Breffni M. Noone

Managing the long-term profit yield from market segments in a hotel environment: a case study on the implementation of customer profitability analysis.

Abstract Customer profitability analysis (CPA) is a technique which assesses the profit yield from market segments, primarily to provide management with information that will enhance long-term yield decisions. This paper documents the findings of a study which was carried out in order to test the feasibility of implementing a customer profitability system in a hotel environment. The test site chosen for the implementation of the system was a three star, 90-bedroomed hotel property located in the centre of Dublin city. The time taken to conduct the study at the site was 13 months. In order to implement the customer profitability system a 10-step systems development cycle was designed as reported by Noone and Griffin (1998). The paper reports on the key implementation issues at each stage of the development cycle, focusing primarily on the application of activity based costing to assign costs to customer groups, including activity analysis, driver identification and software chosen. The results of the analysis both in terms of the customer profitability figures outputted by the system and also managements evaluation of the system are presented. Among the findings of the analysis was that 38% of the revenue base at the site was generating a profit equivalent to 137% of total profits, with 30% of the revenue base generating a negative profit contribution equivalent to 62% of total profits. This finding is consistent with those reported by Cokins et al. (1993) illustrating that a small proportion of the customer base is generating more than 100% of the profits. Additionally, it was found that management at the site were unaware of the scale of the profit/loss generated by respective groups.

The Effect of Meal Pace on Customer Satisfaction

Restaurant operators who seek to increase table turns during peak periods may want to speed up the meals pace. However, excessive speed may make customers feel rushed. A survey of 218 respondents found that too fast a pace does affect customer satisfaction with the meal experience, with fine-dining customers more sensitive to pacing issues than customers in casual or upscale casual restaurants. Regardless of restaurant type, too fast a pace during the meal itself diminishes customer satisfaction, but speed during check settlement is often appreciated. The effects on customer satisfaction of the pace of welcome, seating, and taking drink orders depend partly on the type of restaurant and on the meal type. Guests at fine-dining restaurants do not want these preprocess events to be rushed. Additionally, a faster pace during these preprocess events at dinner diminished satisfaction ratings as compared to lunch.

Enhancing yield management with customer profitability analysis

Argues that in order to sustain the long‐term profitability and growth of hotel organizations, yield management decisions must incorporate two critical constraints: the cost implications of the customer mix and guest ancillary spend. Proposes that customer profitability analysis (CPA), which reports revenues, costs and profit by customer group, will give management the ancillary spend and cost information that will enhance customer mix decisions over a long‐term horizon. Identifies that the key to CPA lies in the application of an appropriate method of allocating costs to customers and proposes that activity‐based costing is the optimal costing solution.

Effects of Price and User-Generated Content on Consumers’ Prepurchase Evaluations of Variably Priced Services

The role of price in prepurchase evaluations for variably priced services has not been widely examined. Increased consumer awareness of variable pricing practices, coupled with growing availability of user-generated content (UGC) at the point of purchase in the online environment, may be changing the way that consumers use price in purchase decisions. This article examines the relative roles of price and UGC, specifically consumer reviews and aggregate consumer ratings, on consumers’ prepurchase evaluations in the context of the purchase of hotel accommodation, a service to which variable pricing is typically applied. Results indicate that, in the presence of UGC, price does not have a significant impact on perceived quality. Price and UGC have significant effects on perceived value, although consumers rely more on reviews than ratings when evaluating price–benefit trade-offs. These results suggest that, rather than simply competing on price, managers must also understand consumers’ perceptions of their firm versus the competition.

Hotel overbooking: the effect of overcompensation on customers' reactions to denied service.

Overbooking represents an important strategy for many service providers that apply revenue management. Although the objective is to overbook such that no customers are denied service, denials may result when the customer no-show rate is lower than expected. Research has shown that denied service can increase customer complaining behavior, and decrease customer satisfaction and spending behavior. Therefore, it behooves the service provider to put a service recovery strategy in place that will minimize the likelihood of these negative outcomes. This study investigates, in the context of denied service due to hotel overbooking, the role of overcompensation (type and amount) in shaping customers’ reactions to the service failure/recovery experience. Results suggest that cash-based overcompensation will yield significantly higher satisfaction ratings than voucher-based overcompensation or normal compensation alone, although the relationship between cash-based overcompensation and satisfaction is not linear. Additionally, overcompensation, regardless of type or amount, does not significantly influence customer repatronage intentions over and above normal compensation alone.

Overcompensating for severe service failure: perceived fairness and effect on negative word‐of‐mouth intent

Purpose – This study aims to examine the perceived fairness of overcompensation for severe service failures. The mediating effect of perceived fairness in the overcompensation‐negative word‐of‐mouth (NWOM) intent relationship is also explored.Design/methodology/approach – An experimental design approach was utilized to test the studys hypotheses. Overcompensation amount was manipulated at three levels (50 percent, 100 percent, 200 percent of purchase price), with two forms of overcompensation (cash or credit) tested.Findings – Cash‐based overcompensation yielded higher perceptions of distributive justice than full compensation, with no significant difference in distributive justice perceptions across cash amounts. Credit‐based overcompensation was perceived as no fairer than full compensation. Perceived distributive justice fully mediates the overcompensation‐NWOM intent relationship.Research limitations/implications – The studys findings are based on a single service context. Further research across di...

Examining the application of six sigma in the service exchange

Purpose – This paper aims to explore the role of six sigma in the assembly of service components, during the service exchange. Specifically, it seeks to examine whether applying six sigma principles to customer‐facing processes enhances customer satisfaction.Design/methodology/approach – The paper uses a field study to examine the relationship between conformance with a standardized service assembly process and customer satisfaction. Data were collected over a two‐month period using participant observation at the front desk of a leading hotel, and were analyzed using logistic regression.Findings – The results of the study provide a basis for discussion of the issues associated with applying six sigma to the service assembly process. The results suggest that the application of six sigma to customer‐facing processes does not improve customer satisfaction.Originality/value – Much of the documented success of six sigma has focused on its application to processes with minimum or no customer involvement. In con...

The Effect of Perceived Control on Consumer Responses to Service Encounter Pace: A Revenue Management Perspective

The ability to manage the time involved in a service process is critical to effective revenue management (RM). At the same time, customer satisfaction is also a key element of time management in services. In this study, we explore the time component of RM in services that sell time implicitly by examining a dining experience. Although service managers can use pace to manage the duration of a service encounter and increase capacity during periods of high demand, manipulating the pace may interfere with customer satisfaction. Prior research has shown that the relationship of perceived pace with customer satisfaction follows an inverted U-shape. If the service pace misses the “sweet spot” that balances pacing with customer satisfaction, the revenue benefits of increasing pace may be short-lived. Using a survey-based approach, we examine the moderating effect of restaurant customers’ perceived control of pace on the relationship between perceived pace and customer satisfaction. We found that when perceived control is low, perceived pace has a significant negative effect on customer satisfaction. However, when perceived control is high, consumers are less sensitive to variations in pace. This finding suggests that consumers’ perceived control of pace is instrumental to attenuating the negative effect of a fast pace on customer satisfaction.

Consumer goals and the service encounter: evaluating goal importance and the moderating effect of goal progress on satisfaction formation.

This study examines the stability of consumer goal importance across consumption episodes within the service encounter and the role of goal progress in the attribute— consumer satisfaction relationship in the context of restaurant experiences. Results indicate that consumers pursue multiple goals within the consumption experience, and the importance of those goals differs across consumption episodes within the experience. Using pace as a service attribute, it was found that goal progress moderates the impact of service attributes on consumer satisfaction. Satisfaction was high regardless of pace when goal progress was high. At low levels of goal progress, a moderate pace resulted in higher satisfaction than a slow or a fast pace. Implications for hospitality managers are discussed.

Development of an activity-based customer profitability system for yield management.

Customer profitability analysis (CPA) is a technique that provides management with customer-related information which will enable them to manage yield from a profit perspective. The information obtained from CPA will guide long-term marketing, product development and capacity management decisions to yield a customer mix that will generate the greatest returns. This paper proposes a systematic approach to the implementation of CPA in a hotel environment that uses activity-based costing in the assignment of costs to customers. The systems development cycle, methods used to gather and interpret information at each stage of the cycle and issues arising during the development process are discussed.