Abstract The airline industry has undergone major transformations since the liberalisation of the market and the increasing entrants to the industry, particularly from the Middle East offering low airline fare. Furthermore, changing consumer preferences have altered the way that service quality is perceived. In fact, service quality remains one of the biggest challenges in the airline industry. Therefore, this paper aims to examine consumer perception of service quality for student groups using the SERVQUAL framework that organises attributes into five dimensions: tangibility, reliability, responsiveness, empathy and assurance. This paper will find that there is a difference in consumer perception and service expectation that necessitate more investment by airlines to address this. Other findings include that gender does play a role in how service quality is perceived and that airlines should invest more in the assurance dimension, particularly emphasising the safety records to remind consumers of their safety performance and providing higher training for staff. Contents Chapter 1: Introduction 9 Chapter 2: Aims & Objectives 12 2.1 Aims 12 2.2 Objectives 12 Chapter 3: Literature Review 14 3.1 Service Quality 14 3.1.1 Definition 14 3.1.2 Determinants of Service Quality 16 3.1.3 Service Quality Management Frameworks 17 3.1.4 SERVQUAL Empirical Evidence 19 3.2 Quality Management Strategy Customer Relationship Management 21 3.2.1 Definition 21 3.2.2 Model & Tools 22 3.2.3 Impact of CRM 23 3.3 The Airline Industry 24 3.3.1 Context to the UK Aviation Industry 24 3.3.2 Challenges 25 3.3.2 Use of CRM Strategies 28 Chapter 4: Methodology 31 4.1 Statement of the Problem 31 4.2 Hypotheses Development 31 4.3 Research Approach 32 4.4 Data Collection Method 32 4.5 Design of the Questionnaire 33 4.5.1 Ethical Considerations 33 4.5.2 Demographics 34 4.5.3 Research Framework 34 4.5.4 Perceived Quality and Importance 36 4.6 Data Diagnostics and Analysis 36 4.6.1 Reliability 36 4.6.2. Validity 38 4.6.3 Likert Scale Data Analysis 38 4.7 Methodology Limitations 39 Chapter 5: Analysis of Results 41 5.1 Demographics of Participants 41 5.1.1 Gender 41 5.1.2 Age 42 5.1.3 Education Status 42 5.2 Cross-Tabulation Analysis 43 5.2.1 Duration and Purpose of Travel 43 5.2.2 Gender and Perceived Quality 44 5.2.3 Gender and Importance of Customer Satisfaction 46 5.2.4 Duration of Travel and Quality 47 5.3 SERVQUAL Analysis 48 5.3.1 Overview of Service Quality 48 5.3.2 Gender and SERVQUAL 51 5.3.3 Age and SERVQUAL 53 Chapter 6: Discussion 54 6.1 Findings to Hypotheses 54 6.2 Other Findings 55 6.3 Managerial Implications and Recommendations 56 Chapter 7: Conclusion 58 References 59 Appendix I Questionnaire 70 Appendix II SERVQUAL Item by Gender 72 Appendix III Age and SERVQUAL Dimensions 75 Appendix IV Recoded Variables 76 Figures Figure 1: Service quality gap model (Parasuraman et al., 1985) 18 Figure 2: The transition to relationship marketing (Source: Rapp, 2000) 21 Figure 3: Total Perceived Quality (Source: Gronroos 2008) 23 Figure 4: Approaches for the Identification of Customer Needs (Boland et al., 2002) 28 Figure 5: Evaluation of Selected CRM Initiatives (Boland et al., 2002) 29 Figure 6: Participants by Gender 41 Figure 7: Participants by Age 42 Figure 8: Participants by Education Status 42 Figure 9: Average Scores for SERVQUAL Items 49 Tables Table 1: Previous studies on the determinants of service quality 16 Table 2: PESTLE Analysis of Airline Industry 26 Table 3: Dimensions of SERVQUAL Framework 34 Table 4: Summary of Cronbach s Alphas for SERVQUAL Dimensions 37 Table 5: Data Analysis for Likert Scale Data 38 Table 6: Cross-tabulation between Duration and Purpose of Travel 44 Table 7: Cross-tabulation between Gender and Perceived Quality 44 Table 8: Group Statistics for Gender and Perceived Quality 45 Table 9: Independent T-Test for Gender and Perceived Quality 45 Table 10: Cross-tabulation between Gender and Importance of Customer Satisfaction 46 Table 11: Group Statistics for Gender and Importance of Customer Satisfaction 47 Table 12: Cross-tabulation between Average Duration and Perceived Quality 48 Table 13: Ranking of Airline Services 49 Table 14: Average Scores for SERVQUAL Dimensions 50 Table 15: Statistically Significant SERVQUAL Items by Gender 51 Table 16: ANOVA Descriptives for Gender 52 Chapter 1: Introduction In recent years, the amount of research conducted on service quality has escalated as it is continually being evidenced as an influential factor to corporate performance, profitability, market share, enhancing brand loyalty and customer relationship. As proposed by Hersh (2010), service quality is critical to the development of competitive advantage particularly in an industry providing services, such as the aviation industry. With this in mind, the adoption of quality management strategy has become more prevalent among firms. However, the implementation of these quality management strategies often fails to achieve the intended result of increased profitability. The primary reason is that firms perception of customer expectations is often misaligned with the consumers own expectations of quality. With the general business environment becoming increasingly competitive, the consideration of the right quality management approach is therefore a fundamental component of strategy for a business market position and survival. In particular, the international airline business has been experiencing significant challenges. As a result of globalisation, communication between countries worldwide has enhanced, leading to activities such as international business and tourism to flourish alongside the international aviation industry. In fact, according to a report published in 2014 by the International Air Transport Association (IATA), it is forecasted that the number of passengers travelling by air will increase by 31% between 2012 and 2017 with 3.91 billion passengers and this increase is expected to continue to 2030 and beyond. Being able to sustain strong customer satisfaction is a key component to a business success. For many airlines, this means that customer satisfaction is likely to suffer as a result of increased demand. Furthermore, the emerging popularity of Middle East low-cost carriers are an increasing threat and pressure to European airlines since the majority of travellers have a strong price sensitivity (Roland Berger, 2013). Another reason for this challenge is, whereas previously, the regulated conditions of scarce competition reassured management, the de-intermediation process of the industry, which has further strengthened competition (Dennett et al., 2000). Other challenges facing the aviation industry include stricter regulation and European airlines have been under pressure due to the euro crisis and slow economy recovery (Roland Berger, 2013). These factors have forced airline businesses to adopt greater quality management strategies than before to differentiate them from competitors. Take for instance, airlines are investing more into its Customer Relationship Management (CRM) schemes to maintain strong long-term relationships with its customers and form a strong client base. Thus, it is essential that they adopt appropriate measures like marketing policies that incorporate a defensive element to be able to fend off potential competitors (Shaw, 2011). The concept of service quality stimulates the development of marketing strategies and so quality is a fundamental consideration for airlines. However, these efforts by airlines to improve quality often do not achieve the expected results as customers become increasingly unsatisfied with their flying experience (Sohal, 1994). Even for airlines that have managed to maintain reasonable satisfaction level among their customers, the amount of effort they invested into achieving that satisfaction level is often more than proportionate to the results they get. The growing dissatisfaction among customers with their flying experience could be due to two reasons. First, customers are demanding higher quality service for the same amount of money as compared to before. Second, there are also more platforms like online travel forums and media (such as Tripadvisors, AirQuality and Facebook) for them to voice out their dissatisfaction with air travel. However, this paper believes that the primary problem lies in that airlines have failed to understand what customers deem most important in achieving quality service and this misalignment of customers quality expectations has resulted in airlines investing hefty sums of money on practices that do not target customers needs. This quality issue has become a fundamental problem to all airlines, including British Airways which was ?featured recently in an article on CNN by a British journalist for the ?filthy and ?disgusting experience he had travelling on British Airways first class (Thompson, 2015). Using existing quality management models, this paper thus aims to analyse how airline companies can best align their quality management strategies to the quality expectations of customers, based on the primary data gathered through the use of a questionnaire using the SERVQUAL framework. Through this analysis, this paper hopes to propose a set of recommendations for airline companies to achieve higher quality standards that corresponds to the expectations and needs of the customers. Chapter 2: Aims & Objectives 2.1 Aims This research aims to minimize the perceived service quality gap between customers expectations of quality service and their experienced quality service in the aviation industry and thus, propose a set of quality management strategies to achieve high quality standards that correspond to the needs of customers, and hence achieve higher profitability. 2.2 Objectives To do so, this paper will: 1.Collect data on customers expectations of quality services in the aviation industry through the use of a questionnaire; 2.Develop an understanding of customers experienced quality of services in the aviation industry through primary sources; 3.Construct a set of quality management practices, primarily in the area of CRM, for airline companies based on the above findings and using the existing quality management model, SERVQUAL. To carry out the analysis, this study has adopted both a quantitative approach by way of a questionnaire circulated to students at the University of Southampton. This is an interesting sampling population as it is specific enough to provide valuable insight for this demographic group. Furthermore, the number of international students have more than tripled in the past quarter century and is expected to grow faster than the rate of the global population (Airbus, 2014); this means that it is expected that there would be more journeys made via air travel. This means that any insight and recommendations produced by this paper will be more relevant as information used will be current. At the end of the research, this paper hopes to contribute to existing quality management literature by providing a better understanding of how airline companies can adopt better quality management strategies that achieve quality services, in line with customers expectations. The following chapter will be a review of the literature concerning service quality and quality management models, with emphasis on its application in the aviation industry. A contextual background of the airline industry will also be presented. After setting the theoretical framework, chapter four will outline the methodology used to gather required information while chapter five will discuss the findings from the data and chapter six will conclude by providing recommendations based on the analysis of the findings. Chapter 3: Literature Review This chapter first introduces the concept of service quality and evaluate the various models used in existing literature. This section will also highlight on the SERVQUAL model, including its characteristics, gaps and previous studies with reference to the airline industry. The second part of this section will move on to looking at the quality management strategy by focusing solely on Customer Relationship Management (CRM) and outline the Perceived Quality Model. The third part of this section will look at the relevance of CRM to the airline industry as well as the current quality strategies employed by airlines. The purpose of this chapter is to provide the basic framework of service quality and quality management tools and apply them to the context of the airline industry, which will provide the premise for this paper s data collection and analysis. 3.1 Service Quality 3.1.1 Definition The difficulty in defining service quality has led to an array of definitions of the concept. Mudie and Cottam (1999) describe service quality as the magnitude in which service is able to meet the expectations of customers. Zeithaml (1988) claim service quality is the customer s own perception of the superiority of the service. Whereas Rust and Oliver (1994) regard service quality the impression by customers of the relative performance of the service provided by the firm. It has also been noted that service quality is difficult to measure since it is not a tangible product and so generally, the determination of service quality is a comparative between expectation and actual performance and is instantaneous (Beckford, 2002). According to Parasuraman et al. (1988), the characteristics of services consist of intangibility, inseparability of production and consumption, perishability and variability. The characteristics provided by Parasuraman et al. (1988) therefore summarise the difficulty in measuring the effectiveness of service quality provided by airline services since these are not physical features. Regardless of the definition, it is without a doubt that service quality is an important aspect for firms to consider should they wish to maintain competitiveness. It follows that service quality has been proposed by Tait (1996) as a significant contributing factor to a firm s profitability, employee turnover and market share. Furthermore, business success is highly dependent on its relationship with customers and is a determinant to customer loyalty and customer satisfaction (Lymperopoulos et al., 2006). In fact, a high quality of service is a strong demonstration of uniqueness in the market, which will generate competitive advantage (Parasuraman et al., 1991). Goodman (1989) demonstrated that failure to address service quality could consequently reduce loyalty of customers by 20% whilst strong service quality can encourage positive word of mouth that will increase customer loyalty (Kesuma et al., 2013). As stipulated by Venetis and Ghauri (2004) establishment of strong service quality is vital to developing long-term relationships with customers. This is supported by Brink and Berndt (2005) who found that perception of services by consumers were measured against the quality of service provided and the level of satisfaction. In addition, increased service quality is complementary to the implementation of CRM (Kesuma et al., 2013). Lovelock and Wright (2002) summarises the benefits of strong service quality as insulation of customer base against competitors, repeat patronage, increased customer loyalty, promotion of word of mouth, reduction in failure costs, maintaining sustainable advantage and lower costs in attracting new customers. However, the difficulty in furthering service quality is perhaps the toughest challenge posed to the airline industry (Sohal, 1994). The study by Pakdil and Aydin (2007) consisting of 298 participants found that there were gaps in the service quality received by customers and their expectations. 3.1.2 Determinants of Service Quality The significance of service quality to business performance has prompted a number of researches in recent years on the determinants of service quality. However, the parameters used by each author differed and findings also varied. Table 1 is a summarisation of previous literature and what each author deemed to be the most crucial factor for measuring service quality. Table 1: Previous studies on the determinants of service quality Author(s) Determinants of Service Quality Surovitskikh and Lubbe (2008) Consistency, reliability and augmented products Gourdin (1988) Price, safety and timeliness Gilbert and Wong (2003) Employees, facilities, customisation, flight patterns, assurance, reliability and responsiveness Pakdil Aydin (2007) Employees, tangibles, responsiveness, reliability, assurance, flight patterns, availability, image and empathy Chang and Yeh (2002) On-board comfort, airline employees, reliability, convenience and responsiveness to crises Elliot and Roach (1993) Efficiency in luggage transport, in-flight meals, seat comfort, check-in process and in-flight service dimensions Ostrowski et al. (1993) Timeliness, in-flight meal and comfort of seat Bowen and Headley (2000) Timeliness, baggage handling, airline safety A study examining the underlying factors to service quality affecting customer satisfaction in the airline industry consisting of 270 respondents was conducted by Archana and Subha (2012). Their study indicated that there are different facets to in-flight service quality depending on the customer seat class (i.e. economy, business and premium). Also, there are three dimensions to this perceived quality: in-flight service, in-flight digital service and back-office operations, which are all positively associated with perceived service quality. Specifically, inflight meals and seat comfort are the most important for the former dimension, whilst personal entertainment is the determinant for in-flight digital service quality and online ticket booking is the main factor for back-office operations (Archana and Subha, 2012). All in all, a comparison of the studies shows that although there are various determinants to service quality, there are overlapping factors such as reliability, employees and the concept of efficiency between studies. 3.1.3 Service Quality Management Frameworks Parasuraman et al. (1985) developed the most well-known quality management framework, SERVQUAL, which enabled quality in the service sector to be measured. This framework originally consisted of ten factors: competence, courtesy, credibility, security, access, communication, knowledge of the customer, tangibles, reliability and responsiveness. These were later refined to only five factors argued to be important factors to service quality: reliability, assurance, tangibles, empathy and responsiveness. SERVQUAL was thus later also referred to as RATER. A number of studies have since used this framework, as well as other well-known models such as SERVPERF, with the intention of assessing service quality. This paper will utilise the SERVQUAL framework as opposed to SERVPERF since this model is most effective in diagnosing weaknesses in services and in evaluating the variance of dependent constructs whilst the SERVPERF model is better suited to estimating consequences variables such as brand loyalty. This means that SERVQUAL is the better option to allow for more appropriate and practical recommendations to be made for the case study to improve service quality and reduce the service quality gap between customer expectation and service perception, which is the aim of this paper. Alexandris et al. (2002) claimed that SERVQUAL is an effective model to recognise practical problems in service quality of the tourism industry. Parasuraman et al. (1988) suggests that the SERVQUAL is one of the best methods of analysing difference between customer expectation and perception but also that reasons for poor service quality can be attributed to one or more ?gaps (Parasuraman et al., 1985). The conception of a gap helps to identify areas of weaknesses in service quality and where resources should be invested in order to increase customer satisfaction. Figure 1: Service quality gap model (Parasuraman et al., 1985) Gap one refers to customer expectation versus management perception: this is due to inadequacy in marketing research direction, communication and rigid management structure. Gap two refers to management perception versus service specification: this is due to poor commitment to service quality, concerns with feasibility, task standardisation and lack of objective. Gap three refers to service specification versus service delivery: this is due to insufficient technology and employee-job fit as well as inadequate supervisory control systems and limited perception in control and teamwork. Gap four refers to service delivery versus external communication: this is due to inability to communicate across the firm and tendency to not be able to deliver commitments to customers. Finally, gap five refers to customer expectation versus service perception: this is due to shortfalls from the business in providing the quality of service that the customer expects which is influenced by needs, recommendations and previous service experiences. Through the use of the SERVQUAL framework, it is able to address the customer expectation versus service perception (i.e. gap five). 3.1.4 SERVQUAL Empirical Evidence Previous studies found that reliability was most important dimension whilst tangibility scored lowest (Zeithaml et al., 1990; Sultan and Simpson, 2000; Lovelock and Wright, 2002). Pakdil and Aydin (2007) found that the most important SERVQUAL dimensions were reliability and safety-related. Pakdil and Aydin (2007) also found that a higher education level produced a lower perception and assessment of service quality of the airline industry, arguing for a customer-centric strategy by airlines such as customer relationship management for individualised service. On the other hand, a higher education value also led to a lower expectation level for tangibles, availability and image. The purpose for travel also affected the assessment of service quality experienced by consumers: holidaymakers rated service quality higher than those who travelled for business (Pakdil and Aydin, 2007). The purpose of trip being an important decisive factor to airline travel is also advocated by Chiang (2003) and Sultan and Simpson (2000). A comparison of service quality between Taiwanese and Chinese airlines were conducted by Ling et al. (2005) and found that gave evidence culture and social environments may impact on perception of service quality. Their study of 450 respondents that use Taiwanese and Chinese airlines found that tangibility, reliability and assurance were most important to Taiwanese travellers whereas reliability and assurance were more important for travellers from Mainland China (Ling et al., 2005). Huang (2009) found that responsiveness was the most important SERVQUAL dimension in a study involving 602 passengers waiting for flights at Taoyuan international airport in June-July 2007. However, a limitation of this survey was that approximately 76% of participants were males and this social group may have a different prioritisation than female counterparts. Considerable research has been conducted on how gender affects relationships with service providers, with many concluding that females are more likely to stress importance on the process of service delivery than males (Van Pham, 2011). The increase in promotional campaigns by Asian and American airlines and forecasted increase in female travellers prompted Van Pham (2011) to investigate the gender gap in service quality. Using the SERVQUAL model found that there was only one gender based statistical significant variance being the assurance dimension. The study by Chau and Kao (2009) also found no support for the service quality gap. In a descriptive exploration between Malaysia Airlines and Air Asia involving 180 participants, Zainol and Romle (2007) showed that there was a presence of gap 5. Furthermore, Zainol and Romle (2007) showed that consumers were more affected by price than service quality, although they did not rebuke the fact that service quality still played a major role in consumer purchasing decision. In their study, they found that consumers prioritised flight punctuality (4.55) and airline flight safety (4.52) most. 3.2 Quality Management Strategy Customer Relationship Management 3.2.1 Definition Customer Relationship Management (CRM) is defined as the practices and tools that firms use to manage and evaluate ?customer interactions in order to drive sales growth by deepening and enriching relationships with their customer bases (Rouse 2014). It is based on a new belief that customer retention is more important to firms than acquiring new customers. Traditionally, the belief was that capturing as many new customers as possible can help boost profitability. However, the past twenty years has seen a massive increase in the popularity of CRM (Nairn, 2002) such that it has somewhat substituted the 4Ps marketing mix in being the dominant paradigm for marketing theory (Dwyer et al., 1987). This concept posits that businesses will be able to generate greater profits in the future from repeated customer transactions on the basis of strong customer satisfaction and loyalty (Ismail et al., 2007; Jayachandran et al., 2005). Figure 2 shows the transition of marketing strategy from transactional marketing (based on acquiring new customers) to relationship marketing (based on customer retention). Figure 2: The transition to relationship marketing (Source: Rapp, 2000) The use of CRM is also advocated by Smith and Dikolli (1995) and Payne et al. (1995), who put forth that transactions with existing customers are comparatively inexpensive and that the monetary value of their transactions will increase over time. This means that in today s increasingly competitive business environment, mass production and marketing strategies are no longer profitable; to achieve long-term profit, firms have to change their focus to lifetime value of customer (Blattberg & Deighton 1991). 3.2.2 Model & Tools The most notable CRM model is Gronroos (2008) s Perceived Service Quality Concept. This model is based on the belief that there are two type of service logic in determining service quality. The first service logic belongs to the customers who create value for themselves when using the services provided by the firm while the second service logic belongs to the firm which develops opportunities to co-create value with customers and for customers when interacting with customers during the provision of services (Gronroos 2008). Thus, based on these two service logics, CRM aims to bridge the gap between the customer service logic and provider service logic to achieve quality service. This means that firm, as the service provider, needs to understand the perceived quality and value in their service processes that their customers are looking for and thus create the value support for them through CRM. Figure 3: Total Perceived Quality (Source: Gronroos 2008) Based on figure 3, the model states that expectations of service quality (customer service logic) are determined by five key factors: words of mouth, marketing communications or channels, image, customer needs and customer learning. On the other hand, experienced quality is a function of the technical quality and the functional quality, filtered through the image. The gap between the expected quality and the experienced quality is the perceived quality gap experienced by customer. As such, firm should aim to narrow this gap by affecting the factors through the use of CRM. CRM tools can be classified into three main categories: financial bondage, social bondage and structural bondage. Financial bondage can include the use of coupons, discounts, free samples and loyalty schemes while social bondage involves the establishing of trust and maintaining effective commitment. Lastly, structural bondage works by keeping product and services in line with the needs of customer like the use of iPhone applications to allow for customisation. 3.2.3 Impact of CRM A number of previous studies confirm the strong, positive relationship between customer satisfaction and perceived service quality (Parasuraman et al., 1985; Rust and Oliver, 2000). Achieving customer satisfaction through effective adoption of CRM plays a crucial role to developing customer loyalty and in turn, enhancing customer retention rate (Berry and Zeithaml, 2001). Research by Ngobo (2004) found that repeat purchases from the same organisation depended on the experience previously felt by the customer, the perceived benefits of buying the product from the business as well as the level of confidence in the business to provide high-quality services. Furthermore, a study by Zablah et al. (2004) suggests that treating relationships with customers as a continuous process is beneficial to optimising profit margins. Suhartanto and Noor (2012) conducted a study involving a total 200 responses per airline to investigate the level of customer satisfaction between full service airline customers compared to low cost airline customers. They found that customer satisfaction is higher in full service airlines and that the most effective predictors of customer satisfaction are in the attitude of employees (corresponding to the empathy of the SERVQUAL framework) and price (Suhartanto and Noor, 2012). However, Colgate and Danaher (2000) noted that the effects of CRM were both positive and negative effects. This is dependent on the effectiveness of the strategy implementation; when CRM is conducted skilfully, this would result in better customer satisfaction and brand loyalty. Whereas, a poorly executed CRM strategy consequently lowered customer satisfaction and brand loyalty (Colgate and Danaher, 2000). Similarly, Coltman (2007) found that the effectiveness in the implementation of CRM is attributable to the level of skill of its application. 3.3 The Airline Industry 3.3.1 Context to the UK Aviation Industry The aviation industry has flourished in recent years as it plays an important role in supporting global trade, international investment and tourism. The UK aviation industry is driven by private investment and plays a vital role to the economy as the sector contributes ?52 billion to UK GDP (BATA, n.d.). It also provides more than 341,000 jobs in the UK and is the form of travel preferred for making overseas visits more than 46 million trips representing 79% of visits by UK residents abroad are made via air travel (BATA, n.d.). The UK possesses the greatest aviation network globally after the U.S. and China (BATA, n.d.). There were also a number of high-profile merger and acquisition transactions in 2011 thus suggesting that there is a need for consolidation and growth in the airline industry and to facilitate access to markets, cost reductions through economies of scale and deliv
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