CHAPTER I

INTRODUCTION

1.1 Background of the study

The industry that we know today began to take form in the early 1950's, leading the ways for
the growth into the dynamic industry. Actual development of this industry in Nepal started
after 104 years' autocracy of Rana regime ended in 1950 and Nepal is officially open for
tourism from 1951. The first hotel was established in 1952 at Patan named Nepal Hotel.
Karna Shakya known as the father of hotel industry in Nepal.

The hotel industry in Nepal has continuously contributed considerably to the growth of the
economy through the retail and wholesome of a range of accommodation and related
services. Hospitality sector contribute 2.05% of the country's GDP. Tourism is Nepal's fourth
largest industry by employment. Altogether one million people are employed in the hotel
industries of Nepal, including homestay, guest house, and restaurants.

The hotel industry in particular has become a center of attraction for new investment lately.
In 2016, Nepali and foreign investors floated plans to invest 60 billion Nepalese rupees in
different hotel projects. It is estimated that 300 billion Nepalese rupees has already been
invested in the hotel business so far. Various globally renowned hotel chains are entering or
re-entering the country partnering with large local business houses and the Nepali Diaspora to
invest in different hotel projects. It is said that nearly 10,000 hotel rooms are under
construction at various parts of the country, of which 4,000 are star rooms. HAN (Hotel
association of Nepal) works to safeguard the industry of the hotel entrepreneurs and its
employees, thus has a significant impact on the economy of the Nepal. It is considered as the
first travel association of Nepal.

Hotel industries significantly contribute in economic growth, tourism, world trade and
international investment in today’s globalized business world. Due to this purpose the
attraction towards hotel is increasing and that has forced them to maintain certain quality
level in order to compete and sustain in long run. One of the most effective tools in the hotel
industry's success is service quality. Juran (1988) defines quality as "fitness for use" while in
Crosby (1979) quality is define as "conformance to requirements". Mitra (2000) on the other
hand views the quality of a product or service as “the fitness of that product or service for
meeting or exceeding its intended use as required by the customers”. Considering the hotel
industry, bringing about quality has a complication that differs from when tangible product is
involved. Parasuraman et al., (1985) noted that it was inappropriate to use a product-based
definition of quality when studying the service sector. They, therefore, developed the
expression, “service quality”. Service quality refers to the comparison of customer
expectations of services how they(organization) deliver. Goods service quality leads into
customer satisfaction.

Customer satisfaction has always been considered a vital business goal because of its crucial
role in the formation of customers’ desire for future purchase or tendency to buy more (Mittal
and Kamakura, 2001). Customer satisfaction is the real difference between service
expectation and service real achieved. A significant level of satisfaction with the items or
services accompany the exhibition surpasses assumption and dissatisfaction comes from the
failure in the items or services (Kotler, 2000).

Customer satisfaction is an attitude of the customers about the services, whether these fulfill
their requirements or otherwise. To satisfy the customer is an essential output of the
marketing process. If the customers are satisfied with services provided by a specific
organization, it means the stakeholders are doing their best in that particular organization.
Customer satisfaction is an attitude of the customers about the services, whether these fulfill
their requirements or otherwise. To satisfy the customer is an essential output of the
marketing process.

According to Agyapong (2011) there is a positive relationship between service quality and
customer satisfaction. In this study, multiple regression analysis is implemented to examine
the relationships between service quality variables and customer satisfaction.

Quality is more than merely producing excellent product. Quality is a substantial factor for
businesses in achieving competition nowadays. Most business executives would agree that
sound business strategies include a concern for quality. That is why managers from different
functional areas in a firm tend to view the idea of quality from a variety of perspectives.
Better Service quality gets the better customer satisfaction. So, Service quality and customer
satisfaction has the positive relationships between each other.

Hotel service is recently regarded as one of core businesses making up the tourism complex
system which is one of the fastest growing industries in Nepal during the past decade.
Providing excellent services to the customers of hotels improves satisfaction of the
customers. Thus, a better understanding of customer satisfaction enables the hotel to create
value for her customers which influences repeat visitation and word of mouth
recommendation (Berkman & Gilson, 1986). To survive in this dynamic and highly
competitive business environment the hotel operators will be forced to critically acknowledge
the importance of service improvement in order to gain a competitive advantage.

Customer satisfaction knowledge and the behavioral intentions are turning out to be essential
these days in the service industries, particularly in the travel and tourism industry. In the
today's business environment, customer satisfaction has a significant influence on the any
kinds of firms. Valdani (2009) opines that firms exists and prosper because they have
customers they serve. The understanding of customer satisfaction enables the hotel to know
how customers define the service and products quality, facilitates the development of
customer satisfaction questionnaire (Haye, 1997 as cited in Alemnch & Gabremicheal, 2018).
Thus, a better understanding of customer satisfaction enables the hotel to create value for the
customers which influences repeat visitation and word of mouth recommendation (Berkman
& Gilson, 1986)

1.2 Problem Statement

The motive of every business is to create and serve their customers, but the biggest challenge
faced by business is how to satisfy them, retain and ensure their loyalty for the lifetime of the
business (Yen & Su, 2004). The Customers will have to face the problems of the service
quality almost every day in every service they will be provided. The service problems will be
seen in public transport, when it is crowded and you don’t feel comfortable to reach the
destination; while doing shopping, you may get offended behavior from the salesperson; in
the cafe, you may not like how the waiter treated or behaved you and so on. We can have
dissatisfaction at many service-oriented organizations daily. Unfortunately, not always the
quality service offered can meet the needs, requirements and expectations of the consumer.
Service quality plays a significant role in the service industry. Studies have found that there is
a positive relationship between quality service and customer satisfaction, resulting to
customer loyalty/retention and repeat customer purchase behavior. Many researchers have
acknowledged that service quality as a critical tool for customer satisfaction and will have
repeats visit in the service-based businesses especially in hotels.
Customer satisfaction is the top priority for long term relationships with customers. Service
quality is an important factor to both satisfaction and trust for the customers. Therefore, this
study aims to investigate how service quality influences the customer satisfaction. The
growing of hotel industry provided opportunities as well as challenges to the business entities
in this industry. Hotel services should focus on all dimensions of service quality, with special
focus on personnel services and for enhancing their customer satisfaction. It is expected that
findings of this study will help to understand the roles of various dimensions of service
quality for enhancing their customer satisfaction. This is the main reason of choosing the
topic is the problem of insufficient levels of service quality based on the comments of
different guests in hotels generally and particularly in Hotel.
However, in order to solve the above stated problems, this study will be a part of contribution
towards expanding knowledge on this research area. As independent variables that contribute
to customer satisfaction, five dimensions of service quality (reliability, responsiveness,
assurance, tangibility, and empathy) and price are used to fulfill the gap and to add more
knowledge on customer satisfaction. This research will address the following research
question:

i. What are the level of service quality and customer?

ii. Does the service quality and customer satisfaction in hotels relate with each other?
iii. Does the service quality have impact on customer satisfaction?

1.3 Objectives of the study

The objective of this research study is to examine the service quality and customer
satisfaction in hotel services and what role does service quality and have on customer
satisfaction. In doing so, a special emphasis is set on the different dimensions of the
SERVQUAL model to find out which aspects of service quality are of greater importance.

i. To examine and identify the level of service quality and customer.

ii. To investigate the relationship between service quality and customer satisfaction in
hotels.
iii. To examine the impact of service quality on customer satisfaction.

1.4 Hypotheses

i. Reliability and customer satisfaction

Olu Ojo (2008) has stated that this dimension is related to the ability to perform the promised
service dependably and accurately. According to Wilson et. al. (2008), reliability is
consistently regarded to be the most important determinant of perceptions of service quality.
(Cronin & Tylor, 1992) has mentioned that the promises made by any organization should be
fulfilled on time and in systematic way.

According to Parasuraman et. al. (1988), SERVQUAL dimension describes reliability as

"Ability to perform the promised service dependably and accurately". Researchers has been
mentioned that reliability which is a part of service quality dimension has significance
relationship on the customers and is also a predictor of customer satisfaction (Jamal &
Anastasiadou, 2009; Das et al. 2010; George & Kumar, 2014). In this SERVQUAL model the
services that represents the reliability quality in the hotel service effects the satisfaction. And
it shows the relationship between reliability and customer satisfaction.

H1.1: There is the positive relationship between the reliability and customer
satisfaction.

ii. Responsiveness and customer satisfaction

This dimension focuses on the attentiveness and promptness in dealing with customers or,
willingness to help and provide prompt services to the customers (Olu Ojo, 2008). According
to this dimension is related to the willingness to help and respond customers request from the
service provider side. (Cronin & Taylor, 1992) had mentioned that service providers or the
employees must be available for prompt services.

Parasuraman et al. (1988) has studied about SERVQUAL where responsiveness is described
as “Willingness to help customers and provide prompt services”. This dimension will be
viewed in the hotel services in terms of service provided by the employees like: immediate
service, problem solving capabilities and intension towards the customer, responsive towards
customers etc. which will affect the satisfaction level of the customer. Thus, to test the
relation between responsiveness and customer satisfaction the following hypotheses is
developed:

H1.2: There is positive relationship between responsiveness and customer satisfaction.

iii. Assurance and customer satisfaction

Assurance is the dimension which is related to the employees’ knowledge & courtesy and
ability to inspire trust and confidence. It is important for the customers when they perceive
that the provided service is risky and feel uncertain about their ability to evaluate the
outcomes. As per Olu Ojo (2008), it contains courtesy, competence, security and credibility.
(Wilson et al. 2008) has stated that the employees should be provided with good skills and
knowledge to perform polite and courteous services, so that customers can feel safe while
consuming service and feel secure.

Parasuraman et al. (1988) has mentioned that the assurance is the service quality dimension
which refers to “Knowledge and courtesy of employees and their ability to inspire trust and
confidence”. All it relates to the performance of the employee that makes the customer feels
safe and secure. This dimension views behavior of the employee, and service that makes
customer satisfied. To see the relation between the assurance and customer satisfaction
following hypotheses is formed:

H1.3: There is positive relationship between assurance and customer satisfaction.

iv. Tangibility and customer satisfaction

Parasuraman et al. (1988) has mentioned that the tangibility is the service quality dimension
which refers to “Physical facilities, equipment, and appearance of personnel”. The
appearance of the physical assets, surroundings and facilities such as cleanliness of hotel
interior toilets, quality of the surroundings and air- conditioning, comfort for the customers
and design of the hotel is defined to be as hotel tangibles (Bahia and J. Nantel, 2000).
Zeithaml et al. (2006) explained that hospitability services should highlight the tangibles in
their service strategies. Tangibles cover the appearance of physical facilities; equipment and
communication materials, and all are physical evidence of the service. Parasuraman et al.
(1988) initially defined tangible as the physical surroundings representing objects such as
interior designing and subjects such as the appearance of employees.

H1.4: There is positive relationship between tangibility and customer satisfaction.

v. Empathy and customer satisfaction

Parasuraman et al. (1988) has mentioned that the empathy is the service quality dimension
which refers to “Caring, individualized attention the firm provides its customers". The base of
empathy is conveying that customers are unique and special and that their needs are
understood through personalized or customized service. Suki N. (2013) defined empathy as to
how a company cares and provides personalized attention to their customers to make them
feel valued and special. Empathy is considered as an additional plus that the trust and
confidence of the customers and at the same time increase the loyalty.
H1.5: There is positive relationship between empathy and customer satisfaction.

A summary of hypotheses is established for this study as below:

H1.1: There is the positive relationship between the reliability and customer satisfaction.
H1.2: There is positive relationship between responsiveness and customer satisfaction.
H1.3: There is positive relationship between assurance and customer satisfaction.
H1.4: There is positive relationship between tangibility and customer satisfaction.
H1.5: There is positive relationship between empathy and customer satisfaction.

1.5 Significance of the study

Service quality and the customer satisfaction will help in giving positive retention of the
customers and also helps in taking competitive advantage. In service industry, service quality
and price have an important role in influencing customer satisfaction. This research serves to
add the knowledge by improving the understanding of how service quality affect the
customer satisfaction.
Customer satisfaction helps to guide as an indicator of whether customers will return to a
hotel or destination. While there is no guarantee of a fulfilled customer’s repeat visit, it is
almost sure that disappointed customers will not return. All the dimensions of service quality
were identified as the key factors influencing customer satisfaction. It suggested that to
improve customer satisfaction and organizations need to improve the dimensions of service
quality. Service quality and customer satisfaction are particularly important in hotel services.
This is because the hotel services are very sensitive to word of mouth communication. A non-
satisfied customer does not usually express his/her dissatisfaction to the management but will
tell his/her experience to many persons, and this will influence the hotel’s image and
subsequent efforts to attract new customers.
Attributes of customer satisfaction ought to give clues regarding what action a hotelier needs
to take to ensure that customers are fulfilled and willing to return (Domingo, 2002). After
conducting a study to establish the relationship between service quality and customer
satisfaction, Janet (2011) concludes that a significant relationship exists between service
quality and customer satisfaction.
The findings of this study will not only benefit the hotel services and hotel association, but
also customers. They are the key people in this study and the ultimate goal is to satisfy them,
by giving them the services they desire. There are not many study which has been conducted
on hotel services. Therefore, this research is of special significance to hotel services with the
purpose to assess how the service quality provided by hotel affects the level of customer
satisfaction.
i. This study will help hotel industry to understand the service quality for customer
satisfaction and make more sensitive to increase the value for the customer.
ii. This study helps to improve customer satisfaction and organizations need to improve
the dimensions of service quality.
iii. This research serves to add the knowledge by improving the understanding of how
service quality affect the customer satisfaction.
iv. The finding of this research will have significant practical implications for hotel
services, educators, researchers, students who wants investigate further on this or
related other topics.

1.6 Limitations of the study 

The study is conducted as the requirement of master’s degree of business management, so it
may not be applicable and suitable for all aspects. It has been limited in terms of period of
study, sources and nature of data. Every study has got its own limitations, however following
are the other limitation of the study:

i. The data will be collected from one type of respondents only, that is, the customer.
Therefore, the results of the study cannot be generalized to other samples.
ii. There may be some other issues and problems faced by the customers, likewise
disappointed customers will not return, etc. are ignored by this study.
iii. The study has been carried out based on primary.
iv. The accuracy of results depends on the accuracy of data provided by the respondents.

1.7 Organization of the study

The study comprises of three main sections: preliminary section, body of the report and
supplementary section. The preliminary section consists of title page, certification,
declaration of authenticity, acknowledgements, table of contents, list of tables, list of figures,
abbreviations used and abstract. The body of the report is further divided into five sections:
introduction, review of literature, research methodology, data presentation and analysis,
summary and conclusion. The final section of the report comprises of references, appendix as
questionnaire and summary of responses.
Chapter I Introduction
The introduction section under body of study consists of background of the study, problem
statement and research questions, objective of the study, significance of the study, limitations
and organization of the study.

Chapter II Literature Review

The literature review section deals with the findings of previous researches related for the
current study. Different research work related to role of service quality and price on customer
satisfaction are discussed in order to prepare a base for the study. Further, the chapter consists
of theoretical framework defining each dependent and independent variables based on
previous literature.

Chapter III Research Methodology

This chapter discusses research methodology used for the study. It comprises of research
design, population and sample, sources of data, instrumentation, validity test, reliability test,
data analysis and software used.

Chapter IV Results and Discussion

This chapter compromises of various tables, figures intended to answer the purpose and
research questions of the research.

Chapter V Conclusion and Implications

Finally, the last chapter deals with summary part, conclusions and implications of the study.
Under, the summary part, the overall findings of the research are discussed in brief. At last,
conclusions and implication were drawn out.
The References and Appendices have been given at the end of the study.