Since the beginning of the new century, the hotel market in the United States and Europe has been a stable one. Due to economic and political developments throughout recent years, the number of occupied rooms and the revenue per room were stable or even declined, while in 2004 an increase in these figures could be stated. In 2001 and 2002, even the profitability of European hotels decreased by a total of 14 per cent. In this highly competitive situation, Ritz-Carlton permanently strives to create value for its customers and thus, via customer loyalty, has created a high firm value. For Ritz-Carlton, value creation starts with a superior service quality. For the firm, high quality is not defined by little details such as heated bathroom mirrors, but by consistent and consequent high-class service. This strategy is documented by the service level Ritz-Carlton realises along the entire hotel value chain.
Within the interaction process of the value chain, everything is done to satisfy the customer. This includes all service options during the stay (service production stage in the value chain), starting with little services that are self-evident for a hotel of this class. For example, when the coffee is too cold, the guest gets a fresh cup at the hotel’s expense. Also, a hotel can employ a technology assistant who helps guests to send data via a laptop. The Ritz-Carlton strives for extra service.
This becomes obvious at the after-sales stage of the Service Value Chain, as the example reported by a managing director of one European Ritz-Carlton shows:
‘Recently, we conveyed a guest to the train station, where he discovered that he had left important documents at the hotel.’ The chauffeur took the fastest avail-able car at the hotel, drove to the station at which the guest was due to arrive, getting there before the guest, and handed his case to him when he alighted from the train. Another employee went out and purchased essential medicine for a guest. Then there is the example of the employee who let a guest use his personal car because the rental car did not arrive at the hotel on time.
Not only at the interaction process level, but also at the relationship level, Ritz-Carlton aims at delivering value. A guideline for employees is ‘Never lose a guest’. This demand corresponds to the organisation’s philosophy, but also to a simple financial calculation: an average guest spends 100,000 euros within the group during his life. Next to this simple philosophy, a relationship system is
implemented in order to collect information of guests, such as ‘Mr X prefers to sleep on the left side of the bed’, or ‘Mrs Y likes bananas on the fruit plate’. One employee – without being asked to – recorded a Formula 1 race for a guest who had mentioned in passing during his last visit how annoying it was that he could not watch the race.
Regarding the secondary value processes of Ritz-Carlton’s value chain, many of the services are individualised and – despite the assistance of information systems – require the full dedication of the hotel’s employees. Therefore, Ritz-Carlton places a strong emphasis on employee recruitment and motivation activities.
With regard to employee recruitment, the opening of the Ritz-Carlton in Berlin, Germany is a good example. One year before the opening of the hotel, Ritz-Carlton started searching for candidates and training the selected ones, recruited from all over the world. For each position, there is an exact job description, says Sue Stephenson, the senior human resource manager of the chain. These were developed based on a worldwide internal benchmarking for each position and depict exact qualification requirements for each position.
Besides the training and personal development opportunities for each employee, the image as ‘best hotel and locations all over the world’ also attracts the best employees. However, Ritz-Carlton pays salaries that are only slightly higher than those of its competitors. At the same time, the working hours are no better than at other hotels, but Ritz-Carlton stands out from the crowd in terms of employee motivation. This starts with the philosophy that they are not only employees but hosts. In internal communications, employees are addressed as ladies and gentlemen and, for example, take their meals in the restaurant rather than in a cafeteria.
The most significant element of this philosophy is that, in contrast to the employees of other hotels, the employees of Ritz-Carlton have real decision-making authority. Not only are they allowed to act self-dependently – they have to do so. The philosophy says ‘The employee should interrupt his actual work in order to attend to the guests’ needs’. This often happens in day-to-day situations, but this empowerment approach can also be applied on a higher level. Every chambermaid is allowed to offer a room to a guest, every waiter is allowed to invite a guest to a meal – without asking the supervisor for permission. The employees utilise their authority only because they are not asked for justification in the event of mistakes. For Ritz-Carlton, standardised excuses are not enough –
‘When you forget a wake-up call, it does not help the guest when you bring him a bottle of champagne’. The only thing that counts is solving the problem. As a con-sequence at Ritz-Carlton one does not consider problems as ‘problems’ but
‘challenges’ – freely adapted from César Ritz, the eponym of the hotel group:
‘Never say no when a guest asks for something. Even when he would like you to obtain the moon for him. At least, we can try.’
The implementation of the firm’s philosophy is a continuous process. Internal communications play an important role in ensuring the high-quality service level.
For example, every employee carries a credit-card-like piece of paper stating ‘We
are ladies and gentlemen serving ladies and gentlemen’. In addition, for half an hour every day, employees discuss the principles of Ritz-Carlton as well as what challenges they encountered and how they could be solved.
For Ritz-Carlton the value-oriented strategy has brought about superior results.
The firm was the first and only hotel company to win the Malcolm Baldrige National Quality Award – the American quality prize that is awarded to compa-nies with superior quality management. Ritz-Carlton was the first and only service company to win the award twice, in 1992 and 1999. Ritz-Carlton’s image as a high-class employer was documented by hundreds of applicants queuing up at the beginning of the application process for the new Ritz-Carlton at Berlin in order to hand in their application personally. Furthermore, according to a JD Power study, Ritz-Carlton is leading in every measure of guest satisfaction (which includes pre-arrival/arrival; rooms; food and beverage; hotel services;
and departure). Thirty-six per cent of Ritz-Carlton guests say that their experi-ence was above expectations, which is higher than for any other hotel brand in the segment. In terms of profitability, at the end of the 1990s Ritz-Carlton was more profitable than its direct competitor and than the average of the luxury hotels segment.
Sources: adapted from Bendl 2004; 4hoteliers 2004, Deloitte 2004, JD Power 2004, Ritz-Carlton 2004a, 2004b.
1 See Reuters 2004.
2 See Brown et al. 1994.
3 See Blois 1974.
4 See Regan 1963.
5 See Judd 1964; Rathmell 1966.
6 See Shostack 1977, p. 73.
7 See Bateson et al. 1978.
8 See e.g. Booms and Bitner 1981.
9 See Donnelly 1976.
10 See Berry 1983.
11 See Parasuraman et al. 1985.
12 See Parasuraman et al. 1988.
13 See Czepiel et al. 1985.
14 See Carlzon 1987.
15 See Bitner et al. 1990.
16 See Shostack 1984.
17 See e.g. Parasuraman et al. 1985.
18 See Rust et al. 1994.
19 See Gummesson 1995.
Notes
20 See Domegan 1996.
21 See Greene 1994; Rafiq and Pervaiz 1993.
22 See Pullman and Moore 1999.
23 See McDougall and Levesque 2000; Sweeney and Soutar 2001.
24 See Payne et al. 2001; Rust et al. 2004.
25 See Van Looy et al. 1998; Flieβ and Kleinaltenkamp 2004.
26 See Porter 1998.
27 See Reichheld and Sasser 1990.
The focus of the value-oriented services marketing concept is to manage the activities of the service provider, so that higher value can be realised. From a mar-keting perspective this means that service providers try to focus on marmar-keting activities that help to increase customer value, which will eventually lead to a higher firm or shareholder value. Before dealing with the different marketing activities, i.e. the primary and secondary value processes, we need to have a closer look at how value is created by services marketing activities.
In contrast to other decisions made by a service provider (e.g. financing deci-sions) which focus on increasing the firm’s value, the value contribution of marketing activities is realised by the behaviour of the customers. When the service provider is successful in attracting new customers or retaining existing customers, then the company will eventually realise increases in its value by increased rev-enues and/or reduced cost. Whether new customers can be attracted or not depends on the customer’s evaluation of the provider. When the customer appre-ciates a provider, they are more likely to choose the company’s services than if the customer is not convinced by the provider. These general relationships are basic principles of the so-called Service Profit Chain, which is closely linked to the Service Value Chain. The activities within the Service Value Chain outlined in Chapter 1 aim at initiating the Service Profit Chain in order to create value. The Service Value Chain encompasses a firm’s activities or processes, while the Service Profit Chain structures the impacts of these processes on the customer. Thus explaining value creation through the Service Value Chain means connecting the Service Value Chain and the Service Profit Chain (see Figure 2.1).
Accordingly, the general objective of this chapter is to ensure you understand the various relationships within the Service Profit Chain as well as the analysis of the value creation within this chain. The following learning objectives are high-lighted (see Figure 2.2):
1. Understanding how services marketing activities create value and how the activities’ value contribution can be analysed.
2. Describing the concept of customer value, how it is composed and how it can be analysed.
3. Learning about the customer behaviours that create value and how the behav-iour can be analysed.