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Critical Success Factors and Customer Expectation in Budget Hotel

Segment — A Case Study of China
Wen Huaa; Andrew Chanb; Zhenxing Maoc
a
Wenwer.com, Irvine, CA b School of Hotel & Tourism Management, Hong Kong Polytechnic
University, Hong Kong c Collins School of Hospitality Management, California State Polytechnic
University, Pomona, CA

To cite this Article Hua, Wen , Chan, Andrew and Mao, Zhenxing(2009) 'Critical Success Factors and Customer
Expectation in Budget Hotel Segment — A Case Study of China', Journal of Quality Assurance in Hospitality & Tourism,
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 Journal of Quality Assurance In Hospitality & Tourism, 10:59–74, 2009
Copyright # Taylor & Francis Group, LLC
ISSN: 1528-008X print / 1528-0098 online
DOI: 10.1080/15280080802713702
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
Downloaded At: 07:00 10 September 2010

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 impor-
tant 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 2008.

Address correspondence to Wen Hua, 8105 Irvine Center 9FL, Mailbox 2–29, Irvine, CA
92618. E-mail: wendy.huawen@gmail.com

59
 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
120.3 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 2006.
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,
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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?
 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).
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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 star-
graded 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 dimen-
sions, 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
 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
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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 Customer loyalty/repeat business

Convenient locations Disciplined operational controls
Standardized hotel design Speed of guest service
Size of hotel network Efficiency of guest service
Geographic coverage of hotel network Choice of room type for guests
Consistent accommodation standards Guest security
Consistent service standards Low guest bedroom prices
Good value restaurants Limited service level
Monetary value for accommodation Hygiene and cleanliness
Recognition of returning guests Quality audits
Warmth of guest welcome Staff empowerment
Operational flexibility/responsiveness Strong brand differentiation
Corporate contracts Customer survey/feedback
Smoking and non-smoking rooms Staff training
Design/look of guest bedrooms Added-value facilities in guest rooms
Size of guest bedroom Staff recruitment and selection
Guest bedroom comfort level Standard pricing policy
Responsiveness to customer demands Quality standards
 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 environ-
ment 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 accom-
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modation, 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 low-
price 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
 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
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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.
 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.
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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 accommoda- Geographic coverage of hotel
tion network
Convenient locations Guest bedroom comfort level Value for money accommoda-
tion
Speed of guest service Speed of guest service Guest bedroom comfort level
 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
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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
 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
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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 two-
thirds 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
19–24 24 16.9
25–34 96 67.6
35 or above 22 15.5
Gender
Female 71 50
Male 71 50
Education
Some college 25 17.6
Bachelor 101 71.1
Master or above 16 11.3
Annual Income(RMB)
30,001–50,000 14 9.9
50,001–100,000 102 71.8
100,000 above 26 18.3
 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

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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), responsive-
ness 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 extinguish-
ers, 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
 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 5 4.30), followed by location
(M 5 4.10), promotion (M 5 3.77), price (M 5 3.75), and physical product
(M 5 3.72). 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.
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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
 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) 0.816
Standardized hotel design (Q2) 0.888
Size of guest bedroom (Q3) 0.894
Guest bedroom comfort level (Q4) 0.616
Choice of room type for guests (Q5) 0.827
Enough parking area (Q6) 0.816
Design/look of guest bedrooms (Q7) 0.820
Added-value facilities in guest rooms 0.826
(Q8)
Color of hotel exterior and room (Q9) 0.895
Smoking and non-smoking rooms 0.794
(Q10)
Factor 1: Service Quality
Operational flexibility/responsiveness 0.829
(Q11)
Responsiveness to customer demands 0.859
(Q12)
Speed of guest service (Q13) 0.930
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Efficiency of guest service (Q14) 0.936

Limited service level (Q15) 0.828
Hygiene and cleanliness (Q16) 0.809
Guest safety and security (Q17) 0.781
Provision of all kinds of amenities 0.781
(Q18)
Provision of the internet service (Q19) 0.786
Convenient and tasty breakfast (Q20) 0.857
Warmth of guest welcome (Q21) 0.876
Consistent service standards (Q22) 0.805
Factor 5: Price
Low guest bedroom prices (Q23) 0.934
Consistent pricing policy (Q24) 0.952
Value for money accommodation (Q25) 0.952
Factor 3: Promotion
Customer loyalty/repeat business (Q26) 0.895
Attractive advertising or promotions 0.961
(Q27)
Benefits for members (Q28) 0.949
Corporate contracts (Q29) 0.877
Strong brand differentiation (Q30) 0.940
Factor 4: Location
Size of hotel network (Q31) 0.868
Geographic coverage of hotel network 0.940
(Q32)
Central sales/reservation system (Q33) 0.912
Convenient locations (Q34) 0.925
Convenient transportation with signs 0.526
(Q35)
Eigenvalue 10.98 6.59 4.33 3.11 2.29
Variance (%) 31.36 18.84 12.38 8.89 6.55
Cronbach’s Alpha (Reliability) 0.96 0.95 0.97 0.92 0.97
Mean 4.30 3.72 3.77 4.10 3.75
Standard Deviation 0.74 0.90 0.94 0.87 1.04
 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
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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

 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.
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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
 Research Note 73

perspectives. Second, the sampling procedure and the sample size of

customer survey could be improved. Future studies may encompass
respondents in more budget hotels with diversified locations for a longer
period of time to generate a more representative sample. Finally, more guest
characteristics—such as occupation, marital status, and main purpose for
traveling—may be added to further help us understand guest preferences in
evaluating the CSFs among budget hotels in China.

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