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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
Star Rating
Variables
Variables
Low
High
408
181
86.2%
13.8%
T-test/Chi
Square and
p-value
Size
Average
Number of
Rooms
Average
Number of
Units
146.8
227.7
5.407, p <
0.001
74.9
122.1
5.584, p <
0.001
Organizational Form
J.S.C.
128 (31.4%) 73 (40.33%)
L.L.C.
193 (47.3%)
C.O.
85 (21.3%)
96 (53%)
12
(6.67%)
20.035, p <
0.001
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
Constant
ln (ROOM)
ln (UNITS)
ln(OWNERSHIP
_L.L.C.)
ln(OWNERSHIP
_C.O.)
Sample size
Total sample
Coastal sample
-1.336**
(-3.345)
[0.003]
-0.593
(-1.467)
[0.142]
0.871*
(2.128)
[0.033]
0.288*
(2.005)
[0.044]
-0.273
(-1.255)
[0.709]
589
-0.586
(-1.225)
[0.220]
-1.101*
(-2.245)
[0.024]
1.304**
(2.638)
[0.008]
0.222
(1.411)
[0.166]
-0.405
(-1.631)
[0.252]
454
Continental
sample
-3.641***
(-3.769)
[0.000]
0.393
(0.454)
[0.670]
0.157
(0.182)
[0.855]
0.643
(1.797)
[0.073]
0.223
(1.0472)
[0.634]
135
Total sample and two subsamples
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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