A data mining approach to developing the profiles of hotel customers
Hokey Min Logistics and Distribution Institute (LoDI), University of Louisville, Louisville, Kentucky, USA
Hyesung Min Department of Hotel Management, Sejong University, Seoul, Korea
Ahmed Emam Department of Computer Science and Engineering, University of Louisville, Louisville, Kentucky, USA
Abstract. To stay competitive, hotels need to develop a viable customer retention strategy. Since a key to the successful development of such a strategy rests with customer relationship management, hotels should identify the most profitable ways to build and maintain a loyal customer relationship. In an effort to help hotels understand their customers preferences and the ways to interact with the customers, we propose data mining techniques. Based on a case study of luxury hotels in South Korea, this paper demonstrates the usefulness and practicality of the proposed data mining techniques.
Keywords:Hotels, Service quality, Customer satisfaction, Management
Introduction
As tourism revenue in South Korea nearly doubled in the last decade, the South Korean hotel industry expanded its capacity considerably by increasing the number of guest rooms and building new hotels (Korean Tourism Organisation, 2000). Such expansion has led to over-construction of hotels and subsequently competition among hotels has increased. With increasing competition, the key to a hotels survival is its ability to cater hotel services to the changing preferences and life styles of ever-demanding customers. These preferences may include greater access to amenities, comfortable rooms, fast check-in/check-out, courteous treatment, and reasonable price. Full understanding of such preferences, however, cannot be translated into a competitive advantage, unless hotel management develops detailed profiles of hotel customers. One of the most important purposes of customer profiling is to target some of the 'valued customers' for special treatment based on their anticipated future profitability to the hotel. That is to say, customer profiling is the important basis for customer relationship management (CRM) and the subsequent development of customer retention strategy.
In general, CRM is referred to as the business practice that is intended to improve service delivery, build social bonds with customers, and secure customer loyalty by nurturing a long-term, mutually beneficial relationship with valued customers selected from a pool of customers. As such, CRM often focuses on valued customers who repeatedly purchased a great deal of hotel services and remain committed to their particular hotel. Since these valued customers are more profitable to serve than others, the hotels customer retention efforts should be geared toward them. Given the importance of customer profiling to customer retention, this paper addresses the following questions:
bull; Which customers are likely to return to the same hotel as repeat guests? bull; Which customers are at greatest risk of defecting to other competing hotels?
bull; Which service attributes are more important to which customers? bull; How to segment the customer population into profitable or unprofitable customers?
bull; Which segment of the customers best fits the current service capacities of the hotel?
Also, this paper proposes data mining techniques to answer the above questions. Data mining techniques are suitable for the profiling of hotel customers due to their proven ability to recognize and track patterns within a set of data. In particular, data mining is known to be effective in dealing with the discovery of hidden knowledge, unexpected patterns and new rules from databases (Adriaans and Zantinge, 1998).
Research methodology
The 281 participants in this study were hotel guests who had stayed at 11 different luxury hotels (Westin Chosun, Grand Intercontinental, Coex Intercontinental, Hilton, Grand Hyatt, Shilla, Ritz-Carlton, Sheraton Walker-Hill, Radisson Seoul Plaza, Renaissance, Amiga) in Seoul, South Korea. These hotels were chosen for the study due to similar characteristics in terms of price (approximate price range of $200 per night), location (central downtown location in Seoul), and service amenities (availability of sports facilities and business centers). Through a survey conducted by questionnaire, the participants provided us with data related to their demographic profile (e.g. gender, age, occupation, nationality), frequency of their hotel visitations, the purpose of their travel, relative importance of service attributes to overall hotel service quality, and the level of customer satisfaction based on their service experiences. Some of the non-demographic questions were selected from service attributes critical to hotel service quality (Lewis, 1987; Cadotte and Turgeon, 1989; Chung and Hahn, 1995; Min and Min, 1996). Notice that customer satisfaction measures the perception of what actually happened in a service encounter compared with what the customer thought would happen in the situation (Zifko-Baliga, 1999).
All of the participants reported having visited at least one of the 11 hotels selected for this study. In fact, a majority (74 per cent) of the participants said that they visited more than one of these hotels at least once in the past. A vast majority (91.1 per cent)of them reported having stayed at one of these hotels for more than one night. Most of the participants are frequent guests of the hotels and thus are knowledgeable about hotel service quality. These participants represent many different nationalities and various demographic sectors.
In particular, these participants were carefully selected to maximize responses to the survey. Rather than distributing the questionn
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