THE DETERMINANTS OF QUALITY SIGNALLING USING STAR RATING IN THE HOTEL INDUSTRY OF CROATIA Zdravko Šergo Ana Težak Damijanić Institute of Agriculture and Tourism

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija INTRODUCTION  Achieving quality is fundamental in tourism because good quality of products or services enable organizations to attract and retain tourists  Hotels are assigned to different categories depending on the type of structure and services offered so the star rating system should imply quality.  The question is whether there are significant differences between various characteristics of hotels and the star ratings.  Research suggest that ratings are not very accurate indicators of quality  Research questions are:  What are the characteristics that explain and predict the probability of high/low quality hotel in regard to signaling theory?  What are the characteristics that explain the frequency of high/low quality hotel among two large regions in Croatia?

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija THEORETICAL BACKGROUND  Hotels are assigned to different categories and the higher the category of a hotel is the better the reputation is.  The star based system does not automatically solve the problem of signaling quality of service in a credible way to uninformed consumers  In an international context, laws and regulations are not fully comparable across countries, nor do all countries have reliable quality control and monitoring mechanisms  Signaling  has been investigated by a number of researchers in marketing and operations management  is a critical mechanism in a market characterized by information asymmetry where an informed party communicates unobserved characteristics through observable attributes  affects many tourism markets, so quality based classifications of firms may be applied to many tourism sub-sectors; however, such classifications are mainly used with regard to the accommodation sector.

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija MODEL CONCEPTUALIZATION AND SPECIFICATION  Hotels were divided into two categories:  High type (H-type) – includes 4 and 5 star hotels  Low type (L-type) – includes 2 and 3 star hotels  Hypothesis  the category designation of H-type hotel is related to economies of scale and more complex forms of ownership  Variables  The dependent variable - star rating (binary variable)  Explanatory variables - number of rooms, number of units and ownership types  Regression - Probit (logistic regression) STARi = a+ b*ROOMi+c*UNITi+d*OWNERSHIPTYPEi Ln(STARi) = a+ b*ln(ROOMi)+c*ln(UNITi)+d*ln(OWNERSHIP_TYPE)+ui

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija DATA AND DESCRIPTIVE STATISTICS  Data  Extracted from the List of categorized tourist facilities obtained from The Ministry of Tourism of the Republic of Croatia  589 hotels in total, divided to 454 hotels scattered across the coastal region and 135 hotels in continental part of Croatia  Descriptive statistics  Most of the hotels were categorized as 3-star, followed by 4- and 2-star hotels  Dubrovnik-Neretva County contains hotels of the highest quality (3.5 stars), while Sisak-Moslavina County (2.67 stars) and Lika-Senj County (2.7 stars) contain hotels that have been awarded fewer stars  The hotel industry in the Republic of Croatia is predominately represented by the medium-sized hotels (51 – 250 rooms)

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija UNIVARIATE STATISTICAL TEST OF STAR RATING Variables Star Rating T-test/Chi Square and p-value LowHigh %13.8% Size Average Number of Rooms , p < Average Number of Units , p < Organizational Form J.S.C.128 (31.4%)73 (40.33%) , p < L.L.C.193 (47.3%)96 (53%) C.O.85 (21.3%) 12 (6.67%)  Most of the hotels were in low type category  T-test and Chi-Square test – testing differences between number of rooms (and units) and ownership form and type of hotel quality.  The large and affiliated hotels tend to have higher quality ratings than small and unaffiliated hotels

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija LOGISTIC REGRESSION OF STAR RATING OF HOTELS Independent variables Total sampleCoastal sample Continental sample Constant ** *** (-3.345)(-1.225)(-3.769) [0.003][0.220][0.000] ln (ROOM) *0.393 (-1.467)(-2.245)(0.454) [0.142][0.024][0.670] ln (UNITS) 0.871*1.304**0.157 (2.128)(2.638)(0.182) [0.033][0.008][0.855] ln(OWNERSHIP _L.L.C.) 0.288* (2.005)(1.411)(1.797) [0.044][0.166][0.073] ln(OWNERSHIP _C.O.) (-1.255)(-1.631)(1.0472) [0.709][0.252][0.634] Sample size  Total sample and two sub- samples  Most of the hotels were situated in coastal area  Number of units was the only significant predictor of the number of stars in the total (and coastal) sample  Number of rooms was a negative predictor of star rating in Croatia and Coastal area which was unexpected  Owners of LLCs are more motivated to achieve higher star ratings compared to J.S.C.

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija CONCLUSION  The results confirm the univariate relationships between hotel characteristics and star ratings.  The results of logistic regression in the continental sample show that hotel size and type of ownership have an insignificant relationship with the ranking system for hotels in Croatia.  Number of units was more significant predictor of the number of stars for coastal sample compared to total sample.  There is a clear advantage of more complex forms of organizations over those that are less complex.  In relation to number of units higher quality is related to the economies of scale, but in relation to number of rooms higher quality is not related to the economies of scale.  The probability of influencing the increase in the number of a hotel’s units on its rating is beneficial in both total and coastal samples, as it is predicted by signalling theory in hospitality

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija LIMITATIONS AND FUTURE RESEARCH  Limitation  Only three variables were used for testing signalling theory in tourism  Research included only hotels  Recommendations for future research  Testing this theory by including more variables  Extend to other types of accommodation properties e.g. apart-hotel, tourist village, auto-camp etc.  Investigate star ratings as ordered dependent variable (from 2 to 5 stars) using multinomial response models

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