The Importance of Service Encounter Social Exchange Elements for Creating Positive Word of Mouth within the Australian Public Hotel Industry

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1 The Importance of Service Encounter Social Exchange Elements for Creating Positive Word of Mouth within the Australian Public Hotel Industry Elizabeth Connoley - University of New South Wales Abstract Service encounters can be separated into several important social exchange elements. In this study five components derived from a literature review were confirmed by qualitative research to become the independent variables in a quantitative phase assessing the impact on positive word on mouth (WOM). Positive WOM is significant to businesses through its ability to generate short and long term financial benefits. Findings from this study suggest that the competency and friendliness of the staff are critical in determining positive WOM. Contrary to expectation, wait time was seen as insignificant in the evaluation of this service. Introduction In an increasingly competitive market the element of social exchange may hold the key to maintaining a sustainable competitive advantage over rivals through satisfied customers and the generation of healthy profits via repeat business and referrals from positive word of mouth. The importance is such Zeithaml and Bitner (2003, p11) concluded quite simply that service equals profits. The social exchange that takes place between the employee and customer during the service encounter is crucial to the customer satisfaction particularly for service businesses with high levels of consumer contact and person-to-person interaction (Iacobucci and Ostrom, 1993; Gronroos, 2006; Surprenant and Solomon, 1987). The financial benefits of good service encounters are well recognised within the relationship marketing (RM) literature which suggests that customer satisfaction with the service encounter leads to the possibility of a relationship which in turn creates long-term financial benefits in repeat purchase behaviour, positive WOM and preparedness to pay price premiums (Buttle, 1996; Dwyer, Schurr and Oh, 1987; Gummesson, 2002; Pizam and Ellis 1999; Zeithaml, Berry, and Parasuraman, 1996) The research proposition involves identifying the major drivers of customer satisfaction within a service encounter and understanding their relative importance with particular attention to WOM.. Literature Review WOM communication is defined as all informal communications between a customer and others concerning evaluations of goods and services. (Hennig-Thurau, Gwinner and Gremler, 2002, p231). In various studies positive WOM has been shown to have a strong and direct relationship to customer satisfaction (Hennig-Thurau et al, 2002). WOM has been acknowledged to exert a major and powerful influence on product trial, encouraging customer loyalty and influencing repeat purchase (Buttle, 1998; Hennig-Thurau et al, 2002). Hence, WOM is considered a key marketing outcome that brings many short and long term financial benefits through reduced selling and advertising costs, lower customer acquisition costs, higher initial and repeat sales revenue and a strengthening of the brand equity enabling greater resistance to the threat of new market entrants (Berman, 2005; Butcher, Sparks and O Callaghan, 2001; Dwyer et al, 1987; Gummesson, 2002; McNeilly and Barr, 2006). 1

2 Service Encounter - The importance of the service encounter in a transaction is clearly evident in the statement by Bitner, Booms and Tetreault (1990, p71) that the service encounter frequently is the service from the customer s point of view (emphasis added). The general thinking of many influential academics also supports this idea that customers strongly focus on the service encounter when evaluating a service (Iacobucci and Ostrom, 1993; Gronroos, 2006; and Surprenant and Solomon, 1987). Furthermore, satisfaction with the service encounter flows on to have a positive and direct impact on the profitability of a business through behaviour such as repeat purchase and positive WOM (Buttle, 1996; Dwyer et al, 1987; Gummesson, 2002; Pizam and Ellis 1999; Zeithaml et al 1996). Friendliness - Friendliness is an affective display from one person to another and can be described as a range of behaviours including familiarity, flirting, caring, politeness, responsiveness, helpfulness and understanding (Butcher, 2005, p126). Friendliness plays a critical role in determining a positive service outcome (Goodwin, 1989; Ostrom and Iacobucci, 1995; Parasuraman, Zeithaml and Berry, 1985). In claiming that friendliness is an important property of service, many studies have produced results that suggest that friendliness can effectively augment a product or service; affect customer s evaluations of satisfaction and value and influence repeat purchase intentions and positive word of mouth (Butcher et al, 2001; Lemmink and Mattson, 1998; Ostrom and Iacobucci, 1995; Price and Arnould, 1999). Yet, despite these encouraging aspects of friendliness to good business outcomes, friendliness is only occasionally presented as a separate variable. Physical Attractiveness - Research into the effects of the attractiveness of the service provider is limited despite service provider appearance being one of the first impressions a consumer will have (Caballero and Solomon, 1984; Koernig and Page, 2002). In terms of physical goods and advertising, consumers are more likely to use a highly attractive model as a peripheral cue when evaluating a lower involvement product (Bower and Landreth, 2001, p8). Yet, service provider attractiveness is considered irrelevant for goods unrelated to beauty (Kahle and Homer 1985; Kamins 1990; Parekh and Kanekar 1994). Interestingly, Bower and Landreth s (2001) research reported that expertise could mediate attractiveness. In situations of product intangibility (such as service encounters in public hotels), peripheral cues such as physical attractive may potentially yield a strong influence in the overall service evaluation. Gender - Gender has been studied from many service approaches including gender-role congruence (Eagly, Makhijani and Klonsky, 1992; Iacobucci and Ostrom, 1993; Moshavi, 2004; Mohr and Henson, 1996) preference for same/opposite sex preference of service provider (Fischer, Gainer, and Bristor, 1997; Forseth, 2005; Iacobucci and Ostrom, 1993) and the gender preference for relationships (Iacobucci and Ostrom, 1993; Mattila, Grandey and Fisk, 2003; Mohr and Henson, 1996). Although research has offered some insights into gender behaviour and preferences for within service encounters, the conflicting and complex findings have resulted in a lack of consensus on gender effects. Competency - Competency is formally defined by Parasuraman et al (1985, p47) as the possession of the required skills and knowledge to perform the service. Many academics state the importance of competency to a service encounter as the (strong) influence it can have on a customer satisfaction (Chandon et al, 1996; Liljander and Mattsson, 2002; Price, Arnould and 2

3 Deibler, 1995; Swan, Trawick, Rink, and Roberts, 1988; Surprenant and Solomon, 1987; Verma, 2003). Alternatively, lack of competency is known to create negative service evaluations from customers. Waiting - Waiting can often be the first contact a customer has with a business and is noted as a source of customer dissatisfaction (Bitner et al, 1990; Davis and Heineke, 1998; Davis and Vollman, 1990; Taylor, 1994). Studying waiting is important as it affects customer satisfaction, repeat purchase intentions, customer mood, willingness to spend all of which have a negative effect on profitability (Bitner et al, 1990; Davis and Heineke, 1998; Jones and Dent, 1994; Sarel and Marmorstein, 1999; Taylor, 1994). Methodology The research design incorporated both and qualitative and a quantitative phase. First, an exploratory qualitative phase was conducted to ensure that no important variables had been overlooked in the literature review. A series of 18 interviews conducted with publicans, bar staff and students discussing the important attributes of service encounters was analysed through content analysis. The results confirmed that four of the original five variables extracted from the literature review were significant. Although gender did not to elicit any responses, based on the earlier findings this variable was retained into the quantitative phase. The second phase consisted of a survey administered to 389 university students. The quantitative survey aimed to quantify and predict the effects of social exchange in the public hotel service encounters. A 2x2x2x2x2 factorial experiment design provided the basis for the questionnaire design. A vignette accompanied the questions derived from existing scales from Bitner and Hubbert (1994), Zeithaml (1988), Iacobucci and Ostrom (1993), Iacobucci, Grayson and Ostrom (1994), Butcher et al (2001) and Butcher and Heffernan (2006). A range of questions relating to WOM were taken from the scales in Butcher and Heffernan (2006). A student sample was chosen because this segment of the market are high users of the service, and further, student samples have been shown to be appropriate for theory building approaches (Price et al, 1995). Content validity concerns were addressed through two avenues: the literature review and the pre-testing procedures which consisted of two focus groups. The first focus group was comprised of students while the second was comprised of both students and academic staff. None of the participants had been previously involved in the research. A question relating to the credibility of the questionnaire vignette ( situations like this occur in real life ) was incorporated along with administering independent samples t-tests. The t-tests were conducted to demonstrate the respondent has an understanding of the questions being asked of them and is answering the survey in a manner that reflects this understanding. The t-tests revealed all constructs were significant at the level. The decision to use multiple regression analysis was based on a number of reasons: to quantify theory; test theory; measure the strength of the relationship between variables; and the prediction of the value of the dependent variable given the value of the independent variable (Kenkel, 1989, p604). Further, this technique is more robust to violations of the rules of normality than other techniques, which may have been an issue in this research. With the assistance of the computer package Stata, the Breusch-Pagan test against hetroscedasticity was performed to test each of the 3

4 regression equations. The test resulted in zero hetroscedasticity being detected. Stata was further used to conduct two other diagnostic tests to advance linear regression as the best analytical choice. Box-Cox regression suggested that all the dependent variables were linear except possibly WOM, which may benefit from a square root transformation. The final test performed by the Stata package was a Ramsay RESET which is a specification test designed to find errors in the prediction of the dependent variable that arise from excluding one or more variables (Hair et al, 2006). No specification errors were found so it was determined that linear regression was appropriate. Findings WOM was a simple one-item construct. The linear regression model for WOM was regressed on the independent variables of wait time, bar person gender, attractiveness, friendliness and competency. The overall regression model had a significant F-Value (5, ) at.001 level (see Table 1). The adjusted r-square (.301) indicated that the model had moderate ability to explain the variance in the data. The unstandardised beta values demonstrated that friendliness (b= 1.576, t= 9.472) and competency (b= 1.352, t= 8.125) exerted a highly significant (.001 level) impact on WOM. Wait time (b=.196, t= 1.177), attractiveness (b=.206, t=.1.220) and bar person gender (b=.171, t= 1.018) were not significant. Table 1 Linear Regression model for wait time, bar person gender, attractiveness, friendliness and competency on WOM Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta (Constant) *** wait time bar person gender attractiveness friendliness *** competency *** Adjusted R2 =.301, F-statistic = , p-value (sig. Level) = Significance codes: *** p < 0.001; ** p < 0.01; * p < 0.1 The gender of the customer played a clear role in determining the relative importance of the antecedent factors when the linear regression models were run separately in each gender group (Table 2). In brief, in terms of the dependent variable WOM, competency and friendliness, same as the aggregate regression model, demonstrated their importance in both male and female groups at.001 level while attractiveness, was shown to be important to men but not women. Respectively, the results were: competency - men (p=.000, b= 1.498, t= 7.270) and women (p=.000, b= 1.283, t= 5.164): and friendliness put men at (p=.000, b= 1.616, t= 7.826) and women (p=.000, b= 1.575, t= 6.300). Wait time and bar person gender displayed no significance to either gender with results of: wait time men (p=.520, b=.131, t=.644) and women (p=.369, b=.226, t=.901); and bar person gender results of men (p=.907, b= -.025, t= -.117) and women (p=.282, b=.270, t= 1.078). The difference in the gender mainly fell to the factor of attractiveness, which was reasonably important to men (p=.008, b=.558, t= 2.680) but not to women (p=.965, b= -.011, t= -.044). 4

5 Table 2 Linear Regression model for wait time, bar person gender, attractiveness, friendliness and competency on Gender Source Dependent variable = WOM Significance codes: *** p < 0.001; ** p < 0.01; * p < 0.1 B t Sig Male Female Male Female Male Female Wait time Bar Person Gender Attractiveness **.965 Friendliness ***.000*** Competency ***.000*** F-Statistic Adjusted R Conclusions Overall the research made some small incremental yet useful contributions towards closing an existing gap in the literature and extending service encounter knowledge in general. The research identified the important social exchange variables and demonstrated their positive effect on service encounter outcomes. The results confirmed and reinforced previous research relating to friendliness and competency. Yet, other areas such as the lack of support for wait times and some of the surprising differences between genders require further investigation. The identification of factors that contribute to satisfying service encounters is relevant to academics for theory development. Additionally, such an understanding of service encounters presents some practical contributions to the business world by offering practitioner s potential strategies (both marketing and HR) to enhance and improve customer s evaluations of service. For businesses WOM is potentially a powerful mechanism for securing competitive advantage over rivals. Behaviours such as WOM have previously demonstrated clear long-term financial gains through developing a relationship with customers, maintain and expanding the existing customer base and therefore overall profitability. The more friendliness and competency are integrated into working environment, the more likely it is that the company will experience profitability through satisfied customers who promote business through positive WOM. The research conducted in this paper has several limitations. Firstly, the sample was a student sample at one university in regional Australia. Secondly, caution needs to be exercised when drawing causal inferences from experimental designs. Thirdly, the context of this study was in relation to public hotels and consequently care should be taken when transferring these findings to other contexts. However, it is suggested that further research replicate this study in different contexts and countries. References Berman, B., How to delight customers, Californian Management Review, 48(1),

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Elizabeth Connolly School of Marketing and Management, Charles Sturt University, Bathurst, NSW

RELATIONSHIP BUILDING IN SERVICE ENCOUNTERS: THE IDENTIFICATION OF SOCIAL EXCHANGE COMPONENTS THAT LEAD TO REPEAT INTENTION IN THE AUSTRALIAN PUBLIC HOTEL INDUSTRY Elizabeth Connolly School of Marketing