Background to the study

Thailand relies heavily on tourism for economic growth and development. There are several reasons for this. Firstly, revenue from international tourists exceeded Bt 470.6 billion or AUD$ 15.69 billion per annum in 2006 (Bank of Thailand 2007), which equates to approximately 6.0 % of GDP. These figures are predicted to increase dramatically. According to the World Tourism Organization (2001), international tourists arrived in Thailand is expected to exceed 36.9 million by 2020.

In common with most service industries, customer loyalty is an important aspect of stability and growth within the tourism sector because maintaining an existing customer provides several economic benefits. Indeed, customer loyalty has become a key goal for most businesses (Berry & Parasuraman 1991; Bowen & Chen 2001), because researchers agree that retaining existing or repeat customers is more profitable than continually seeking new ones. Research has found, for example, that loyal customers purchase more, incur lower marketing costs and spread positive word-of-mouth communication (Dwyer, Schurr & Oh 1987; Reicheld & Sasser 1990; Berry & Parasuraman 1991; Bowen & Chen 2001).

The key to customer loyalty is the development of positive relationships (Dwyer, Schurr & Oh 1987; Morgan & Hunt 1994). Whilst this has been a feature of service marketing for some time, recent and emerging research in hospitality studies also

places significant emphasis on host-guest relations and the development of relationships through the provision of genuine hospitality (Lashley 2000).

The importance of developing relationships between hosts and guests within Thailand’s tourism industry was highlighted by the Tsunami that killed over 60,000 people in South and South East Asia in 2004. It has been widely reported, for example, that repeat visitors were the first tourist group to return to Thailand after the incident. There were two major reasons for this. Firstly, repeat visitors understand the local environment and are able to assess the situation and risk in a more informed manner compared with those who have not previously been to Thailand (TAT 2004). Tourists who were not familiar with Phuket, for example, cancelled their trips because they thought that the whole Island of Phuket had been destroyed. In reality, only 10% of the island was affected by the Tsunami and this was understood by those who had previously visited. Secondly, tourists who had previously visited felt a need to help and support the locals, particularly in the case of service providers they knew from previous holidays (Rittichainuwat 2006). Consequently, customer loyalty and the development of strong and enduring host-guest relationships are very important for Thailand. Moreover, achieving repeat visitation offers greater prospects as a beneficial and sustainable tourism industry strategy than expensive promotional campaigns or discounting. Thus, it is argued, that to ensure long-term viability and economic growth for Thailand’s tourist industry, there is a need to better understand how to generate and maintain customer loyalty.

It is now recognised that Thai tourist destinations are vulnerable to unforeseen situations that can leave the tourism industry at great risk. However, Thailand is

fortunate in having several geographically dispersed and unique tourism regions, though few are as well-known internationally as Phuket and Pattaya. Strategies that assist the retention of customers and the promotion of Thailand as a tourist destination through positive word-of-mouth communication also offer the capacity to assist with the promotion and development of these less well known resorts.

Dwyer, Schurr and Oh (1987) assert that every customer has the potential to generate repeat business for a firm. Consequently, there have been many attempts over the past two decades to identify the factors that can increase levels of customer loyalty. In the 1980s, it was thought that the major determinant of customer loyalty was satisfaction. At that time, a large body of work focusing on the improvement of service quality pointed the way to higher levels of customer satisfaction. In hindsight, the proposition that providing high levels of service quality gain the highest level of customer loyalty is now viewed as being poorly grounded. Zeithaml, Berry and Parasuraman (1996) have noted that during the 1980s many business executives appeared willing to trust their intuition and committed resources to improving customer satisfaction levels with no apparent data to support the link between this strategy and customer loyalty. Recently, published research has noted that customer satisfaction does not always lead to customer loyalty (Bowen & Shoemaker 2003; Mattila 2001). These research publications show that the concept of customer loyalty is more complex than was originally thought. It is a paradox that loyal customers do not always repurchase, and, equally, those who do repurchase are not necessarily loyal customers (Mattila 2001). Mattila’s contention is consistent with the American Customer Satisfaction Index (ACSI), which cautions that ‘customer satisfaction has a

positive effect on loyalty, but the magnitude of that effect varies greatly across companies and industries’ (American Customer Satisfaction Index 2005).

Since it was first noted that customer satisfaction does not always lead to customer loyalty, considerable research has attempted to fill this gap in knowledge. Various models have identified a number of antecedents as central to the discovery of the actions that increase customer loyalty. There is wide consensus among researchers that customers need to commit to a relationship with a firm in order to establish their loyalty. As a result, identifying the factors that foster the development of a buyer- seller relationship has become a key theme in the marketing literature. The common factors in relationship development proposed by previous researchers are: trust (Crosby, Evans & Deborah 1990; Morgan & Hunt 1994; Moorman, Zaltman & Deshpande 1992; Ball, Coehall & Machas 2004), commitment (Morgan & Hunt 1994; Moorman, Zaltman & Deshpande 1992; Verhoef 2003), communication (Anderson & Weitz 1989) and reputation (Anderson & Weitz 1989, Ball, Coehall & Machas 2004). Of these, trust and commitment stand out in many studies because they have been recognized as important variables that lead to a healthy business relationship (Dwyer, Schurr & Oh 1987; Morgan & Hunt 1994; Moorman, Zaltman & Deshpande 1992; Beloucif, Donaldson & Kazanci 2004).

Most researchers agree that trust and commitment are central elements of a successful relationship and a considerable number of studies have sought to establish how trust and commitment influences the development of buyer-seller relationships (Morgan & Hunt 1994; Bowen & Shoemaker 2003). Trust is defined as ‘… a belief by a person in the integrity of another individual’ (Larzeiere & Huston 1980, p.595), whilst

commitment is ‘…an enduring desire to maintain a valued relationship’ (Moorman, Zaltman & Deshpande 1992, p.316). As a result, it is frequently argued that customers will stay with a provider to whom they are committed, but before they can commit to any relationship they have to have a feeling of trust towards their business partners.

Morgan and Hunt (1994) were the first to propose that trust and commitment are the key ingredients of a successful relationship. Their model of relationship marketing identifies trust and commitment as the key mediating variables of the model, and they also assert that five key constructs need to be considered in order to achieve customer loyalty. These constructs are termination costs, relationship benefits, shared value, communication and opportunistic behaviour, which are discussed later under the heading “Key Mediating Variable model”. These constructs are then fully explained in the literature review which is presented in Chapter Two. However, it should be noted at this point that these five constructs assist in the development of trust and commitment, and that trust and commitment, in turn, influence customer loyalty.

A major focus of this study is to identify cross-national differences in the development of trust and commitment between customers of Thai resort hotels and resort hotel operators. This will be achieved by comparing the attitudes of resort guests from Australia and Thailand. Specifically, the present research will evaluate how Australian and Thai resort guests perceive the importance of the antecedents of trust and commitment as predictors of customer loyalty.

An understanding of the essential differences between cultures, particularly those between the East and the West, has the potential to open up new issues of research in

hospitality. There is a need to more comprehensively understand the relationship between trust and commitment, and the development of loyalty in an international tourism context that involves quite different cultures in a host and guest relationship.