The growth of these local companies is giving very tough competition to international chain hotels like Pearl Continental, Holiday Inn not only in terms of price but the quality of products and services as well.Quality service is a major challenge facing the hospitality sector in this millennium. Competitive advantage and competitive success rely heavily on the service quality in this industry. The delivery of service depends upon various factors and the most important factor is the people or human resources. Every interaction is a service encounter in the hospitality sector and interactions take place at various levels. Assessing customer expectations and efficiency in the delivery of service is a big challenge in this highly competitive and fast-moving industry. This paper will attempt to study whether the high or low volume of service encounter affects the overall service quality at Hotel Park Inn, Peshawar. It will try to determine how the contribution of employees, of the managers, technology, innovative ideas, and the consumers themselves helps meet the challenge in the new millennium.Hotel Park Inn, Peshawar (PIP) is a 3-star hotel and experiencing rapid growth. Its products and services give the customers a feel of a 4-star hotel. The hospitality sector in Pakistan can be divided into the corporate and the consumer sector, the corporate being a very large and dominating sector. This is especially in view of Afghanistan as the neighboring country which uses Pakistan as the entry and exit point for all its travels. The hotel has 70 rooms on offer apart from the conference and wedding facilities. Conferences contribute towards revenue generation but its main revenue comes from rooms sold. The hotel is very strategically located which provides easy access to both the discerning corporate clients as well as the leisure traveler. It also offers wedding facilities for the local people. The PIP’s association with recognized tour operators adds to its service quality as it is in a position to offer sightseeing packages to its foreign clientele.