Running head: THE USE OF MICHELIN STARS RANKING SYSTEM AS A MARKETING TOOL IN HOSPITALITY ESTABLISHMENTS 1

The use of Michelin Stars Ranking System as a marketing tool in Hospitality Establishments Aida Glion Institute of Higher Education

The use of Michelin stars ranking system in hospitality establishments Table of Contents

The use of Michelin stars ranking system in hospitality establishments Abstract

This paper investigates the use of the star rating system used by Michelin, in the hospitality industry as a marketing tool, with the aim of advising Alain Ducasse; a Michelin rated establishment in London. The approach is based on finding out whether the system can be a marketing tool for promotion of the organizations services. The competitive advantage that emanates from holding a better rate may be effective in fostering the organizations objective. This paper takes into consideration the customers perspective by studying both; the rating system and the customers behavior. In order for a Michelin rated establishment to be well perceived, the Michelin rating system must first be well perceived by the market.

The use of Michelin stars ranking system in hospitality establishments

Chapter 1 Introduction Marketing is one of the important aspects in any business. Hospitality industry is made of different establishments that compete for customers from different parts of the world. The Michelin stars ranking system has been accredited for being the best known star system (Blah Le Guide Rouge, 2003, p. 16). Stars are given to restaurants in the hospitality industry to acknowledge their standard. One star represents a very good establishment in its category, two stars mean excellent cooking that is worth a detour, and three stars represent an exceptional cuisine that is worth a special journey. An establishment that has acquired many stars performs better than other firms and therefore the Michelin starts system has an impact on business as a marketing tool. The system rates the quality of food separately from the level of luxury. The Michelin rating system is the most respected and best known star ranking system for quality and cuisines of restaurants in Europe (Blah Le Guide Rouge, 2003, p. 16). The respect and extend in which customers value Michelins ratings, may or may not be transferred to the brand of Alain Ducasse. The research will examine the value placed on Michelin rated establishments before and after the rating. Alain Ducasse had two stars in 2009 and three stars in 2010. The management has to decide whether to retain Michelins ranking or suspend it, after evaluating the effect it brings on the brand of the organization. According to Marylou Costa (2011), industry rankings are highly esteemed in the industry especially in the valuation of performance, and future potential of organizations brands. This paper will determine whether this statement is true. Problem statement The effect of star rating systems in the hospitality industry bears great uncertainty and has unclear significance. One would expect a four star hotel to charge more than a three star

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hotel which are located in the same city, but be surprised to find a contrary reality to these perceptions. The ratings could be influenced by many other unanticipated factors including tax obligations, among other quantitative measures which require research (Martin, 2012). These uncertainties call for immediate research on the relationship between the effectiveness of the rankings and the customers behavior. According to Grossman David (2004), there is a great confusion over the star and hotel rating system, because some facilities are ranked high but provide low customer services while others which are very efficient are ranked low. Research Objectives This paper aims at studying the Michelin star rating system, to determine whether it can be used as a promotional tool in an attempt to give the hospitality establishments a competitive advantage. 1. To assess whether Michelin star rating system can be used as a marketing tool 2. To analyze the use of Michelin star ranking system as a strategy for achieving brand promotion in the hospitality industry. 3. To determine whether Alain Ducasse should use the Michelin star rating system to compete against her rivals in the industry Research Questions 1. Does the Michelin ranking system offer the hospitality establishments any promotional advantage as a strategy for competitive advantage? 2. Is the Michelin star ranking effective as a driver of perceived value for hospitality products and/or services, and can this be substantiated by the secondary data acquired from GIHE?

The use of Michelin stars ranking system in hospitality establishments

Chapter 2 Literature Review Hospitality establishments ranking system as a marketing tool The Michelin stars ranking system classifies establishments in the hospitality industry according to the quality of services they offer to the customers. A high rated establishment is perceived as one that offers high quality services to the customers and therefore this increases its competitive advantage in the market. Establishments therefore rely of the Michelin stars ranking system as a marketing tool to expand their market share for economic and financial games. The background of the ranking system is quite vast. In order to investigate whether the ranks provided by Michelin have any effect, it is viable to ascertain whether the system is well perceived by customers. From the background of the system, it may be stated that many customers have in one way or another referred to the Michelin guide in the past. Michelin green guides provided a wealth of destination information and travel guide including tips for longer trips. The guides can be rated based on the efficiency, organization and accuracy of the information on art, architecture, restaurant and hotel information (Michelin guides, 2011-2012). The star represents the quality provided by the hotel in terms of amenities and services. Highly ranked establishments will be perceived to be providers of high quality. However, it must be determined whether the process of awarding these stars is fair and viewed by the public to be fair. Either way, the customers response will dictate whether the ratings have any effect at all (Blank, 2007). The hospitality ranking system is partially responsible for the growth in the hospitality industry, as a result of competition between different establishments to meet the requirements for the highest number of stars (Muller, 1999). Ranking systems are important as methods of comparing the standards of different hospitality establishments internationally (Muller, 1999). Although the ranking system isnt

The use of Michelin stars ranking system in hospitality establishments

focused on marketing the organization, but as a guide to customers, it is an indirect tool for increasing quality services in different hospitality establishments. The management of hospitality establishments has to assess whether the ranking system that they endorse, relates to the needs and expectations of their customers. Ranking systems which fail to influence the behavior of customers are not essential in improving the position of the organization in the industry. Consumer needs and satisfaction The organization must understand the consumer in order to satisfy their needs. According to the study carried out by Porte (2004), and Szmigin (2003), the success of any business strategy is dependent on the extent to which it meets perceived consumer satisfaction. The aim of advertisements and other promotional services that are carried out in business organization are meant to create competitive advantage in the market. Promotional activities are conducted to increase the consumer awareness about existence of a particular product in the market. In the hospitality industry, the Michelin stars ranking system can be used as an effective strategy to communicate to the consumers about the quality of services offered in a particular establishment. Consumers are rational and therefore they focus on maximization of utility subject to their incomes. They would perceive an establishment with more stars in the ranking as one that can offer better quality services and therefore they would be attracted to it. This will benefit the establishment significantly since the increased customers imply an increase in the volume of sales. As a result, the profits of the establishment will increase which facilitate realization of the goals of shareholders. Firms view the Michelin stars ranking system as an ineffective evaluation scheme especially before they have exercised its use. However, once they are rated and they continue to improve the quality o services they offer, they acquire benefits that make the management develop positive attitudes towards the rating system. In addition, they become more

The use of Michelin stars ranking system in hospitality establishments

competitive since they can be compared with other firms in the industry that have used the rating system before. It is therefore important for the firms to understand consumer behavior before they can apply the rating system to increase competitive advantage in the market. The satisfaction from meals may form just a segment of the overall vacation of such customers (Atila and Fisun, 2003). Customers who value esteem and self actualization need more than the basic levels and will be enticed by the quality of services more than the price levels. These customers will use the hospitality guide and Michelin stars ranking system to find the best establishment for their vacation. They will prefer to make a statement by separating themselves from the crowd (Gupta et al, August 2007). It might be a sales person who wants to entice a potential client, or a politician who wants to make a statement or a celebrity who values his/her status. Consumer Behavior The correlation between brand promotion and star ranking systems greatly depends on the behavior of consumers. Consumer reactions may emanate from psychological, physical or emotional influence. However, the most important element is ones memory. The success of many brands has resulted from consumers free promotion. A customer who remembers a bad experience from a restaurant will not repeat such an experience, and tries to inform others about his/her experience. In such a case, the ranking of the establishment will not avail much (Zaltman 2003, p. 186). According to Bagozzi (2002, p.132), both the conscious and subconscious of the consumer affects their future decisions. The owner of the restaurant should not underestimate his/her customers memory, because it will shape their predetermined judgment about the quality they are likely to receive from the establishment (Zaltman et al, 2002, p.68). Furthermore, the memory of a past experience will prevent the promotional attributes received

The use of Michelin stars ranking system in hospitality establishments

from the ranking from taking effect, after the negative assumption spreads through the informal setting, developed by the consumers. Branding strategy and the Consumer The Michelin ranking system offers longevity for the Michelin brand which leads to the development of an association between the Michelin brand and the ranked establishments brand, in the mind of the consumer (Johnson et al., 2005). The establishment is at an advantage because ratings are not permanent, which offers the organization an open opportunity to enforce measures that will enable it to reach the ideal rank. However, using the Michelin star as a promotion strategy is limited to what Michelin may allow (Grimes, 2005 and Hickman, 2008). In the hospitality industry, consumers will quickly relate a brand to specific attributes. For instance McDonalds will automatically be related to the image of cheap, fast, and variety of food or burger. This depth of association in the mind of consumers might not be easily altered (Haig, 2004, p.78 and 85). The Michelin star system has created the image of quality in the consumers mind. However, this quality has been branded the image of high prices, which also creates an image of beyond the bounds of affordability in the minds of consumers (Surlemont et al., 2005). Porter (2004) argues that the differentiation of quality and prices provides room for several competitive advantages, especially for consumers at the higher level of the hierarchy. Zaltman (2003, p.227), also supports this view by stating that differentiation enables satisfaction of consumers needs through decision-making process as influenced by peers. The Michelin ranking system may invest in peer influence as manifested in the hospitality industry. Several studies indicate that consumers value the connection towards certain groups and segments of people. People may dine in a specific restaurant just to make a statement about the consumer group that they belong to (Maslow, 1998).

The use of Michelin stars ranking system in hospitality establishments Restaurant recognition

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Many hospitality establishments recognize and value the Michelin star system. Those with low ratings cannot hide their disappointment, while those with higher ratings express their joy (Elliot, 2008). This response indirectly affects the behavior of consumers. According to the Michelin Guide (2008), the Michelin rating system makes a difference in some sectors in the industry. Restaurants which receive the rating often aspire to use it as a marketing tool in competition against rivals in the industry. This competition is characterized by the commitment to offer quality food, enhance style, and increase luxury status (Willan, 2007). The Michelin Star rating system The Michelin star rating system may have a substantial number of critics but still carries authority in its processes. It can be identified as a brand on its own and is easy to recognize, having a clear and well understood identity and definition. The desirability of the star emanates from its pursuit for quality using anonymous but qualified judges. Michelin stars asserts in its guide (2008), that their ratings are useful marketing tools used by hospitality establishments for a competitive edge, just like FMCG (fast moving consumer goods) brands uses the seal of approval in order to gain a USP (unique selling proposition) and be ahead of their competitors (Costa, 2011). The Michelin guide was first introduced in France in 1900, with the original intention of assisting drivers with travel advice (Johnson et al., 2005). By 2005, a million copies of this guide were sold in eight countries. Restaurants that need to be included in the guide were to be visited and their meals judged before they were added. According to Michelin, the visits by inspectors show a great level of independence than other guides, because no advance notice is issued to the restaurant before inspection (Balasz, 2001). Over 70 inspectors operate around Europe, and have more than five years experience in hotel and catering industry. The stars can

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be added or removed from an establishment, thereby creating corresponding promotion changes. Competitive advantage Researchers such as Yuksel and Yuksel (2003), Johnson et al (2005), and Balasz (2001), present mixed views about the relevance of Michelin star system. According to Yuksel and Yuksel (2003), a study of the system in Japan revealed that it fails to take into consideration the people factor. These authors indicate that it does not consider the main quality satisfaction and reliability attributes, which are responsible for causing repeat visits to the establishment by the customer. Bagozzi et al., (2002), also pointed out the importance of consumer satisfaction during the study of consumer behavior. They indicated that the impacts of the system will be evident once the procedures incorporate the consumer behavior, in terms of satisfaction. The star is presumed to offer an establishment, the competitive edge against rivals. This implies that management of different establishments can adapt the use of the Michelin star model as one of competitive tools to acquire competitive advantage in the market. This will facilitate acquisition of more customers and therefore the market share of an establishment that uses the rating will increase significantly. The profits of the establishment will increase thereby facilitating improvement of the welfare of shareholders. In addition, the utility of consumers will be maximized which will make them to become loyal customers I the future. According to Surlemont and Johnsons (2005, p.589), studies indicate that some establishments are accredited with stars which do not merit their position. This raises several questions over the quality and reliability of the system. Moreover, since the system has no structured measurement process, the awarding of stars is the discretion of the inspectors. This means that any flaws by Michelin inspectors could cost innocent establishments their

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competitive advantage. It also increases risks of competitors illegally manipulating inspectors, in a bid to get ahead of the competition. Based on the previous argument, the establishments with the best cuisine may suffer loss against those with luxurious settings in case the ratings impact on the competitive advantage of the establishment. However, the ability to issue and withdraw stars places the establishments on toes to either get one more star, or maintain the number of stars acquired. This is the ideology that frames the competitive advantage theory. Alain Ducasse rating on the Zagat is better than the rating from the Michelin system. This indicates that the two rating organizations apply two different approaches. Competitive advantage may thus be dependent on the system used, rather than the quality available. Overview of the literature Many authors continue to discredit the attributes of Michelin rating system as a marketing tool due to the lack of clarity and low value emanating from its ranking (Satran, 2011). According to Wells (2003, Para. 7), the system recently has concentrated on luxury at the expense of cuisines. He insisted that questions have risen on whether Michelin has reliable indicators for the quality metrics that it purports to measure. Most researchers support this argument by stating that the system is only applicable to the higher level of customer needs (self actualization and esteem needs), and does not in any way influence average customers (Maslow, 1998). Some customers perceive the influence of the Michelin system to be closely related to the environment of the restaurant and the pricing strategy, as opposed to delivery of consumer service satisfaction (Snyder and Cotter 1998). Contrary to these opinions, employees and owners emphasize that the system has a broad impact on the strength of the establishments brand (Balasz, 2002). They argue that consumers rely on the assurance of quality offered by Michelin rating system.

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The table shown below lists the hospitality establishments by Michelin. Bib Gourmand is a new category in the Michelin rating system, which includes establishments that do not have a star, but are in the process of getting one in the nearest future (Michelin Guides, 2008). Table 1: Michelin guide Released January 2012 Establishment Town County Chef Star s 201 2 3 3 3 3 2 2 2 2 2 2 2 Star s 201 1 3 3 3 3 2 2 2 2 1 1 2

Fat Duck Waterside Inn Gordon Ramsay Alain Ducasse at The Dorchester Midsummer House Gidleigh Park Le Champignon Sauvage Whatley Manor (The Dining Room) Hand and Flowers* Restaurant Sat Bains* Le Manoir aux Quat'Saisons

Bray Bray Chelsea Mayfair Cambridge Chagford Cheltenha m Malmesbur y Marlow Nottingha m Oxford/Gre at Milton

Windsor & Maidenhead Windsor & Maidenhead

Kensington and Chelsea Westminster Jocelyn (City of) Herland Cambridgeshire Devon Gloucestershire Wiltshire Buckinghamshire Nottinghamshire Oxfordshire

Heston Blumenthal Alain Roux/Fabrice Uhryn Clare Smyth

Source: Michelin guide, 2012 The empirical data shown in the table insinuates that the higher the star, the fewer the number of establishments. It also reflects on the vastness of the operation of Michelin internationally.

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Chapter 3 Research Methodology The data from secondary sources indicate that the application of Michelin rating system has spread across many countries. This data includes the star rating for restaurants, Hotels, and Bib Gourmand around the world. Alain Ducasse operates in a diverse sector of leisure and tourism, in terms of the number of market players and the underlying business models applied by them. From the data collected from secondary sources, Michelin covers a total of 4,500 hotels and restaurants (Hickman, 2008). Many of these establishments fall below the one star rating, and decline upwards. The narrow path between two stars and three stars leaves many establishments fighting for a place in the highest rank. The research on this industry reveals that the nature of the industry influences the need for the higher rating status. Empirical data on the leisure and tourism industry for this study is obtained from external stakeholders including academic journals, newspapers, and regular surveys. The research design was not solely build on the research design of primary sources because of the size on the industry, and the amount of time available for the research. Furthermore, the costs involved in carrying out interviews and filling questionnaires would be very prohibitive. Moreover, a careful exploratory investigation on the data field revealed that for this specific study, secondary data would be more applicable, because of the availability of extensive coverage (Punch, 2008). In order to control the element of bias, the databases from various sources were compared on their view about the relevance of the Michelin system, alongside those with a contrary view. The sources were analyzed to determine whether a relationship between consumer behavior, branding, and consumer needs, showed any correlation with the ranking system provided by Michelin. The research was basically undertaken from the UK database, in order to

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reduce the number of factors which might distort the results. The Michelin guides receive competition from other rating organizations in the UK. The two of these rivals that are worth noting include AA Rosette system which has a significant base in the UK, and Zagat. Some sources imply that AA Rosette is a more advanced rating system than Michelin especially in terms of measuring quality. AA Rosette system applies a five-star system as opposed to Michelins three stars. Zagat originates from France like Michelin and has a rating system that is based on an aggregation of unpaid individual consumers (Gobe, 2002, p.139). Although Michelin argues against Zagats approach, terming it as being unprofessional, it continues to increase in popularity as it impacts on consumer behavior and choice. The reaction of the Industry towards Michelin A survey of 791 restaurants that are Michelin ranked, that was conducted by Johnson et al (2005), in eight different countries showed that France had the highest number of stars, having 25 of the 32 three-star establishments, 62% one-star restaurant, and 67% of two-star restaurants. The database on the financial success from such ratings is still inconsistent. Balasz (2002) suggested that having a star from Michelin could boost the organizations financial success. Contrary to this opinion, Johnson et al (2005), disputes these findings and claims that in his research, there was no indication of higher profits after a higher rating. He however, admits that the Michelin star had an impact on the revenue of the organization. Although the Michelin star could increase the organizations revenue, insignificant difference was reflected on the establishments profitability. Moreover, Balasz (2002), in her research found out that Michelin ratings had an adverse impact on chefs. She mentioned that chefs approach their work with sacred obsession, having the role of both a business person and creator at ago (Balasz, 2002). The chefs greatly value the rating, with a craving of being awarded a star for their craft of culinary creation. Gordon Ramsey has various hospitality establishments that have the most number of stars, namely 12. He could not hide his delight

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when his Manhattan based restaurant was added to this elite club. He emphasized that the recognition showed the customer value and quality offered to customers (Video link, 2008). Some U.S food critics did not support Michelins opinion on several occasions, branding the food that has been rated as leathery, overcooked, rubbery, or a distinct disappointment. Other American chefs supported Michelins ratings and pointed out that it was important to their business (Petkanas, 2006). Ripert and Bitali are some of the owners of restaurants, who indicated that they observed profitability in their businesses after being starred by Michelin (Petkanas, 2006). Similarly, a survey conducted in Holland and Netherlands indicated that 53.84% of restaurateurs considered that being included in the Michelin guide was a major promotional activity; 30.77% of those surveyed agreed that the guide offered a platform for word of mouth promotion by consumers (Gehrels et al 2006, p.51). Some renowned chefs, who have been highly rated by Michelin for quite some time, joined the criticizers wagon, stating that they prefer their own standards. Some of these defectors include Alain Senderens of the Lucas Carton Restaurant from Paris and Landanis from London. Despite being in the three star level of the Michelin system for three decades, renounced his inclusion and preferred a personal approach of increasing profitability levels. The chefs argued against Michelins approach, stating that it ignored the essentials for consumer satisfaction. They also expressed their concerns over the costs required to achieve a star status (Petkanas, 2006). The star system has been categorized by many consumers, as an inter-chef rivalry, with little benefits reaching the consumer. The process of this rivalry leads to increased food prices. Although Michelin is highly accredited in France, it is losing its appraisals in London and has no strong backing in Japan (Frackler, 2008). Some chefs in Japan turned down the offer to be ranked under the star system, arguing that the inspectors lack knowledge, of the local culture in Japan. Many concerns arise about the transparency of Michelin systems. The development of

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the Michelin system in New York had serious concerns of bias. All restaurants awarded the three stars status had French cuisines or were being run by French chefs. Alain Ducasse was run by Alain Ducasse, Vongerichten was run by Jean-Georges, and Le Bernadin was run by Eric Ripert. Many competitors exclaimed this to be as a result of unfair measurement of standards (Elliot, 2008). Alain Ducasse had 2 stars in year 2009 and 3 stars in year 2010. This implies that the establishment improved the quality of its services between year 2009 and 2010 and therefore it should continue to use the Michelin stars ranking system to acquire a competitive advantage future. In 2005, a restaurant in Belgium was rated as Bib Gourmand before it even opened for business (BBC News, 2005). The validity of the inspections was further discredited when a serving inspector wrote a book admitting that there was bias towards certain chefs. These chefs were guaranteed a three star rating regardless of the inspection results. He further explained that the number of inspectors delivering the services were not enough (BBC News, 2005). Data Analysis A dual approach of data analysis becomes effective, because the first stage correlates the performance of the Michelin rated establishments after a higher star and before receiving the star. The second stage involves the evaluation of the relevance and practical application, of the theories studied under the literature review. The reaction of consumers towards Michelin Consumers perceive the role of restaurants to be the satisfaction of their needs (Bagozzi, et al 2002). This means that restaurant owners must customize their business to exhibit sufficient differentiation, in an attempt to lure consumers to prefer their establishment over others (Muller, 1999, p. 401). According to the research by Yuksel and Yuksel (2003, p. 52), consumers have different levels of purchasing determinants. The value of quality and satisfaction is measured differently by different consumers (Zaltman, 2003).

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The Michelin star system concentrates on the quality end of the market. The chefs compete on achieving the perceived quality, leading to a similar experience. Therefore, the element of choice is very limited in the eyes of the consumer segments. Yuksel asserted this in his Japanese research, stating that there are five different customer segments with each having different expectations (Yuksel and Yuksel, 2003). The consumer seems to be drifting away from the habit of responding to information that is provided by professional sources. According to the research conducted by Polesz (2004, p. 317), the modern consumer relies on a variety of sources other than professional opinion. The consumer behavior has changed significantly, in terms of how consumers make decisions. Poleszs research signifies that the modern consumer is more likely to select the opinion of other consumers on social sites or elsewhere, than concentrate on professionals view. Zagat seems to be having an edge against Michelin for this reason. The hospitality industry has seen major expansion with increased leisure and social activities and the outburst of the internet. Zaltman determined that the degree of trust between consumers is greater than that of a consumer and a professional organization. This leads to the argument that the relevance of Michelin could be deteriorating (Zaltman, 2003).

The use of Michelin stars ranking system in hospitality establishments References

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