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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
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Page 1: 70710604 Michelin Stars Ranking System

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

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The use of Michelin stars ranking system in hospitality establishments 2

Table of Contents

Abstract.....................................................................................................................................2

Introduction..............................................................................................................................5

Problem statement..................................................................................................................5

Research Objectives...............................................................................................................6

Research Questions................................................................................................................6

Chapter 2...................................................................................................................................7

Literature Review.....................................................................................................................7

Hospitality establishments’ ranking system as a marketing tool...........................................7

Consumer needs and satisfaction...........................................................................................8

Consumer Behavior................................................................................................................9

Branding strategy and the Consumer...................................................................................10

Restaurant recognition.........................................................................................................11

Competitive advantage.........................................................................................................12

Overview of the literature....................................................................................................13

Chapter 3.................................................................................................................................15

Research Methodology...........................................................................................................15

The reaction of the Industry towards Michelin....................................................................16

Data Analysis.......................................................................................................................18

The reaction of consumers towards Michelin......................................................................18

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The use of Michelin stars ranking system in hospitality establishments 3

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 organization’s services. The competitive advantage

that emanates from holding a better rate may be effective in fostering the organization’s

objective. This paper takes into consideration the customer’s perspective by studying both;

the rating system and the customer’s behavior. In order for a Michelin rated establishment to

be well perceived, the Michelin rating system must first be well perceived by the market.

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The use of Michelin stars ranking system in hospitality establishments 4

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 Michelin’s 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 Michelin’s

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 organization’s 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 customer’s 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 establishment’s 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?

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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 provider’s 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 customer’s 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).

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Ranking systems are important as methods of comparing the standards of different

hospitality establishments internationally (Muller, 1999). Although the ranking system isn’t

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

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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

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 one’s memory. The success of

many brands has resulted from consumer’s 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 customer’s memory, because it will shape their predetermined judgment about the

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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 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

establishment’s 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 consumer’s 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

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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).

Restaurant recognition

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

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around Europe, and have more than five years experience in hotel and catering industry. The

stars can 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 Johnson’s (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

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means that any flaws by Michelin inspectors could cost innocent establishments their

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

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establishment’s brand (Balasz, 2002). They argue that consumers rely on the assurance of

quality offered by Michelin rating system.

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 Stars 2012

Stars 2011

Fat Duck Bray Windsor & Maidenhead

Heston Blumenthal

3 3

Waterside Inn Bray Windsor & Maidenhead

Alain Roux/Fabrice Uhryn

3 3

Gordon Ramsay Chelsea Kensington and Chelsea

Clare Smyth 3 3

Alain Ducasse at The Dorchester

Mayfair Westminster (City of)

Jocelyn Herland 3 3

Midsummer House Cambridge Cambridgeshire 2 2Gidleigh Park Chagford Devon 2 2Le Champignon Sauvage

Cheltenham Gloucestershire 2 2

Whatley Manor (The Dining Room)

Malmesbury Wiltshire 2 2

Hand and Flowers* Marlow Buckinghamshire 2 1Restaurant Sat Bains* Nottingham Nottinghamshire 2 1Le Manoir aux Quat'Saisons

Oxford/Great Milton

Oxfordshire 2 2

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

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to 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 Michelin’s 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 Zagat’s 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 organization’s

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 organization’s revenue, insignificant

difference was reflected on the establishment’s 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 Michelin’s opinion on several occasions,

branding the food that has been rated as leathery, overcooked, rubbery, or a distinct

disappointment. Other American chefs supported Michelin’s 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 criticizer’s 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 Michelin’s 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

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local culture in Japan. Many concerns arise about the transparency of Michelin systems. The

development of 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 MichelinConsumers 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.

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52), consumers have different levels of purchasing determinants. The value of quality and

satisfaction is measured differently by different consumers (Zaltman, 2003).

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. Polesz’s research signifies that the modern consumer is more likely to select the

opinion of other consumers on social sites or elsewhere, than concentrate on professional’s

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).

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