Today, it is hard to keep up with the customers’ needs because they want more unique and differentiated products and services (Baek, Kim, & Yu, 2010). To meet this trend of consumer behavior, the concept of firm innovativeness has been in the spotlight by scholars and practitioners (Kunz, Schmitt, & Meyer, 2011). Firms that demonstrate innovativeness pursue the originality which makes the firm to offer new product attributes, design elements, and marketing approaches (Wiklund & Shepherd, 2005). According to Mohnen and Dagenais (2002), the firms need to pursue innovative thoughts and actions which are deemed as the key way to survive and grow in a fierce competitive business market because innovative thoughts and actions lead a high level of the productivity and sales. Although previous studies (e.g., Hurley & Hult, 1998; Kunz et al., 2011) in the business have focused on the concept of firm innovativeness, little studies have examined the concept of firm innovativeness in the hotel industry. Therefore, applying the concept of firm innovativeness into the hotel industry is valuable and meaningful.

In addition, most previous studies commonly stress the importance of service dimensions either individually or collectively in the hotel industry: physical environment quality, interactional quality, and outcome quality (e.g., Akbaba, 2006; Kim & Cha, 2002; Lee, Jeong, & Choi, 2013). And they showed that each service quality positively affects outcome variables such as customer satisfaction and behavioral intentions. However, little studies have tried to identify the interrelationships among all three of these service qualities in the hotel industry. It is very important to understand the interrelationships among these three service qualities for researchers and marketers. For example, if the hotel guests first perceive a poor physical environment quality, they are more likely to negatively evaluate on other services (e.g., hotel room and employee service) because they already are in a bad mood because of unattractive physical environment. Therefore, the results of this study make researchers and managers to better understand the interrelationships among three service qualities in the hotel industry.

This study also suggested perceived price fairness and information costs saved as the outcomes variables of firm innovativeness because those concepts are deemed as the key factors affecting customers' future behavioral intentions (Zeithaml, 1988). Lastly, this study investigated the moderating role of customer involvement as it plays an important role in explaining consumer behavior (Mittal & Lee, 1989; LeClerc & Little, 1997). Therefore, the purposes of this study is to examine the antecedents and consequences of firm innovativeness in the hotel industry. More specifically, this study investigates (1) the interrelationships among three service qualities (e.g., physical environment quality, interactional quality, and outcome quality), (2) the effects of three service qualities on firm innovativeness, (3) the impact of firm innovativeness on perceived price fairness and information costs saved, and (4) the moderating role of customer involvement. This study would provide meaningful information to the process of developing marketing strategies that can be successfully used by hotel mangers.

Although the concept of firm innovativeness has been widely studied in the business industry, it is deemed as the novel concept in the hotel industry. Firm innovativeness is defined as “a firm’s openness to new ideas as an aspect of a firm’s culture” (Hurley & Hult, 1998, p. 44). That is, firm innovativeness is the firm’s willingness to accept new idea for problem-solving (Crawford & Di Benedetto, 2003). Therefore, firms pursuing innovativeness try to deviate from the conventional characteristic (Avlonitis & Salavou, 2007). Furthermore, such firms tend to adopt unfamiliar ways and ideas and prefer novelty (Kunz et al., 2011). As a result of firm innovativeness, the firm is able to create inimitable marketing strategies which can be differentiated from the competitive company (Menguc & Auh, 2006). Consequently, firms pursuing innovativeness achieve better performance (Hurley & Hult, 1998).

Empirical studies also showed the important role of firm innovativeness in the business. For example, Hurley and Hult (1998) showed the importance of firm innovativeness using the data collected from 9,648 employees from 56 organizations, suggesting that firm innovativeness is a critical factor affecting the company's performance. In addition, Kunz et al. (2011) investigated the role of firm innovativeness with data collected 1,690 from across several industries (e.g., banks, car manufacturers, computer manufacturers), suggesting that firm innovativeness arouses the positive customer emotion which enhances customer loyalty.

Many previous studies have developed diverse measurements in order to measure service quality in the business (e.g., SERQUAL: Parasuraman, Zeithaml, & Berry, 1988). Among them, this study employed three dimensions including physical environment quality, interactional quality, and outcome quality developed by Brady and Cronin (2001) because the dimensions are most suitable for the hospitality industry (e.g., Hwang & Ok, 2013; Lee et al., 2013).

2.1. Physical Environment Quality

Physical environment quality is the key factor affecting the evaluation of overall service quality (Bitner, 1992). Kotler (1973) first introduced the concept of physical environment in the business. Since then, many previous scholars have studied physical environment (Hwang & Ok, 2013). Physical environment refers to the man-made, physical surroundings, not the natural or social environment (Bitner, 1992). And it is also known as atmospherics or servicescape. The first attempt to find the effect of physical environment on human behavior was conducted by Mehrabian and Russell (1974). They proposed M–R environmental psychology model, explaining that physical environment induces customers’ emotions such as pleasure (good or happy), arousal (excited or active), and dominance (control or importance). Many previous studies also showed the importance of physical environment in the hospitality industry. For example, Akbaba (2006) examined the role of physical environment in the hotel industry. They analyzed the empirical data collected from 234 hotel guests in Turkey and found the causal relationship between physical environment and the overall service quality. Choo, Kim, and Hwang (2012) studied how physical environment creates brand prestige. They analyzed an empirical data collected from 293 restaurant patrons in the U.S. and thus found that physical environment plays a critical role in the formation of brand prestige.

2.2. Interactional Quality

Interactional quality is defined as the customer’s perception on employee service during service delivery (Brady & Cronin, 2001). Although it is hard to evaluate interactional quality due to its intangible nature, a large number of studies have suggested that interactional quality is a critical factor influencing customers’ positive emotions and behaviors in the hospitality industry. For example, Choi and Chu (2001) investigated the role of interactional quality using the data collected from 330 hotel guests in Hong Kong. They revealed that interactional quality is the key predictor of the overall satisfaction. In addition, Kim and Ok (2010) investigated how interactional quality (e.g., technical skills, social skills, motivation, and decision-making authority) affects customer satisfaction and revisit intention in the restaurant industry. They analyzed data collected from 299 actual restaurant patrons and concluded that interactional quality enhances customer satisfaction, and in turn, customer satisfaction increased revisit intention.

2.3. Outcome Quality

Outcome quality is the result of a service transaction and it plays an important role in the evaluation of overall service quality (Grönroos, 1990). In general, outcome quality occurs after going through processing services such as physical environment quality and interactional quality (Rust & Oliver, 1994). As outcome quality is evaluated by recalling what the customers receive at the service area, it includes the overall evaluation of service quality (Brandy & Cronin, 2001; Lee et al., 2013). It is therefore very important to measure outcome quality which is deemed as the ultimate reason why the customers purchase products or services (Chen & Kao, 2009). Empirical study also showed the importance of outcome quality. For example, Chen and Kao (2009) analyzed 240 online travel customers to investigate the relationship between outcome quality and customer satisfaction and found that outcome quality is one of the most important factors in the formation of customer satisfaction.

2.4. Interrelationships among Physical Environment Quality, Interactional Quality, and Outcome Quality

The first impression is very important in our life. Its importance is no exception to the hotel industry. When the customers step into the gate of the hotel, the customers first encounter physical environment quality which gives the first impression to their customers (Countryman & Jang, 2006). In particular, customers spend most time with physical environment in the hotel, so physical environment quality is very critical. Furthermore, even though the customers have not yet given other services (e.g., hotel room, employee service, and other facilities), they evaluate the overall image of the hotel through physical environment. Empirical study also showed physical environment quality affects interactional quality and outcome quality. For example, Kotler (1973) found that physical environment is the key factor in arousing positive emotions which affect a positive perception of other service qualities. In addition, Bitner (1990) showed that excellent physical environment quality makes customers to have a positive emotion which leads a positive perception of other services. Therefore it is possible to propose that physical environment quality positively affects interactional and outcome qualities. Empirical studies also supported these relationships. For instance, Hwang and Ok (2013) investigated the importance of physical environment quality in the restaurant industry using empirical data collected from 634 full-service restaurant patrons. Based on a series of data analysis processes, they showed that physical environment quality plays an important role in enhancing interactional and outcome qualities.

In addition, interactional quality is deemed as the important factor in arousing customers' positive emotions (Wong, 2004). For example, if hotel guests receive friendly and prompt service, customers are more likely to feel better which enhances outcome quality. Previous studies also showed the effect of interactional quality on outcome quality. Chen and Kao (2009) showed that interactional quality is the important predictor of outcome quality. More recently, Hwang and Ok (2013) also found that there is a positive relationship between interactional quality and outcome quality. Based on the literature review then, this study proposes the following hypotheses.

2.5. The Effect of Physical Environment Quality, Interactional Quality, and Outcome Quality on Firm Innovativeness

As today's hotel business is changing at a fast pace, it is very crucial to meet hotel customers’ needs. For this, the hotel makes a lot of effort to meet their customers’ needs because the customers are more likely to gravitate to the best service providers (Countryman & Jang, 2006; Lee et al., 2013). First and foremost, service quality is very crucial to provide the image of firm innovativeness because service quality plays the important role in the formation of the overall firm image (Ryu, Han, & Kim, 2008). Therefore, if the hotels give customers the newest and best service, customers are more likely feel firm innovativeness. For example, if customers feel that the hotel’s physical environment is one of the best in the hotel industry, they are more likely to feel that the hotel is a pioneer in the hotel industry. In addition, if the hotel employees take care of customers’ customer problems promptly, customers think the hotel service is dynamic. Finally, as hotel customers have an overall excellent experience when comparing other hotels, they feel that the hotel is an advanced hotel. Following this logic, it is reasonable to hypothesize that service quality including physical environment quality, interactional quality, and outcome quality is positively associated with firm innovativeness.

2.6. Perceived Price Fairness

Customers are very sensitive to price, so they are always concerned with whether price is fair or not (Hwang & Hyun, 2012). Perceived price fairness refers to a reasonable and just price when customers pay for a benefit (Bolton, Warlop, & Alba, 2003). When customers pay an unfair price, they will resent it (Urbany, Madden, & Dickson, 1989), while customers will be satisfied when they feel that price is fair (Andaleeb & Conway, 2006). Therefore, service providers should consider perceived price fairness from consumer’s point of view because price is the key factor affecting the decision making of products/services (Zeithaml, 1988).

As we explained, firms pursuing innovativeness are more likely to create inimitable marketing strategies which help differentiate the competitive company (Menguc & Auh, 2006). More importantly, such strategies of using firm innovativeness achieve better performance (Hurley & Hult, 1998). Thus, if the hotels provide services, emphasizing on the image of innovativeness, customers are more likely to have an unusual experience that is differentiated from other hotels. These differentiated services would make customers feel that the price paid for the hotel is fair. Following this logic, it can be hypothesized that firm innovativeness has a positive influence on perceived price fairness.

2.7. Information Costs Saved

Customers feel more uncertain when they don’t have information about products/services, so they spend a lot of time to search information. Information costs saved is related to lowering information gathering and processing costs such as expenditure of time, money, and psychological costs (Erdem & Swait, 1998). That is, lower information costs lead a higher level of consumer confidence which makes customers to spend less time in searching alternative choices (Aaker, 1991). Therefore many companies try to give a signal which conveys information credibly about relatively unknown product quality to the buyer (Rao et al., 1999).

Customers are more likely to choose the same brand hotel if they have been satisfied with their consumption experiences (Hwang & Hyun, 2012). Therefore, when a hotel provides the impressive image of firm innovativeness, customers spend less time dedicated to researching alternative choices. On the other hand, if the hotels lost the charms of firm innovativeness, customers are more likely to spend more time to obtain reliable information about other hotel alternatives. It can therefore be hypothesized that firm innovativeness can lead to information costs saved.

2.8. Customer Involvement

The concept of customer involvement has been widely studied in the business area. Customer involvement is related to the perceived personal relevance of the object based on diverse causes such as inherent needs, interests, stimulus and situation (Peter, Olson, & Grunert, 1999). In the low involvement stage, customers are not interested in a certain product (Park & Chung, 2013; Warrington & Shim, 2000), while in the high involvement stage, customers are very interested in a certain product, so they are motivated to try to find a product-related information and use/purchase such things more often (Kim, Yoo, & Lim, 2013; Shim & Kotsiopulos, 1993).

Many previous studies in the marketing field have showed the importance of customer involvement in the brand. First, Beatty et al. (1988) found that customer involvement has a positive effect on brand commitment. In addition, Mittal and Lee (1989) suggested that customer involvement is an important predictor of brand commitment, which in turn positively affects brand support. Park (1996) also showed that customer involvement is highly correlated with brand loyalty.

More importantly, if highly involved customers are more interested in a particular product, they can easily identify advantages and disadvantages of the product because they are knowledgeable about the product (Suh & Yi, 2006). For example, if customers with high involvement in the hotel are satisfied with a particular hotel image of firm innovativeness, they are more fascinated by the hotel brand. Finally, they will be more likely to perceive that the prices that are charged for the hotel represent fair prices. In the same manner, customer involvement plays a moderating role in the relationship between firm innovativeness and information costs saved. That is, customers who perceive the image of firm innovativeness would be more likely to spend less time to search other alternative hotels because of their inherent interest in hotels. Based on this argument, the following hypotheses are proposed:

Multi-item scales from the literature that had already been validated and widely adopted were identified and modified to fit the hospitality setting. First, service quality consisted of three sub-dimensions: physical environment quality, interactional quality, and outcome quality. They were measured with nine items developed by Fullerton (2005). In addition, firm innovativeness was measured with five items developed by Kunz et al. (2011). Perceived price fairness was measured with three items used by Grewal, Hardesty, and Iyer (2004). Information costs saved was measured with three items from from Baek, Kim, and Yu (2010). Lastly, customer involvement was measured with four items from Russell-Bennett et al. (2007). The questionnaire used a seven-point Likert-type scale, anchored from strongly disagree (1) to strongly agree (7).

30 actual hotel guests in Korea were randomly selected for a pretest. The results indicated that reliability was acceptable, with Cronbach's α of all constructs over .70 (Hair et al., 1998). After then, the survey questionnaire was finished and the self-report e-mail questionnaire was randomly distributed to 14,258 hotel guests in Korea who had stayed in a three-star hotel within the past three months through an online market research company in 2013. The participants were firstly asked to select a three-star hotel (or above) that he/she had used within the past three months, and to answer all questions based on the selected hotel. Among the 14,258 questionnaires, 527 respondents participated in the survey (3.69% response rate). Of the 527 respondents, 307 respondents were disqualified because of incomplete and unsuitable responses. In addition, six respondents were removed through the test of Mahalanobis distance and visual inspection. Finally, 214 usable responses remained for the further analysis.

3.1. Descriptive Statistics

The sample (n = 214) collected for this study was 56.5% male (n = 121) and 43.5% female (n = 93). The mean age of the sample was 38.53 years, with respondents falling specifically between the ages of 20 and 64. In the case of education level, the majority of respondents had bachelor’s degree (64.5%, n = 138). Lastly, the majority of respondents were $25,000-$54,999 (43.5%, n = 93).

3.2. Confirmatory Factor Analysis

Confirmatory factor analysis(CFA) using Analysis of Moment Structures (AMOS) was used to check reliability, convergent and discriminant validity, and model fit of the proposed models. Based on the CFA results, the measurement model had an acceptable fit to the data (χ² = 224.717 [df = 152, p < .001], SRMR = .028; RMSEA = .047, IFI = .964, CFI = .964, TLI = .954). The values of IFI, CFI, and TLI higher than 0.9 indicates adequate model fit (Byrne, 2001). Table 1 shows the measurement items for each construct utilized in this study, together with their standardized factor loading values.

As provided in the table 1, all the standardized loadings were equal to or higher than .727 and they were significant at p < .001. As shown in table 3, all constructs’average variance extracted (AVE) values were greater than .50, which is the threshold value (Bagozzi & Yi, 1988). Considering (1) high standardized loadings on the intended variables and (2) adequate AVE value of each construct in the measurement model, it was judged that convergent validity for the scale had been achieved (Fornell & Larcker, 1981).

As shown in table 2, the AVE value for each proposed construct was higher than the square of the coefficient representing its correlation with other constructs, indicating acceptable discriminant validity (e.g., Fornell & Larcker, 1981). Finally, all of the composite reliability values were higher than the .7 threshold (Hair et al., 1998), thus indicating that the multi-items for measuring each theoretical concept were highly reliable and internally consistent (Table 2).

3.3. Structural Equation Modeling (SEM)

The structural equation modeling was conducted through AMOS to empirically test the proposed theoretical hypotheses and evaluate the proposed conceptual model. Figure 1 shows the SEM results with standardized regression weights. The overall fit of the proposed model was acceptable (χ² (236.304) = 160, p < .001; SRMR = .032; RMSEA = .047, IFI = .962, CFI = .962, TLI = .955). Based on data analysis, hypotheses H1, H2, H3, H4, H6, H7, and H8 were supported.

3.4. Testing the Moderating Effect of Customer Involvement

Confirmatory factor analysis using Analysis of Moment Structures (AMOS) was used to check reliability, convergent and discriminant validity, and model fit of the proposed models. To check the moderating role of customer involvement, multiple-group analyses were conducted. Sample (n = 214) was split into two sub-groups (a low customer involvement group and a high customer involvement group). These two sub-groups were selected based on the median split (median value = 3.5) of the moderating variable (Chandrashekaran & Grewal, 2003). To examine the moderating effects of customer involvement between high and low customer involvement groups, the chi-square difference between constrained and unconstrained models was evaluated regarding the difference in degrees of freedom (Anderson & Gerbing 1988).

The moderating function of customer involvement in the relationship between firm innovativeness and perceived price fairness was assessed (H7a). The coefficient for the path between firm innovativeness and perceived price fairness was compared between high and low customer involvement groups. The difference of chi-square value between the constrained model (χ² = 428.970, df = 321) and the unconstrained model (χ² = 424.839, df = 320) was significant at 0.05 level (χ² = 4.2 > χ² .5(1) = 3.84, df = 1). Thus, hypothesis 7a was supported. This finding indicates that the effect of firm innovativeness on perceived price fairness was statistically different across customer involvement levels. Next, the moderating function of customer involvement in the relationship between firm innovativeness and information costs saved was assessed (H8a). The difference of chi-square value between the constrained model (χ² = 424.980, df = 321) and the unconstrained model (χ² = 424.839, df = 320) was not significant at 0.05 level (χ² = .2 < χ² 0.5(1) = 3.84, df = 1). Thus, hypothesis 8a was not supported.

First, the results indicated that there are the interrelationships among three service qualities. More specifically, physical environment quality had a significant positive effect on interactional quality and outcome quality. In addition, interactional quality was an important antecedent of outcome quality. It can be interpreted that each service quality is the key factor affecting the following services. The earlier studies have suggested that each service quality as a separate entity positively affects customer satisfaction and behavioral intentions (e.g., Mattila, 2001; Namkung & Jang, 2008; Ryu & Jang, 2008). In this regard, this study extended the existing research by finding the interrelationships among three service qualities. Therefore, it is required to focus more on appealing to hotel guests with eye-catching exterior and interior designs which are important to give a good first impression to their customers. In addition, the results showed that interactional quality positively affects outcome quality. In other words, if the hotel guests perceive a high level of interactional quality, they are more likely to be satisfied with outcome quality. It is widely known that service training is the important way to provide good service and satisfy customer various needs (Chow et al., 2007; Hwang & Ok, 2013). Thus, it is recommended to develop a systematic training which enhances interactional quality.

In addition, data analysis indicated that physical environment quality and outcome quality were found to bear a significant impact on firm innovativeness. It has been widely believed that physical environment and outcome qualities play an important role in the formation of customer satisfaction and behavioral intentions in the hotel industry (e.g., Akbaba, 2006; Lee et al., 2013; Oh, 1999). Unlike previous studies, this study explored the role of service qualities in the formation of firm innovativeness for the first time in the hotel industry. In this regard, this study further extended the existing literature by finding a significant effect of physical environment and outcome qualities on firm innovativeness. Therefore, from a managerial standpoint, it is critical to differentiate their hotels visually from other hotels in order to enhance firm innovativeness (e.g., facility athletics: architectural design, decoration, and interior design) (cf. Ariffin & Aziz, 2012).

Another key contribution of this research is its clarification of the role of firm innovativeness in the hotel industry. The results showed that such firm innovativeness is a key predictor of perceived price fairness and information costs saved. As a first attempt to test the effect of firm innovativeness on perceived price fairness and information costs saved in the hotel industry, this research replicated and further expanded the existing literature by identifying a positive relationship between firm innovativeness and perceived price fairness and information costs saved. In other words, if the hotel guests perceive a high level of innovativeness, they feel that (1) the price that they paid for staying at the hotel is fair or (2) the hotel gives them what they want, which saves them time and effort in trying to find better hotel.

Lastly, this study found a moderating role of customer involvement in customer behavior. According to the moderating test results, the data showed that customer involvement moderates the relationship between firm innovativeness and perceived price fairness. That is, the hotel guests with a high level of involvement are more likely to perceive price fairness when they feel that the hotel is dynamic and creative. This finding holds key managerial implications as well. First, hotel managers should conduct market segmentation and focus on target markets. For this, the hotel managers can develop customer databases based on the level of involvement. Given the fact that for hotel guests with a high level of involvement, firm innovativeness has a stronger impact on enhancing perceived price fairness, it is effective to invest more marketing expenditure for this segment. For instance, it is recommended to send out promotional materials focusing on innovative image of hotels. By doing so, the hotels can maximize marketing effectiveness.

Although this study suggested beneficial theoretical and practical implications, limitations should be borne in mind. The data were collected from three-star hotel guests in Korea, so the extent to which the theoretical and practical implications are cross-culturally generalizable is unknown. Therefore, future research should involve different populations in different fields (e.g., four-star, five-star) in order to ensure external validity. In addition, a response rate is relatively low(3.69% response rate), so future research should be more attentive to the response rate.