Application of Value Creation Concepts within the Pinnacle Peak Steakhouse, Shanghai

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Table of Contents

Introduction
Rationale for Analysis
The Service Profit Chain Model
Value Creation Strategies
Analysis & Critique
Conclusion
Recommendations
List of References
Appendix

Introduction

The service environment has over the years evolved to become an increasingly important positioning tool for organizations in the service sector, not only in terms of spearheading competitiveness (Salanova, Agut & Peiro, 2005), but also in marketing the company’s image and reputation to the intended audience (Rio & Rody, 2009).

Service environment, according to Siddiqui & Tripathi (2011), relate to the style and appearance of the physical surroundings, along with other experiential components, encountered by consumers at service delivery locations.

A flood of available literature (e.g., Kotler, Bowen & Makens, 2006; Moller, Rajala, & Westerlund, 2008; Mayer et al, 2009; Lio & Rody, 2009) demonstrate that service operators employ the concept of service environment to add value to the services on offer, but with an underlying objective of enhancing customer experience and gaining competitive advantage, which then translate into increased profits.

The present paper purposes to critically evaluate the application of added value concepts in the hospitality industry. In particular, the analysis will relate to Pinnacle Peak Steakhouse, Shanghai, and will focus on two key value creation strategies, namely: servicescape and ‘people’ in service delivery.

In Servicescape, the interior of Pinnacle Peak will be the subject of scrutiny with a view to evaluate how the added value elements have been delivered. In people, the front-line employees of Pinnacle peak will be evaluated to see how they link with the interior of the restaurant to add value to the customer and create better service.

It is imperative to note that a case study approach will be applied for purposes of gaining contextual information on the restaurant’s added value strategy.

Rationale for Analysis

Available literature demonstrates that “…we are in the midst of a service-driven business revolution” (Moller, Rajala, & Westerlund, 2008 p. 31). The hotel industry is at the forefront, with extant research reporting an upward trajectory in growth in the last two decades (Di Mascio, 2010).

To maintain steam, however, there is need to inject new strategies aimed at enhancing customer experiences and delivering customer satisfaction.

But while there exists a flood of literature demonstrating how the physical environment is critical in shaping the service experience and delivering consumer satisfaction (Siddiqui & Tripathi, 2011), little is still known about how people (employees) may link with the physical environment to add value to the customer and create better services. It is this gap that the analysis seeks to fill.

The Service Profit Chain Model

The service profit chain model attempts to establish a relationship between four essential aspects in service industry, namely: customer loyalty, employee loyalty, profitability and productivity (Purvis, 2005).

The model takes cognizance of the fact that highly satisfied consumers drives growth, profitability and productivity in service organizations, and thus managers must always strive to manage all the components of their operation that affect customer satisfaction to keep these customers profitable to the organization (BNET, 2011).

The propositions in the chain, which should be considered as its guiding principles, are as follows: customer loyalty powers growth and profitability; customer satisfaction powers customer loyalty; value powers customer satisfaction; employee productivity powers value; employee loyalty powers employee productivity; employee satisfaction powers employee loyalty, and; internal quality powers employee satisfaction (Purvis, 2005; Lio & Rody, 2009).

Value Creation Strategies

Servicescape

Bitner (1992) cited in Siddiqui & Tripathi (2011) first “…coined the term Servicescape in reference to the physical surroundings as fashioned by service organizations to facilitate the provision of service offerings to customers, i.e., the physical facilities of a service company” (p. 33).

Rio & Rody (2009) posits that Servicescape include all controllable physical constituents that to a large extent influence employee and customer actions, and plays a fundamental role in shaping the service experience and delivering customer satisfaction. The analysis will focus on a tangible component of Pinnacle Peaks Steakhouse – the interior.

According to Bruggen, Foubert & Gremler (2011), Servicescape not only support organizational positioning and segmentation strategies, but is capable of securing the strategic advantage of the organization, and hence enhancing its strategic marketing objectives.

Rosenbaum (2005) suggested that “…consumers formulate approach/avoidance decisions based upon a response to physical elements in a consumption setting’s built environment, or servicescape” (p. 257).

On their part, Siddiqui & Tripathi (2011) argue that servicescape not only provide a visual metaphor for an organization’s total service offering, but also functions as a facilitator to this offering by either adding or hindering the abilities of employees and consumers in performing their activities.

People

Extant literature demonstrate that people create value by developing fresh and suitable tasks, services, processes, or other contributions fundamentally perceived to be of value by the intended customer (Lepak et al, 2007).

In the service industry, Di Mascio (2010) posits that frontline employees play an important function “…in face-to-face service encounters because they can affect customer perceptions of service quality, satisfaction, and value” (p. 63).

Ekinci & Dawes (2009) argue that the attitudes, behaviours, expectations and personalities of frontline employees have a direct impact on the customer perceptions of service quality, organizational reputation, and consumer loyalty.

Equally, research has demonstrated that perceptions of job and work environment can fundamentally influence the employee’s attitudes, behaviours, and performance at work, as well as their interactions with customers (Liao & Chwang, 2004).

Pinnacle Peak Steakhouse – Shanghai

As suggested in Shanghai-today.com (2011), “…Pinnacle Peak Steakhouse is where Shanghai congregates for great steaks” (para. 1). Information posted on hotel review websites (e.g., SmartShanghai.com, 2011; Allen, 2010) demonstrate that Pinnacle Peak is a restaurant chain in the United States with over three decades of operating history.

Although Pinnacle Peak Shanghai is independently operated, it is a vivid representation of the Americana Old West restaurant in China.

This theme of western cowboy life and agility takes priority over everything else. Its casual environment is demonstrated by the ‘no ties will be allowed policy,’ a tradition that has seen thousands of ties cut off from unsuspecting customers and hung on the rafters to preserve the casual, westernised environment (Allen, 2010).

It is imperative to note that “…the restaurant occupies the 5^th floor of Shanghai City Hotel on 830 sqm with a total seating capacity of 150, including: a private room, full bar, mechanical bull, a pool table and a set up for DJ or live performance” (Pinnacle Peak, 2011 para. 2).

One of the most unique features of the restaurant is that it is the only one in shanghai that uses mesquite-charcoal imported exclusively from the South western United States to barbeque meat, giving it an exceptional and unique aroma (Shanghai-Today.com, 2011).

Interior Facilities

As is factual of any organizational or marketing variable, the significance of the physical environment inarguably depends on the nature and scope of the job, along with the nature and scope of the consumption experience (Bitner, 1992).

Pinnacle Peak Shanghai, as is the case with other Pinnacle outlets based in the United States, focuses on offering a variety of classic American foods in a real American style steakhouse.

Owing to the fact that Pinnacle is a theme hotel, extra focus is placed on designing interior facilities to reflect the casual nature of the Americana Old West restaurant, complete with a dark wood interior, hanging lanterns as lights, mechanical bull, Old West newspaper-style menus, red chequered table clothes, and cowboy hat-wearing frontline staff (Pinnacle Peak, 2011).

Swinging saloon doors and Indians motif welcomes customers into a real American style steakhouse located deep inside China. It is suggested in the SmartShanghai.com (2011) that the interior of Pinnacle Peak demonstrates a down to earth honest restaurant, which is not fancy but cosy.

Employees

Bitner (1992) acknowledges that human behaviour is essentially influenced by the physical environment that individuals do come into contact with. In equal measure, Bruggen, Foubert, & Gremler (2011) posit that the types of objectives a firm might anticipate to realize through the use of its physical environment intrinsically determines if employees will be present within the servicescape.

As has already been mentioned, the employees dress in cowboy hats to underline the theme that Pinnacle Peak Shanghai is an Americana Old West restaurant doing business in China. It is suggested in SmartShangai.com (2011) that one of the strong points for Pinnacle Peak is the fact that service isn’t invasive but honest and friendly.

Analysis & Critique

The service profit chain model argues that highly satisfied customers drive growth, profitability and productivity in services industry, and thus managers must take concerted efforts to manage all the components of their operation that affect customer satisfaction for the enterprises to remain profitable (BNET, 2011).

The case study for Pinnacle Peak Shanghai displays a management that is actively attempting to manage two components of their operation – interior facilities and employee – to enhance customer satisfaction, hence increase profitability.

As observed by Hightower (2010), the interplay between these two added value elements will inarguably play a fundamental role in not only shaping the service experience, but also in delivering customer satisfaction and increasing profitability for Pinnacle Peak. Theoretically, therefore, these added value elements can be said to be of immense benefit for Pinnacle Peak, at least in terms of maintaining profitability and competitiveness.

In interior facilities (see picture 1.1), there has been a concerted effort to build a theme that resonates well with the Old West casual way of life as a way of positioning and maintaining competitiveness for Pinnacle Peak among the many Shanghai-based steakhouses.

In self-service settings, according to Bitner (1992), “…the creative use of physical design could support particular positioning and segmentation strategies and enhance specific marketing objectives, such as customer satisfaction and attraction” (p. 58).

Such kind of positioning using interior design to influence customer experiences, as has been demonstrated by Pinnacle Peak, is an added value element which has not only ensured customer satisfaction but has initiated customer loyalty, hence driving growth and profitability for the restaurant.

This beneficial paradigm is in line with the discussed constructs of the service profit chain model, particularly the one that suggest that customer loyalty drives growth and profitability (Purvis, 2005).

Interestingly, according to Bitner (1992), “…in service organizations the same physical setting that communicates with and influences customers may affect employees of the firm” (p. 57).

The interface between the physical environment and customer satisfaction and experiences has been well documented in research, but organizational behaviour research demonstrate that employees too can be influenced by the physical settings in terms of satisfaction, production, and motivation (Kotler, Bowen & Makens, 2006; Bitner, 1992).

This assertion not only demonstrate the multi-thronged beneficial nature of the Pinnacle’s interior added value element in terms of eliciting positive customer and employee experiences, but underlines the importance of maintaining satisfied employees if productivity and competitiveness are to be maintained. P

innacle Peak frontline employees are allowed to dress in cowboy attire to represent the theme of the restaurant (see picture 1.2).

Further analysis of this line of thought reveals that the designers of the service profit chain model were right when they suggested that in service-oriented contexts, the attributes of customer loyalty and employee loyalty must be present for the organization to be able to register profitability and productivity (Purvis, 2005).

The above analysis brings us to the question: how does Pinnacle Peak link its employees to the interior value creation element to add value to the customers and create better services?

The large and steadily growing body of literature addressing the relationship between people and their built environments suggest that individuals react to the built environment “…with two general, and opposite, forms of behaviour: approach and avoidance” (Bitner, 1992 p. 60).

Within the service settings, approach behaviours for employees are reinforced through constant education and training (Baum & Devine, 2007) to achieve a positive behaviour set that might be directed at a particular environment, such as desire to stay, work, or even affiliate with that environment (Bitner, 1992; Bruggen, Foubert & Gremler, 2011).

It can therefore be suggested that Pinnacle Peak have oriented their employees towards this stratagem through constant education and training, and by encouraging them to dress according to the restaurant’s theme and encourage customers to dress in line with the theme of a casual Old West restaurant (no ties allowed policy).

The result of this alignment, as can be reinforced by the service profit chain model, is the creation of internal value that enhances customer loyalty and satisfaction on the one hand, and employee loyalty and satisfaction on the other, to achieve growth, profitability and competitiveness for the organization (BNET, 2011).

Of course there exist some drawbacks to these value creation elements and to the theoretical framework in general. The interior design of Pinnacle Peak projects a casual Old West restaurant yet it is located at the centre of China – an orient country.

Going by the approach-avoidance paradigm, some customers who may be critical of western culture but who may otherwise want to enjoy quality steak may find themselves developing a desire not to stay in the restaurant or not to affiliate themselves with the restaurant.

Equally, top workers who may be critical of western style may develop a desire not to work in the restaurant in line with the avoidance variable of the paradigm (Bitner, 1992; Di Mascio, 2010).

Theoretically, it is suggested that managers should measure the relationship between the constructs of the service profit chain model to understand the path the organization is assuming, at least productively (BNET, 2011).

However, it can be proposed that such measurement may present challenges to some managers working in service industry since loyalty, satisfaction and added value issues are mostly qualitative in nature and may not be demonstrated outside the eyes of the beholder (Lepak et al, 2007; Ryu & Jang, 2008).

Researchers have developed tools to measure and evaluate these attributes qualitatively, but Ezeh & Harris (2007) feels that the whole process of measurement is still complicated to lay managers.

Conclusion

Through this evaluation, it has been demonstrated that the value creation strategies of servicescape and people are working to the advantage of Pinnacle Peak Steakhouse. The case study approach employed in this paper have adduced evidence on how Pinnacle peak has been effective in designing interior facilities to bring out an environment that underlines its theme of an Americana Old West restaurant with a casual outlook.

It has also been revealed how employees of Pinnacle Peak have been encouraged to ‘live’ by the theme by wearing western cowboy outfits while serving customers, and by maintaining a casual environment..

Using the service profit chain model, it has been revealed how the two added value elements of servicescape and people can be linked together to elicit customer loyalty and satisfaction on the one hand, and employee loyalty and satisfaction on the other, which then translates into increased growth and profitability for Pinnacle Peak.

Recommendations

From the discussion, several recommendations can be made. Owing to the fact that Pinnacle Peak has established base in an Asian country, it is imperative that sustained marketing campaigns be undertaken not to lose a large number of market segment who would want to enjoy the American-sized steak offered by Pinnacle, but who may otherwise feel offended by the interior thus exercise avoidant behaviour.

Second, a number of hotel reviews (e,g, Allen, 2010; Pinnacle Peak, 2011; Shanghai-today.com, 2011; SmartShanghai.com, 2011 ) argue that Pinnacle Peak employees are great looking in the cowboy attire, but struggle to communicate in standard cowboy English.

This assertion points to a perceived disconnect in the hotel’s attempt to achieve its theme in general and the added value elements in particular. Here, continuous training of employees is important to enhance customer experience, maintain employee satisfaction and increase growth and competitiveness (Baum & Devine, 2007; Walter, 2008).

Lastly, easy ways of measuring qualitative attributes regarding customer and employee satisfaction/loyalty, and their relationship with the growth/profitability attribute need to be advanced so that managers in the service industry could use the model effectively to know which way their organizations are headed.

List of References

Allen, D. (2010). Restaurant of the Week: Pinnacle Peak. Web.

Baum, T., & Devine, F. (2007). Skills and Training in the Hotel Sector: The Case of Front Office Employment in Northern Ireland. Tourism & Hospitality Research, Vol. 7, Issue3/4, pp 269-280.

Bitner, M. J. (1992). Servicescapes: The Impact of Physical Surroundings on Customers’ and Employees. Journal of Marketing, Vol. 56, Issue 2, pp 57-71.

BNET (2011). Putting the Service-Profit Chain to Work. Web.

Bruggen, E. C., Foubert, B., & Gremler, D. D (2011). Extreme Makeover: Short –and Long-term Effects of a Remodelled Servicescape. Journal of Marketing, Vol. 75, Issue 5, pp 71-87.

Di Mascio, R (2010). The Service Models of Frontline Employees. Journal of Marketing, Vol. 74, Issue 4, pp 63-80.

Ekinci, Y., & Dawes, P. L (2009). Consumer Perceptions of Frontline Service Employee Personality Traits, Interaction Quality, and Consumer Satisfaction. The Service Industries Journal, Vol. 107, Issue 125, pp 503-521.

Ezeh, C., Harris, L. C (2007). Servicescape Research: A Review and a Research Agenda. Marketing Review, Vol. 7, Issue 1, pp 59-78.

Hightower, R (2010). Commentary on Conceptualizing the Servicescape Construct in a Study of the Service Encounter in Eight Countries. Marketing Management Journal, Vol. 20, Issue 1, pp 76-86.

Kotler, P., Bowen, J.T., & Makens, J.C (2006). Marketing for Hospitality and Tourism. 4 Ed. New Jersey: Pearson Education Limited.

Lepak, D. P., Smith, K.G., & Taylor, M.S (2007). Value Creation and Value Capture: A Multi-level Perspective. Academy of Management Review, Vol. 32, Issue 1, pp 180-194.

Liao, H., & Chwang, A (2004). A Multilevel Investigation of Factors Influencing Employee Service Performance and Customer Outcomes. Academy of Management Journal, Vol. 47, Issue 1, pp 41-58.

Lio, H. L., & Rody, R (2009). The Emotional Impact of Casino Servicescape. UNLV Gaming Research & Review Journal, Vol. 13, Issue 2, pp 17-24.

Mayer, D. M., Ehrhart, M. G., & Schneider, B (2009). Service Attribute Boundary Conditions of the Service Climate-Customer Satisfaction Link. Academy of Management Journal, Vol. 52, Issue 5, pp 1034-1050.

Moller, K., Rajala, R., & Westerlund, M. (2008). Service Innovation Myopia? A New Recipe for Client-Provider Creation. California Management Review, Vol. 50, Issue 3, pp 31-48.

Pinnacle Peak (2011). Web.

Pinnacle Peak: Home of the Famous Cowboy Steak (2011). Web.

Purvis, J. (2005). Revisiting the Service-Profit Chain. Web.

Rosenbaum, M. S (2005). The Symbolic Servicescape: Your Kind of is Welcomed Here. Journal of Consumer Behaviour, Vol. 4, Issue 4, pp 257-267.

Ryu, K., & Jang, S. (2008). Influence of Restaurant’s Physical Environments on Emotion and Behavioral Intention. Service Industries Journal, Vol. 28, Issue 8, pp 1151-1165.

Salanova, M., Agut, S., & Peiro, J. M (2005). Linking Organizational Resources and Work Engagements to Employee Performance and Customer Loyalty: The Mediation of Service Climate. Journal of Applied Psychology, Vol. 90, Issue 6, pp 1217-1227.

Shanghai-today.com (2011). Pinnacle Peak. Web.

Siddiqui, M. H., & Tripathi, S. N. V (2011). Applications of Soft Operations Research for Enhancing the Servicescape as a Facilitator. The Journal for Decision Makers, Vol. 36, Issue 1, pp 33-49.

Smart Shanghai.com (2011). Good steaks on pinnacle peak. Web.

Walter, U. (2008). The Meeting Aspect and the Physical Setting: Are they Important for the Guest Experience? Journal of Foodservice, Vol. 19, Issue 1, pp 87-95.

Appendix

Interior of the Pinnacle Peak Shanghai (Source: Shanghai-today.com, 2011)

Pinnacle Peak Employee wearing cowboy attire (Source: Pinnacle Peak, 2011)

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