Hospitality Management: Service Innovation Answers Assessment Answer



In this ever-changing environment, business sustainability has become one of the most serious concerns. Top multi-national organizations are still fighting for successfully keeping a balance between stakeholders’ expectations (Heskett et al., 2013). While considering the hotel sector, what comes in exquisitely is the quality of service. With the impact of competition, keeping the balance between customer loyalty and employee satisfaction has become the biggest challenge (Sigala, 2013). Managers of hospitality sector are trying to squeeze out profit without updating the quality of service. This eventually leads to diminished customer loyalty. Therefore, especially hospitality sector, which is the service oriented industry, needs to ensure “putting the service-profit chain to work” and incur the concept of “The experience economy”.

In this paper, the two concepts “putting the service-profit chain to work” and “The experience economy” will be discussed critically. The importance of these concepts will be discussed based on a manager’s perspective in the hotel sector. Practical views of these concepts will be evaluated and the implications will be presented. Moreover, practical examples from the hotel industry, which deals with such concepts, will be presented. The amount of success and achievements that the hospitality organizations achieve by experience economy will be presented. Finally, the metrics that a manager should use for evaluating the effectiveness of concepts will be discussed.

Concpet of “Putting the service-profit chain to work”

Management mantra has changed in case of earning profit for an organization. Top-level executives from reputed service related organizations are spending less time in setting their organizational profit and market share. The concept of “Putting the service-profit chain to work” has established a link between profit, customer loyalty and employee loyality, satisfaction andproductivity. According to Reynoso, (2013), this concept highlights that profit and growth of an organization actually come from customer loyalty. On the other hand, Sigala, (2013) opined that the customers will be loyal to the organization, when they will be satisfied. Customer satisafaction come from the customized value provided to them. On the other hand, the organization will be able to provide customized value to the customers through satisfied employees. Employee satifaction, in turn comes from suporting devices and flexible organizational policies.

While considering a business, where the customers pay attention to only the types of servcies they recieve, it is commonly considered as hotel industry. Accordinng to Cohen and Olsen (2013) the growth of this industry only comes from loyalty of customers. More the customers take repeated servcie, more profit will be earned by the hotel industries. Therefore, the managers of hotel industry should be highly focused on building customer satisfaction and assessing its impact on profitability of business. Reichheld and Sasser of this article has estiamted that a 5% increase in customer loyalty can increase organizational profit from 25%-85% (Myrden & Kelloway, 2015). The managers of hotel industry should identify the life time value of loyal customers. On the other hand, Loveland et al., (2016) opined that life time value of loyal customers can have astronomical effect on hotel industry, especially in case of adding referrals to repeatation and retention of customers. As customer loyalty is drived through customers satisfaction, the manager should be very much concerned about satifying the customers. Customers of any restaurant or hotel become pleased when they are being served satisfactorily. Therefore, the managers of hotel industry should keep their customers in the frontline of operational plan. It will keep their hospitality business afloat.

According to Chicu et al., (2016), customers satisfaction in turn comes from customized value provided to the customers. Most of the customers in hotel industry are value oriented. Therefore, it is extremely improtant for the managers to realize the exact expectation of every customer so that it can be met properly. On the other hand, Yee et al., (2015) argued that today’s customers are not satisfied with just getting good ettiquettes and recipes from the hotels. They are now more concerned with having a memorable experience and dynamic service from the hotel servcie. Quick service and standard business practices provide better customer value. From extending guest check out to incorporating customized menu are all part of standard business practices. The managers of hotel industry should keep constant contact with the customers and take their feedback in improving their business. Customers will be engaged in business, when it will be able to deliver service as promised.

In order to provide customized value to the customer, the employees of hotel industry should perform at their best level. According to Gronholdt and Martensen, (2016), employees are the ultimate persons, who are responsible to serve customers. Employee performance is extrmely important in hotel industry, as they are to interact directly with the customers. It is completely manpower oriented business. Moreover, employees of hotel industry are responsible for satisfying the guest. Therefore, the operation managers of hospitality sectors should effeciently supervise the employee performance towards business success. On the other hand, Evanschitzky et al., (2012) suggested that employee productvity is directly linked with employee loyalty. Increased rate of employee turnover not only incur loss for organizations in terms of hiring cost, but also reduces employee satisfaction. As long as the employees will be loyal to their organization, they will be productive and put their best effort.

Again, the concept of “Putting the service-profit chain to work” suggests that employee loyalty is completly dependent on employee satisfaction (Evanschitzky et al., 2012). It is extremely imrportant for the managers to understand the factors of employee satisfaction. Satisfied employees of this industry are more like to see things positively and satisfy the customers. As long as the managers of the hotel industry will be able to satisfy their customers, they will achieve inceased employee loyalty.

On the other hand, customer satisfaction is drived from supportive organizational devices and policies. According to Robinson et al., (2015), internal quality of hotel sectors contribute most to the satisfaction level of employees. Supportive leadership is one of prime factors for employee satisfaction. It is extremely important for the managers to understand the concept of “Putting the service-profit chain to work”. On the other hand, Kumar and Kumar, (2016) opined that the managers should properly listen to the issues of employees and take immediate remedies before it becomes employee grivence. Apart from that, the managment should also provide appropriate salary to the employees to keep them satisfied all through their job career.

Concept of “The experience economy”

The concept of “The Experience Economy” defines that consumers buy experiences rather than goods and commodities. According to Degen et al., (2015), economists have lumped up experiences with services. However, experiences are distinctive economic offering, which varies from one business to others. Economic offerings also varies from one customer to others. Here is the concept of Mass Customization. In case of hotel industries, it is exteremely important for the managers to serve the unique demands of the customers. On the other hand, Loureiro, (2014) opined that customers always want to feel authenticity in the commodities they buy. It is the time to go beyond the concept of goods and commodities and give them memorable experiences through customized service.

In case of hotel industry, there can be some experiences, which can be artificial but it should make the customers say “wow”. As hotel indutries are completely depedent on the degree of customer satisfaction, providing economic offering to them is highly important (Manthiou et al., 2015). Keeping this concept in mind, the managers should offer some unique values to the customers, which they would feel to be authentic. Adding soft music and enchanting decoration in hotel room can provide extraordinary experinece to the customers. Apart from that, reducing number of transactional charges may provide a view of “value for money”. Thus, it is significant for the manager to identify the emotional, intellectual, psychological and spiritual spirit of customers before selling service.

In today’s modern business era, most of the organizations have realized the importance of “Putting the service-profit chain to work”. While considering the example of Regatta Hotel, it can be said that the managers estimates the organizational profit on the basis of customer loyalty. According to Song et al., (2015), the managers have made customers and employees as the centre of their concern in running their bsusiness. The managers estimate the number of repeated customers in a monthly basis. It has been found that increased customer loyalty of this hotel has enhanced their profit level up to 30% (Coca-Stefaniak & Carroll, 2014). On the other hand, Guex and Crevoisier, (2014) opined that customer loyalty of this organization come from the customer satiafction they provide. It has been found that this hotel provides variery of free ammenities in term of entertainments and foods. These ammenties provide customized value to the customers. The organization is capable of providing satisfactory service to the customers, as their employees are extremely productive. The employees of Regatta Hotel are much more skilled and enthusiatic in greeting their customers. They constantly get training and support for enhacing their customer service skills from their supervisors.

Another example of hotel, which utilize the concept of “The experience economy” is Hotel Windsor. Experience has always been the heart of hotel industry. Customers always like to have some extraordinary experience from hotels.In order to provide a feel of authenticityto the customers, this hotel has designed their website in such a way, which give a real look of hotel environement. The managers of this hotel especially take care of unique needs of the customers for providng customized service. According to Bille, (2012), one of the most important customized services of this hotel is providing ‘Afternoon tea’for the customers residing in it. The customers get traditional taste of Melbourne through this tea. On the other hand, Ju, (2014) opined that this hotel has become successful in achieving memorable experience to the customers, by offering ‘Grand Romance Package’. In this service, couples after entering into Hotel Windsor receive a bottle of champagne and valet parking. The cutomers also get free room service breakfast for two and late checkout. This kind of unique service makes the customer to revisit this hotel.

Metrics for measuring the concept “Putting the service-profit chain to work”

Measuring Profit and Growth

Customers often proved to be profitable over time. Loyal customers acccount for high proportion of sales and profit in organization. Managers of hotel industry should measure organization profit through number of repeated customers and customer referels. Managres from many reputed hotels have agreed that 20% of most loyal customers not only contribute to organizational profit, but also incur organizational loss (Beltagui et al., 2012). On the other hand, Leslie et al., (2015) opined that the managers could measure customer loyalty through assessing their inclusion in company’sroll. It has been seen that repeated customers have increased the sales of Wrest Point Hotel Casino by 45% (Leslie et al., 2015).

Measuring Customer Satisfaction

High level of customer loyalty is driven from customer satisfaction. Leading service organizations are inclined to quantify the level of customer satisfaction. According to Coca-Stefaniak and Carroll, (2014), managers of hotel industry can measure customer satisfaction through conducting customer satisfaction survey. In today’s business world, this metric has become so popular within hotel sectors. On the other hand, Degen et al., (2015) opined that customer satisfaction survey is often conducted through mails and face-to-face interview. The managers should quantify customer satisfaction in quarterly basis to assess the product value.

Measuring External service value

External service value is not only related to the cost to the customers, it is also about results achieved from the customers. Service value is always dependent on both the perception of ways service is delivered and the initial expectation of the customers. According to Manthiou et al., (2014), the managers of hotel industry can measure value by using the reasons expressed by the customers for their positive or negative experience of service. On the other hand, Loureiro, (2014) opined that managers should also differentiate each customer’s comments for customizing service.

Measuring employee productivity

Measuring employee productivity ultimately determines total output of organization. High level of employee productivity in hotel industry is directly linked with customer satisfaction. According to Coca-Stefaniak and Carroll, (2014), manager of hotel industry should measure the output of employees on basis of quality service they provide to the customers.  On the other hand, Song et al., (2015) opined that managers should also conduct performance evaluation method to assess employee productivity.

Measuring employee satisfaction

Employee satisfaction is directly associated with employee productivity. In case of hotel sectors, highly satisfied employees are more likely to serve best for their organization. Therefore, the managers should regularly measure the satisfaction level of the employees. According to Guex and Crevoisier, (2014), hotel managers should conduct employee survey and round table meeting for assessing their view about their job role and organization. On the other hand, Ju, (2014) argued that frequent interviews with employees would also be beneficial in measuring employee satisfaction.

Measuring internal service quality

Improved internal service quality by the means of flexible policies, advanced technology and supportive management bring high-level employee satisfaction. Therefore, the manager should check the feasibility of organizational environment in a constant basis. According to Coca-Stefaniak and Carroll, (2014), a manager of hotel sector can measure internal service quality through interviewing the employees regarding their organizational policies and devices.

Metrics for measuring the concept “The experience economy”

Measuring satisfaction

According to Leslie et al., (2015), the manager of hotel sector should assess whether the customer’s psychological need or expectation has been met or not. It will give the managers an evaluation of customer’s experience. This evaluation will draw out whether the service itself provides a pleasurable consumption-related fulfillment or not.

Measuring behavioral intention

In order to measure whether or not a customer has gained a memorable experience from the service, the managers should assess customer’s behavioral intension. According to Coca-Stefaniak and Carroll, (2014), the manager of hotel sector should measure the likelihood of a customer to be engaged in a behavior. It is the correlation between the actual behavior and customer intention. Assessing behavioral intension would help managers in identifying the future behavior of customer with the service. On the other hand, Degen et al., (2015) opined that positive behavioral intension is occurred through recommend and repurchase of customers.


While concluding, it can be said that both of the theories are extremely important for an organization. On one side it is customer loyalty and on the other side it is employee satisfaction. It has been analyzed that until the employees are satisfied, consumers cannot be satisfied. Performance of an organization can be enhanced only by focusing on the employee satisfaction. Being a service oriented industry amount of repeat customer can be increased only if service-profit chain is established. Though, for an organization that is not financially strong will become very difficult to manage its profit. Managing employees need a lot of financial investment, against which the considerable outcome will not be spontaneous.

Considering economical experience concept, it can be said that consumers will only return if their experience has been fantastic. Products are quite similar in the hotel industry, but the type of service delivery must become proactive and customized. If the internal administration is highly positive and practical, then the employees will surely try to perform better. From both of the articles, it is clear that profit earning is based on a chain, where customers can be retained only if their experience with service is positive. Finally, it can be said that authenticity, memorable experience and customized services are the main pillars of a successful business.


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