Critical Success Factors and Customer Expectation in Budget Hotel Segment A Case Study of China

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1 Journal of Quality Assurance In Hospitality & Tourism ISSN: X (Print) (Online) Journal homepage: Critical Success Factors and Customer Expectation in Budget Hotel Segment A Case Study of China Wen Hua, Andrew Chan & Zhenxing Mao To cite this article: Wen Hua, Andrew Chan & Zhenxing Mao (2009) Critical Success Factors and Customer Expectation in Budget Hotel Segment A Case Study of China, Journal of Quality Assurance In Hospitality & Tourism, 10:1, 59-74, DOI: / To link to this article: Published online: 05 Mar Submit your article to this journal Article views: View related articles Citing articles: 20 View citing articles Full Terms & Conditions of access and use can be found at

2 Journal of Quality Assurance In Hospitality & Tourism, 10:59 74, 2009 Copyright # Taylor & Francis Group, LLC ISSN: X print / online DOI: / RESEARCH NOTE Critical Success Factors and Customer Expectation in Budget Hotel Segment A Case Study of China WEN HUA Wenwer.com, Irvine, CA ANDREW CHAN School of Hotel & Tourism Management, Hong Kong Polytechnic University, Hong Kong ZHENXING MAO Collins School of Hospitality Management, California State Polytechnic University, Pomona, CA This study investigates the nature of critical success factors (CSFs) in China s budget hotel operations and development from the perspectives of various stakeholders, including customers, industry professionals, government authorities, and hotel investors. Understanding the differences in CSFs becomes extremely important to the success of the budget hotel segment in China. Results indicated that while all five dimensions of CSFs (i.e., physical product, service quality, price, promotion, and location) were deemed important by the industry professional, government authority, and hotel investor, the sequence of importance differed substantially among these groups. By contrast, customers were primarily concerned with service quality issues, indicating service quality was still the core customer expectation in China s budget hotel market. KEYWORDS Budget hotels, China, critical success factors, customer expectation Received 21 February 2008; revised 8 November 2008; accepted 18 December Address correspondence to Wen Hua, 8105 Irvine Center 9FL, Mailbox 2 29, Irvine, CA wendy.huawen@gmail.com 59

3 60 W. Hua et al. INTRODUCTION The travel and hospitality industry in China has witnessed a robust growth in recent years. Inbound travellers, including those for the purpose of sightseeing, business, and meeting friends and relatives in 2005, reached million person/times with an estimated $29.3 billion in revenue, representing an increase of 10% and 14% over the previous year, respectively, according to the Yearbook of China Tourism Statistics in Budget hotels recently emerged as a popular trend in China s lodging market due to its high return on investment (ROI) and demand in China. According to Mr. Aijun Zhan, a financial analyst for Sina.com, successful investment in a budget hotel in China may yield more than 20% of profit margin. The 2008 Olympic Games in Beijing and the upcoming 2010 World Exposition in Shanghai have stimulated the unprecedented development of budget hotels in China. For example, Beijing needed to renovate more than 200 no-star or low-class hotels before the end of 2007 to accommodate more than half million domestic tourists during the 2008 Olympics, according to Mr. Changjiang Yu, director of Beijing Tourism Bureau. Major budget hotel brands in China, such as Jing Jiang Inn, Home Inn, Super 8, and Ibis, formulated their 2008 plans and 2010 plans to cater to the surging needs. Although a growing interest in budget hotels has been aroused, few, if any studies regarding important factors for the success of this sector in China could be found in current research stream. The existing literature on this topic is rather limited in scope, predominantly to US and United Kingdom (UK). China is different from US and UK markets in that it has huge population, unique culture, and an extremely uneven divide between poor and rich citizens. For instance, Chinese guests tend to focus more on service quality compared with their western counterparts as self-esteem and social hierarchy in the oriental culture are considered more important. Identifying and understanding the operational characteristics and customer expectations become extremely critical to the success of budget hotels in China. To gain a better understanding of the budget hotel sector in China, this study explored the nature of Critical Success Factors (CSFs) in China s budget hotel operations and development according to customers, industry professionals, government authorities, and hotel investors. In particular, the research questions are: 1. What are the most influential factors effecting the success of budget hotels in China? 2. What are the different perspectives towards CSFs among customers, professionals, investors, and authorities? 3. What are the profiles of the typical guests in budget hotels in China? 4. What areas should budget hotels focus on to better serve their guests?

4 Research Note 61 REVIEW OF LITERATURE Budget Hotel Development in China The origin of the budget hotel may be traced back to the 1920s in the US (Shen, 2006). While the budget hotel has developed worldwide and the terms budget or limited service or economy are used frequently throughout the hospitality industry, there exists no standardized, widely accepted definition of this segment (Davidson, 1993; Gilbert & Arnold, 1989; Gilbert & Lockwood, 1990; Justus, 1991; Roper & Carmouche, 1989; Senior & Morphew, 1990). Fiorentino (1995) concluded that the concept of the budget hotel is a difficult and complex hospitality phenomenon to describe. Nevertheless, the nature of the budget hotel shares several generic operational characteristics: strong branded product; extensive geographic coverage of the hotel network; easy accessibility; centralized reservation system; standardized unit construction and guest bedroom layout/facilities; fixed or promotionally variable room rates; relatively limited service; and high monetary value (Bortherton, 2004). Coping with the rapid growth of China s economy and business activities, the budget hotel sector in China, at its early stage, was expanding significantly, leading to birth and growth of many domestic budget hotel brands, such as Home Inn, Jing Jiang Inn, etc. Those brands were not only quickly accepted and recognized by Chinese guests, but also proved to be extremely profitable. There were approximately 100 budget hotel brands with more than 1000 outlets and over 100,000 guest rooms in operation at the end of 2006 according to 2007 Annual Report on the Survey of Budget Hotels in China, published by China Hotel Associate recently. Jin Jiang Inn, Home Inn, and Motel were top 3 brands. Currently, budget hotels account for approximately 10% of the all stargraded hotels and 1% of all shares in the lodging market in China in light of the survey by China Hotel Association and Department of Commerce. Critical Success Factor Critical success factors (CSFs) refer to a limited number of dimensions that ensure successful competitive performance for an organization (Rockart, 1979). Essentially, CSFs are the factors that must be satisfied to guarantee a company s overall goal attainment (Brotherton, 2004). CSFs have two dimensions. Internal CSFs reflect a company s core capabilities for its survival in the market such as people, products, process etc. (Berry, Seiders, & Greshan, 1997; Duchessi, Schaninger, & Hobbs, 1989). External dimensions, such as competition and market condition, are less manageable (Brotherton & Shaw, 1996). Nevertheless, external conditions are equally important. At a practical level, CSFs may help researchers and practitioners distinguish necessary elements critical for organizational success from the

5 62 W. Hua et al. complex, multi-dimensional reality of business activities (Butler & Fitzgerald, 1999). Additionally, companies identifying CSFs and implementing their usage, through proper measurement, feedback, and management, received a higher return on equity when compared with companies that did not employ CSFs (Jenster, 1987). Application of CSFs in business management has existed for some time, especially in the information systems (IS) field (Brotherton & Leslie, 1991; Davis, 1979; Hicky, 1993; Robson, 1994; Rockart, 1979). More recently, CSFs have been applied widely to research in management, particularly in strategy and operation studies. In hospitality, several researchers have carried out field or survey-based study to identify CSFs. Goldman and Eyster (1992) conducted a study on CSFs regarding hotel food and beverage leases. Lee (1987) undertook a study of CSFs for the success of restaurants. Croston (1995) investigated CSFs for hotel profitability. Peacock (1995) explored the CSFs for the successful hospitality managers. Hinkin and Traceys (1998) studied the critical physical and service factors for effective meetings. Brotherton (2004) identified and categorized CSFs in UK budget hotel operations, an area which is particularly relevant to this study. The researcher identified 36 CSFs in UK budget hotels (see Table 1), which were divided into seven categories: core product, consistency, customer service, hygiene and quality, strategic control, pricing, and location. Ultimately, the author created a final model in great parsimony with two dimensions of accessibility and performance. Customer Expectation Numerous studies have been conducted to identify and understand the needs and expectations of customers to choose the lodging establishment TABLE 1 Critical Success Factor in United Kingdom Budget Hotels Central sales/reservation system Convenient locations Standardized hotel design Size of hotel network Geographic coverage of hotel network Consistent accommodation standards Consistent service standards Good value restaurants Monetary value for accommodation Recognition of returning guests Warmth of guest welcome Operational flexibility/responsiveness Corporate contracts Smoking and non-smoking rooms Design/look of guest bedrooms Size of guest bedroom Guest bedroom comfort level Responsiveness to customer demands Customer loyalty/repeat business Disciplined operational controls Speed of guest service Efficiency of guest service Choice of room type for guests Guest security Low guest bedroom prices Limited service level Hygiene and cleanliness Quality audits Staff empowerment Strong brand differentiation Customer survey/feedback Staff training Added-value facilities in guest rooms Staff recruitment and selection Standard pricing policy Quality standards

6 Research Note 63 (Knutson, Stevens, Wullaert, Patton, & Yokoyama, 1991; Wilensky & Buttle, 1988). Their findings suggested that most people may consider the following attributes when making choice regarding accommodation: location, price, security, service quality, and the branding reputation (Knutson et al., 1991; Wilensky & Buttle, 1988). Knutson, Stevens, Patton, and Thompson (1992) surveyed a group of frequent travelers in three hotel segments: economy, mid-price and luxury; and found that the important considerations for initial hotel selection and return of frequent travelers were clean and comfortable rooms, convenient location, prompt and courteous service, safe environment and friendly and courteous employees. In another study, Knutson et al. (1991) used LODGSERV to compare customer expectations with service quality. Results suggested that reliability and quality assurance appeared to be important elements anticipated by travelers across the three hotel segments. Ananth, DeMicco, Moreo, and Howey (1992) surveyed 510 travelers, asking them to rate the importance of 57 hotel attributes in the hotel choice decision. Price and quality were rated as the most important attributes across all age categories, followed by security and convenience of location. Similarly, Atkinson (1988) found that the cleanliness of accommodation, safety and security, monetary value, and the courtesy and helpfulness of staff, were identified as top attributes for travelers in hotel choice selection. Rivers, Toh, and Alaoui (1991) examined the hotel selection decisions of members and non-members of frequent-guest programs. Their results showed that convenience of location and overall services received the highest ratings. Wilensky and Buttle (1988) reported that personal service, the physical attractiveness of the hotel, opportunities for relaxation, standards of services, an appealing image and value for money were significantly evaluated by travelers. Hotel guests expectations tend to rise in tandem with the level of hotel prices. Griffin, Shea, and Weaver (1996) examined how business travelers discriminated between mid-price and luxury hotels. Their findings revealed that business travelers staying at mid-priced hotels expected relatively lowprice family restaurants and a pre-arranged bill, whereas travelers staying at luxury hotels expected a bellman service, a concierge service, gourmet restaurants, a bathrobe and a hair dryer. By the same token, guests who stay at the budget hotel may only expect minimal products and services to meet their basic needs and wants. RESEARCH METHODOLOGY Both interview questions and survey instrument were developed based on the 36 CSFs items identified in Brotherton s (2004) study with minor alterations. A thirty-five-item questionnaire was used in this study with a consideration of China s situation. Although a similar survey instrument

7 64 W. Hua et al. was employed, this study significantly differed with Brotherton s (2004) study in three aspects. Most notably, respondents were different. Brotherton s study surveyed only hotel operators in UK, which was from the supply side. This study on the other hand, collected data in China through interviews with the hotel investor, the hotel professional, and the government official and surveys of hotel guests. These respondent groups encompassed all stakeholders of the hotel. The inclusion of additional respondents generated a new understanding of budget hotel development from various perspectives. Second, Brotherton s study investigated and studied two subgroups ( Leaders and Laggards ) of budget hotels in UK based on their relative market position. This study treated the budget hotel as a homogenous group, whereas budget hotels in China are in a burgeoning stage. Finally, this study utilized both quantitative (survey) and qualitative (interview) research methods. While quantitative research aims to test a theory with numbers using statistical techniques, qualitative research has the goal of understanding problems in a rich and narrative mode. Semi-structured face-to-face interviews were conducted to identify CSFs of budget hotel operations and development in China. This qualitative interview approach was well suited for gathering rich information in a time efficient manner. Three qualified individuals were selected to participate in personal interviews. Each of them represented the industry professional, the government official, and the hotel investor. Before each interview, individual appointments were made via phone to ensure consent and availability of each interviewee. The interview questions concentrated on the five most important CSFs and their underlying reasons. Upon completion of CSF questions, interviewees were free to provide additional thoughts regarding budget hotel operations and development in China. The quantitative survey approach was more appropriate to aggregated responses from the customer. Individual intercept surveys were used to evaluate customer expectations of CSFs. A total of 210 questionnaires was distributed in the summer 2006 to seven budget hotels in six areas of China: Beijing, Shanghai, Guangdong, Zhejiang, Jiangsu, and Sichuan. Survey questionnaires were placed at the checkout counter in each hotel. One whole day was randomly chosen by a front desk manager to distribute questionnaires. Then the front desk manager randomly asked hotel guests who had just checked out to fill out the questionnaires. To encourage participation in the survey, small gifts were given to all those who filled out the questionnaires. Among the 167 questionnaires returned (79.5% response rate), 25 questionnaires had missing values and were excluded for analysis. Thus, a total of 142 surveys was retained. The hotel properties studied varied in size, ranging from fewer than 40 rooms to more than 240 rooms.

8 Research Note 65 RESULTS Personal Interviews Top five CSFs from the viewpoint of the industry professional, the government authority, and the hotel investor are presented in Table 2. These CSFs are related to five dimensions, which are discussed next. Physical Product All interviewees considered guest bedroom comfort level to be an important CSF. Different from traditional full-service counterparts, budget hotels focused on core physical products in lodging business such as the guestroom bed. Guests in budget hotels in China have shifted their preferences from exterior curb appeal or deluxe status to physical lodging products, indicating they are placing personal satisfaction ahead of traditional social image. Service Quality Both the industry professional and government authority ranked guest safety and security and speed of guest service top priorities, implying the importance of service quality to them. Guest security is a fundamental premise to the lodging business as it is related to safety of life and security of property. Speed of guest service represents the importance of customer experience and is a special feature of budget hotels. In addition, the industry professional listed hygiene and cleanliness, a factor which was considered as a competitive edge of new budget hotels over some traditional middle- or low-class hotels. The hotel investor, on the other hand, omitted service quality factor, as he may place more emphasis on macro or operational issues such as return on investment (ROI) and sustainable revenue growth. TABLE 2 Top Five Critical Success Factors Industrial Professional Government Authority Hotel Investor Guest safety and security Strong brand differentiation Strong brand differentiation Guest bedroom comfort Guest safety and security Central sales/reservation system level Hygiene and cleanliness Value for money accommodation Geographic coverage of hotel network Convenient locations Guest bedroom comfort level Value for money accommodation Speed of guest service Speed of guest service Guest bedroom comfort level

9 66 W. Hua et al. Price Monetary value and hotel theme were most valued by the investor and government authority. The industry professional did not explicitly list this dimension, reflecting his view that more attention may be paid to service quality. Nevertheless, all interviewees believed that present price of budget hotels was reasonable for customers. This was further evidenced by high room occupancy rate at 90% and higher on for budget hotels in China according to the government official. As a result, guests had to reserve their rooms a minimum of 1 week ahead of arrival to ensure the availability of accommodation, especially during weekends and holidays. Promotion Strong brand differentiation was considered as a top factor by the government authority and hotel investor. They determined the success of budget hotels mainly from brand names. According to their perspectives, budget hotel brands differentiated from others in various aspects. Each brand deployed different exterior and interior hotel design, especially in color as part of visual identity. Different from traditional two- or three-star hotels, most new budget hotels provided special discounts to individual members, mainly middle-class business and leisure guests, to enhance visitation and maintain brand loyalty. In contrast, the industry professional believed that many similarities existed among different brands and did not view branding as important for the budget hotel. Location The industry professional listed convenient locations as the top critical success factor. Budget hotels in good locations may take only 18 months to recoup the net investment in China, which is very attractive. The hotel investor believed that central sales/reservation systems as well as geographic coverage of hotel network were very important to budget hotels. These virtual locations may sustain the success of budget hotels operations and development in China. Other Insights The industry professional pointed out ambiguous concept of the budget hotel in China as some hostels and guesthouse accommodations claimed themselves as budget hotels to attract less-informed travelers. While a budget hotel is operated on its own or as a franchisee, the fast pace of budget hotel development may compromise the quality of the hotel brand. Therefore, when the budget hotel was anticipated to move to inland China on a next

10 Research Note 67 step, both the quality and quantity of the hotel brand must be carefully managed. The room rate, currently around RMB 200 or $26 per room, should be lowered if budget hotels intend to launch more future businesses in inland China. The government authority expressed several concerns. Budget hotel brands, unlike the traditional full service hotels, were very limited in number and lacked an adequate reservation network. In addition, the budget hotel, unlike the tourist hotel in China, was monitored by industry and business bureau rather than tourism and hotel bureau. Unified management under one tourism and hotel bureau would be more beneficial to business development. The hotel investor contributed the rapid growth of budget hotels to the booming economy in China. Many traditional two or three star hotels were operating under poor conditions of both service quality management and physical facility maintenance, leading to higher operation costs and lower performance. Many budget hotel brands, whether domestic or foreign, responded well to this demand. They attained competitive advantages over traditional middle or low class hotels in the areas of standardized services and facilities, vast geographic coverage of hotel networking, central reservation systems, strong brand names, and monetary value. Respondents Profile Table 3 summarizes the demographic profile of respondents. Men and women were evenly represented among the 142 respondents. Over twothirds of respondents were between a 25 and 34 years of age, and 16.9% were 19 to 24 years old. Those over 35 years of age accounted for the TABLE 3 Profile of Respondents (N 5 142) Characteristic Frequency Percentage (%) Age or above Gender Female Male Education Some college Bachelor Master or above Annual Income(RMB) 30,001 50, , , ,000 above

11 68 W. Hua et al. remaining 15.5%. Therefore, budget hotels were especially attractive and suitable to young customers in China. Young generations tend to have embraced this relatively new lodging concept well. Majority (82.4%) of the sample had at least college degree and all respondents had at least some college experience. According to Census of China in 2005, the country had a population of over 1.3 billion with 67.7 million, or 5.2%, have at least some college education. Therefore, the survey population was not a typical representation of the Chinese population. There could be several reasons for this phenomenon. People with a college background tend to be exposed and to accept the concept of the budget hotel. Additionally, surveys were distributed in the most developed area in China, where people were more likely to receive higher education. Of the 142 respondents, 102 or 71.8% had annual incomes of RMB 50,001 to 100,000 ($6,600 to $13,000), which was far above the average annual income for a city dweller according to the 2005 China Census. Five CSFs from Customer Expectation The mean scores of 35 CSFs were computed, resulting in the top five CSFs: guest security (4.45), provision of all kinds of amenities (4.41), responsiveness to customer demands (4.39), operational flexibility/responsiveness (4.38), and speed of guest service (4.32). All five CSFs were related to service quality, indicating that service quality was still the core customer expectations in China s budget hotel market. Guest security is no doubt extremely essential to affect the guest choice of hotels. Thus, good security systems such as electronic locks, closed-circuit TV (CCTV), fire extinguishers, and the floor plan to direct fire escaping exits were considered essential in budget hotels. Amenities were also important as budget hotels were anticipated to provide adequate amenities to guests in China. This phenomenon was quite different from the expectations of budget hotel guests in the U.K. or U.S. The gap may be due to differing cultural and travel habits between Chinese and western visitors. Responsiveness to customer demands and operational flexibility/responsiveness both emphasized the attitude of hotel staff providing personal service, implying that guests in China s budget hotels still preferred respectful face-to-face services with human contact involved. Speed of service distinguished budget hotels from traditional full service hotels when defining quality service. Dimensions of Customer Expectation Principle component analysis with a varimax rotation was performed to find underlying constructs and to classify 35 CSFs into a smaller number of dimensions. As suggested by Hair, Anderson, Tatham, and Black (2002), the

12 Research Note 69 eigenvalue of 1.00 and the factor loading of.40 were used as criteria to include a factor and individual items. Results of factor analysis are shown in Table 4. Five dimensions from 35 CSFs were identified. Factor scores were computed by averaging the ratings of the items in each factor. Cronbach s alpha coefficients were above 0.9, indicating high internal reliability. Service quality (Factor 1) accounted for 31.36% of the variance. This factor was loaded with questions from 11 to 22. Physical product (Factor 2) included ten questions from 1 to 10 and explained 18.84% of variance. Promotion (Factor 3) was loaded from questions 26 to 30, explaining 12.38% of variance. Factor 4 was named as location, including 5 questions from 31 to 35 and accounting for 8.89% of variance. The fifth factor, price, consisted of 3 questions from 23 to 25 with ability to explain 6.55% of variance. Service quality was the most important dimension (M ), followed by location (M ), promotion (M ), price (M ), and physical product (M ). While location and service quality were still considered very important, the remaining three factors including promotion, price, and physical product were considered to be less essential to budget hotel guests. Demographic Differences After five dimensions of CSFs were identified, analysis of variance (ANOVA) was employed to test whether differences among demographics may affect customer expectation of CSFs in five dimensions. The results from these analyses showed no significant differences across gender, age, education, or income at the level of p,.05. Insignificance may be a result of the fact that budget hotels in China are still at the early stage in the product life cycle, and customers preferences are similar. Additionally, the sample had a fairly homogenous background as most customers were young people aged 24 to 35 years with annual incomes of RMB 30,000 to 50,001 ($4,000 to $6,600). CONCLUSION This study examined the CSFs in China s budget hotel operations and development from the perspectives of various stakeholders, namely, the customer, the industry professional, the government authority, and the hotel investor. Interviews were conducted to gain a deeper understanding of the industry professional, government authority and hotel investor. Questionnaires were utilized used to determine customer expectations. Three conclusions can be drawn from the study. First, all top five CSFs identified from customer expectations were service quality related items, which may reflect the importance of service quality to guests in China s budget hotels. Although the main theme of budget hotels is monetary value for accommodation, hotel guests still considered service quality as the

13 70 W. Hua et al. TABLE 4 Results of Factor Analysis Reasons Factor 1 Factor 2 Factor 3 Factor4 Factor5 Factor 2: Physical Product Good value restaurants (Q1) Standardized hotel design (Q2) Size of guest bedroom (Q3) Guest bedroom comfort level (Q4) Choice of room type for guests (Q5) Enough parking area (Q6) Design/look of guest bedrooms (Q7) Added-value facilities in guest rooms (Q8) Color of hotel exterior and room (Q9) Smoking and non-smoking rooms (Q10) Factor 1: Service Quality Operational flexibility/responsiveness (Q11) Responsiveness to customer demands (Q12) Speed of guest service (Q13) Efficiency of guest service (Q14) Limited service level (Q15) Hygiene and cleanliness (Q16) Guest safety and security (Q17) Provision of all kinds of amenities (Q18) Provision of the internet service (Q19) Convenient and tasty breakfast (Q20) Warmth of guest welcome (Q21) Consistent service standards (Q22) Factor 5: Price Low guest bedroom prices (Q23) Consistent pricing policy (Q24) Value for money accommodation (Q25) Factor 3: Promotion Customer loyalty/repeat business (Q26) Attractive advertising or promotions (Q27) Benefits for members (Q28) Corporate contracts (Q29) Strong brand differentiation (Q30) Factor 4: Location Size of hotel network (Q31) Geographic coverage of hotel network (Q32) Central sales/reservation system (Q33) Convenient locations (Q34) Convenient transportation with signs (Q35) Eigenvalue Variance (%) Cronbach s Alpha (Reliability) Mean Standard Deviation

14 Research Note 71 primary factor when they chose where to stay. Price was no longer a decisive factor among guests who would choose and could afford to stay at the budget hotel. This study also supported the notion that Chinese hotel guests prefer quality service, attention, and respect. Enhancement of service quality may result in more repeat and loyal customers. An interesting finding of CSFs recognition pattern is that the customer considered customer service as the most important constituent, and the industry professional was also very customer-oriented, with a focus on speed of service and hygiene and cleanliness. By contrast, the hotel investor focused on organization, with no strong desire for customer service. The government authority stood somewhere between the industry professional and the hotel investor with respect to customer service. A customer service orientation continuum among different stakeholders is illustrated in Figure 1. Five dimensions from 35 CSFs were derived from this study. They were service quality, location, promotion, price and physical products, ranked in a descending order of importance from the customer expectation. Both physical location (city and district in the city) and virtual location (hotel reservation network) were rated critical by the customer aside from service quality, implying that convenience is another criterion for guests to choose budget hotels in China. Promotion, price, and physical products were not deemed as important as service quality and location. As the economy hotel sector appeared less than a decade ago in China, a timely and appropriately standardization of the service quality in China s budget hotels is still an urgent concern for the expansion of the industry. Total quality management could be a solution for the budget hotels. Furthermore, budget hotels in China should pay more attention to their physical and virtual locations in response to the needs of their guests. For newly planned economy hotels, they should place more important on physical location than on the facility itself. Both existing and newly planned budget hotels may consider an affiliation with online marketing consortiums such as ctrip.com or elong.com or become franchised to better utilize hotel reservation network systems, improving the quality of virtual location. Finally, demographic features in this study demonstrated no significant differences among CSFs five dimensions. While this could be attributed to a small sample size and biased sample, it may nevertheless convey an important implication for budget hotel operators in China. The profile of guests in this study revealed that budget hotels may mainly focus on their FIGURE 1 Customer Service Orientation Continuum

15 72 W. Hua et al. potential guests with two major criteria: having college experiences and annual income over RMB 30,000 ($4,000). Therefore, ways to effectively reach this group should currently be the primary focus of marketing departments of budget hotels in China. MANAGERIAL IMPLICATIONS There are several insights and implications which stem from the findings of this study. Budget hotels are intended to provide comfortable, convenient, and clean accommodations for guests, which is a high monetary value for its target segment. Such economy means not only affordable pricing, but more importantly, service quality of the property. Therefore, economy hotel practitioners need to improve and maintain service quality. Franchise hotel operation to standardize service quality and proper personnel training via total quality management are suggested to maintain and improve service quality. Until then, budget hotels in China will be in good shape both in quantity and quality. The concept of budget hotels with limited facilities is accepted by guests in China. The survey indicated that only bedroom comfort level should be particularly emphasized by hotel operators with a consideration to control the cost during the construction and renovation. Other physical facilities, such as size or design of the guestroom, should not be the focal points of hoteliers. Currently, most budget hotels in China are located at business districts such as downtown central business districts (CBD), sub-downtown area main streets, and high technological development areas in major business cities in the east coast China. Aside from the physical locations at the business districts in inland cities as well as residential areas in major business cities, full adoption of reliable and well known reservation systems (e.g., an online or unified reservation phone number) is also essential for the next round of budget hotel development in China. Hotel managers are advised to keep in mind that the image of hotel branding should be positioned to catering to the needs and demand of its major patrons young people with some college experience and relative high annual income at or above RMB 40,000 ($5,500). Limitations and Future Research Several limitations in this study are obvious. First, each perspective of the industry professional, the government authority, and the hotel investor was represented respectively by a single individual, which may cause some personal bias and compromise the validity of this study. Future studies may interview more respondents from each stakeholder group to gain additional

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