A MODEL LINKING PERCEIVED ATTRACTIVENESS ASPECTS, EXPERIENCE OF STAY, CUSTOMER LOYALTY
AND HOMESTAY SUSTAINABILITY OF BUSINESS PERFORMANCE IN TAIWAN
STEVEN TOH TEONG JIN
Research report in partial fulfillment of the requirements for the degree of Master Business Administration (MBA) (IB)
Universiti Sains Malaysia
JUNE 2014
i
ACKNOWLEDGEMENTS
First and foremost, I would like to express my sincere gratitude and appreciation to my great supervisor, Dr. Tan Cheng Ling, for her kind support, guidance and knowledge through the duration of completing this thesis. Her understanding and expertise had guided me through the stressful times in producing a better quality thesis.
Secondly, I would like to express my gratitude to my beloved family for their dedication, strong support, motivation, and encouragement throughout this journey in my life, especially the period of exchange in Taiwan. To my father, Toh Chin Lai;
my mother, Saw Peng See; my sister, Toh Lay Cheng; and my brother, Patrick Toh Teong Kit. Thank you for the continuous and overwhelming love, patience and moral support.
Special thanks extended to all my friends in this MBA studies. The opportunity to meet such a great friends made my life more affluent. Special thanks to my friends that located in Taiwan, help and support me during my exchange period. Finally, I would like to express my regards and blessing to those who have supported me to the successful completion of the thesis as well as my apology to those who I could not mention personally one by one.
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TABLE OF CONTENTS
PAGE
ACKNOWLEDGEMENTS i
TABLE OF CONTENTS ii
LIST OF TABLES ix
LIST OF FIGURES x
LIST OF APPENDICES xi
ABSTRAK xii
ABSTRACT xiii
CHAPTER 1 INTRODUCTION
1.0 Introduction 1
1.1 Background of study 1
1.2 Research Problems 5
1.3 Research Questions 8
1.4 Research Objectives 9
1.5 Significance of study 10
1.6 Definition of Key Variables 12
1.6.1 Sustainability of Business Performance 12 1.6.2 Perceived Attractiveness Aspects 13
1.6.3 Experience of Stay 14
1.6.4 Customer Loyalty 14
1.7 Organization of Dissertation 14
CHAPTER 2 LITERATURE REVIEW
2.1 Introduction 16
iii
2.2 Homestay in Taiwan 16
2.2.1 Definition of Homestay 18
2.2.2 Characteristics of Homestay 21
2.3 Sustainability of Business Performance 22
2.3.1 Business Performance 23
2.3.2 Measurement of Business Performance 24
2.4 Customer Loyalty 27
2.4.1 Customer Loyalty and Business Performance 29 2.4.1.1 Customer Loyalty and Financial
Performance
30
2.4.1.2 Customer Loyalty and Marketing Performance
30
2.5 Perceived Attractiveness Aspects 31
2.5.1 Perceived Attractiveness and Customer Loyalty 34 2.5.2 Surroundings of the Building and Features 34 2.5.2.1 Surroundings of the Building and Features
and Customer Loyalty
35
2.5.3 Service Quality 36
2.5.3.1 Service Quality and Customer Loyalty 38
2.5.4 Homestay Facilities 38
2.5.4.1 Homestay Facilities and Customer Loyalty 39 2.5.5 Homestay Operation and Management 39 2.5.5.1 Homestay Operation and Management and
Customer Loyalty
40
2.5.6 Homestay Geist and Community Co-Prosperity 41 2.5.6.1 Homestay Geist and Community
Co-Prosperity and Customer Loyalty
42
iv
2.6 Consumer Experience 42
2.6.1 Experience of Stay 43
2.6.2 Experiential Aspect of Value 44
2.6.3 Host-Guest Interaction 45
2.6.3.1 Surroundings of the Building and Features and Host-Guest Interaction
46
2.6.3.2 Service Quality and Host-Guest Interaction 46 2.6.3.3 Homestay Facilities and Host-Guest
Interaction 46
2.6.3.4 Homestay Operation and Management and and Host-Guest Interaction
47
2.6.3.5 Homestay Geist and Community
Co-properity and Host-Guest Interaction
47
2.6.4 Activity, Culture and Knowledge 47
2.6.4.1 Surroundings of the Building and Features and Activity, Culture and Knowledge
48
2.6.4.2 Service Quality and Activity, Culture and
Knowledge 48
2.6.4.3 Homestay Facilities and Activity, Culture
and Knowledge 49 2.6.4.4 Homestay Operation and Management and
and Activity, Culture and Knowledge 49 2.6.4.5 Homestay Geist and Community
Co-properity and Activity, Culture and Knowledge
50
2.6.5 Experience of Stay on Customer Loyalty 50 2.6.5.1 Host-Guest Interaction and Customer
Loyalty
51
2.6.5.2 Activity, Culture and Knowledge and Customer Loyalty
51
2.6.6 Experience of Stay as a mediator between Perceived Attractiveness Aspects and Customer Loyalty
51
v
2.7 Theoretical Framework 52
2.7.1 Resource Based View Theory 52
2.7.2 Theory of Consumer Behavior 53
2.8 Research Framework and Hypotheses Development 54
2.9 Hypotheses 55
2.10 Summary 61
CHAPTER 3 RESEARCH METHODOLOGY
3.1 Introduction 62
3.2 Research Approach 62
3.3 Sample Design 62
3.3.1 Population and Sample Size 62
3.3.2 Sample and unit of analysis 63
3.4 Sampling Method 65
3.5 Data Collection Method 65
3.6 Questionnaire Design 66
3.6.1 Sustainability of Business Performance 68 3.6.2 Perceived Attractiveness Aspects 69
3.6.3 Experience of Stay 71
3.6.4 Customer Loyalty 72
3.7 Statistical Analysis Techniques 72
3.7.1 Statistic Package for Social Science (SPSS) version 20.0
72
3.7.1.1 Common Method Bias 73
3.7.1.2 Descriptive Analysis 73
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3.7.1.3 Pearson Chi-Square (X2) 74
3.7.2 Smart PLS 74
3.7.2.1 PLS-SEM Algorithm 75 3.7.2.2 Assessment PLS-SEM of Reflective
Measurement Model
76
3.7.2.2.1 Internal Consistency Reliability 76 3.7.2.2.2 Indicator Reliability 76 3.7.2.2.3 Convergent Validity 77 3.7.2.2.4 Discriminant Validity 77 3.7.2.3 Goodness-of-Fit (GoF) 78 3.7.2.4 Assessment PLS-SEM of Structure Model
78
3.8 Summary 79
CHAPTER 4 DATA ANALYSIS AND RESULTS
4.1 Introduction 80
4.2 Response Rate 80
4.3 Profile of Respondents 81
4.4 Common Method Bias 86
4.5 Goodness of Measures 87
4.5.1 Construct Validity – Convergent Validity 87
4.5.2 Reliability Analysis 89
4.5.3 Construct Validity – Discriminant Validity 89 4.6 Descriptive Statistics of the Latent Constructs 94
4.7 Assessment of Structure Model 95
4.7.1 Direct Effect 95
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4.7.2 Indirect Effect (Mediation Effect) 98
4.8 Coefficient of Determination (R2) 99
4.9 Predictive Relevance (Q2) 99
4.10 Pearson Chi-Square 100
4.11 Summary 105
CHAPTER 5 DISCUSSION AND CONCLUSION
5.1 Introduction 109
5.2 Recapitulation of the Study Findings 109
5.3 Discussion 111
5.3.1 Perceived Attractiveness Aspects and Customer
Loyalty 112
5.3.2 Perceived Attractiveness Aspects and Experience of
Stay 114
5.3.3 Experience of Stay and Customer Loyalty 115 5.3.4 The Mediating Role of Experience of Stay on the
Perceived Attractiveness Aspects and Customer Loyalty
117
5.3.5 Customer Loyalty and Sustainability of Business Performance
119
5.4 Implication of the Study 120
5.4.1 Theoretical Implication 120
5.4.2 Practical Implication 120
5.5 Limitation and Suggestions for Future Research 122
5.6 Conclusion 122
REFRENCES 124
APPENDICES 139
viii
LIST OF TABLE
Table No. Title of Table Page
Table 1.1 Statistic number of Homestay in Taiwan 4
Table 2.1 Development Account of Homestay Tourism Industry 18 Table 2.2 Definition of homestay by previous Taiwan researchers 19 Table 2.3 Perceived Attractiveness Aspects by Scholars 33 Table 3.1 Distribution of the legal homestay and illegal homestay in
Republic of China, Taiwan
63
Table 3.2 Sample Size of Study 64
Table 3.3 Measures of the Study 66
Table 3.4 Items pertaining to Sustainability of Business Performance
68
Table 3.5 Items pertaining to Perceived Attractiveness Aspects 69 Table 3.6 Items pertaining to Experience of Stay 71
Table 3.7 Items pertaining to Customer Loyalty 72
Table 4.1 Profile of Participating Homestay 81
Table 4.2 Profile and Descriptive Statistics of Owner Respondents 82 Table 4.3 Profile of Participating Homestay Customer 83 Table 4.4 Profile and Descriptive Statistics of Customer
Respondents
85
Table 4.5 Descriptive Statistics of Participating Homestay 86 Table 4.6 Measurement properties of reflective Constructs 88 Table 4.7 Discriminant Validity of Construct After Adjustment 90
Table 4.8 Outer loadings and Cross Loading 91
Table 4.9 Descriptive Analysis 94
ix
Table 4.10 Summary of Hypotheses Testing for Direct Effect 96 Table 4.11 Summary of Hypotheses Testing for Indirect Effect
(Mediation Effect)
98
Table 4.12 Summary of Coefficient of Determination (R2) 99 Table 4.13 Summary of Predictive Relevance (Q2) 100 Table 4.14 Financial Performance x Customer Loyalty
Crosstabulation
102
Table 4.15 Chi-Square Tests for Financial Performance and Customer Loyalty
103
Table 4.16 Marketing Performance x Customer Loyalty Crosstabulation
104
Table 4.17 Chi-Square Tests for Marketing Performance and Customer Loyalty
104
Table 4.18 Summary of Hypotheses Testing 105
x
LIST OF FIGURES
Figure No. Title of Figure Page
Figure 2.1 Research framework of the study 54
Figure 4.1 Measurement Model of the Structure Model 93
Figure 4.2 Structural Model Framework 97
xi
LIST OF APPENDICES
Appendix No. Title of Appendix Page
APPENDIX A Introduction Letter and Questionnaire 139 APPENDIX B Introduction Letter and Questionnaire Translated in
Mandarin Version
148
APPENDIX C Results of Total Variance Explained 156
APPENDIX D Convergent Validity of Construct Before Adjustment 158 APPENDIX E Discriminant Validity of Construct Before Adjustment 159 APPENDIX F Outer Loadings and Cross Loadings Before
Adjustment
160
xii ABSTRAK
Fokus kajian ini adalah untuk: (a) menyelidik kesan langsung aspek daya tarikan dan kesetiaan pelanggan; (b) menyelidik impak langsung pengalaman penginapan dan kesetiaan pelanggan; (c) menyelidik samaada pengalaman penginapan keupayaan sebagai pengantara kepada aspek daya tarikan dan kesetiaan pelanggan; dan (d) menyelidik kesan langsung kesetiaan pelanggan dan kemapanan prestasi perniagaan. Kemapanan prestasi perniagaan boleh dikonsepsikan dalam dua dimensi yang mengandungi prestasi kewangan dan prestasi pemasaran. Aspek daya tarikan dioperasikan kepada lima dimensi iaitu, ciri-ciri dan persekitaran bangunan, kualiti perkhidmatan, kemudahan homestay, operasi dan pengurusan homestay, dan homestay dan kemakmuran masyarakat. Pengantraan pengalaman penginapan dioperasikan kepada dua dimensi, iaitu nilai pengalaman (interaksi antara tuan rumah dan tetamu), dan nilai pengalaman (aktiviti, budaya dan pengetahuan). Kesetiaan pelanggan diilustrasikan sebagai satu dimensi. Lima hipotesis dipostulat dan diuji dengan 566 (pelanggan) dan 283 (pemilik) sample dari homestay Taiwan yang merangkumi 70.75 peratus kadar respoden di kajian ini. Data dikutip dengan soalan kaji selidik. Analysis Smart PLS dan SPSS digunakan untuk menguji ketepatan hipotesis yang dicadangkan. Kajian menunjukkan hanya 17 sub-hipotesis daripada jumlah 29 sub-hipotesis mempunyai hubungan signifikan dan yang lain menunjukkan tidak mempunyai hubungan signifikan. Kesimpulan kajian ini digambarkan dengan implikasi teori dan implikasi praktikal dan juga disertakan cadangan bagi rujukan kepada kajian samaada di Malaysia atau Taiwan pada masa akan dating.
xiii ABSTRACT
The aims of this study were to: (a) examine the direct effect of Perceived Attractiveness Aspects and Customer Loyalty; (b) understand the direct effect of Experience of Stay and Customer Loyalty; (c) investigate whether Experience of Stay acts as mediator role between Perceived Attractiveness Aspects and Customer Loyalty; and (d) examine the direct effect of Customer Loyalty and Sustainability of Business Performance. Sustainability of business performance was conceptualized into two dimensions of financial performance and marketing performance. The perceived attractiveness aspects were operationalized into five dimensions of surroundings of the building and features, service quality, homestay facilities, homestay operation and management, and homestay geist and community co- prosperity. The mediator of experience of stay was operationalized into two dimensions of experiential value (host-guest interaction) and experiential value (activity, culture and knowledge). Customer loyalty was illustrated as single dimension. Five broadly hypotheses were postulated and tested using a sample of 566 (customer) and 283 (owner) Taiwan homestay representing 70.75 percent response rate in this study. Data were collected through self-administrated questionnaires. Smart PLS and SPSS analysis was conducted to test the validity of the proposed hypotheses. It shows that only 17 sub-hypotheses out of 29 sub- hypotheses were supported and the remaining sub-hypotheses were not supported.
The conclusion of this study was provided with the theoretical implications and practical implications as well as suggestions for future conduct of the studies either in Malaysia or Taiwan.
1 CHAPTER 1 INTRODUCTION 1.0 Introduction
This chapter discusses the background of the study, research problems, research questions, research objectives, significance of the study, definitions of the key variables, and organization of the study.
1.1 Background of study
Over the years, Taiwan economy has grown prosperously at the fastest pace.
This has led the Taiwanese to enjoy an increased income and their life style has also changed. Due to the rapid development of the society, the Taiwanese are always facing stress and pressure in their life as well as at work. They then start to find ways of relaxing their mind and body. The significant solution is tourism which is one of the common way for humans to relieve their tension. In addition, Taiwan government has started the policy of five (5) working days per week since the year 2001, and this has made tourism industry in Taiwan to develop momentously (Lin, 2008).
Over the past 10 years, based on the Tourism Bureau, the Republic of China (Taiwan), the number of foreign travellers to Taiwan has increased from 2,248,117 people in 2003 to 7,311,470 people in 2012, with a record of about 225% increment.
Most tourists are from Mainland China, Japan and South East Asian countries, such as Malaysia, Singapore, Indonesia and Thailand. The number of Taiwanese domestic travel is not consistent because the number has fluctuated over the years. It has decreased from 106,278,000 people in 2002 to 96,197,000 people in 2008. However
2
after that, the number has increased to 152,268,000 in 2011, a record of an increment rate about 28% from 2008 to 2011.
Accommodations, food and beverages are the most basic needs especially for tourists who travel for more than two days. All the expenses spent by tourists during traveling will directly increase the Taiwanese gross domestic product (GDP). In 2011, the tourism industry contributes an income for Taiwan of about TWD 6,363 hundred million, an increase of 24% compared to that in 2010 (Tourism Bureau, Republic of China (Taiwan, 2013).
In 2011, the accommodation, food and beverage industry contributed TWD 298,931 million which accounted 2% of the total TWD 13,674,346 million of Taiwan GDP ( National Statistics, Republic of China (Taiwan), 2012). Taiwan GDP that was contributed by this industry has grown consistently since 2003 and from that year, it was only TWD 204,743 million. In fact, it continues to grow to TWD 272,805 million in 2010 and TWD 298,931 million in 2011.
The accommodation industry, such as hotel, motel and homestay has also grown from the year 2003 to 2011. The accommodation industry has contributed about 0.4%, which was TWD 58,704 million out of a total of TWD 13,674,346 million of Taiwan GDP in 2011. The performance in 2011 was better compared to that 2010. In 2010, the accommodation industry contributed only 0.38%, which was TWD 272,805 million out of the total of TWD 13,552,099 million of Taiwan GDP.
It recorded a growth of about 14% from 2010, TWD 51,498 million to TWD 58,704 million in 2011.
In the past few years, travel agencies were not the only choice made by tourists, and the number of self-guided tour travels had increased (Tourism Bureau, Republic of China (Taiwan, 2013). Cheng (2012) defined self-guided tour travel as
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arranged travel schedule made by the tourists themselves. They participate in travel activities around the tourism spots area for enjoyment. Nowadays, travel information is easily available through the internet. Long ago, tourists coned only obtain information from travel agencies. By using the internet, tourists can easily gather information and plan their owns travel schedule by themselves. The self-guided tour tourists need to plan their accommodation, food and beverages by themselves.
Therefore, the need for accommodation, food and beverages is different from those provided by travel agencies. Among the choices of accommodations, homestay accommodation is one of the most preferable choice made by the tourists. Homestay is a small business of local people in their attempt to promote natural scenery and agricultural activities in order to attract the tourists to prefer the homestay as their accommodation for the self-guided tour as it is economical especially in terms of expenses and transportation. Therefore, homestay will be one of the best accommodation for self-guided tour.
Taiwan government has put a lot of effort to promote Taiwan tourism industry. The government always makes attempts to discover new tourism attractive areas, improve public transport and service industry to attract more tourists.
Homestay is the current form of accommodation in Taiwan besides the traditional hotel and motel. Homestay has become more important in tourism industry. As a result, Taiwan government has started to establish the Regulations for the Management of Homestay Facilities to control the homestay business. Although homestay is quite new in the tourism industry, it has already become part of the tourism and plays an important role in the tourism industry. This is the main reason why the homestay industry is the focus of this study.
4
Since the Taiwan government has introduced the Regulations for the Management of Homestay Facilities on 12 December 2001, many Taiwanese have also started to invest their money in this business. Consequently, this has caused the homestay industry to develop rapidly in Taiwan. The number of registered homestay was discovered to have increased from year to year. In 2003, there were only 388 homestay facilities registered in Taiwan. Until August 2013, a total of 4087 homestay facilities were registered under the law of homestay. Within a period of 10 years, the number has increased to almost ten times. The number of registered homestay in Taiwan is shown in Table 1.1.
Table 1.1
Statistics of Homestay in Taiwan.
Year Legal number of homestays
Illegal number of homestays
Total
2003 388 909 1297
2004 754 1021 1775
2005 1194 657 1851
2006 1704 297 2001
2007 2301 499 2800
2008 2636 503 3139
2009 2911 398 3309
2010 3158 390 3548
2011 3367 396 3763
2012 3688 430 4118
2013 ( Jan) 3733 424 4157
2013 ( Feb) 3774 422 4196
2013 ( Mac ) 3830 416 4246
2013 ( April ) 3874 408 4282
2013 ( Mei ) 3917 396 4313
5 Table 1.1 (continued)
Year Legal number of homestays
Illegal number of homestays
Total
2013 ( June ) 3978 397 4375
2013 ( July ) 4040 412 4452
2013 ( August ) 4087 436 4523
Source: Tourism Bureau, Ministry of Transportation and Communications (M.O.T.C.) Republic of China (Taiwan), September 2013.
Besides hotels and motels, homestay is one of the choices for tourists too, especially in the peak season. In Taiwan, the occupancy rate of homestay room was 17.29% in 2007 and this figures had increased to 21.13% in 2012 (National Statistics, Republic of China (Taiwan), 2012). The room occupancy rate will determine the overall business performance including the financial performance and marketing performance. The income generated from homestay program does not only come from the rental fees, but it also includes the food and beverage and other travelling expenses.
The recorded total income generated from homestay which includes the rental, food, beverages and others in 2012 was TWD 3,301 million (National Statistics, Republic of China (Taiwan), 2012). Although this figure was considered high but it does not mean that all homestay have good business. Some may be more successful, and some may not. As of today, Taiwan has more than 4000 legal homestay facilities.
In order to sustain the homestay business, marketing strategy plays an important role.
1.2 Research Problems
Homestay plays an important role in Taiwan tourism industry. There are more than 4000 legal and illegal homestay facilities in Taiwan and this has made homestay business becoming more competitive. Although the sustainability of
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business performance area has been widely carried out in various types industries ranging from hotel (Bowen & Shoemaker, 1998), hospitality (Gary, Matear, &
Matheson, 2000), manufacturing (Gunasekaran & Anandkumar, 2012), supply chain management (Kannan & Tan, 2005), and tourism (Avci, Madanoglu, & Okumus, 2011), the specific focus of sustaining homestay business is still scarce in Taiwan.
Hence, this research aims to fill the research gap by focusing the study on the sustainability of homestay business performance.
In order to improve the business performance, the homestay owners have to find ways of offering more attractive aspects and service packages to attract tourists to stay in their homestay, and also to retain the existing customers to come again in the future. At empirical level, many researchers referred to Tepeci (1999) in their study on the factors which influence customer loyalty. The factors that influence customer loyalty can be broadly categorized according to three aspects: external aspects which linked the surrounding of the facility and features, homestay facilities, homestay geist and community; internal aspects which are related to service quality and homestay operation and management; as well as customer’s personal factors such as motivation, personality, emotion, and personal experience (Lin, 2008; Lin, 2005; Liu, 2007; Tsai, 2010). Most of the previous researchers focused on the study on customer’s personal factors and did not include both the external aspects and the internal aspects. Therefore, this study aims to bridge up the gap left by previous researches who did not both external and internal aspects as the determinants of customer loyalty.
Besides, the previous studies examined more of the direct effects of the attractiveness aspects on the customer loyalty and had omitted the possibility of intervening effects of the third variable on the direct relationship. Previous
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researches were conducted in the area of experience, which includes service experience (Otto & Ritchie, 1996), experiential value (Mathwick, Malhotra, &
Rigdon, 2001; Wu & Liang, 2009), experiential marketing (Schmitt, 1999), experience quality (Chen & Chen, 2010), ecotourism experience (Kim & Baum, 2007), and customer experience creation (Verhoef et al., 2009). There are a number of studies which had proven that experience is related to customer loyalty (Bennett, Härtel, & McColl-Kennedy, 2005; McKercher, Denizci-Guillet, & Ng, 2012;
Reichheld, 2003). Among these studies, it was discovered that experiential value is more relevant to homestay study as experiential value creates unforgettable memories to customers, and it will give a memorable experience to customers (Pine II & Gilmore, 1998). Thus, the experiential value will be examined as mediator in the relationship between the attractiveness aspects and customer loyalty.
According to Lynch (2000), as long as one company can increase 5%
retention of its existing customers, the company will improve the profits between 25%
to 85%. Ganesh, Arnold, and Reynolds (2000) also found that the customer will be loyal to that particular company because of the cumulative learning effect. Brand loyalty is one of the most useful and most important aspect for a business to be successful in homestay rivalry. Customer loyalty is viewed as the survival tool for a business because it helps in generating the repeated sales and profit, and in expanding the market share for the company. Loyal customers will also introduce their favorite homestay which provided good experiences to their friends and family members. Therefore, loyal customer is viewed as the continuous source of income to a company (Tepeci, 1999). Heskett (2002) discovered that the loyal customers will attract more new customers, because “loyal customers do more than patronize a homestay; they also encourage other people to try the property”. Finally, this
8
research would like to examine the effects of customer loyalty on homestay business performance.
In order to sustaining the business performance in homestay industry at Taiwan, the owner of homestay need to compete among the themselves in remain or increase the profit as well as the market share. It is more easy that the owner of homestay use the tourist hot spot area or natural environment to attract the customer.
The unforgettable experience within the period in the homestay will led to the customer loyalty. When the degree of customer loyalty is high, then the customer will continuously recommend to their friends and family and then customer will come back again in the future. In the situation that if the homestay can retain the existing customer and attract more new customer, than it can led to sustainability of business performance in homestay industry at Taiwan. Hence, the method of sustainability of business performance of homestay is the focus in this study.
In conclusion, the research gap can be filled up by incorporating customer’s experience of stay as a mediator in ascertaining the impact of perceived attractiveness aspects towards customer loyalty, and the outcome of customer loyalty as factors that contribute to the sustainability of business performance.
1.3 Research Questions
The study aims to answer the following questions:
1. Does perceived attractiveness aspects (surroundings of the building and features, service quality, homestay facilities, homestay operation and management, homestay geist and community co-prosperity) influence customer loyalty?
9
2. Does perceived attractiveness aspects (surroundings of the building and features, service quality, homestay facilities, homestay operation and management, homestay geist and community co-prosperity) influence the customer’s experience of stay (experiential value (host-guest interaction) and experiential value (activity, culture and knowledge)) ?
3. Does customer’s experience of stay (experiential value (host-guest interaction) and experiential value (activity, culture and knowledge)) influence the customer’s loyalty?
4. Does customer’s experience of stay (experiential value (host-guest interaction) and experiential value (activity, culture and knowledge)) mediate the relationship between perceived attractiveness aspects (surroundings of the building and features, service quality, homestay facilities, homestay operation and management, homestay geist and community co-prosperity) and customer loyalty?
5. Does customer loyalty influence the sustainability of business performance (financial performance and marketing performance) ?
1.4 Research Objectives
Based on the research questions, the objectives of this study are:
1. To examine the influence of perceived attractiveness aspects (surroundings of the building and features, service quality, homestay facilities, homestay operation and management, homestay geist and community co-prosperity) toward an impact on the customer loyalty.
2. To examine the influence of perceived attractiveness aspects (surroundings of the building and features, service quality, homestay
10
facilities, homestay operation and management, homestay geist and community co-prosperity) toward an impact on the customer’s experience of stay (experiential value (host-guest interaction) and experiential value (activity, culture and knowledge)).
3. To examine the influence of customer’s experience of stay (experiential value (host-guest interaction) and experiential value (activity, culture and knowledge)) toward an impact on the customer loyalty.
4. To examine whether customer’s experience of stay (experiential value (host-guest interaction) and experiential value (activity, culture and knowledge)) mediate the relationship between perceived attractiveness aspects (surroundings of the building and features, service quality, homestay facilities, homestay operation and management, homestay geist and community co-prosperity) and customer loyalty.
5. To examine the influence of customer loyalty toward an impact on the sustainability of business performance (financial performance and marketing performance).
1.5 Significance of study
This study is expected to provide noteworthy theoretical and practical foundation and evidence to researchers in the research area of perceived attractiveness aspects, experience of stay, customer loyalty and sustainability of business performance.
According to Mowery, Oxley, and Silverman (1998), the resourced-based theory of the organisation states that a business is the best way to be viewed as a form of a combination of resources and capabilities which is difficult to be
11
reproduced. Such resource may be physical, for example management system, natural environment, and the facility aspects. Other resources may be psychic, such as service quality, perceived attractiveness value, and customer behavior. The resource-based view argued that the interpretation of competitive heterogeneity. This is based on the firms various resources and capabilities, and how close they are to the competitors significantly and forever.
Barney, Wright, and Ketchen (2001) stated that the resource based view for further research should include resources, dynamic capabilities, and knowledge such as competitive advantages, corporate governance in terms of generation and distribution of gains, leverage buy-outs and join venture capital financing, institutional factors, and entrepreneurship. It is fairly obvious even to a naïve observer that all consumers or all consumer behavior phenomena can be fully explained or understood by a single perspective especially as elegant and rational as the decision making perspective from theory of consumer behavior (Sheth, 1982).
With reference to the theoretical perspective, this study hopes to provide an in depth understanding of perceived attractiveness aspects in terms of facility, management and services and their influence on customer loyalty rather than to the aspect of sustaining the business in terms of business performance within Taiwan context. Additionally, this study also foresees the importance of experience of stay as the missing link between perceived attractiveness aspects and customer loyalty.
From the practical point of view, the findings of this study will assist the homestay owners in the midst of developing their attractiveness aspects to add value to their customers’ experience of stay in achieving competitive advantage. Well organised attractiveness aspects, high service quality and a memorable experience to
12
customers will be able to increase the customer loyalty and will then lead to sustainability of the business performance.
1.6 Definition of Key Variables
The variables used for the purpose of this study are defined and presented in the following section.
1.6.1 Sustainability of Business Performance
The sustainability of business performance means the effort to create a long- term shareholder value. This includes the opportunity for business and the ability to manage the risks resulting organisation. It also includes the economic, environmental and social responsibilities aspects. Business should meet the needs of firms and their stakeholders today while also protecting, sustaining, and enhancing the environmental, social, and economic resources needed for the future (Pojasek, 2007).
The definition of two dimensions of Sustainability of Business Performance, namely financial performance and marketing performance were adapted from Tseng, Kuo, and Chou (2008).
Financial performance refers to performance measurement focused on financial data.
Marketing performance is defined as apparent that improvement efforts cannot be quantified in dollar terms alone.
13 1.6.2 Perceived Attractiveness Aspects
Perceived attractiveness has been regarded as one of the evaluation constructs of destination performance as well as one of the determinants that affect the choice of pleasure places (Um, Chon, & Ro, 2006). In this study, this variable consists of five dimensions which are adapted from those recommended by Hu, Wang, and Wang (2012). They are namely the surroundings of the building and features, service quality, homestay facilities, homestay operation and management, and homestay geist and community co-prosperity. The definition of each dimension was adapted from Hu et al. (2012).
Surroundings of the building and features is defined as an entire exterior and interior design of the homestay. Local culture features are demonstrated and incorporated into the homestay.
Service quality means customer satisfaction of services provided by the homestay owners or staff.
Homestay facilities is defined as the hardware of the homestay.
Homestay operation and management refers to how the homestay proprietors manage, plan and design the rooms and surroundings as well as how they protect the customers’ lodging privacy and their safety.
Homestay giest and community co-prosperity refers to how the homestay proprietors carry out the homestay operation personally and frequently interact with their customers and how to run the homestay business with the concept of incorporating into its local community in order to help improve local economic booming.
14 1.6.3 Experience of Stay
Experience of stay is defined as something special under one by customers during their stay at the accommodation either directly or indirectly, and the special moments encountered by the tourist themselves that because their homestay experiences and which create the wonderful feelings that they will never forget (Liu, 2007).
Experiential value (host-guest interaction) is defined as am amazing interaction with the host family members in the homestay (Jamal, Othman, & Nik Maheran Nik, 2011).
Experiential value (activity, culture and knowledge) is defined as an unforgettable memoir of the environment of accommodation that provides interesting related activities and the arouse a sense of awareness of the surrounding area. The tourists will then have the feelings of self-participation in the whole program.
1.6.4 Customer Loyalty
Customer loyalty is defined as a deeply held commitment to re-purchased or re-patronize preferred goods or services consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing, despite situational influences and marketing efforts having the potential to cause switching behavior (Oliver, 1997).
1.7 Organization of Dissertation
In general, this dissertation is presented in five chapters. First of all, the Chapter 1 highlights the background of the study, research problem, research questions, research objectives, significance of study, and definition of the variable term. The Chapter 2 illustrates the literature reviews done by previous studies that
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involved the independent, dependent, mediating, and moderator variables. The developed theoretical framework and formulated hypotheses were discussed according to the review of the literature. Next, Chapter 3 demonstrates the research methodology used in this research. The methodology is discussed in depth on the population and sample, questionnaire design, measurements, data collection techniques as well as statistical analysis techniques. Chapter 4 discusses the results of statistical analysis. Lastly, the final chapter presents the discussion on the findings, implications, limitations of the study, recommendations and conclusion.
16 CHAPTER 2 LITERATURE REVIEW 2.1 Introduction
This chapter illustrates a detailed literature review related to homestay tourism industry in Taiwan, perceived attractiveness aspects, experience of stay, customer loyalty, and the sustaining of business performance. Previous literatures done in relation with perceived attractiveness aspects leading to experience of stay and customer loyalty then to sustainability of business performance were discussed as well as the influence of experience of stay on homestay industry at Taiwan. An in depth understanding on the variables used will be gain toward the end of the chapter with support of the proposed theoretical framework and formulated hypotheses.
2.2 Homestay Tourism Industry in Taiwan
The establishment of homestay tourism industry was due to lack of accommodation facility within the neighborhood of the tourism areas. Huge capitals needed to be invested in hotels or motels, and the approval of constructing a hotel or motel depends on the geographical factors of that area, and the local law. Many attractive tourism areas do not have sufficient accommodation facilities to cater for the large number of tourists during the peak season. Therefore, tourists who need the accommodation will have stay in the local people’s houses temporarily and this became one type of accommodation known as homestay (Song, 2007). Although homestay, alike hotels provides accommodations to customers, yet homestay has its own specialties and provide new experiences to consumers compared to the hotel or motel. Homestay is usually located within the tourism area or at least near tourism
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areas. The specialty of homestay is it does not only provide the basic needs for accommodation, but it also provides the homely sensation like a closely-knit family.
The earlier homestays tourism industry in Taiwan first establish in the 1980s.
The huge homestay areas are located within the famous tourism areas such as the Kenting National Park, New Taipei City ( Ruifang District ), Lugu Township at Nantou, His-t’ou Forest Recreation Area, Alishan National Scenic Area and Chia Yi district and Penghu area in Taiwan. Due to the increased demand for accommodation and lack of accommodation facilities in the tourism areas, therefore homestay tourism industry was introduced. That was how the Taiwan Homestay started (Liu, 2007).
The objective of the earlier development of homestay tourism industry in Taiwan was to provide tourist accommodation facilities. In 1994, the government started to provide guidelines on the development project of recreation. Therefore the Council of Agriculture Executive Yuan started to develop the draft of Regulations for the Management of Homestay Facilities. In 1997, the Council for Economic Planning and Development requested the department of Tourism Bureau, Republic of China (Taiwan) to revise the draft of Regulations for the Management of Homestay Facilities. The Tourism Bureau completed the draft of Regulations for the Management of Homestay Facilities in 1998. The Regulations for the Management of Homestay Facilities were finally promulgated by the government and it came into effect on 12 December 2001 (Lin, 2008). The important description of homestay was shown in Table 2.1.
18 Table 2.1
Development Account of Homestay Tourism Industry
Time Important Description
1980s Tourism industry was booming; the accommodation at hotspot areas was insufficient; the concept of homestay was introduced.
1989 Local government of Taiwan promoted “New Village” project;
provided guidance for the aborigines on how to build the homestay village.
1992 In order to develop the agricultural uses, and to increase the economy of village people and their income, to provide guidance on the development of agriculture recreation activities, to announced
“Regulation for Counseling and Governance of Recreation Agriculture”.
1994 Council of Agriculture, Executive Yuan authorized National Chung Hsing University drafted the “Regulation for Counseling and Governance of Homestay”.
1997 Council for Economic Planning and Development instructed Tourism Bureau, Republic of China (Taiwan), to draft out the Regulations for the Management of Homestay Facilities.
1998 Tourism Bureau completed the draft of Regulations for the Management of Homestay Facilities.
24 Aug 1999
Directorate-General Tourism Development promoted a group to formed a Homestay.
14 Nov 2001
Amendment of Act for the Development of Tourism was passed;
added into Regulations for the Management of Homestay Facilities.
12 Dec 2001
The Regulations for the Management of Homestay Facilities was promulgated by the government.
2 Oct 202 The first registered Homestay was legally operated in Taiwan, the Sin-Ya Homestay at Sanyi, Miaoli.
9 Dec 2002 Tourism Bureau, Republic of China (Taiwan) announced the list of the first batch of registered homestays. Total number as 18.
September 2013
Total number of homestay registered was 4087 with a total of 16291 rooms.
Source : Lin (2008)
2.2.1 Definition of Homestay
“Homestay” is still a new term in Taiwan’s tourism industry. Homestay is defined as a small sized hotel or motel. Before Taiwan introduced the Regulations for the Management of Homestay Facilities in 2001 (Tourism Bureau, Republic of China (Taiwan), 2013), the researchers defined “homestay” in various ways.
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According to Wang (2005), homestay is defined as the accommodation facility with the number of rooms less than 15, and it is managed by a family as a side line business. According to Kao (2011) , homestay is defined as a kind of side business to provide accommodation facilities to tourists with a combination of local natural resources from the homestay area. On the other hand, Wu (2007) defined homestay as a small sized accommodation located in a rural areas, managed by the owner and his family. It also provides food, beverage and tourism services. The owner uses his basic economic knowledge together with creative of business culture, the owner’s own vision and mission in running the homestay business. Table 2.2 shows the various definitions of “homestay” by Taiwan researchers.
Table 2.2
Definition of homestay by previous Taiwan researchers Researcher
(Year) Definition
Ho & Tang (1989)
Homestay is a residence, rooms are rented out to tourists, and is not registered as business, but acts like a hotel business.
Guo (1991)
Homestay is a personal residence and some of the rooms is rented out to the tourists, it is operated as a side business for temporary accommodation facility.
Zheng (1992)
Homestay is regarded as the rented out part of the residence. It is conducted as a side business as temporary accommodation facility, but the character is different from a hotel. It is a kind of continuous recreation.
Han (1993)
The operator uses free space, manages it as a side business by providing accommodation, but the character is different from motels and hotels.
Pan (1994)
Homestay means the farmers use some of the free rooms, rent out the whole house or part of the house to tourists as temporary accommodation.
Luo (1995)
Homestay means the use of free room to be rented out to tourists.
It is regarded as a mini hotel.
20 Table 2.2 (continued)
Researcher
(Year) Definition
Alastair (1996)
Homestay is almost always operated by owners who provides personal services for few people only. Tourists will interact with the owner and have chance to visit the places nearby. The size of homestay is seldom consisting of more than 25 rooms. Many rooms are small sized to only provide accommodation for customers.
Jiang (1997)
Homestay is defined as an accommodation facility that is managed by family members, with not more than 5 people as workers, 10 guest rooms, can accommodate about 25 people at low rate.
Lin (1998)
Homestay is defined as part of the hospitality industry. The business is based on combined natural and human resources.
Gao (1998)
Homestay is operated by the farmers who provide tourists the accommodation; while some others provide food too. Tourists can join the farmers’ daily activities, experience the village’ life style and understand the village traditions.
Lin (2001)
Homestay utilizes the resources, and provide village accommodation and recreation activities. The tourists will be able to feel, recognize and experience nature.
Tourism Bureau
(2001)
Homestay uses the free rooms, combined surroundings of local people, natural scenery, ecology, natural environment and agriculture activities. It is a side business managed by family members by providing village life style and accommodation facility.
Yang (2002)
Homestay uses the traditional construction, with the principle not to damage the village area and scenery and it provides special village food and beverage.
Chan (2002)
Homestay is a combination of surrounding scenery and recreation facility, food and beverage. It is managed by a friendly owner. It provides the tourists who is tired with the city life style with a short term stay at a place.
Yang (2003)
Homestay is the use of part of the house to provide temporary accommodation, and it is managed by the owner as a side business.
Wu (2003)
Homestay is a kind of the future industry, provides high class service quality, protects local ecology and performs local ability.
21 Table 2.2 (continued)
Researcher
(Year) Definition
Lin (2003)
Homestay provides a special opportunity to know more about agriculture activity, local operations environment or buildings, culture, and religion. Tourists will interact with the owner as there are less room in a homestay facility.
Huang (2005)
Homestay is the use of the free space in the house and provides accommodation facility to tourists, with a combination of the surrounding natural environment, humans, natural scenery and tourism resources. It is a kind of business which provides special life style experiences to tourists.
Duan (2006)
Homestay uses farming resources, ecological environment and cultural village life style; it provides tourist accommodation, food, beverage and local activity facility and service.
Source : Kao (2011)
2.2.2 Characteristics of Homestay
At the early stage of homestay tourism industry in Taiwan, homestay is located at the tourist hotspot area. The owners use the free space of rooms in the house which is nicely decorated, to provide a temporary accommodation to tourists.
However, this type of homestay will not be able to compete with other homestay owners who are more creative. Homestay is not a professional and business type of hotel. The government hopes that homestay tourism industry can also help to develop the village areas and sustain the homestay programme.
In general, homestay is usually located in a village with natural environment, far from the city, and it is managed as a side business at a cheaper rate. The homestay rate is reasonable because it is not equipped with high class facilities. It only provides basic required facilities with good condition in a safe area. The owners will create a family like feeling and most important is that the owners know how to
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use the surrounding natural environment as well as local culture as entertainment to tourists besides accommodation.
During these few years, homestay do not only provided accommodation services, it also offers the tourists a package of experience. So in the process of travelling, the tourists will have interaction with the owners or local people, get more knowledge of local culture, background of places, natural environment, and local industries activities. Several studies had been carried out which are related to homestay characteristics. Most researchers agreed that the characteristics of homestay should include: interaction between the owner and tourists (Lian, 2005;
Wu, 2003; Yang, 2003); provision of special opportunity for tourists to know more about the local people and culture, natural environment or special buildings (Wu, 2003; Yen, 2003); provision of special experiential stay and activities (Lian, 2005;
Wu, 2003; Yang, 2003; Yen, 2003); and offer of economic rate (Yen, 2003).
2.3 Sustainability of Business Performance
In order to move towards the sustainability of business performance, an organisation will have to find ways of enhancing probability of achieving business success and sustainability. In order to achieve this, the company has to move through three steps before it can achieving business sustainability and the scope includes quality management of the organisation, business excellence and finally arriving at sustainability (Pojasek, 2007). Previous researchers found that there was undoubtedly a small and positive relationship between business sustainability and organisation financial performance (Peloza & Yachnin, 2008). Robson, Prabhu, and Mitchell (2002) argued that performance should not only measure the financial area, but also the non-financial area. The performance measurement should include the
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measurement of operation performance, measures of business performance, competitive advantage, growth characteristics of several indicators, and the impact of the change (Robson et al., 2002).
Pojasek (2007) stated that sustainability of business performance means accomplishing an organisation’s vision and mission. It also includes the use of knowledge, tools, skills, and the techniques applied by the organisation in its daily activities, goods, and services in order to provide information within the firms to address products, services, and daily activity, to identify the critical objectives and targets that must be achieved, to remove the obstacles that could prevent the achievement of the firm’s mission and targets, to provide opportunity for the organisation the way to understand the probable result of controls and other diminution strategies for dealing with impediments or interruptions, to provide an understanding on how it can continue to achieve the critical objective and target set by them when interruptions occur, to create a criteria to trigger the implementing crisis and emergency response, continuity response, and recovery response, to make sure the staff and management team understand their roles and responsibilities during operation time when a major disturbance happens, to be committed to the requirements, implementation, and deployment of business sustainability and continuity which are integrated as part of the routine way the organisation conducts its business.
2.3.1 Business Performance
Business performance is part of business sustainability. The competitiveness of an organisation is derived from the performance of its own business.
Competitiveness is reflected in the size of the market share of the industries secured
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by that organisation and it highlights the importance of performance at organisation level (Barros & José Mascarenhas, 2005). Chen (2009) defined performance as either the organisation’s output or input; or as a relationship between them, usually known as efficiency.
Performance is defined as the competence of an object to produce results in a dimension that determined a priori in relation to a target. It should consist of an object of which performance is to be considered, the dimension in which one is interested, and a set target for the result (Laitinen, 2002). Performance is a kind of broad concept and it means changes accordance to performer’s perspectives and needs (Lebas, 1995). In general, the performance term means the interior measurements such as cost, profit, and market share (Laitinen, 2002).
Business performance is one of the dimensions used to measure business sustainability that includes value ( quality or price ), market share, cash flow, overall productivity, return on nest assets, and operating costs (Robson et al., 2002).
Business performance are indices of value (quality or price), market share, cash flow, efficiency and performance results, as well as overall customer satisfaction (Robson et al., 2002).
2.3.2 Measurement of Business Performance
The traditional measurement of business performance focus on financial allocations. Many arguments in favour of non-financial measures originated from the critics of these financial allocations (Laitinen, 2002). Phillips (2007) stated that the traditional metrics provide a picture of profitability in terms of efficiency, but it did not provide a systematic description of effectiveness in terms of achievement of strategic objective.
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Sin, Tse, Heung, and Yim (2005) used the subjective approach rather than objective approach because of the highly confidential data among Chinese societies, especially in terms of organisation information, respondents unwillingness to provide real financial data. The other reason is the strong association between the objective measures and subjective responses as revealed by the previous studies. Sin et al.
(2005) used two dimensions, namely financial performance and marketing performance in their study. Financial performance includes the return on investment, sales growth, return on sales, and market share; whereby marketing performance includes customer retention, trust, as well as customer satisfaction.
The appropriate and accurate performance evaluation is critical for judging the success or failure of a business. Therefore, the performance indicators that accurately reflect the competitiveness of a company must be identified carefully.
Previously, the dimension used in managerial decision making focuses on financial performance, such as firm revenue, market share, and return on investment. However the incorporation of non-financial performance indicators are also included to evaluate business performance today such as complexity environment of competition among global firm (Tseng, Chiu, & Chen, 2009). The non-financial performance deals with intangible assets that should be focused on hospitality performance measurement. Effective management of intangible assets can lead the organisation to deliver high quality services and this is a prerequisite for competitive advantage in the hospitality industry (Sainaghi, Phillips, & Corti, 2013).
In today’s competitive economic world, the organisation needs to compete among its rivals. For the organisation to achieve and sustain the competitive advantage, it is necessary for such organisation to have a link the strategy of the organisation and its performance measurements. The performance measurements
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framework now need to proceed further. It has to achieve a better collection of financial and non-financial measures and seek to identify the causal links among strategy play by the organisation, its measurements, and the outcomes set by the organisations. The performance literature emphasizes on the importance of these linkages between strategy and the measures (Chenhall, 2008; Ittner, Larcker, &
Meyer, 2003; Otley, 1999).
On the other hand viewing performance through non-financial lens can provide an insight into organisational processes and its outcomes that cannot be seen via financial performance (Ittner & Larcker, 1998). In fact, non-finance measures are indicators of intangible assets and key drivers of organisations value and may be better predictors of future financial performance than historical accounting measures, thus should be disclosed (Ittner & Larcker, 1998). Customer satisfaction, which is used as one of the marketing performance, has received the attention widely in accounting literature (McManus, 2013). Heskett, Sasser, and Schlesinger (1997) stated that customer satisfaction is one of the most important criteria for customer loyalty. The marketing academics has identified customer value as one of the top research priorities and the Marketing Science Institute has consistently included customer value in its list of research priorities (Spiteri & Dion, 2004). An empirical study that was conducted in Europe’s pharmaceutical market showed that physicians’
subjective customer value assessments of certain pharmaceutical companies led to the marketing performance success of a product, that was constructed of customer loyalty at the interface between subjectively observed and objectively measured dimensions business performance (Scharitzer & Kollarits, 2000).
Banker, Potter, and Srinivasan (2000) stated that recent studies reported on the increasing use of the non-financial measurement in performance measurement.
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The increment of literature studies in non-financial performance measurement is because of current non-financial measurements that are better predictors for long- term performance than the financial measurements, so it can help managers on the long-term aspects to focus on their further actions. The above discussion summarizes that financial measurements and non-financial measurements are important elements to determine the business performance. Thus, both measurements are used to measure business performance sustainability in this study.
2.4 Customer Loyalty
Customer loyalty has been regarded as the sine qua non of an effective business strategy. It is an integration element in the relationships that makes up the service profit chain (Heskett, 2002). The exploration of customer loyalty has become a genuine strategic objective (McKercher et al., 2012; Oliver, 1999), and it is actually important in the service sector such as the tourism industry and accommodation like homestay, given that the customers perceives a greater risk in the choice of service (Kim & Choi, 2003). Oliver (1997) defined customer loyalty as a deeply held commitment to re-purchase or re-patronize preferred goods or services consistently in the future, thus causing repeated sales of the same brand or same brand set buying, despite situational influences and marketing efforts that have the potential of causing customer switching behavior. According to Kandampully and Suhartanto (2000), a loyal customer is a customer who always repurchases the same goods or service provider whenever possible, and who continues to recommend to other people or to maintain a positive attitude towards the service provider.
Another researchers, Reichheld (2003) defined loyalty of attitude does not only refer to the customer behavior, since the simple repetition of buying may be due
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to the price, change costs, indifference or inertia. The literature recognized the multidimensional nature of loyalty in general, with some attitudinal components accepted (Velazquez, Saura, & Molina, 2011). However, most researchers applied only the attitude loyalty measurement (Dimitriades, 2006; Pritchard & Howard, 1997;
van Birgelen, de Jong, & de Ruyter, 2006; Yüksel & Yüksel, 2007). Based on Rundle-Thiele (2005), the review on loyalty measurement found that the most common used indicator is word-of-mouth, then followed by the repeat purchase intention. Many service organisations wish to recommend word-of-mouth as a good indicator of customer loyalty and it has a high capacity for grow in future (Reichheld, 2003).
It is very important to note background origins and particular characteristics of small business should be considered when examining the antecedents of loyalty in the rural hospitality enterprises. This is because small businesses are often characterized by a limited cash flow, multitasking job for staff or owner and a discredit of bureaucracy (Spence, 1999; Thomas, Shaw, & Page, 2011), as well as a strong relationship between the owner or manager with the organisation (McCartan- Quinn & Carson, 2003). Reichheld and Sasser (1990) were the first researchers to examine the benefits of an extended relationship with a customer, which included the margins both from repeated buying of standard goods or services and from buying new products and services. Loyal customers may be less costly to serve than those who have not been trained on how to buy the products or service from the suppliers.
A committed customer will not only be loyal or to repurchase, but will also demonstrate the ability to share with others including friends and family members their satisfaction after using the products or services (Heskett, 2002). Therefore, customer loyalty has been universally recognized as a valuable asset in the
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competitive market because the marketers strive to defend or capture their market share with the assistance of a loyal customer based (Srivastava, Shervani, & Fahey, 1998).
One of the methods to retain customer loyalty in the market is to offer membership customer with a member card. Some firms also try to retain customer loyalty by giving rewards, additional value and to be popular among the customers (Liebermann, 1999). For example, Tesco in Malaysia gives its customers member cards to collects points for all the purchases and then reward the card holders with some coupons. Besides, The Store in Malaysia also provide a member card to customers, and the function is the same as Tesco’s. These companies try to increase customer loyalty by giving out member cards, so that the customers will come back and purchase the company’s products.
2.4.1 Customer Loyalty and Business Performance
Generally, loyalty has been defined as repeat purchasing frequency or relative volume of same brand purchasing. Many definitions in the literature suffer from the problem that they recorded what the customers did and not tap into the psychological meaning of loyalty (Oliver, 1999). The increasing importance of relational marketing in recent years, particularly in the servicing and manufacturing industries, has been accompanied by a bundle of works on customer loyalty. Sheth and Parvatiyar (1995) emphasized on positive relationship that exist in business performance. Loyal customers will not only increase the value of the business, but they will also enable it to maintain costs lower than those associated with the aim of attracting new customers (Barroso Castro & Martı ́n Armario, 1999).
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2.4.1.1 Customer Loyalty and Financial Performance
The main objective of all organisations and companies, big or small, is to maximize the profit in order to sustain their business in its rivalry. Rust, Zahorik, and Keiningham (1995) proposed that customer satisfaction will influence customer loyalty, which in turn affects profitability. According to Nagar and Rajan (2005), the result of the relationship between customer satisfaction, customer loyalty and firm profitability, will produce a long-term financial impact on the business. According to Reinartz and Kumar (2002), customer loyalty is one of the means to achieve that objective. Any resources invested into the organisation that focuses on building the loyalty of customer but without focusing on profitability may lead to failure. Finally, Yee, Yeung, and Edwin Cheng (2010) and Yee et al. (2010) found that customer loyalty has a positive influence on firm profitability.
2.4.1.2 Customer Loyalty and Marketing Performance
After a decade of downsizing, major organisations have come to a point of diminishing returns increasing profits by reducing headcount and increasing operational efficiency (Sheth & Sisodia, 1995). This situation has led to a refocusing on marketing as a drive for future sales, and therefore profit growth (Sheth & Sisodia, 1995). There has been increasing demand from investors for information related to the quality of marketing effort, which traditionally has been both under and poorly reported in firm’s financial statements (Mavrinac & Siesfeld, 1998). An empirical study conducted in Europe’s pharmaceutical market showed that physicians’
subjective customer value assessments of certain pharmaceutical companies led to the market performance success of a product, that was constructed of customer
31
loyalty at the interface between subjectively observed and objectively measured dimensions of business performance (Scharitzer & Kollarits, 2000).
2.5 Perceived Attractiveness Aspects
The attractiveness aspects of the homestay will influence the tourist’s intentions to revisit the same homestay. The intention to revisit may be influenced by the promotional efforts to recall the unforgettable memories and the disseminated information on the new attractions (Genaidy, Sequeira, Rinder, & AD, 2009).
The package of service and the facility offered b
