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Technology, service
quality, and customer
loyalty in hotels:
Australian managerial
perspectives
Shan-Chun Lee
Sunita Barker and
Jay Kandampully
The authors
Shan-Chun Lee is GSO at the Grand Hyatt Taipei,
Taiwan, Republic of China.
Sunita Barker is based at the Department of
Management, Monash University, Melbourne, Australia.
Jay Kandampully is Professor at the Ohio State
University, Columbus, Ohio, USA.
Keywords
Hotels, Service quality assurance, Customer loyalty,
Perception, Managers, Australia
Abstract
Traditional brick-and-mortar companies are embracing the
use of modern technologies to enhance the services they
offer and to gain customer loyalty. The objectives are to stay
in the forefront of today’s marketplace and to improve
service, efficiency, and profitability. The hospitality industry
has transformed itself into a global industry, and, as one of
the largest industries in the world, it serves as an excellent
example of an industry that has transformed itself in
response to changes in customer requirements and
demands. Continuous technological developments and their
adoption in the hospitality industry have provided numerous
opportunities and challenges. This paper examines the
perceptions of international hotel managers on the adoption
of technology in their hotels. The results emphasise the
growing demand of hotel customers for various technology-
supported services. Technology is found to have affected
the ability of hotels to support employees, enhance the
quality of service, improve efficiencies, gain competitive
advantage, maintain relationships with customers, and
increase profitability.
Electronic access
The Emerald Research Register for this journal is
available at
http://www.emeraldinsight.com/researchregister
The current issue and full text archive of this journal is
available at
http://www.emeraldinsight.com/0960-4529.htm
Managing Service Quality
Volume 13 . Number 5 . 2003 . pp. 423-432
# MCB UP Limited . ISSN 0960-4529
DOI 10.1108/09604520310495886
423
Introduction
The importance of quality
In the past two decades the hospitality
industry has witnessed exponential growth,
resulting in increased competition on a global
scale. Customers critically assess the
standards of service provided by competing
hotel firms, and researchers and firms have
confirmed that the customers’ approval of a
firm’s quality of service has profit
consequences (Zeithaml, 2000). Indeed, in
the management of leading service firms,
service quality represents the most sustainable
basis for:
. differentiation (Zeithaml and Bitner,
1996);
. leveraging customer satisfaction and
value (Parasuraman, 1997);
. driving market share and profitability
(Buzzel and Gale, 1987); and
. developing a strategy (Grönroos, 2000).
The hospitality industry recognises that
superior quality of service is one of the crucial
factors within its control that can add value to
its product and, subsequently, lead to
customer loyalty. Enhancing the quality of
service at all levels of service delivery has
therefore become mandatory for
organisational survival, irrespective of the
changes that might occur inside or outside
the firm.
In contrast, hotels that attempt to improve
their market share by discounting their prices
run a serious risk of having a negative impact
on the hotel’s medium and long-term
profitability (Ernst and Young, 1996). As a
result, quality of service, rather than price, has
become the key to a hotel’s ability to
differentiate itself from its competitors and to
gain customer loyalty (Kandampully and
Suhartanto, 2000, 2003).
Customer loyalty
Faced with intense competition in the
marketplace, it cannot be assumed that there
is an unlimited customer base prepared to
maintain patronage. It is imperative for hotels
to tailor hotel services to the changing needs
and lifestyles of customers (Min et al., 2002)
with a view to increasing customer loyalty and
retention.
Although there is no established theoretical
framework covering all aspects of customer
loyalty, there is a consensus among
practitioners and academics that customer
 Technology, service quality, and customer loyalty in hotels
Shan-Chun Lee, Sunita Barker and Jay Kandampully
satisfaction and service quality are
prerequisites of loyalty (Gremler and
Brown, 1997). Technical, economic, and
psychological factors have been proposed as
factors that can influence customers to switch
suppliers (Selnes, 1993; Gremler and Brown,
1997). Although price continues to play a role
in maintaining customer loyalty, competitive
pricing is unlikely to generate loyalty in the
long-term (Schultz and Bailey, 2000; Scott,
2001), and can have an adverse effect on a
firm’s medium-term and long-term viability
(Ernst and Young, 1996).
Research conducted by Reichheld and
Sasser (1990) suggested that a 5 per cent
increase in customer loyalty could produce
a profit increase of 25-80 per cent.
Furthermore, they argued that the
profitability derived from an individual
customer grows during a business
relationship. They also found that up to
60 per cent of increased sales to new
customers could be attributed to customer
recommendations - which is, itself, a form of
customer loyalty. Reichheld (1996, 2001)
argued that a 5 per cent increase in customer
retention yields a 75 per cent increase in net
present value. Moreover, a study conducted
by Heskett et al. (1994) showed that loyal
customers can not only provide increased
profits but also cover the losses incurred in
dealing with less loyal customers. Similarly,
Grönroos (2000) indicated that, in most
businesses, loyal customers are willing to pay
a premium price. It is therefore evident that
the long-term benefits of a loyal customer-
supplier relationship can be significant to
any hospitality firm, as the ‘‘return on
relationship’’ reflects directly on the firm’s
long-term financial outcome (Gummesson,
1999).
Although business organisations have, for
many years, focused their attention on
customer-satisfaction programmes (Bhote,
1996), and although satisfying customers by
providing superior products and services is
essential for any organisation, studies show
that customer satisfaction alone does not
necessarily result in repeat patronage (Dube
et al., 1994). For example, Bowen and
Shoemaker (1998) noted that loyalty extends
beyond simple satisfaction, and a study of
chain hotels by Kandampully and Suhartanto
(2003) highlighted the importance of image
(in addition to customer satisfaction) in
engendering loyalty.
424
Managing Service Quality
Volume 13 . Number 5 . 2003 . 423-432
Against this background, the main focus of
the present paper is on the role of information
technology (IT) in enhancing the quality of
services offered by the hotels, and the
relationship that this has with customer
loyalty.
Contribution of technology
There has been a massive increase in the
application of new technologies in almost
every aspect of hotel operations and
management. Technology has traditionally
been viewed as the key to productivity in
manufacturing industries. However, in recent
years, technology has been a primary catalyst
that has helped service firms to innovate their
service offers and add value to what they offer
their internal and external customers.
Technology in services is not intended to
replace labour, but to support it. As Berry
(1995) has argued, technology should be the
servant and not the master. Indeed,
technology elevates the competitive advantage
of a service organisation only if it can support
the employees and enhance their capacity to
offer superior service to the customer.
Technology provides an organisation with a
better way of doing things - thus benefiting
the firm, its employees, and its customers. For
example, McDonald’s restaurants maintain
reliability and quality by effectively utilising
simple technologies. Food timers and other
devises assist employees to produce French
fries of consistent quality. Technology can
thus provide its users with greater control in
achieving superior service, and thereby
increase customer loyalty.
IT can assist with the distribution of
information across various departments of a
hotel and between different levels of staff. The
collection, analysis, and storage of readily
accessible information has become a powerful
tool that presents junior members of staff in a
hotel with an opportunity to assume
responsibility for making on-the-spot
decisions without the need to consult senior
management. Such applications allow for
faster and better decision-making throughout
the organisation (Durocher and Niman,
1993), and this ultimately filters through to
customer satisfaction (Bensaou and Earl,
1998). For example, the fast-food firm Taco
Bell uses IT to improve access to knowledge,
resulting in a flattening of management
hierarchy and facilitation of employee
empowerment. In utilising IT, Taco Bell aims
 Technology, service quality, and customer loyalty in hotels
Shan-Chun Lee, Sunita Barker and Jay Kandampully
to achieve productivity improvement, product
freshness, speed of service and, most
importantly, the provision of services that are
right first time. Technology thus enhances the
entire organisation’s capacity to offer superior
service in an effort to improve customer
loyalty.
The benefits of technology to service
organisations, their employees, and their
customers have received widespread
academic attention. For example, research
suggests that technology enhances a firm’s
value chain (Porter, 1985), enhances service
quality (Reid and Sandler, 1992; Brown,
2000; Kasavana and Knutson, 2000; Bitner
et al., 2000), supports service recovery
(Tax and Brown, 1998), improves efficiency,
effectiveness, productivity, and convenience
(Quinn, 1996; Namasivayam et al., 2000;
Nykiel, 2001; Zemke and Connellan, 2001),
enhances the customer-firm relationship
(Zemke and Connellan, 2001; Reichheld,
2001), augments the quality-value-loyalty
chain (Parasuraman and Grewal, 2000),
creates a competitive advantage (Porter,
1985, 2001), assists customers (Lovelock,
1995), and improves the skills of the people
who make up the service organisation (Berry,
1995; Blumberg, 1994; Dabholkar, 2000;
Siguaw et al., 2000).
Applications of technology
The hospitality industry has been transformed
from a traditional hands-on, low-tech, locally
based industry into a global industry that
effectively utilises technology to combine
high-touch and high-tech - to the benefit
of customers, employees, and firms
(Kandampully, 2002). A study conducted
by Hotels (1998) magazine on hoteliers from
the USA, Asia, and Europe found that, on
average, hotels had spent between US$50,000
and US$249,000 on technology over the
preceding five years, and that this level of
expenditure was expected to remain at least as
high for the following five years. Technology
will therefore continue to play an important
role in customer-focused hospitality firms in
the future - to communicate with, recognise,
and evaluate customers (Cline, 1999).
Technology is applied at two levels in
hotels:
(1) for in-room (guest room) services; and
(2) at the managerial and operational level.
425
Managing Service Quality
Volume 13 . Number 5 . 2003 . 423-432
Guest-room technologies include services
such as multiple telephone lines, electronic
meal ordering, self check-out and self wake-
up systems, in-room business services,
electronic and video entertainment services,
and so forth. Technology has not only
improved in-room services, but has also
increased choices in entertainment, which
also brings handsome income to the hotels.
The extent to which hotels make these
services available to their guests is dependent
on a number of variables, including locality.
For instance, city centre hotels, whose
clientele primarily consists of business
travellers, are more likely to equip their rooms
with advanced in-room technologies as
opposed to hotels in more remote or resort
locations.
At the managerial and operational level,
technology affects various functional areas -
such as the cashiers, reservations staff, and
housekeeping staff. Apart from the direct
benefits to customers, technologies also
enhance efficiencies in service delivery
(Siguaw and Enz, 1999). For example,
property management systems (PMSs) are
commonly used in reservations, cashiers, and
housekeeping to assist with interconnectivity
and decision-making. Sheraton Hotels, New
York, has introduced a PMS that directly
links its three hotels in the immediate area.
This allows it to integrate management and
operational functions and maintain one
accounting system. The global distribution
system (GDS), central reservation system
(CRS), and the Internet provide customers
with more efficient reservation procedures.
They simultaneously improve interaction
between tourism intermediaries and allow
individual organisations to obtain vital
information about their clientele. For
example, Marriott corporations’ room-
reservation system manages the booking of
more than 355,000 hotel rooms globally.
This provides Marriott with a valuable
opportunity to collect information about the
characteristics, habits, and preferences of
people who travel. Indeed, the 12 million
customer profiles stored in Marriott’s
frequent-lodger programme constitute the
largest such database in the travel industry.
This information allows Marriott to cross-
reference the personal profiles of customers
with product preferences. By doing this,
Marriott is able to target incentives and
promotions with unprecedented precision.
 Technology, service quality, and customer loyalty in hotels
Shan-Chun Lee, Sunita Barker and Jay Kandampully
Considering this enormous potential, Wired
(2000) magazine cited Marriott International
as one of the ‘‘40 companies driving the
future’’.
In addition to hospitality organisations
becoming more aware of the benefits of
technological applications, customers have
also become increasingly driven by
technology, and are therefore demanding
higher levels of services associated with
technology. It is therefore imperative that
hotels identify ways in which they can utilise
new technologies to create services that
contribute to increased value for their
customers (David et al., 1996). Such value-
added experiences refer to services within
the hotel itself and outside it. The interaction
of a hotel with its stakeholders (customers,
suppliers, retailers and employees) has been
redefined as business is increasingly
conducted in the electronic marketspace, and
as customers increasingly utilise electronic
media (such as e-mail and the Internet) to
communicate.
Methodology
The purposes of this study were, first, to
investigate the extent to which technology has
infiltrated the Australian hotel industry and,
second, to acquire a better understanding of
the perceptions held by management
regarding the impact of technology on overall
service and customer loyalty. For these
purposes, a questionnaire comprised of 17
open-ended and closed-ended questions was
formulated. The questionnaire covered
general information, guest-room operational
technologies (such as voice mail, e-mail,
Internet, personal computers (PCs), self
check-out and wake-up systems, and multiple
telephone lines), and the impact of
technology on customer loyalty. A total of 70
questionnaires was randomly distributed to
sales and marketing managers of independent
and chain hotels (rated three stars and above)
in Brisbane, the Gold Coast, and central
Sydney (these locations being chosen for the
sample because of their prominence in the
hospitality and tourism industries in
Australia). Along with the four-page
questionnaire were a covering letter and a
stamped self-addressed return envelope.
A total of 30 complete questionnaires was
received one month after distribution -
426
Managing Service Quality
Volume 13 . Number 5 . 2003 . 423-432
representing a response rate of 44 per cent.
Most of the participating hotels belonged to a
chain (70 per cent of the hotels), were
classified as either four or five stars
(87 per cent), and had 200 to 499 rooms
(50 per cent).
There were a few limitations to this research
that might affect the reliability and validity of
the results. First, as indicated above, the
survey was distributed to selected hotels
(rated a minimum of three stars) in three
distinct locations. The results will therefore
not be representative of all the hotels
operating in Australia. In particular, the
sample excludes small and medium-sized
accommodation. Second, the study focused
solely on the perceptions of sales and
marketing managers, thereby excluding the
perceptions held by customers. To provide a
more comprehensive understanding of the
impact of technology on customer loyalty,
future studies could incorporate the
perceptions of both parties. Despite these
limitations however, the results provided
some interesting findings, and these are
presented in three broad categories:
(1) guest-room technologies;
(2) service-operation technologies; and
(3) impact of technology on sales and
marketing.
Results
Guest-room technologies
The results revealed that, of all the
participating hotels, 74 per cent provided
multiple telephone lines in guest-rooms, and
60 per cent of these belonged to five-star
international hotel chains. The majority
found this service to be crucial, especially for
business travellers and conference delegates.
One participant stated that multiple
telephone lines ‘‘allow our business guests
to do various work-related tasks and
communications with their customers and
head office’’. The results also revealed that
Brisbane’s Marriott Hotel had adopted a
relatively new technology called ‘‘Suite
Technology Systems Network’’ (STSN).
Alongside this new technology the Marriott
also provided its guests with such facilities
as a business centre and an Internet café.
It was found that guests use the Internet more
often than they used TV-based services
 Technology, service quality, and customer loyalty in hotels Managing Service Quality
Shan-Chun Lee, Sunita Barker and Jay Kandampully Volume 13 . Number 5 . 2003 . 423-432

(see Figures 1-3) and did so mainly for tourist Figure 3 In-room technologies vs customer base
and sightseeing information.
The results also indicated that fewer than
half of the hotels provided a voice-mail system
or on-demand PCs (although most did
provide access to this latter technology
through their business centres). One reason
for this finding regarding voice mail is a
perception that voice-mail systems are
predominantly utilised by long-term guests,
and that they are somewhat impersonal. With
the exception of one hotel, all provided e-mail
for their guests - a service found to be
particularly popular with international guests.
In most cases, e-mail access was provided on
the ground floor. However, some provided
this service via their TV-based in-room
facilities. Only five hotels provided a self
check-out system, and even fewer hotels
offered self wake-up and meal-ordering
systems. Despite the relative paucity of such
Figure 1 In-room technologies vs hotel types technologies, those who did offer them
reported value-adding benefits to their guests.

Service-operation technologies
Several computer applications were utilised in
the front office, housekeeping, cashiers, and
reservations departments. The chosen
computer package depended on the type of
hotel operation. Hotels that were part of a
chain commonly used CRSs - a technology
pioneered by the airline industry. Alternative
means for reservations included telephone,
fax, e-mail, Web sites, and the GDS (see
Figures 4-6). As Sheldon (1997) has
observed, GDS is typically used by tourism
intermediaries who offer multiple products
for consumers.
Figure 2 In-room technologies vs hotel classification
Figure 4 Computer applications vs hotel types

427
 Technology, service quality, and customer loyalty in hotels Managing Service Quality
Shan-Chun Lee, Sunita Barker and Jay Kandampully Volume 13 . Number 5 . 2003 . 423-432

Figure 5 Frequencies of technology usages (3) to assist in the performance of value-

adding services through intangible
personal care.
The results revealed that all participants
gathered guest history data, including such
information as guest preferences and personal
information. Information of this nature is
imperative in the provision of personalised
service. Although customer survey
questionnaires continue to represent a
common tool in tracking customer
information (see Figure 7) and customer
Figure 6 Common features on the hotel Web pages satisfaction (see Figure 8), the present results
indicate that the use of technology as a new
tool lacks popularity. In fact, in-room
questionnaires, which have been the industry
standard for several decades, remain the
dominant form of gaining information
(90 per cent of hotels in the present study).
Hotels in this study used mail surveys
(33 per cent), computerised surveys
(27 per cent), telephone surveys (23 per cent),
and in-room TV surveys (20 per cent)
(see Figure 8).
Loyalty programmes were also studied.
The results of the survey indicate that Such loyalty programmes include points
traditional forms of communication (such as redeemable for prizes, discounts, or extra
the telephone) continue to be most commonly
used for reservations. E-mail and the Internet
Figure 7 Customers’ information by technologies
are used less frequently for communication
among hotels, intermediaries, and customers.
However, this result does not necessarily
predict future usage. Rather, it might indicate
that, although the Internet is primarily used as
a source of information, its potential as an
online reservation tool has not yet been fully
realised by customers and hotels. As the
Internet continues to develop and continues
to provide value-adding benefits (such as
online payment) it can be anticipated that
customers will use this electronic tool more
frequently in years to come. Figure 8 Usage of customer satisfaction measurement
Sales and marketing
With respect to sales and marketing, the
present study focused on two main areas:
customer databases; and loyalty programmes.
The survey results revealed that customer
databases are used for three primary
purposes:
(1) to generate mailing lists for direct sales
and marketing activities;
(2) to formulate rates and packages, and the
targeting of markets; and
428
 Technology, service quality, and customer loyalty in hotels Managing Service Quality
Shan-Chun Lee, Sunita Barker and Jay Kandampully Volume 13 . Number 5 . 2003 . 423-432

value bonuses, and are used to encourage Figure 11 Impacts of customer loyalty on technology
future purchases, maintain relationships, and
reward customers. The results of this study
indicate that more than half of the
participating hotels offered at least one loyalty
programme and that 87 per cent of these
engaged in strategic alliances in an effort to
enhance customer loyalty (see Figure 9).
Apart from the above two areas of
marketing and sales studied in the present
research (customer databases and loyalty
programmes), other aspects of sales and
marketing were reflected in the results. Of the
participating hotels, 90 per cent strongly
agreed that appropriate technology generate revenue. To manage hospitality
adaptations improved operational efficiency
firms effectively within various external
and marketing effectiveness. More than
operating networks, managers must ensure
72 per cent stated that technology enhances
that the hotel’s technology is compatible with
service quality, and 76 per cent felt that
other network systems (see Figure 12). It was
technology contributes to lifting the overall
found that management decisions to utilise
image of the hotel (see Figure 10). Some
technological developments are determined
managers raised concerns about the
impersonal nature of technological by a number of factors. In order of
applications. In addition, customer loyalty importance, these were found to be value to
was found to be enhanced through the use of the customer, system compatibility,
in-room technology (more than 50 per cent) generating revenue, and cost constraints.
(see Figure 11). On the whole, most
managers believed that technology provides
customers with higher value and, at the same Conclusion
time, provides forms with an opportunity to
In the past, the hospitality industry was
Figure 9 Loyalty programmes primarily focused on selling accommodation,
food, and beverages. It has now evolved into a
truly global industry, not only because
hospitality enterprises serve international
markets but also because their products and
service are complex, discontinuous, and
globally competitive. For many people,
hospitality services have become an integral
component of business and social life. Hotel

Figure 12 Importance of technology adoptions

Figure 10 Competitive advantages by using technologies

429
 Technology, service quality, and customer loyalty in hotels
Shan-Chun Lee, Sunita Barker and Jay Kandampully
managers must incorporate services that
customers demand, and in many respects
these are substantially different from those
demanded in the past. Hotels today do not
represent a mere home away from home.
For many business customers, hotels are a
travelling office, a meeting place for learning
and the exchange of ideas, and a place to
entertain, enjoy sporting activities, and so
forth. Thus, the traditional core offerings of a
hotel represent only a small component of the
package of experience that customers seek. In
this paper it has been argued that technology
is important in enabling hotel firms to offer
new and enhanced services to customers,
while simultaneously assisting hotels to
reinforce customer relationships and
engender loyalty. Enhanced services, and the
resulting loyalty of the customers, are the two
key ingredients that hotel managers need to
consider if they are to ensure their firms’
future survival.
The creative use of distance, time, and
information through technology is
increasingly being utilised by firms to reap the
highest value from its activities and its
relationships with various stakeholders.
Technology will increasingly play an integral
role in developing services that benefit both
the firm and its stakeholders. As the lifestyles
of customers continue to change, their needs
can be effectively met by technology.
Technology provides hotel firms with an
opportunity to offer services far beyond the
firm’s basic business concept, and as
technology continues to evolve at a rapid
pace, hotel service will need to evolve to meet
the changing service needs of customers. For
example, high-speed wireless roaming access
to the Internet is a significant competitive
differentiator today. However, this will soon
become a standard guest service in most
hotels.
Hotel managers must realise that
technology per se will not be the differentiator.
Rather, creative and innovative use of
technology that enhances the value of offered
services will be the means by which hotels
differentiate themselves from their
competitors. Managers must adopt new
technologies that assist hotel employees to
serve customers better at the operational
level.
The hotel industry provides an excellent
example to other service industries in
demonstrating the potential for technology to
430
Managing Service Quality
Volume 13 . Number 5 . 2003 . 423-432
expand services. The transformation of the
hotel industry from being a low-tech, local
industry selling goods into a high-tech,
globally focused industry selling services is a
perfect example of the benefits of the creative
use of technology in services.
Future research should focus on the use of
technology in its contribution to the service
business concept and the way in which the
service business is being conducted. Unless
both the business concept and the business
process change, they will become barriers to
the innovative enhancement of all other
services. Some of the specific questions to
address include:
. How can technology assist service firms
to market, attract, and nurture a talented
workforce?
. What strategies in the electronic
marketspace will help service firms to
enhance loyalty in customers?
. Which technology will assist service firms
in nurturing relationships within their
networks of partners and stakeholders?
. What is the role of e-procurement in the
hotel industry, and how can technology
be most effectively used to meet the
procurement, supply, and logistical needs
of firms?
Although the potential of technology for the
hospitality industry is evident, these results
indicate a general lack of momentum in
utilising the full potential of technology in all
aspects of the hotel business. Although the
majority of the participating hotels do
recognise that technology contributes to the
spectrum of services that a firm can offer,
technology is not properly recognised as being
a multi-functional tool that can support
almost every business activity - whether it be
marketing, operations, or human resources.
Such an holistic view of technology is
required if it is to exert its maximum impact
on a firm’s potential.
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