment has become the most dynamic and fastest growth rate among hotel groups.
Background of the UK budget hotel segment
The UK budget hotel sector has been considered as one of the biggest success sector in the hospitality industry in UK market over the last two decades, and expected to be continue that success (Brotherton, 2004; Frewin, 2008; Mintel, 2009). Today, the economy accommodation provision has become one of the indispensable segments of the hospitality market in general and the UK hospitality market in particular (Mintel, 2007; Mintel, 2009).
In the UK, budget hotel sector was introduced in 1980s with the first opening of the Ibis at Heathrow and the first Little Chef Travel Lodge (Fiorentino, 1995; Brotherton, 2004; Mintel, 2007; Nash et al., 2006). Since then it has been the most dynamic segment with the continuous increase in the amount of operated rooms. According to Brotherton & Shaw (1996), and Brotherton et al. (2002), budget hotel sector in the UK hospitality industry was the fastest growing hotel sector with an obvious evidence of the incredible increase in room number within about 10 years. UK budget hotel sector in 1992 only had 193 hotels with 7,326 rooms, in 2000 it raised up to 745 hotels with 40,375 rooms, an over triple-time increase (Brotherton et al., 2002). Moreover, according to UK Budget Hotel Survey showed that at the end of 2001, the budget hotel sector saw 847 brands of budget hotels expanded to 51,900 rooms with the promise of increasing the number of rooms to 86,080 in 2005, and they estimated that in 2003 the sector gained over £870 million revenue (Brotherton, 2004). In fact, nowadays, this sector has gained over 1 billion per year for the UK economy (Mintel, 2009).
According to the latest report of Mintel (2009), there are four leading brand hotels: Premier Inn, Travelodge, Express by Holiday Inn, and Ibis with the number of hotels in 2009 are 577, 372, 105, and 51 respectively. Such an amazing growth in the budget hotel sector in the UK hotel industry but relative researches have been limitedly conducted so far. So far, budget hotels are thought to be a choice of people who are price-sensitive tourists or people who can stay wherever (Nash et al., 2006)
During the last decade, against a background of economic recession, budget hotels have been one of the most successful phenomena in the European hotel industry. In recent articles, they are often mentioned as a ‘boom’ or as representing one of the most significant trends in the international hospitality industry. However, many researchers said that comparing budget accommodation to other up-market segments, budget hotels are considered as only minor accommodation. Thus, few budget hotels are investigated and conducted surveys to enhance the customer satisfaction and improve its service quality.
Generally, it is not actually an insignificant hotel product, but it represents a new concept of hospitality provision which relies on specific key factors and that is increasingly affecting the industry on both sides, of provision and demand. There will have been a potential and great development for budget hotel sector in the future despite of the unstable economy.
Target groups of the UK budget hotel segment
There are two main kinds of target groups of the UK budget hotel segment which are businessman and tourists/ travellers, especially price-sensitive travellers are the main target of budget hotel sector in the UK market.
In Britain, it is estimated that about 31 millions of overseas tourists visiting to UK per year (UK Transport travel and tourism, 2009). Besides, each year there are over 100 million trips, including business, visit friends and/or relatives, and travelling, taken by the domestic tourists (The UK Tourist Statistics, 2009). In 2009 alone, it was reported that 126 million trips taken by UK residents, standing for 399 million bed nights (The UK Tourist Statistics, 2009). Hence, if these medium-sized hotels mainly target both foreign and domestic tourist travellers they can gain a lot of benefits from such the huge and potential market.
Senior and Morphew (1990) also did a research in the UK market and found out that budget hotel segment had been more and more popular with businessman. These people before only chose to stay in full-service, up-market hotels like three – four star hotels and now they have chosen to experience in budget hotels offering standard services costing lower price. This is the fact that budget hotel owners have not expected and this also showed that consumers who are both tourists and businessman are changing their habits for staying.
Looking at annual reports of the leading brands of UK budget hotels such as Premier Inn (Whitbread Group), Express by Holiday Inn (InterContinental Hotels Group), Travelodge (Dubai International Capital), and Ibis (Accor), it is easy to see the markets these leading budget hotels target to both budget travellers and businessman.
Like to be said in Mintel’s UK budget hotels report (2009), Mintel did interviews to find out customers’ attitude when choosing budget hotels and found out that there are four target groups. The group has the highest percentage (37%) is ‘wherever’ group who don’t care much about the accommodation, followed behind this is ‘fans’ group (31%) who, for some reasons, love to stay in budget hotels, and the two last groups are ‘one night only’ (19%) and ‘price is wrong’ group (13%) (Appendix 4). It showed that investment in the UK budget hotel segment has been still huge and potential with 31% of ‘fans’ group whose age is from 16 years old up to.
To businessman, there are more and more small enterprises but their network expanded far outside their location, which require their staff travel much more than before. Moreover, because of the small-sized business, so such business travel should be saved as much as they can to gain more profit for companies. To travellers, the new travelling generation is much younger, more curious, and keen on discovering so they prefer cheaper accommodation but still meet basic standards. This lodging helps them to be able to travel more places, aware of many new local things, and be close with the local life. As a result, the market of the UK budget hotel segment will be wider and more beneficial year by year.
Customer satisfaction
Customer satisfaction is said to be one of the most important factors in service delivery and plays an indispensable role in the success of hotels (Barsky, 1992; Chitty et al., 2007). Customer satisfaction directly affects on increase in market share from repeat purchase and referrals. Moreover, investing in a plan to attract new customers could cost much more than keeping existing customers (Chitty et al., 2007).
Customer satisfaction is defined as a comment or judgment to service providing a pleasurable level of consumption (Nash et al., 2006). Evans et al. (2006) said customer satisfaction is an opinion or a feeling of a consumer toward a service or a product after they have used them.
Normally, customer satisfaction or dissatisfaction will be measured through the discrepancy between customer expectation and customer experience (Choi and Chu, 2001; Nahs et al., 2006; Gronroos, 2007; Chitty et al., 2007). However, this study only wants to focus on the satisfaction level of guests when they experienced in budget hotels without assessing customers expectation. Features of budget hotels is quite different from other hotels, particularly in up-market hotels, budget hotels only provide basics, not offering breakfast or any kind of entertainment facilities so customers should not evaluate the satisfaction level in budget hotels base on their expectation.
Gronross (1983) divides the elements of satisfaction into two components of quality: technical and functional quality, while Reuland et al. (1985) separates into three levels of satisfaction involving in service features, staff performance and environment. There are quite a lot of ways to evaluate the satisfaction of experienced customers but the paper only focuses on functional, technical and price to identify what features make guests feel satisfied most.
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According to Choi and Chu (2001) suggested that hotel quality such as cleanliness, location, room rate, security, and reputation are considered as important factors used by sleepers to assess hotel attributes of performance. In other situation, like a previous survey conducted by Lewis (1985) with 66 hotels, she found out that determinants guests took a serious consideration are hotel’s location and price. In 1988, Atkinson showed another order of determinants in choosing accommodation which are cleanliness, security, value for money, courtesy, and willingness of staff respectively.
Chitty et al. (2007) said that from four dimensions: Functional, technical, and price will identify the perceived value customer receive and then decide customers are satisfied or not (see appendix 3). After all, customer satisfaction would lead to repeat purchasing behaviour and then becoming into customer loyalty that would be a very important factor to any kind of enterprises.
Also, Gilmore (2003) presented service dimensions of hotels which show services hotels offer guests (see appendix 6). There are seven dimensions which are location, physical facilities, service products, price, hotel image, staff appearance, and staff manners. Therefore, customer satisfaction could be a feeling of customer affected by the seven elements hotels offer them.
With unique characteristics of budget hotels, offering limited service and small properties with low price so to appraise a satisfaction level of staying guests, it is suggested to rely on four factors: location, price, facilities, and service encounters.
Location
The location of hotel is to show the market this hotel targets, for instance if a hotel locates in city centre where has abundant office building and tourist attraction sites, this hotel should focus on businessman and general tourists (Gilmore, 2003).
Additionally, the location of a hotel must be easy to find when customers travel to the hotel. The convenience of finding a hotel’s location, the ease of parking facilities, the helpfulness and visibility instructions on the way leading to this hotel, and a wide range of kinds of transports go to the hotel’s location (Gilmore, 2003). They are all important factors influencing customers’ feeling when evaluating their satisfaction level.
In term of budget hotels, before the typical locations are known to be near main roads, motorway service areas, and/or high-traffic locations. Over the past ten years, the target market of budget hotels has expanded and changed, as a result, there are some hotels locate in city centre and tourist destinations (Mintel, 2007; Lawson, 1995). Features of these locations are aimed at meeting customers’ basic and vital demands so that hotels can lure more customers.
Price
The role of price in hotels is to catch the value of the services they offer in the guests’ minds. Through a price of services, customers will image and get a picture of what they probably receive later. Hence, hotel managers must set a appropriate price so they can not only cover the original cost and get a profit, but also be aware of what customer wait for with that price (Gilmore, 2003; Imrie and Fyall, 2001).
Price is considered as one of the strongest aspects to compete with other kinds of hotels. According to Fiorentino (1995), the price of budget hotel has to follow key rules:
The room rate is fixed,
Charging per room not per person (no breakfast included),
Frequently offering discount and/ or corporate rates
Through many survey conducted by Mintel during the past few years showed that price is one of the main motivations when customers choose a budget hotel, with 49% of 1,100 adults were interviewed (Mintel, 2007). All of these things illustrate the importance of price contributing to the development of budget hotels.
Physical facilities
A hotel provides guests a room and a bed to sleep in or all tangible objects are called as physical facilities (Gronross, 2000). Tangibles refer to physical facilities, equipments, appearance of staff, and courtesy of personnel are all things customers can see before they purchase services.
In the case of guests, technical dimensions what they receive from the hotels after they checked in. They are physical facilities such as parking, clean and comfortable room, TV room, laundry, and restaurant (Gronross, 2004). These facilities represent for the standard of that hotel and the cost customer has already paid.
However, facilities in budget hotels are completely different from other hotel sectors such as boutique hotels, up-market hotels and resorts, and casino hotels. When evaluating service quality in economy hotels, the paper only can refer to basics like bed, bathroom, TV room, laundry, and kitchen areas. Thus, customer satisfaction could depend on budget hotels’ characteristic.
For example, consumers staying in luxury hotels, it is definitely understood that this hotel has to offer all kinds of facilities for them ranging from food and beverage, full-furnished room to spa relaxing areas. Conversely, according to Fiorentino (1995), budget hotels just need to provide guests a smoking/non-smoking room with a bed, radio-TV, air condition, and a telephone, which is called as en-suite room. About food and beverage, hotels only need to offer vending machine or restaurants are close to its location. These things make customer quite satisfied (Nash et al., 2006).
Service encounters
Researchers have been conducted many studies to answer the question of ‘how has service quality been perceived?’ for almost two decades. According to Gronroos (2000), quality of any goods or service is what customers perceive and feel. It happens when interactions between consumers and service providers, which are called service encounters or functional dimension in a wider context (Gronroos, 2007). Functional dimension, or in other word is service process, is to show how a process of producing and consuming of services occurs
Unlike the technical dimension, this dimension, customers only can see after they purchase and use them such as the willingness to help and provide prompt service of employees, caring, and individual attention provided to customers, and reliability (Antony, et al., 2004). Parasuraman et al. (1985), and Suprenant and Solomon (1987) said that functional dimension including important components contributing to increase customer satisfaction.
Gronross (2007) said that service quality includes its outcome, process, and image dimensions customers experienced in hotels. He added that to evaluating perceived service quality is good or not, it is normally based on seven criteria:
Knowledge and skills of service provider,
Attitudes of service staff,
Distribution of the property,
Reliability,
Service improvement,
Servicescape, and
Credibility.
In other words, Chitty et al. (2007) divided them into the two main parts which are technical dimension (e.g.: distribution of the property, reliability, and price), and functional dimension (e.g.: knowledge and skills of service providers, appearance of staff, and service encounters).
Besides, there is a popular method for measuring customers’ experienced service quality called SERVPERF model. The model studies the link among service quality, customer satisfaction and purchase intentions (Baggs and Kleiner, 1996). It works by considering service quality as service performance and just simply interviewing consumers about their evaluation of the performance of the business process to collect primary data (Baggs and Kleiner, 1996). SERVPERF model uses 22 items to evaluate experienced service quality such as up-to-date equipment, should do as promised, appealing physical facilities, and prompt service to customers. However, the paper investigates the level of customers experiencing in budget hotels in UK market so the measurement method could be different.
Like the two studies of customer satisfaction levels in the budget accommodation sector of Nash et al. (2006) and Chitty et al. (2007) used totally new ways to approach customers’ experience. Nash et al. (2006) measure the level of customer satisfaction by designing a questionnaire based on seven main sections:
Length of holiday
Reason for holiday
Transportation
Accommodation
Spending
Information sources
Demographics
The result showed that after staying in these budget hotels, guests decided the elements of importance and satisfaction to them that are cleanliness of accommodation, value for money, and the presence of self-catering facilities.
While Chitty et al. (2007) applied the ECSI model to predict the level of customer satisfaction and customer loyalty in budget hotel segment. This study based on four dimensions like technical, functional, image, and price of service to assess customer satisfaction. Its findings suggested that brand image is a predictor of satisfaction with budget hotels, while perceived value indicates a degree of loyalty for the whole hospitality industry.
There are a lot of elements customers use to evaluate hotel service quality ranging from tangible to intangible objects. The study will use secondary information and combine with information collected from surveying travellers to analyse what the key attributes travellers appreciate when staying in budget hotels. Then, from these result makes a conclusion
Consequences of customer satisfaction
If customers experience well and have a good impression of hotels, they will help hotels in word-of-mouth advertising at no cost and repeat patronage (Evans et al., 2006). Moreover, the result of satisfaction may enhance a guests’ choice to use a particular brand of service on a given occasion.
There are quite a lot of research proved that most consumers choose to stay in economy accommodation just because they try to save their pocket. However, behind that choice, there are many reasons ranging from different culture, different aged, different class, and so on (Nash et al., 2006). Especially, recent surveys and studies showed that the higher the level of customer satisfaction is the more customers will repeat their purchase (Chitty et al., 2007; Nash et al., 2006; Antony et al., 2004; and McCaskey and Symes, 2004).
According to McCaskey and Symes (2004), Travel Inn (Travelodge owned by Whitbread) conducted many strategies like marketing plans, promotion programs, and upgrading facilities. As a result, in 2004, in UK market alone, the hotel recognised many progresses:
19,000 regular ‘loyal customers’ per year,
decrease 13% in guests having troubles,
the percentage of customer-staff encounter increased from 30% to 50%, which means customers feel its employees more helpful,
Customer satisfaction rate increased to 44% from 26%.
The hotel could be seen as the real typical example of using customer satisfaction to increase the number of guests, both in remaining old guests and attracting new ones.
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