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Concepts of Tourism Marketing 1

Alexandru NEDELEA 2
Concepts of Tourism Marketing 3
Alexandru NEDELEA
Liljana ELMAZI George P. BABU Vania KUZDOVA BANABAKOVA
TOURISM
MARKETING
Derc Publishing House
Tewksbury, Massachusetts, U.S.A.
Alexandru NEDELEA 4
Coordinator:
Associate Professor Ph. D. Alexandru NEDELEA,
Stefan cel Mare University Suceava, Romania, alexandrun@seap.usv.ro
Professor Ph. D. Liljana ELMAZI,
Tirana University, Albania
Assistant Professor Ph. D. George P. BABU,
University of Southern Mississippi, USA
Associate Professor Ph. D Vania Kuzdova BANABAKOVA,
National Military University Vasil Levski, Veliko Tarnovo, Bulgaria
Copyright 2008 by Alexandru Nedelea
Published by Derc Publishing House
Tewksbury, Massachusetts, U.S.A.
All rights reserved
Library of Congress Cataloging in Publication Data
Nedelea, Alexandru
Tourism Marketing.
Includes bibliographical references
ISBN 978-0-9817300-1-1
Concepts of Tourism Marketing 5
Contents
1. Concepts of Tourism Marketing ...............9
1.1. The Role of Tourism Marketing ....................... 9
1.2. Destination Marketing .................................. 11
1.3. Marketing for Sustainable Tourism .............. 13
2. Internal Marketing ..................................15
2.1. Key Role of People in the Marketing Mix ....... 15
2.2. Moments of Truth .......................................... 18
2.3. Linking Between Employee Satisfaction
and Customer Satisfaction .......................... 20
2.3.1. The value of a tourism
and hospitality staff ........................... 22
2.3.2. The cost of staff dissatisfaction ......... 23
2.3.3. The internal marketing process .......... 25
2.3.3.1. Weak culture ........................... 28
2.3.3.2. Turning the organizational
structure upsite down ............ 29
2.3.4. Development of a marketing approach
to human resource management ........ 31
2.3.4.1. Creating jobs that
attract good people ................ 31
2.3.4.2. Staff hiring process ............... 33
2.3.4.3. Teamwork ............................... 34
2.3.4.4. Staff training .......................... 36
2.3.4.5. Continuous training ............... 37
2.3.5. Staff behavior, appearance,
and uniforms ...................................... 41
2.3.5.1. Employee involvement
in uniform selection .............. 43
2.3.5.2. Managing emotional
labor (courtesy and
friendliness of staff) .............. 44
2.3.5.3. Internal marketing
communication to employees... 46
2.3.5.4. Reward system ....................... 49
2.3.5.5. Empowering staff to deliver
guest satisfaction .................. 50
2.3.6. Handling non-routine transactions .... 51
3. Segmentation of the Tourist Market .......57
3.1. Role and Specialties of
the Tourism Marketing ................................ 59
3.2. The Signifcance and Specialties of
the Segmentation of the Tourist Market ....... 61
3.3. Specialties of the Segmentation of
the International Tourist Markets ................. 77
3.4. Development and Problems
of Tourism in Bulgaria .................................. 81
3.4.1. Mono-structurally development
of the branch ...................................... 85
3.4.2. Irregular assimilation
of the tourist resources ....................... 87
3.4.3. Insuffcient marketing and in
particular advertising policies ............ 88
3.4.4. Insuffcient quality of the service ....... 90
3.4.5. Poor condition of the infrastructure .... 92
3.4.6. Limited use of internet ........................ 93
3.4.7. Mainly offering of
mass tourist product .......................... 94
3.4.8. Ineffcient role of the great
number of branch organization .......... 96
4. Product Policy in Tourism .......................99
4.1. The Concept of Tourist Product ..................... 99
4.1.1. The particularities of
the tourist product ............................ 106
4.1.2. Tourist services ................................. 111
4.1.3. Tourist product typologies ................. 113
Alexandru NEDELEA 6
4.2. Differentiating and Positioning of the
Tourist Product and Service Supply ............ 121
4.2.1. Differentiating the tourist supply ..... 121
4.2.2. Positioning the tourist supply ........... 123
4.3. The Tourist Products Life Cycle .................. 124
4.3.1. The tourist products
innovation cycle ................................ 125
4.3.2. The tourist products
commercial life cycle ........................ 127
5. Pricing the Product ...............................131
5.1. Pricing, Theory, Factors
and Considerations .................................... 131
5.1.1. Price as an element
of marketing mix ............................... 131
5.1.2. Pricings dual role ............................. 133
5.1.3. Pricing in different markets .............. 137
5.1.3.1. The price in pure competition,
monopolistic competition
and oligopolistic one ............ 137
5.1.3.2. Price elasticity of demand .... 138
5.1.3.3. Inelastic price performance.. 139
5.1.4. Marketing objectives ......................... 140
5.1.4.1. Other objectives .................... 142
5.1.4.2. Pricing objectives ................. 143
5.1.5. Basic pricing philosophies ............... 144
5.1.5.1. Market approaches ............... 144
5.1.6. Marketing factors that affect prices ... 147
5.1.6.1. Environmental factor ............ 147
5.1.6.2. Competitive factors ............. 148
5.1.6.3. Consumers relative
perception of value ............... 149
5.1.6.4. Cost structure of
the organization ................... 153
5.1.7. Some considerations in
determination of prices ..................... 154
5.1.7.1. Customer characteristics ..... 154
5.1.7.2. Corporate objectives ............. 155
5.1.7.3. Corporate image
and positioning .................... 155
5.1.7.4. Customer demand volumes .. 155
5.1.7.5. Costs .................................... 155
5.1.7.6. Competition .......................... 156
5.1.7.7. Channels .............................. 156
5.1.7.8. Complementary service
and facilities ........................ 156
5.1.7.9. Consistency with marketing-mix
elements and strategy ......... 156
5.1.8. Factors affecting price sensitivity .... 157
5.1.8.1. Price sensitivity
measurement ....................... 162
5.2. Pricing Methods and Strategies ................. 165
5.2.1. Planning pricing approaches ............ 165
5.2.1.1. Set pricing goals .................. 165
5.2.1.2. Select pricing approaches .... 167
5.2.2. Pricing strategy process ................... 189
5.2.3. Techniques for price establishing .... 190
5.2.4. Determining a breakeven point......... 193
5.2.5. Price changes ................................... 197
5.2.5.1. Initiating price changes ....... 197
5.2.5.2. Competitor reactions
to price changes ................... 198
5.2.5.3. Trade ally reactions
to price changes ................... 200
5.2.5.4. Responding to price changes . 201
5.2.6. Pricing guidelines and policies:
increasing sales and profts ............. 202
5.2.6.1. Cost margin analysis ........... 203
5.2.6.2. A model for
determining prices ............... 205
6. Distribution Policy in Tourism ...............209
6.1. Concept and Role of
Distribution in Tourism .............................. 209
6.2. Distribution Channels ................................ 215
6.2.1. Direct channels ................................ 219
6.2.2. Indirect channels ............................. 222
6.2.3. Types of agents ................................ 224
6.3. Tour Operators ........................................... 228
6.3.1. Seller travel agencies ...................... 236
6.3.2. Other agent categories .................... 238
6.3.3. Computer and contract
distribution reservation systems ..... 245
6.4. Distribution Strategies ............................... 250
6.5. Conclusions ................................................ 259
7. Promotion Policy in the
Tourism Industry ...................................261
7.1. Tourist Promotion-Concept,
Particularities and Objectives .................... 261
7.2. Tourist Advertising ...................................... 266
Concepts of Tourism Marketing 7
7.3. Public Relations ......................................... 280
7.4. Promoting the Sales of the Tourist Product ... 283
7.5. Direct Marketing ......................................... 287
7.6. Personal Selling ......................................... 289
7.7. Conclusions ................................................ 291
8. Customer Satisfaction, Loyalty, and
Value and Proftability in Tourism ........293
8.1. Defning Customer Value and Satisfaction ... 294
8.1.1. The value of customers ..................... 294
8.1.2. A wide-angle view of
customer satisfaction ....................... 295
8.1.3. Customer delivered value ................. 297
8.2. Customer Satisfaction ................................ 299
8.2.1. Customer dissatisfaction
and customer exit ............................. 301
8.2.2. Customer satisfaction
and proftability ................................ 302
8.2.3. Proft impact of customer
dissatisfaction .................................. 302
8.2.4. The cost of customer dissatisfaction .. 304
8.3. Customer Satisfaction
Versus Customer Loyalty ............................ 306
8.4. Retaining Customer .................................... 308
8.4.1. Cost of lost customers ...................... 309
8.4.2. Resolving customer complaints ....... 310
8.4.3. Customer proftability ....................... 313
8.5. Marketing Relationship .............................. 314
8.6. Complaint Management in
Tourism and Hospitality Industry................ 318
8.6.1. Defensive marketing and
complaint management ................... 318
8.6.2. Principles of complaint
management .................................... 321
8.6.3. Learning from complaints ................ 323
8.6.4. Problem impact tree analysis ........... 325
8.7. Analyzing Customer Satisfaction Surveys .. 329
8.7.1. Predicting repurchase intention ....... 330
8.7.2. Predicting overall satisfaction .......... 330
8.7.3. Measuring customer satisfaction ..... 332
8.7.4. Predicting overall delight .................. 333
8.7.5. Predicting process satisfaction ........ 334
8.7.6. Predicting process delight ................ 335
8.8. Estimating Relative Importance ................. 335
8.9. Importance-Performance Mapping............. 337
Bibliography ...............................................342
Alexandru NEDELEA 8
Concepts of Tourism Marketing 9
Concepts of
Tourism Marketing
Alexandru NEDELEA
1.1. The Role of Tourism Marketing
Tourism has been defined by the World Tourism Organization as the
activities of persons traveling to and staying in places outside their usual
environment for not more than one consecutive year for leisure, business
or other purposes. Travel and tourism is one of the worlds largest indus-
tries. With improved marketing, most tourism businesses can claim a big-
ger share of this lucrative but fragmented industry.
A product can be ideas, goods, or services. Since tourism is prima-
rily a service based industry, the principal products provided by tourism
businesses are recreational experiences and hospitality. These are intangi-
ble products and more difficult to market than tangible products such as
automobiles.
The intangible nature of services makes quality control difficult but
crucial. It also makes it more difficult for potential customers to evaluate
and compare service offerings. In addition, instead of moving the product
to the customer, the customer must travel to the product (area/community).
Travel is a significant portion of the time and money spent in association
with tourism experiences and is a major factor in peoples decisions on
whether or not to visit your business or community.
As an industry, tourism has many components comprising the overall
travel experience. Along with transportation, it includes such things as
accommodations, food and beverage services, shops, entertainment, aes-
thetics and special events. It is rare for one business to provide the variety
of activities or facilities tourists need or desire. This adds to the difficulty
of maintaining and controlling the quality of the experience. To overcome
this hurdle, tourism related businesses, agencies, and organizations need to
1
Alexandru NEDELEA 10
work together to package and promote tourism opportunities in their areas
and align their efforts to assure consistency in product quality.
Tourism is expected to make a significant contribution to global eco-
nomic growth over the next few decades. As a result the tourism sector is
becoming an increasingly competitive environment.
A key factor determining the international competitiveness of tourism
destinations is their ability to develop appropriate marketing strategies.
Tourist trade would not exist if someone were not marketing and
selling the services to would-be travelers. Each segment of the industry
depends on marketing to maintain its share of the vacationing population.
The hotels must sell their properties to wholesalers than sell to the retail
travel agencies, which market directly to the consumers.
Tourism marketing has long been considered as a branch of traditional
marketing. However, in recent years, tourism marketing has gone through
fundamental changes: the pursuit of global strategies based on strategic
alliances, the breakdown of commercial borders and advances in new tech-
nology have all facilitated the commercialization of tourism products.
Competition within the travel and tourism industry continues to be
fierce with airlines, tour operators and destinations employing new and
innovative marketing techniques in a bid to increase business. Branding,
positioning and knowledge of consumer psychology have become essen-
tial elements in the marketing of tourism and travel, along with the use of
strategic partnerships and targeted communications.
Tourism is a key driver of economic growth and wealth creation, thus
tourism marketing is an investment, not an expense.
Tourism organizations which practice the marketing concept find out
what the consumer wants and then produce a product that will satisfy
those wants at a profit.
The tourism marketing mix is composed of every factor that influences
the marketing effort
1
:
1. Timing. Holydays, high season, low season, upward trend in the
business cycle, and so on must all be considered.
2. Brands. The consumer needs help in remembering your product.
Names, trademarks, labels, logos, and other identification marks all
assist the consumer in identifying and recalling information about
your product.
1
R. W. McIntosh, Ch.R. Goeldner, J. R. Brent, Tourism Principles, Practices,
Philosophies, John Wiley&Sons, New York, 1995, p. 427.
Concepts of Tourism Marketing 11
3. Packaging. Although tourism services do not require a physical
package, packaging is still an important factor. For example, trans-
portation, lodging, amenities, and recreation activities can be pack-
aged and sold together or separately. Family plans or single plans
are other forms of packaging.
4. Pricing. Pricing affects not only sales volume but also the image
of the product. A multitude of pricing options exist, ranging from
discount prices to premium prices.
5. Channels of distribution. The product must be accessible to the
consumer. Direct selling, retail travel agents, wholesale tour oper-
ators, or a combination of these methods all comprise distribution
channels must be developed.
6. Product. The physical attributes of the product help to determine
its position against the competition and provide guidelines on how
to best compete.
7. Image. The consumers perception of the product depends to a
great extent on the important factors of reputation and quality.
8. Advertising. Paid promotion is critical, and the questions of when,
where, and how to promote must be carefully considered.
9. Selling. Internal and external selling are essential components for
success, and various sales techniques must be incorporated in the
marketing plan.
10. Public relations. Even the most carefully drawn marketing plan
will fail without good relations with the visitors, the community,
suppliers and employees.
1.2. Destination Marketing
Tourism destination marketing is now widely recognized as an essen-
tial component in the management of destinations, an integral part of
developing and retaining a particular locations popularity. Many busi-
nesses find that the best marketing approach is a group effort. A regions
lodging, foodservice, and travel-related operations often join forces to pro-
mote tourism in that area. Many strategies can be used to capture the lei-
sure market, including the following:
a) Sell tourism to local civic leaders and politicians by demonstrating
its economic significance to the community.
Alexandru NEDELEA 12
b) Describe the areas local and regional features to prospective vis-
itors. Use a variety of media channels, including internet, televi-
sion, radio, newspaper, and magazine advertisement.
c) Promote the destination by sending new articles to both local and
national newspapers and television stations. A feature story in a
local paper might even be picked up nationally and provide exten-
sive exposure, free of charge.
d) Sponsor special events and festivals to attract different groups and
encourage repeat visits to that destination.
e) Make tour operators, convention bureaus, and transportation com-
panies aware of the destination.
f) Consider developing a multiattraction passbook in cooperation
with other local operators.
g) Become involved in the local chamber of commerce and work with
it to promote tourist-related businesses.
Marketing a destination is the responsibility of organizations at two
levels. The first level is concerned with the destination as a whole and
is the responsibility of mainly public organizations such as Destination
Marketing Organizations (DMOs). The most commonly recognized DMOs
are the National Tourism Organization (NTO) and the Regional Tourism
Organization (RTO). The second level concerns the marketing activity of
mainly private sector operators promoting individual tourism products at
the destination, the obvious tourism firms being accommodation provid-
ers, transport carriers, tour operators, and attractions
2
.
Destination marketing is designed to motivate particular groups of vis-
itors and influence their behaviors including:
the type of product and activities they choose
the times of the year they visit
the type of accommodation they stay in their expenditure patterns.
DMOs are commonly government organizations or public sector agencies,
which contribute to destination marketing through the following activities
3
:
Research to establish and communicate to its industry partners
promotional priorities for targeted market and segments and to
define destination images and branding.
2
Tracey Firth, Marketing for Sustainable Tourism, University of Western Sydney,
www.besteducationnetwork.org.
3
V.T.C. Middleton, J. Clarke, Marketing in Travel and Tourism, Butterworth-Hei-
nemann, Oxford, 2001.
Concepts of Tourism Marketing 13
Liaising with and influencing private sector partners to achieve
priorities.
Coordinating elements of tourism products not provided by the pri-
vate sector such as tourist information and destination web sites.
Providing investment and marketing support for new and growth
products relevant to policy goals.
Creating marketing facilities and cooperative campaigns accessible
especially for thousands of small businesses that would otherwise
be unable to participate in marketing on a national and interna-
tional scale.
Providing advice and leadership based on information sources.
1.3. Marketing for Sustainable Tourism
Marketing is used to persuade visitors and businesses to voluntarily
change their naturally occurring behavior. This has typically been a reac-
tive rather than proactive process. Tourism marketing management proce-
dures need to be developed to influence the five primary variables central to
achieving sustainability. Marketing needs to focus on: ways and means to
influence visitors choices of location, access timing and product provision,
and to develop local understanding and knowledge of tourism. The over-
all aim is to arrive at an appropriate balance between supply and demand.
Judgments regarding what constitutes an appropriate balance will vary from
one destination to another and will be dependent on the goals of the local
community and the unique characteristics of individual destinations.
For tourism services suppliers, as for other organizations from the tour-
ism chain, an important step of the process that fallows the implementation
of the sustainable tourism, is to conceive a coherent marketing policy and
an appropriate marketing-mix assembly (product, price, placement, promo-
tion and, in many opinions, people component), in such a way as to influ-
ence consumers behavior towards a sustainable tourism goals.
The most important problem for marketers is how to get profit for
whole tourism organizations that are involved, and how to satisfy tour-
ists needs, in the condition of preserving nature and cultural heritage, as
to respect sustainability principles.
The marketing vision in sustainable tourism activity involves some differ-
ent aspects of strategic and operational nature, like: market research, tourists
behavior research, marketing strategic planning, marketing-mix assembling.
Alexandru NEDELEA 14
Tourism marketing management procedures need to be developed to
influence the five variables central to achieving sustainability. Marketing
needs to focus on: easy and means to influence visitors choices of loca-
tion, access timing and product provision, and to develop local understand-
ing and knowledge of tourism
4
. Every tourism services supplier involved
in the tourism supply chain, must consider its activity in the economic,
environmental and social sustainable perspective. Every services suppli-
ers activity must be realized in sustainable conditions, that activity cannot
be judged separately, but always together in to the supply chain.
Because the specify and high complexity of tourism activities, to
assure sustainability of tourism products is necessary to involve a good
and strong cooperation between all the parts that participate to the tour-
ism chain: accommodation suppliers, restaurant-keepers, transport suppli-
ers, entertainers etc., especially under the umbrella of tour-operators.
The sector of services activity involves some particular aspects con-
cerning the theory and practice marketing approach and application, but
in the domain of tourism activity is more complicated because use basi-
cally elements of natural and cultural environment as tourism attractions,
involve many participants and many decisions and is addressed to a very
heterogeneous market
5
.
Because of its multiple impacts over the several components of the
marketing environment (especially the natural, economic and social ele-
ments), the problem of tourism sustainability is important in the preoccu-
pations of authorities and stakeholders from different European countries.
4
V.T.C. Middleton, R. Hawkins, Sustainable Tourism: a Marketing Perspective,
Buttreworth-Heinemann, Oxford, 1998, p. 85.
5
S. Muhcina, M. Jalencu, Marketing for Sustainable Tourism Services: a Step to a
Common Future in European Tourism, in Economic Orientations in European Integra-
tion Process (A. Burciu, V. Yevdokymenko), Zoloti Lytavry Publishing House, Cher-
nivtsi, 2008, p. 141.
15 Internal Marketing
Internal Marketing
Liljana ELMAZI
2.1. Key Role of People in the Marketing Mix
There are some contextual differences between the marketing of services
and products. It is much more difficult with services to give the customer a
defect-free experience because of the human factor involved in service trans-
actions. Services are not mass-produced or a factory line but should delivered
one customer at a time. Services involve person-to-person interactions, both
employee with customers and customers with other customers.
Also, there are two groups of people in hospitality and travel market-
ing- the guests (customers) and the hosts (those who work within hospi-
tality and travel organizations). Managing the guest-host relationship is
one of the key functions in our business; in fact, some say it is the most
important. In this chapter the focus is mainly on the hosts and the qual-
ity of service they provide. However, you will also read about managing
long-term relationship with individual guests (relationship marketing) and
about the importance of considering how guests interact with each other
in hospitality and travel business (customer mix).
To say that people make the main difference in services marketing is
perhaps both obvious and an understatement of the real truth. Services
marketing is all about people! To borrow a quote from a famous U.S.
stock brokerage firm, success in services marketing needs to be meas-
ured one customer at a time. While you will read much about commu-
nications and promotion in the rest of this book, the real foundations of a
hospitality and travel organizations success and survival are the people it
employs and the people it serves. How the organizations selects and treats
both of these two groups of people has perhaps the greatest impact on its
ultimate marketing effectiveness.
The front-line people who provide the services of our industry play a
key role. They alone can make or break a guests experience. An otherwise
2
16 Liljana ELMAZI
ordinary occasion can be made extra special by above-average courtesy and
attention. On the other hand, a superior environment and facilities can be
marred by indifferent, curt, unfriendly service. People, the service provid-
ers, play the pivotal role in hospitality and travel marketing. No amount of
slick advertising and catchy promotions can compensate for below average
service. Tourism and Hospitality organizations must do two things well to
satisfy customers: (1) provide a good product (the meal, room, airline seat,
vacation package, rental car, etc.) and (2) provide good service. The human
dimension of hospitality and travel products, although harder to control and
standardize, deserves at least equal attention. Most marketing textbooks
ignore this human element in marketing but not this one.
Although must of what the hospitality and travel industry provides
involves physical facilities and equipment, most experts believe that it is
the level of service provided that separates the successful from the unsuc-
cessful. That is the people element of the marketing mix. Traditional think-
ing separates marketing and human resources management into two distinct
management functions. However, the two are very closely linked in the serv-
ice industries. Organizations with superior human resources, policies, and
practices are usually the most successful marketers. Organizations such as
Disney, McDonalds, Singapore Airlines, The Ritz-Carlton Hotel Company,
Emirates, and Four Seasons Hotels & Resorts know the rich payoffs that
come from positive employee customer service encounters. They learned
years ago that only satisfied customers come back and that positive word-of
mouth advertising is the most powerful force in attracting new customers.
If there is one universal truth about the industry, it is that nothing
can make up for poor service. Excellent food, exquisitely decorated guest
rooms, or on-time arrival cannot swing the pendulum far enough to make up
for unfriendly or inadequate employee service. According to Horst Schulze,
president and chief executive of The Ritz-Carlton Hotel Company, Service
can only be accomplished by people. The hotel can be breathtakingly beauti-
ful and the food memorable, but a poor employee can quickly sour the expe-
rience. Many in the industry do not fully understand the bond between the
quality of the physical product (hotel, restaurant, plane, ship, motor coach,
menu items, etc.) and the quality of the service. Customers form their over-
all evaluations based on a combined assessment of these two factors.
Books such as Service America! Doing Business in the New Economy
suggests that there is a crisis in the service industries. Poor or indiffer-
ent service is the rule, rather than the exception. In this era of mediocre
17 Internal Marketing
service, those who devote above-average attention to hiring, orienting,
training, empowering, and keeping service-oriented employees will have
a distinct marketing advantage.
According to Berry and Parasuraman, the essence of services market-
ing is service, and service quality is the foundation of services market-
ing. Therefore, hospitality and tourism marketers must e concerned with
service quality and must be sure that their organizations have a process in
place for managing the quality of service provided to customers.
Everyone has a story to tell about the time he or she received poor
a hotel a hotel or restaurant. Costumer service expert John Tscholl tells
about the one and only time he stayed in one of Marriots Courtyard Inns
1
.
He was never given an emergency message that his father-in-law had suf-
fered a heart attack, nor did he receive his wake-up call the next morn-
ing. He said that he will never return to a Courtyard Inn and has told this
story to thousands of Marriots costumers and potential customers. Marriot
spend much time and Effort developing the Courtyard concept, but a well-
designed concept and good physical facilities are not enough. If the hotels
employees do not perform to expectations, guests will not return.
Stories are not always negative. Most travelers have stories to tell
about employees who give them excellent service. These two examples
show how hotels can retain customers by solving their needs and recog-
nizing employees who do something extra for the hotel.
Marketing in the hospitality and tourism industries must be embraced
by all employees; it cannot be left up to the marketing or sales department.
Marketing should be part of the philosophy of the organization, and the
marketing function should be carried out by all line employees. In man-
ufacturing firms the marketing function is often carried by a marketing
department, since many employees do not interact with the costumers. In
service industries the line employees carry out a majority of the market-
ing function (Figure 2.1.).
Managers must understand that had service encounters receive more
attention than good ones. When guests have been treated badly, they respond
by talking about the incident. A study done by the Technical Assistance
Research Program found that when people have good experience, they tell
five people. If they have a bad experience, they tell ten.
2
Spreading positive
1
Tschohl, J., Achieving Excellence through Customer Service, Upper Saddle River,
N.J.: Prentice Hall, 1991.
2
Tschohl, J., Achieving Excellence, p. 3.
18 Liljana ELMAZI
word of mouth is difficult. A few negative stories can offset many good sto-
ries. The goal is to have every guests expectations met or exceeded.
The front-desk clerk, dinning room service person, door attendant,
and concierge all influence whether the guest departs satisfied. Their atti-
tude, appearance, and willingness to handle the guests requests help from
an impression of the hotel. Employees deliver the products of hospitality
organizations, and through their delivery they become part of the product.
It is often hard to differentiate the tangible part of the product of compet-
ing companies. Steak dinners and hotels rooms in the same price range
tend to be similar. Product differentiation often derives from the people
who deliver the service. In the hospitality industry, most marketing activ-
ity is carried out by employees outside the marketing department, not the
marketing staff. The hotels marketing program brings guests to the hotel.
The hotels staff must turn the first-time guest into a repeat customer.
There is a positive relationship between the number of repeat guests and
profit. Research has shown that a 5% increase in retention can lead to 25
to 125% increases in the bottom line.
2.2. Moments of Truth
A key ingredient in almost all service companies is some innovative
arrangement or formula for mobilizing and focusing human energy. It is
developed the term moments of truth.
A moment of truth occurs when employee and customer have contact.
And, when this occurs, what happens is no longer directly influenced by
the company. It is the skill, motivation, and tools employed by the firms
representative and the expectations and behavior of the client together that
Consumer goods
Marketing
Function
Services
Marketing
Department
Marketing
Department
Marketing
Function
Figure 2.1. The relationship between the marketing function
and the marketing department
19 Internal Marketing
create the service delivery process. For example, for a airline company,
moments of truth are the interactions between a customer and the airline
staff that virtually bring the company to life for a particular customer at a
specific moment in time. For Scandinavian Airlines System (SAS), is esti-
mated that there are 50000 moments of truth each day of the year:
If you think about for a moment, you quickly realize that SAS, or any
airline, is the contact between one customer in the market and one SAS
employee working at the front line. And when this contact appears, then
SAS exists. These are the moments of truth, in which we show whether we
are a good airline or a bad airline.
A moment of truth is defining as any episode in which the customer
comes into contact with any aspect of the organization and gets an impres-
sion of the quality of its service. Examples of moments of truth are:
A guest standing at a front desk at check-in
A guest entering a guestroom after check-in
A guest receiving a morning wake-up call.
What the guest experiences in these kinds of very specific situations
affects his or her perception of the quality of service. The moments of
truth throughout a guests hotel stay form a continuous chain of events
that builds a perception of value. In this sense, a moment of truth becomes
the basic atom of service, the smallest indivisible unit of value deliv-
ered to the customer. The following moments of truth and accompanying
questions were taken from a course in frontline service skills developed
by Hospitality Partners. The questions are designed to prompt managers
and staff to view each moment of truth from the guests perspective and
in terms of achieving the company mission:
Guest arrives in front of the hotel. Is the area in front the hotel clean
and welcoming? Or is it dirty and menacing?
Guest enters the lobby. Is there a directional sign that informs guests
how to get to the front desk or to the meeting? Or is the guest left standing
with a blank stare wondering whether to go right, left, or straight ahead?
Guest walks up to the front desk. Is the guest made to feel welcomed
by the front desk staff? Or is the staff too busy with paperwork to look up
and greet the guest immediately?
Guest checks in. While the more tedious details of the check in process
are occurring, is the guest being entertained by the lobby environment or
by the front desk staff? Or is the guest being treated like an inconvenience
and just one more piece of paper to process?
20 Liljana ELMAZI
Guest is escorted to room or suite. Is the guest informed as he or she
is escorted to the room or suite? Or is the journey a long, silent, boring,
and uncomfortable one?
Guest enters room or suite. Does the guest feel welcomed by the sight
of a clean room or suite? Or does the guest feel frightened by the giant
dust ball that has collected in the bathroom?
Guest turns on television. Does the guest enjoy a hassle-free evening
watching a favorite program? Or does the guest get irritated because the
TV is not working and the front desk staff does not seem to care?
Guest calls for wake-up. Does the guest enjoy a good nights sleep feel-
ing confident that the wake up call will come, because when he or she
made arrangements with the front desk, a staff member cared enough to
repeat the time and room number? Or does the guest toss and turn, sure that
the wake-up call will not come and an important meeting will be missed?
This idea is borrowed from bullfighters, who used the term to describe
the moment when the bullfighter faces the bull in the ring. Despite all his trai-
ning and preparation, a wrong move by the bullfighter or an unanticipated
move by the bull can result in disaster. Similarly, when employees and
customers interact, a careless mistake by an employee or an unanticipated
request by a guest can result in a dissatisfied guest.
The hospitality industry in unique in the employees are part of the
product. The hotel must have a staff that will perform well during moments of
truth. When people think of marketing, they usually think of efforts directed
externally toward the marketplace, but a hotel or restaurants first market-
ing efforts should be directed internally to employees. Managers must make
sure that employees know their products and believe that they are a good
value. The employees must be excited about the company that they work for
and the products they sell. Otherwise, it will be impossible for the guests to
become excited. External marketing brings customers into the hotel but does
little good if the employees do not perform to the guests expectations.
2.3. Linking Between Employee Satisfaction
and Customer Satisfaction
Think about calling a hotel or travel company with a complaint and
interacting with a person who hates his or her job and the company he or
she works for. What kind of reception do you think you will get? Employee
satisfaction is a key factor in delivering customer satisfaction. As shown in
21 Internal Marketing
Figure, employee satisfaction affects customer service, which in turn influ-
ences customer satisfaction and retention, so higher levels of customer sat-
isfaction contribute to higher levels of customer retention and profitability.
Good internal programs create employee satisfaction, which in turn
creates customer satisfaction. Thus, internal marketing has two benefits:
customer satisfaction and employee satisfaction. They later add to the
bottom line by reducing employee turnover. A study by Forte Hotels in
London, two U.K. researches states that clearly, if staffs are happy about
what they and the company need to do in order to satisfy customers and
are well trained and supported, they will, on average, remain with their
employer three to four times longer than employees who feel less secure.
3

Berry and Parasuraman state that interacting with frustrated and dissatisfied
customers can deflate employees enthusiasm for the job, decrease their com-
mitment to the job, and result in increased employee turnover
4
. These studies
found there is a link between customer satisfaction and employee satisfac-
tion. Good employees do not like dealing with satisfaction customers.
There is a two-way relationship between customer satisfaction and
employee satisfaction. When customer satisfaction decreases, employee
satisfaction decreases; however, when customer satisfaction increases,
employee satisfaction increases. Employee retention has a direct link to
customer retention and acquisition. A study done in the United Kingdom
by Posthouse revealed a close correlation between employee satisfaction
and guest satisfaction. He states: In essence, the hotels archiving consist-
ently high levels of guest satisfaction were also achieving high employee
morale ratings and low turnover ratings.
5
There is considerable evidence
that employee retention and customer retention are related.
There is also a relationship between quality and employee satisfaction.
Increased turnover should be considered a warning that a company is not be
customer focused. Another worldwide study by The Forum Corporation
which found that turnover is associated with employee opinion of serv-
ice quality. Some employees who leave companies do so because of the
3
David Owen and Richard Teare, Driving Top-Line Profitability through the
Management of Human Resources, in The International Hospitability Business, Richard
Kotas, Richard Teare, Jeremy Logie, Chandana Jaywardena, and John Bowen, etc.,
London: Cassel, 1996, pp. 186-190.
4
Leonard L. Berry and A. Parasuraman, Marketing Services: Competing through
Time, New York: Free Press, 1996, pp. 18-19.
5
Owen and Teare, Driving Top-Line Profitability.
22 Liljana ELMAZI
poor level of service being given to customers and the overall negative
attitude of the organization.
6
And a study by American Society for Quality
Control which found that when costumers were asked what quality in
service meant, the largest group of responses cited employee contact skills
such as courtesy, attitude, and helpfulness
7
. The research cites above sup-
ports the development of an internal marketing program. We must first
market to employees. Satisfied employees create satisfied customers.
Employees enjoy working with satisfied customers; thus higher levels of
customer satisfaction create higher levels of employee satisfaction. The
human resource function and marketing are inseparable in hospitality and
travel organizations. They must work together to create both satisfied
employees and satisfied customers.
2.3.1. The value of a tourism and hospitality staff
The value of a tourism and hospitality is just as obvious as the value
of guests: when there is no one to perform the work, no work gets done,
no value is produced, no customers come, and the business fails. In an
economic sense, the value of managers, supervisors, and employees is the
wages and benefits that compensate them for their work. But in the con-
text of quality servicethat is, in sense of consistently meeting or exceed-
6
Tschohl, Achieving Excellence, pp. 160-162.
7
Joseph W. Benoy, Internal Marketing Builds Service Quality, Journal of Health
Care Marketing, 16, no. 1, 1996, pp. 54-64.
Employee
retention
Employee
satisfaction
Employee
productivity
Service
quality
Customer
satisfaction
Customer
retention
Profitability
and growth
Figure 2.2. Employees satisfaction is a key driver of
service quality and customer satisfaction
23 Internal Marketing
ing guest expectationsthe value of a tourism and hospitality staff is
determined by the staffs performance during critical moments of truth.
2.3.2. The cost of staff dissatisfaction
Few service businesses can succeed without a loyal, satisfied staff.
Especially for hotels, restaurants, and other tourism and hospitality oper-
ations, survival and success depend more on developing and retaining a
committed and productive staff than on managing a revolving door or ter-
minated employees and new-hires.
The first cost of staff dissatisfaction to consider is lost business. A dis-
satisfied staff leads to service-related problems for guests, which can lead
to guests taking their business elsewhere. A creative way to measure how
staff dissatisfaction contributes to lost nosiness is to compare a companys
staff turnover rate to the companys guest defection rate. This is what Taco
Bell did when it examined turnover records for its restaurants. The company
found that 20% of its restaurants with the lowest turnover rates had double
the sales and 55% higher profits than 20% of its restaurants with the com-
panys highest employee turnover rates. This discovery led Taco Bell to fix
the turnover problems at the under-performing restaurants, which not only
increased sales but profitability too.
The second area to consider in relation to the cost of staff dissatisfac-
tion is the direct cost of staff turnover, such as termination, recruitment,
and selection costs.
Additional, indirect costs associated with turnover are not easily deter-
mined, but they exist nevertheless. These costs include the usually low
productivity of new employees and other effects that relate to turnover,
such as more waste and more work accidents.
Each tourism and hospitality business should calculate its own turn-
over costs. These costs can vary tremendously from business to business
and across the various segments of the tourism and hospitality industry.
At the hotel, the cost of turning over a single employee position can range
from 900$ to 4500$. The cost to replace a manager can be three times that
amount. Expenses saved by reducing turnover drop these dollars directly
to the companys bottom line.
One way of emphasizing the high cost of staff dissatisfaction is to cal-
culate the amount of additional revenue that a company would have to
generate in order to compensate for the expenses related to turnover. If a
24 Liljana ELMAZI
hotels profit margin is 10%, then it would take between 9000$ and 45000$
in additional sales to makeup, on the bottom line, for the loss of a single
employee, and as much as 27000$ to 135000$ in additional sales to com-
pensate for the loss of a manager.
The rate of staff turnover can be calculated for any time period. Turnover
rates are most helpful when they are calculated by business unit, depart-
ment, shift, or position.
One method of calculating turnover rates is to divide the number of ter-
minations over a designated time period by the average number of employees
for the same period. Since a turnover rate is usually expressed as a percent-
age, multiply the result of result of the turnover-rate calculation by 100.
For example, lets assume that the average staffing for diner-shift serv-
ers at the ABC Restaurant for the year is 28 and that there were 21 ter-
minations during the course of the year. The annual turnover rate for the
ABC Restaurants dinner-shift servers would be calculated as follows:
Annual
turnover rate
=
Number of
terminations
100%
average number
of employees
=
= 21*100/28 = 75%.
What does it mean to have a server turnover rate of 75% for the din-
ner shift? Is 75% high or low, good or bad? It depends.
First of all, not every staff termination signals job dissatisfaction.
Some terminations are forcedthe employee is fired. Some turnover must
be expected. The question becomes: What turnover rate is acceptable for
dinner-shift servers? The answer depends on many factors. A primary fac-
tor is the economy within the local community, especially in relation to
the current unemployment rate.
Whether a 75% turnover rate is acceptable or not also depends on the
nature of turnover. For example, a 75% turnover rate might mean that
threequarters of the dinnershift servers turned over during the year.
This could have a devastating impact on service quality.
To evaluate turnover, you need more than just a turnover rate. You
need information that pinpoints exactly when and where the turnover is
occurring. This information helps managers focus their efforts on analyzing
why the turnover is occurring and suggesting actions to reduce the turno-
ver. For example, if a company finds that majority of its turnover occurs
within the first 90 days of employment, the human resources department
could focus its efforts on reviewing the companys selection and orientation
processes, and department managers could review their training programs
25 Internal Marketing
for new-hires. Exit interviews with staff members terminating their employ-
ment can provide helpful insights. Employee satisfaction surveys are also
commonly used to determine ways to reduce turnover.
One of the keys to retaining staff members is to increase their level
of satisfaction with their jobs. Staff members stay with a company longer
when they perceive value in the quality of their work environment and
feel adequately compensated for the work they perform. For a company
to determine what it should do to increase job satisfaction among its staff
members, it must begin learning how managers, supervisors, and employ-
ees perceive value in relation work.
2.3.3. The internal marketing process
Marketers must develop techniques and procedures to ensure that em-
ployees are able and willing to deliver high-quality service. The internal
marketing concept evolved as marketers formalized procedures for market-
ing to employees. Internal marketing ensures that employees at all levels of
the organization experience the business and understand its various activ-
ities and campaign in an environment that supports customer conscious-
ness. The objective of internal marketing is to enable employees to deliver
satisfying products to the guest. As Christian Gronroos notes: The inter-
nal marketing concept states that the internal market of employees is best
motivated for service-mindedness and customer-oriented performance by
an active, marketing-like approach, where a variety of activities are used
internally in an active, marketing-like and coordinated way.
8
Internal mar-
keting uses a marketing perspective to manage the firms employees
9
.
Internal marketing is marketing aimed internally at the firms employ-
ees. Internal marketing is a process that involves the following steps:
1. Establishment of a service culture
2. Development of a marketing approach to human resource manage-
ment.
3. Dissemination of marketing information to employees.
4. Implementation of a reward and recognition system.
8
Christian Gronross, Strategic Management and Marketing in the Service Sector,
Cambridge, Mass: Marketing Science Institute, 1983, as cites in C. Gronroos, Service
Management and Marketing, Lexington, Mass: Lexington Books, 1990, p. 223.
9
Ibid, p. 85.
26 Liljana ELMAZI
Establishment of a service culture
An internal marketing program flows out a service culture. A service
marketing program is doomed to failure if its organizational culture does not
support serving the customer. An article in a recent issue of The Australian,
a natural newspaper, reported that four firms had pumped $2 million into
customer service programs with little result.
10
One reason these customer
service efforts failed was that the companies culture was not service ori-
ented. The companies carried out the customer service programs because
they thought that they would produce satisfied customers and make the firm
more money. These firms soon discovered that a good customer-service pro-
gram involves much more than working with line employees. An internal
marketing program requires a strong commitment from management.
A major barrier to most internal marketing programs is middle man-
agement. Managers have been trained to watch costs and increase profits.
Their reward systems are usually based on achieving certain cost levels.
Imagine a hotels front-desk clerks returning from a training session, eager
to help the guests. They may take little extra time with the customers or
perhaps give away a health club visit to help a dissatisfied guest recover
from an unsatisfactory experience at the hotel. The frontoffice manager,
who has not been through similar training, may see the extra time spent
as unproductive and the services given away as wasteful.
If the management expects employees attitudes to be positive toward
the customer, management must have a positive attitude toward the cus-
tomer and the employees. Too often, organizations hire trainers to come
in for a day to get their customer-contact employees excited about provid-
ing high-quality customer service. The effect of these sessions is usually
short-lived because the organizations do little to support the customer-
contact employees. Managers tell receptionists to be helpful and friendly,
yet often the receptionists are understaffed. The greeting develop to make
receptionists sound sincere and helpful Good morning, Plaza Hotel,
Elizabeth speaking, how may I help you? becomes hollow when it
is compressed into 3 seconds with a Can you please hold? added to
the end. The net result from the guests perspective is to wait 14 rings
for the phone to be answered and then receive a cold, rushed greeting.
Management must develop a service culture: a culture that supports cus-
tomer service through policies, procedures, reward systems, and actions.
10
The Australian, October 10, 1990.
27 Internal Marketing
An organizational culture is the pattern of shared values and beliefs
that gives members of an organization meaning, providing them with the
rules for behavior in the organization.
11
Every organization has a culture.
In some companies it may be weak. In well-managed companies, every-
one in the organization embraces the culture. A strong culture helps organ-
izations in two ways. First, it directs behavior. Employees know how to
act and what is expected of them. Second, a strong culture gives employ-
ees a sense of purpose and makes them feel good about their company.
12

They know what their company is trying to achieve and how they are
helping the company achieve that goal.
Culture serves as the glue that holds an organization together. When
an organization has strong culture, the organization and its employees act
as one. But a company that has a strong culture influences employees to
act in customer-oriented ways and is the first step toward developing a
customer-oriented organization. Developing a customer-oriented organiza-
tion requires a commitment from management of both time and financial
resources. The change to a customer-oriented system way require changes
in hiring, training, reward system, and customer complaint resolution, as
well as empowerment of employees. It requires that managers spent time
talking to both customers and customers-contact employees. Management
must be committed to these changes. A service culture does not result from
a memorandum sent by the CEO. It is developed over time through the
actions of management. For example, a hotel manager who spent time
greeting guests and inquiring about their welfare during the morning check-
out and afternoon check-in demonstrates caring about guests.
13

In some companies, including Hyatt, McDonalds and Hertz, man-
agement spends time working alongside customers-contact employees
serving customers. This action makes it cleat to employees that manage-
ment does not want lose touch with operations and that managers care
about both employees and customers. An internal marketing program that
is developed without the support of management will be unproductive.
Organizations cannot expect their employees to develop a customers-ori-
ented attitude id it is not visibly supported by company management.
11
S. M. Davis, Managing Corporate Culture, Cambridge, Mass: Ballinger, 1985.
12
Terrence E. Deal and Allan A. Kennedy, Corporate Cultures, Reading, Mass:
Addison-Wesley, 1982, pp. 15-16.
13
A. Parasuraman, Corporate Culture, p. 44.
28 Liljana ELMAZI
2.3.3.1. Weak culture
In firms that have weak corporate cultures, there are few or no com-
mon values and norms. Employees are often bound by policies and regula-
tions although these policies may make no sense from a customer-service
perceptive. As a result, employees become insecure about making deci-
sions outside the rules and regulations.
14
Because there are no established
values, employees do not know how company wants them to act, and they
spend time trying to figure out how to behave. When they do come up
with a solution, they must get their supervisors permission before apply-
ing it to the problem. Supervisors, in turn, may feel the need to pass the
responsibility upward. During the decision process the guest is kept wait-
ing minutes, hours, days, or even months to receive a reply. In a company
with a strong service culture, employees know what to do and they do it.
Customers receive a quick response to their questions and quick solutions
to their problems.
La Quinta Motor Inns brings employees from each of its 18 regions to
corporate headquarters for brainstorming sessions. The purpose of these
sessions is to (1) demonstrate appreciation for employees, and (2) empha-
size that all employees are empowered to do what is necessary to meet
guest expectations.
15
When a firm empowers employees, it moves the
authority and responsibility to make decisions from the supervisor to the
line employees.
A fast-food restaurant had a policy of not letting the public use its busi-
ness phone, although there were no public phones on the premises. One
evening a man who had been assaulted several blocks from the restaurant
asked if he could use the phone. The employees refused and turned the man
away. The policy manual said the guests were not to use the phone. Their
corporate culture had decision that went against the companys written poli-
cies. The press featured this as a great story about the insensitivity of a busi-
ness toward a member of the community. The restaurant received negative
publicity because of its employees action. It was fortunate to avoid a suit.
When you come into contact with an organization that has a strong
service culture, you recognize it right away. In the Marriott culture, there
14
A. Parasuraman, Customer-Oriented Corporate Cultures are Crucial to Service
Marketing Success, Journal of Services Marketing, no. 1, Summer 1987, pp. 33-40.
15
John J. Hogan, Turnover and What to Do about it, Cornell Hotel and Restau-
rant Administration Quarterly, 33, no. 1, February 1992, p. 41.
29 Internal Marketing
is an instinctive and automatic impulse to turn toward the customer in
making decisions about how to run the organization. Chairman J. Willard
Bill Marriott, Jr. is consistent in his preaching, teaching, and reminding
people about the customer and about service.
16
Four Seasons Hotels had
two hotels in Houston, the Four Seasons and the Inn on the Park. When
guest entered either of these hotels, they received a genuinely warm recep-
tion from the employees, who sincerely wanted to make their guests com-
fortable. There is a difference in the feeling a guest receives between an
employee who is required to memorize a greeting and recite it back to the
guests and an employee who has a genuine interest in guests and commu-
nicates this personally. The employees at the Four Seasons hotels were
genuine; they reaffirmed the guests decision to stay at the hotels.
2.3.3.2. Turning the organizational structure upsite down
The conventional organizational structure is a triangular structure. For
example, in a hotel the CEO (chief executive officer) and COO (chief oper-
ating officer) are at the peak of the triangle. The general manager is on the
next level, followed by department heads, supervisors, line employees, and
the customers (Figure. 2.3.).
The problem with a conventional organizational structure is that eve-
ryone is working for their boss. Employees want to do well in the organ-
ization. Thus line employees are concerned with what their supervisors
think of their performance, department heads are concerned with how he
general manager views them, and the general managers want the corpo-
rate office to think highly of them. The problem with this type of organi-
zation is that everyone is concerned with satisfying people above them in
the organization, and very little attention is paid to the customer.
17
When a company has a service culture, the organizational chart is turned
upside down. The customers are now at the top of the organization and cor-
porate management in at the bottom of the structure. In this type of organ-
ization, everyone is working to serve the customer. Corporate management
is helping their general managers to serve the customer, general managers
are supporting their departments in serving the customer, department heads
16
Karl Albrecht, At Americas Service, Homewood, III,: Dow Jones-Irwin, 1988,
p. 130.
17
Ibid, p. 107; Nathan Tyler, Service Excellence, Tape 2 (video tape), Boston, Mass,:
Harvard Business School Management Productions, 1987.
30 Liljana ELMAZI
are developing systems that will allow their supervisors to better serve the
customer, and supervisors are helping line employees serve the customer.
A bell person at a Ritz-Carlton hotel delivered baggage to a guest
about an hour after they had checked in due to an error. After he had
delivered the luggage, he told his supervisor. The supervisor apologized
to the guests and noted in the hotels computer that this guest had expe-
rienced a problem and should receive exceptional service during the rest
of his stay.
18
This seems like a rational way to handle the problem, but it
is really an extraordinary event. In a hotel with a conventional organiza-
tional structure, if any employee makes a mistake, they hope their supervi-
sor never finds out about it; they may even try to cover it up. They know
that if their supervisor does find out a mistake, they may be reprimanded.
The Ritz-Carlton has a service culture; they have turned the organizational
structure upside down. The bell person was concerned about the guest
and knew his supervisor would take action that would enable the hotel to
18
Leonard L. Berry, The Employee as Customer, Journal of Retail Banking, 3,
no.1, 1981, pp. 33-40.
Figure 2.3. Turning the organizational structure upside down
Focus of individual employee
Conventional
Organizational
Structure
Corporate
Management
General
Managers
Development
Heads
Supervisors
Line
Employees
Customers
Corporate
Management
General
Managers
Development
Heads
Supervisors
Line
Employees
Customers
Focus of individual team
Service-oriented
Organizational
Structure
31 Internal Marketing
recover from his mistake. The supervisor was not afraid to communicate
the departments mistake to other departments. When you turn the organ-
ization upside down, everyone works to serve the guest. When you have a
conventional organizational structure, everyone works to please the boss.
2.3.4. Development of a marketing approach
to human resource management
2.3.4.1. Creating jobs that attract good people
Managers must use the principles of marketing to attract and retain
employees. They must research and develop an understanding of their
employees needs; just they examine the needs of customers. Not all
employees are the same. Some employees seek money to supplement their
incomes; others are looking for work that will be their sole source of
incomes. Marketers can use marketing research techniques to segment the
employee market, choosing the best segments for the firm and developing
a marketing mix to attract those segments. For employees, the marketing
mix is the job, pay, benefits, location, transportation, parking, hours, and
intangible rewards, such as prestige and perceived advancement opportu-
nities. Just as customers look for different attributes when they purchase a
product, employees look for different benefits. Some may be attracted by
flexible working hours; others are attracted by good health insurance ben-
efits, while still others may be attracted by child-care facilities. Flexible
working hours or housekeeping positions, cafeteria-style benefit programs
in which employees design their own benefit package, and child care can
all be used to attract a certain type of employee. Adverting should be
developed with prospective employees in mind, building a positive image
of the firm for present and future employees and customers. Employees
choose employers and leave them the same way that guests select certain
hotels and then decide to switch. It is expensive to lose both guests and
employees.
19
Using a marketing approach to develop positions and com-
pany benefits helps to attract and maintain good employees.
The cost of employee turnover was estimated in the late 1980s to aver-
age $2100 for a hourly position. This means that turnover would cost over
$400,000 for a hotel with a 100% turnover and 200 employees. This cost
19
Leonard I. Berry, The Employee as Customer, Journal of Retail Banking, 3.
no. 1, 1981, pp. 33-40.
32 Liljana ELMAZI
is undoubtedly higher today
20
. A reduction in turnover can result in hun-
dreds of thousand of dollars in savings.
La Quinta Motor Inns examined the problem of burnout at management
levels and reduced this problem from 36% to 21% annually. The company
identified four principal factors as critical in helping to reduce the problem
21
.
1. Selection. La Quinta maintains strict standards and has a policy of
hiring couples. Prospective couples go though an extensive inter-
view process.
2. Orientation. Each selected couples must complete an intensive 13-week
training program plus on-the-job training as fill-in managers.
3. Stability. The management team (couples) cannot request a trans-
fer before completion of two years at a property. La Quinta dis-
covered that frequent transfer contributes to high turnover.
4. Training. La Quintas executive vice-president for development,
Anne Binns Bliss, stated: You have to select and keep people that
you want to be part of your team. La Quinta believes strongly in
ongoing training for employees.
The problem of burnout was studied in the restaurant industry, with
the following conclusions
22
.
More chain restaurant managers than hotel food and beverage man-
agers suffered from burnout.
Assistant managers were more prone than general managers.
General managers were more likely to suffer from depersonaliza-
tion than assistant managers.
Burnout was higher among singles than among married people.
Men were less likely to experience burnout than women.
Good communication on the part of general managers seems to
reduce burnout among assistant managers.
These conclusions seem to indicate that burnout is not consistent
among groups and different types of restaurants. Training programs and
employee motivational programs obviously must be customized to meet
the needs of different employee groups. Just as a single marketing strat-
egy is unlikely to attract all market segments, a single approach to deal-
ing with employees is equally likely to fail.
20
Hogan, Turnover, p. 40.
21
Ibid, p. 41.
22
Dennis Reynolds and Mary Tabacchi, Burnout in Full Service Chain Restaurant,
Cornell Hotel and Restaurant Administration Quarterly, 34, no. 2, April 1993, p. 68.
33 Internal Marketing
Students enrolled in college/university hospitality programs clearly
demonstrate that many factors in addition to salary and benefits are impor-
tant to them when selecting an employer. No monetary variables of inter-
est to hospitality students when selecting an employer are (by rank order)
as follows:
23
1. Change for promotion and growth
2. Work that keeps me interested
3. A chance for increasing responsibility
4. Good working conditions
5. Feeling in on things, being a part
6. Full appreciation of work done
7. Job security
8. Good training program
9. Personal loyalty to worker by company
10. Good salary
11. Nice people to work with
12. Good fringe benefits
13. Access to superior
14. Geographical location
15. Reasonable hours
16. Sympathetic help with personal problems
2.3.4.2. Staff hiring process
The main focus of any hospitality and travel organization wishing to
improve its service quality must be its employees (called internal market-
ing). It must develop a human resources management program that select,
orients, trains, motivates, rewards, retains, and empowers the best people
for the organizations unique culture, positioning, and style of operations.
An organization must also consistently require all employees to adhere to
policies regarding behavior and personal grooming.
All of a hospitality and travel organizations employees contribute to
the quality of its service. Therefore, if an organization wants to maintain or
improve its service quality, the place to start is when hiring new employees.
23
Ken W. McClearly and Pamela A. Weaver, The Job Offer: What Todays
Graduates Want, Cornell Hotel and Restaurant Administration Quarterly, 28, no. 3,
February 1988, p. 31.
34 Liljana ELMAZI
Successful service organizations recognize the need to employ people with
the following characteristics:
1. Strong interpersonal skills
2. Behavioral flexibility
3. Empathy
Another industry source says that top-notch service employees have
superior guest-contact skills, which are a blend of courtesy, communica-
tion, response to guest needs, good judgment, and teamwork. Although
new employees can be asked to fill out personality inventory forms, there
are newer techniques that offer even greater promise. With video- assisted
selection, applicants are asked to look at a problem-laden service situa-
tions and indicate how they would respond.
Whatever route they choose the successful service companies really
sweat the details in recruiting the best people. For example, it took The
Ritz-Carlton Hotel Company four years to develop its Targeted selection
process for hiring new employees. This involved developing personality
profiles for every position within the company, based partly on the traits
demonstrated by the best of Ritz-Carltons existing employees in each
position. Generally, these traits include politeness, a friendly personal-
ity and positive attitude, and a felling of belonging to the job and a work
environment. The development process produced many written, interview
guides used in selection interviews. Each person is interviewed by three
different level of management. At each new hotel property, less than one
in ten of the people interviewed are selected.
2.3.4.3. Teamwork
Employees who are not customer-oriented often try to pass the respon-
sibility for serving employees to others. They are not team players. In
companies that practice internal marketing, if one employee makes an
error, other employees try to cover it before the guest notices. In these
organizations, guests do not have to understand the hotels organization
and business to ensure that their needs are met. The front desk will handle
most requests, relaying the guests desire to the appropriate department. In
restaurants that have used internal marketing to create a service culture,
staff cover for each other. Employees who see that a guest needs some-
thing will serve the guest, even though it may not be their table.
35 Internal Marketing
Organizations that lack teamwork create an uncomfortable environ-
ment for the guest. For example, a guest called the front desk of Las
Hadas, a five-star resort in Mexico, and asked for extra towels. The front-
desk clerk answering the telephone acted puzzled. Surly a guest would
know to call housekeeping for towels. The operator states that this was
the front desk, not the housekeeping, told the guest to call housekeep-
ing, and hung up. Many restaurant guests have asked for a drink while
they are sitting at their tables looking over the dinner menu. The response
to some of these guests is that they have mistaken the food-service per-
son for a cocktail service person. Food service than tells the customer to
redirect their request to cocktail service and departs, leaving the guests
needs unfilled. In both of the incidents above, the first employee contacted
should have taken care of the customers request and passed it along to
the appropriate person. This is referred to as ownership of the problem.
In Ritz-Carlton, the first employee to receive a guest request or com-
plaint owns it. The employee is responsible for making sure that guests
receive what they need by following up with other departments involved
and then contacting the guest to make sure that everything was satisfac-
tory. Customers should not have to learn the hotel or restaurants organ-
izational chart. They should not have to redirect their request for service
to another employee. Hiring procedures need to identify these employees
who are team players.
Older employees were one group that surprised some managers by their
willingness to support other employees. Some managers believed that the
elderly might not be willing to cooperate with much younger workers or to
accept direction from a youthful supervisor. Kentucky Fried Chicken and
McDonalds were among the first hospitality firms to prove the invalidity
of these assumptions. A survey of National Restaurant Association mem-
bers demonstrated that older workers were regarded to have better rela-
tions with guests and fellow employees than the average employees.
24
Service-oriented behavior is innate in some people but must be sharpened
through good orientation and training programs. Disney has one of the most
highly regarded orientation and training programs for new employees. All
are required to attend a one-day Traditions session at Disney University. This
program conveys Disneys operating and guest-service philosophies. New
hires at Ritz-Carlton Hotels have a two-day orientation on the companys
24
Ibid, p. 58.
36 Liljana ELMAZI
philosophies and quality standards. So important is this orientation process
that at each new hotel opening the president and chief operating officer con-
duct these two-day sessions. Orientation program for newly hired employees
are a key step in an organization communicating its service quality culture.
2.3.4.4. Staff training
Training is the third cornerstone, after selection and orientation, for pre-
paring service-oriented employees. Most experts agree that several days or
weeks of supervised, on-the-job training is best. However, this does not
mean sink-or-swim training where new employees are thrown in at the deep
end and learn the job by themselves. At Ritz-Carlton Hotels, each employee
receives at least 120 hours of training on the companys quality standards.
While staying at a franchised Holiday Inn, a guest asked the desk
clerk about the management company. How many hotels did they man-
age? Where were they located? The employee was unable to answer either
question. On another occasion a conversation was overhead between a
guest and the dinning-room hostess of a Ramada Inn. The guest asked for
a recommendation concerning a good place to eat in the area. Managers
would hope that the hostess first would suggest the hotels restaurant and
than mention other restaurants in the area. Instead, the hostess said she
had just moved to the area and had not yet found a good place to eat. Too
often, employees know nothing about the hotel they work for or its prod-
ucts and other items of in interest to guests. If employees are not enthusi-
astic about the company they work for and the products they sell, it will
be difficult to create enthusiastic customers.
To be effective, employees must receive information regularly about
their company. The companys current businesses, and mission statement
and vision are important for employees to know. They must be encouraged
to feel proud of their new employer. Desire to contribute to the compa-
nys success must be instilled in them. At Disney all new employees take
a course called Traditions, in which they learn about the company, its
founder, and its values and beliefs. Employees then receive specific train-
ing for their particular assignments. Disney trains its ticket takers for four
days, because the company wants them to be more than ticket takers; they
want them to be cast members. The term cast members implies that they
are members of a team. Like other Disney cast members, they are putting
on a performance. While they work in the ticket booths, guests will ask
37 Internal Marketing
many questions. They must know the answers to these questions or be
able to find them quickly. Disney understands the importance of these
moments of truth. They provide their staff with extensive training before
the first moment of truth is faced.
25
Disney has become so well known for
its training and human resource management that it now conducts courses
for other companies.
Opryland Hotel has developed a training program for new employ-
ees that begins with an orientation designed to instill pride in the history,
culture, and stature of the hotel. The purpose of the orientation process
is to create an inspiring atmosphere and build a solid commitment that
helps reduce turnover. According to Marc Clark, the director of training
at Opryland, the new employee orientation program and all employee pol-
icies are built on a foundation of a sincere service attitude. If employees,
particularly managers are not serving guests directly, then they should be
serving those who are
26
.
The Homestead in Virginias Allegheny Mountain region is a resort
heavy with tradition. Guests feel the nearly 100 years of tradition through
the architecture and the customs such as gentlemanly sports and after-
noon tea, but principally through the employees. The vision of H.H. Ingalls
Jr, president, is to preserve what is wonderful about this place and to com-
municate and serve it effectively to guests. Ingalls credits the Homestead
employees for earning a five-star designation for the hotel. In praise he
stated: The support of our employees is like the support of a large fam-
ily. They deliver the kind of service people expect. This feeling of being
a member of a family is precisely the effect that successful companies like
Disney World, Opryland Hotel, and the Homestead have created and that
all members of the hospitality industry must strive to attain.
2.3.4.5. Continuous training
Two principal characteristics have been identified in companies that
lead their industry in customer service. They emphasize cross-training,
and they insist that everybody share certain training experiences. Delta
25
N. W. Pope, Mickey Mouse Marketing, American Banker, July 25, 1979, as in-
cluded in W. Earl Sasser Jr, Christopher W. L. Hart, and James L. Heskett, The Service
Management Course: Cases and Reading, New York: Free Press, 1991, pp. 649-654.
26
Mark Clark, Training for Tradition, Cornell Hotel and Restaurant Administra-
tion Quarterly, 31, no. 4, February 1991, p. 51.
38 Liljana ELMAZI
Airlines flight attendants must learn several back-office jobs before they
start their careers as attendants.
27
Most hotel training programs for grad-
uates rotate new employees through all departments in the hotel. This
gives the trainees an insight into importance of each department and how
work together to provide customer service. Jamess Coney Island, a fast-
food restaurant chain cross-trains its employees so that they understand all
the positions in the restaurant. Embassy Suites Hotels goes a step further,
providing employees an opportunity to increase their wages based on the
number of positions they have mastered.
Companies must make sure that their employees are familiar with all
the products the organization sells. For example, all restaurant employees
should be prepared to tell guests about the restaurants Sunday brunch,
even those who do not work on Sundays. A restaurant service person in
a hotel should be able to give directions to the hotels health club. Often,
employees do not have knowledge of products in their own areas because
they have never been given the opportunity to sample them. When a serv-
ice person does not know how an item tastes, it promotes the perception
that the employee or management does not care about the customer.
A front-desk clerk said that she felt uneasy when guests asked her
about the show in the hotels night club. The hotel had stressed the impor-
tance of promoting it favorably but did not give the front-desk employees
an opportunity to see the show. As a result the front-desk clerk would tell
the guest that it was a great show. Sometimes, the guest would start asking
specific questions about the show. When this happened, her answers usu-
ally reflected her lack of firsthand knowledge about the show and made
her feel foolish. It would have been wise for the hotel to provide an oppor-
tunity for front-desk employees to see the show. They could have enthusi-
astically promoted the show with firsthand knowledge instead of cringing
when someone asked about the show. They may even have promoted the
show on their own rather than waiting for a guest to ask about it.
In well-managed restaurants, employees know the menu. They are
trained to direct guests to the menu selections that will best suit their
taste and instructed in how to sell the choices on the menu. Every restau-
rant should have tasting where employees sample the products that they
are selling. Product training is a continuous learning process; it should be
part of every companys employee training.
27
Davidow and Utali, Total Customer Service, p. 128.
39 Internal Marketing
Product training sometimes must extend into the visual arts. The Grand
Hyatt of Hong Kong is a magnificent hotel with caring and well-trained
personnel. Yet even here there is room for additional training. The Grand
Hyatt is truly an art museum within a hotel, as the dcor features sculp-
ture, paintings, and other fine works of visual art. Unfortunately, none
of the employees seems to have sufficient knowledge of these expensive
and carefully selected art pieces to discuss them with inquiring guests. If
exquisite art is part of the product, it should be part of the training. Guests
will be impressed and employees will gain pride in the hotel.
This results in the circular effect of creating satisfied and proud employ-
ees who in turn create satisfied guests. The results of a study of this circular
effect clearly demonstrated that as employees job satisfaction, job involve-
ment, and jobs security improve, their customer focus also improves
28
.
Insurance executives checking out of the Sheraton Boca Raton locked
their keys in the car. The car was blocking traffic and the executives
had a plane to catch. The bellman telephoned the cars make and serial
number to a nearly locksmith, and the hotel staff tolled the car out of traf-
fic. Fifteen minutes after the bellmans call, the locksmith arrived with
replacement keys.
29
The employees were successful in handling the prob-
lem because they prepared for such an incident. They knew that a car
blocking the entrance could cause problems, so they stored a car jack
attached to a dolly nearby. The bell staff knew the phone numbers of
nearby locksmith. They also understood the importance of keeping guests
informed to relieve anxiety. Throughout this event, they kept the insurance
executives informed of what was going on. Leaving the Sheraton Boca
Raton could have been a disaster; instead it provided an exciting incident
that enabled the staff to show their professionalism and to convince the
guests further that they had indeed chosen the right hotel.
The Hyatt Sanctuary Cove in Australia has adjusted its training pro-
grams. Training is now conducted by each department instead of by a
trainer from the human resources department. Departments decide what
their training needs are and develop programs to fill those needs. The
hotel also allows any employee to attend any training session and posts all
28
John R. Dienhart and Mary B. Gregoire, Job Satisfaction, Job Involvement,
Job Security and Customer Focus of Quick Service Restaurant Employees, Hospitality
Research Journal, 16, no. 2, 1993, p. 41.
29
Christopher W. L. Hart, James L. Heskett, and W. Earl Sasser, Jr., Service Break-
throughs, New York: Free Press, 1990, p. 109.
40 Liljana ELMAZI
training sessions on the employee bulletin board so that every employee
can review the hotels training program for the coming month. During a
visit to the Hyatt, an accounting department employee was observed train-
ing a food-service waiter on the hotels computerized food and beverage
accounting system. It became obvious from their conversations that each
was learning about the others department and how the departments could
better support each other.
The development of a good training program can start organizations
on an upward spiral. A research study found that service quality is related
inversely to staff turnover. Properly trained employees can deliver qual-
ity service, which helps the image of the firm, attracting more guests and
employees to the organization. Some firms ask why they should spend
money training employees if they are just going to leave. This can turn into
a self-fulfilling prophecy for firms that have this attitude. The employees
are not properly trained and thus not capable of delivering quality serv-
ice. Not being able to deliver good service, they will feel uncomfortable
in their jobs and quit. Unfortunately, this reinforces employers beliefs that
they should not spend money training their employees. But not investing
in employee training programs leads to a cycle of high employee turno-
ver and guest dissatisfaction.
Hospitality companies with a strong commitment to employee training
are well advised to make this philosophy well known to all employees in
action and in word. The Centennial Hotel Management Company of Canada
has a written statement of human resources philosophy that includes orien-
tation and training. This statement is an excellent internal marketing tool
30
.
Orientation
The purpose of Centennial Hotel orientation is to assure the new
employee that he or she made the right decision and to build a strong
sense of belonging to the company, the team, and the industry.
Orientation assures the employees that the company provides the
support that they require to be successful. It is also a time to share
the values of Centennial Hotel and to introduce the facilities of
the hotel.
Training
Centennial Hotel is committed to providing consistent basic training
throughout the company, as well as continuous upgrading. Training
30
Michael K. Haywood, Effective Training Toward a Strategic Approach, Cornell
Hotel and Restaurant Administration Quarterly, 33, no. 6, December 1992, p. 46.
41 Internal Marketing
is for everyone and must be planned, systematic, and comprehen-
sive. The success of training must be measurable.
2.3.5. Staff behavior, appearance, and uniforms
Can you think of one feature that stands out about the employees of
our industrys leaders, such as Disney and McDonalds? You are correct
if you mentioned employees, attitudes, behavior, appearance, or uniforms.
These and other corporations stay on stop of the group because of the time
and efforts they invest in their people. Disney even has a concept known
as the Disney look, which is written up in a special brochure for all new
employees to study. The following quote from the brochure highlights the
importance of Disneys people to its theme parks.
The Disney look is a tremendously important part of the overall show
at Disneyland Park and the Walt Disney World Resort. The combination of
our Cast Members themed customers and appearance has brought com-
pliments and recognition from people the world over.
The following are two other quotes from the late founders of these indus-
try giants. Each sums up their philosophies on the importance of people.
My way of fighting the competition is the positive approach. Stress
your strengths, emphasize quality, service, cleanliness and value (Q.S.C.
and V), and the competition will wear itself out trying up with you. (the
late Ray Kroc of McDonalds)
You can dream, create, design and build the most wonderful place
in the world .but it takes people to make the dream a reality. (the late
Walt Disney).
There is no place in such companies for soiled uniforms, outlandish
hairstyling, or ad lib dressing. There are dress codes, rules of conduct, and
sometimes even a unique language that everyone knows and uses. Such
companies recognize that their people can greatly enhance the customers
image of the company.
What about managers and people who work behind the scenes? Are
dishwashers, cooks, mechanics, cleaners, accountants, and other back-of
-the-house personnel not part of the product because they are not visible to
customers? The answer is that managers and non-front-line staff are def-
initely part of the service-quality team. Front-line, customer-contact staff
rely heavily on these people. Effective managers do not spend the major-
ity of their time sequestered in their offices. They recognize the need to
42 Liljana ELMAZI
be part of the service-quality team-meeting, greeting, and making sure that
customers get what they expect and want.
Many marketing plans make no reference to staff and management
programs but concentrate entirely on promotional, pricing, and distribu-
tion activities. A take-it-for-granted attitude seems to prevail about flow
employees will perform. This is a serious mistake because it ignores the
powerful positive (or negative) impacts that people have on an organiza-
tions sales and profits. At a minimum, the marketing plan should spec-
ify the following:
1. Staff uniform improvements and changes
2. Employee and management recognition and award program
3. Employee and management incentive and reward programs
4. Sales and guest relations training programs
5. Orientation program on marketing plan objectives and activities
6. Communication mechanisms on marketing progress and results
All hospitality and travel organizations have to be concerned about the
quality of their people. This is a particularly difficult challenge because
destination marketing organizations (DMOs) employ only limited num-
bers of people themselves but rely on quality service from the employees
of many other organizations in their destinations (e.g., hotels and resorts,
restaurants, attractions, etc.). Several DMOs have developed hospitality
and service training programs for their members and other local organi-
zations. Others, such as the San Francisco Convention & Visitors Bureau,
believe that it is necessary to recognize the many employees who make
tourism work for visitors to their communities.
From dishwasher to auditor, people seeking jobs at Guest Quarters
hotels must complete four interviews, including one with the hotels gen-
eral manager. Were not hiring, says Robert T. Foley, Guest Quarters
senior vice-president for human resources. Were entering into a 50:50
relationship with them. We will pay fairly and give them a good benefit
plan. Their commitment to us is that they be customer-oriented.
31
Disney World allows its best employees, its star cast members to
pick future employees. Disney gives cast members who will be used in
the selection process three weeks of training. They are then turned loose
in a 45-minute interview session to select potential new employees. James
Poisant, a former manager at Disney World, explains that employees choose
31
William H. Davidow and B. Uttal, Total Customer Service, New York: Harper
& Row, 1989, p. 123.
43 Internal Marketing
employees who mirror their own values. In 45 minutes the cast members
pick up on whos fooling and whos genuine.
32
Days Inns initiated a program to hire greater numbers of older work-
ers for its reservation center in Atlanta. Older workers designed and dis-
tributed flyers and worked at a job fair where they registered participants,
conducted tours, answered questions about their jobs, and acted as enthu-
siastic recruiters for Days Inns.
33
An effective internal marketing program demands close cooperation
between marketing and human resource management. Hiring and train-
ing traditionally the responsibility of human resource management are
key areas in any internal marketing program. A marketing like approach
to human resource management starts with hiring the right employees.
Selection methods that identify customer-oriented candidates are used as
part of the hiring process.
2.3.5.1. Employee involvement in uniform selection
The selection of uniforms is often left to designers and managers
with little input from the service worker. Uniforms are important because
employee dress contributes greatly to the guests encounter with customer
contact employees. Uniforms also became part of the atmospherics of a
hospitality operation or travel operation; they have the ability to create
aesthetic, stylish, and colorful public, impressions of the property.
34
They
distinguish employees from the general public, making employees acces-
sible and easily identified. In cases where uniforms are lacking, guests
may become frustrated because they have difficulty identifying employees
when they need help. Uniforms have the ability to create attitudes about
an employees job. Employees dressing in formal wear state that they feel
and behave differently once they put on their uniform. This anecdotal evi-
dence has been supported by research. Clothing has been found to be a
contributing factor in role playing, acting as a vivid cue that can encour-
age employees to engage in the behaviors associated with the role of the
32
Tschohl, Achieving Excellence, p. 133.
33
Frederick J. Micco and Robert D. Reid, Older Worker: A Hiring Resource for
the Hospitality Industry, Cornell Hotel and Restaurant Administration Quarterly, 29,
no. 1, May 1988, p. 56.
34
M. R. Solomon, Dress for Effect, Psychology Today, no. 20, 1986, pp. 20-28.
44 Liljana ELMAZI
employee.35 Putting on the costume can mean putting on a role and shed-
ding other roles. Employees dress can direct employees behavior to be
more consistent with the goals and standards of behavior established by the
organization. A recent study of resort employees found a significant rela-
tionship between employees perceptions of their uniforms and their overall
job attitude. The higher the employees perception of the uniform, the more
positive was their rating of their overall attitude toward their job.
36
Uniforms should be functional and accepted by the employees. Man-
agement often looks for the uniforms that represent the property, acting as a
marketing toolenhancing the image of the organization. It is paramount to
allow employees to be involved in uniform choices regarding both function
and projected image. For example, food servers at a pirate-themed restau-
rant complained about the loose-fitting sleeves on their shirts and blouses.
The uniforms looked great until the serves began working. The sleeves
dragged across plates when they were being cleared or when trays were
being unloaded at the dishwasher. In a few hours the selves were stained
with food. The employees stated that this made them embarrassed when they
approached a guest and became less outgoing in their dealings with guests.
Other problems with functionally include uniforms that are designed with-
out pocket and uniforms that are uncomfortable. The selection of uniforms
can have an impact on both the employee attitude and their ability to serve
the customer well. Managers need to consider the employee and involve
employees that will be wearing the uniform in their uniform decisions.
2.3.5.2. Managing emotional labor
(courtesy and friendliness of staff)
Employee turnover of 100% or more are common in the hospitality
industry. Organization with high turnover rates cannot develop a service
culture. In companies with high turnover, managers tend to put very little
effort into hiring, basing their decisions on whether the job candidate will
work for a small wage and can fill schedule vacancies.
If you want friendly, courteous service, you must hire friendly, cour-
teous people. Hospitality firms that deliver good service seem to follow
35
A. Rafaeli and M. G. Pratt, Tailored Meanings: On the Meaning and Impact of
Organizational Dress, Academy of Management Review, 18, no. 1, 1993, pp. 32-55.
36
Kathy Nelson, Mandatory Uniforms: Employees Are What They Wear, Thesis,
University of Nevada-Las Vegas, July 1996.
45 Internal Marketing
this advice. These firms understand that it is difficult to train people to
be friendly. It is possible to provide employees with the technical skills
needed for the job, but difficult to train them to be friendly and caring.
Swissair carefully screens its applicants, selects candidates for per-
sonal interviews, and puts them through a five-to six hour selection proc-
ess. The airline then puts successful applicants on probation for a three
month period. They invest a great deal in each candidate because they
realize that it is better to spend money choosing the right employee than
trying to repair mistakes caused by poor employees. Swissair understands
the importance of hiring the right employees.
37
In the hospitality industry, managers require employees to display
friend liness and courtesy toward guests. According to Zeithaml and Bitner,
two services marketing experts, friendliness courtesy, empathy, and respon-
siveness directed toward customers all require huge amounts of emo-
tional labor from front-line employees who shoulder this responsibility.
38
The term emotional labor was first used by Hochschild and has been
defined as the necessary involvement of the service providers emotions
in the delivery of the service.
39
The display of the emotions can strongly
influence the customers perception of service quality. To manage emo-
tional labor, managers must hire employees who can cope with the stress
caused by dealing with customers. Then emotional labor must be man-
aged on a day-to-day basis. Some common techniques used to manage
emotional labor include monitoring overtime and avoiding double shifts,
work breaks, and support from fellow workers and managers. Managers
are sometimes the cause of emotional stress: chewing an employee out
before a shift, then sending the employee out the work with customers.
One of the biggest causes of emotional stress is long hours. Employees
often find it hard to manage their emotions after working for 10 hours straight.
At this point the employees are tired and often care little about the customer.
We have all been in that position or observed service providers who were
rude or uncaring after working a long shift. The cause of such behavior is
that the employee is emotionally drained. Bernard Booms likes to tell the
37
Milliand Lele, The Customer Is Key, New York: Wiley, 1987, p. 252.
38
Valarie A. Zeithaml and Mary Jo Bitner, Services Marketing, New York: McGraw-
Hill, 1996.
39
A. R. Hochschild, The Managed Heart, Berkley, Calif.: University of California
Press, 1983; definition from Gunther Berghofer, Emotional Labor, working paper Bond
University, Robina, Queensland, Australia, 1993.
46 Liljana ELMAZI
story of the stewardess who was having a particularly hard flight when a
customer complained about the food. The customer shouted that his baked
potato was bad. The stewardess picked up the potato, slapped it a couple of
times, yelling bad potato, bad potato, but the potato back on the customers
tray, and walked away. Although this is a humorous story, the customer was
not amused. When employees are overworked emotionally, service suffers.
2.3.5.3. Internal marketing communication to employees
Motivating and Retaining Staff
Keeping highly motivated, service-oriented employees is the next
major challenge. Many techniques seem to work for several companies.
1. Maintaining regular communications with employees. For
example, most major firms have an internal newsletter.
2. Complimenting or rewarding employees frequently. Employees
should be made to feel important. Most companies have employee-
of-the-month awards.
3. Setting clear objective and performance standards for employees.
4. Making sure that there are advancement opportunities. Many
successful companies have strong promotion-from-within policies
and clear, mapped-out career paths.
5. Using management and supervisory staff who are honest, open,
and willing to listen to employees.
6. Giving service employees an accurate description of what the
typical customer expects from the services that the organiza-
tion provides.
Many experts believe that organizations need to treat their employees
as internal customers with guests being the external customers.
Often, the most effective way of communicating with customers is through
customer-contact employees. They can suggest additional products, such as
the hotels health club or business center, and they can up sell when it is to
the guests benefit. Employees often have opportunities to solve guest prob-
lems before these problems become irritants. To do this, they need informa-
tion. Unfortunately, many companies leave customer-contact employees out
supervisors about upcoming events, ad campaigns, and new promotions, but
some managers may feel employees do not feel to know this information.
Beth Lorenzini of Restaurants and Institutions states: Promotions
designed to generate excitement and sales can do just the opposite if
47 Internal Marketing
employees arent involved in planning and execution. Monica Kass, sales
and marketing coordinator for Lawrys the Prime Rib, Chicago, says that
employees and marketing people who develop promotions must com-
municate. Lawrys increased its Thanksgiving day sales by 48% through
employee involvement. Lawrys invited all the wait staff to a Thanksgiving
dinner a week before Thanksgiving. This was the same meal that it was
serving to guests on Thanksgiving day. The dinner not only served as a
festive affair to get every body into the Thanksgiving holiday mood, but
also served training tool. Employees knew exactly what was going on to
be served on Thanksgiving day, including wines that went well with the
meal. The management of Lawrys also asked the staff for their input as
to how to make the promotion run smoothly. On Thanksgiving day, each
wait person was given a corsage, or a boutonniere. Like the employees at
Lawrys, all staff should be informed about promotions. They should hear
about promotions and new products from management, not from advise-
ments meant for external customers
40
.
The actions of management are one way that an organization com-
municates with its employees. Management at all levels must understand
that employees are watching them for cues about expected behavior. If the
general manager picks a piece of paper up off the floor, other employees
will start doing the same. A manager who talks about the importance of
employees working together as a team can reinforce the desire for team-
work through personal actions. Taking an interest in employees work,
leading a hand, knowing employees by name, and eating in the employee
cafeteria are actions that will give credibility to the managers words.
Hospitality organizations should use printed publications as part of their
internal communication. Most multiunit companies have an employee news-
letter, and larger hotels usually have their own in-house newsletters. Besides
mass communication, personal communication is important to the effective
communication of the new products and promotional campaigns. Leonard
Berry suggests having two annual reports, one for stockholders and one for
employees. His suggestion is now being implemented by many firms
41
.
McDonalds initiated a talking annual report on videotape complete
with commercials. This unusual and creative approach to presenting the
required annual report proved to be an excellent means for reaching stock-
40
Beth Lorenzini, Promotion Process Depends on Employees Enthusiasm,
Restaurant and Institutions, February 12, 1992, pp. 59+.
41
Berry, Employee as Customer, pp. 33-40.
48 Liljana ELMAZI
holders and employees. When introduced, it also produced a wealth of free
publicity in major news media.
Ongoing communication between management and employees is
essentialnot just group meetings but regular individual meetings between
the employee and management. Every customer-contact employee com-
municates with hundreds of customers. Managers should meet with these
employees to gain customer need insights and determine how the com-
pany can make it easier for the employee to serve the customer.
Ansett Airlines in Australia provides an example of what can happens
when employees are not informed of changes in the companys marketing
plans. A traveler called Ansett to ask the airline about a promotion that they
had just read about in a newspaper advertisement. The airline representative
did not know anything about the promotion and asked the caller how he found
out about the promotion. When the caller stated that he had read it in todays
newspaper, the airline representative explained that that was why she had not
heard about it. She said it would be several days before she would get a copy of
the details of the promotion. Hospitability organizations often spend time and
effort developing campaigns for specific markets, which are effective in entic-
ing customers. But if customers must deal with employees who are uninformed
and cannot provide them with information, they walk away dissatisfied.
Front-desk clerks are the communication center of the hotel yet they
frequently do not know the names of entertainers or the type of entertain-
ment featured in the hotels lounges. They may also be unaware of special
marketing promotions. The roof-top lounge of the Westin Oaks Hotel in
Houston was known for having good entertainment. When the hotel was
called to find out who was playing in the lounge, the front-desk clerk gave
the name of an unfamiliar group. When asked what type of music they
played, the clerk had no idea.
Hotels can use technology and training to provide employees with
products knowledge. Technology can be used to develop a database.
Information can be readily accessible to employees, who should then be
trained in the hotels products and services. Finally, employees can be
encouraged to try the companys products. They can eat in the restaurants.
Stay overnight in the hotel, and receive special previews of lounge enter-
tainment. It is much more convincing if the front-desk employee can give
a potential guest firsthand information rather than reading a description.
Employees should receive information on new products and product
changes, marketing campaigns, and changes in the service delivery process.
49 Internal Marketing
All action steps in the marketing plan should include internal marketing.
For example, when a company introduces a new mass media campaign,
the implementation plan should include actions to inform employees about
the campaign. The first time that most employees see company advertise-
ments is in the media in which the advertisement is placed. Before the
advertisements appear in the media, the company should share the ad with
its employees. Managers should also explain the objective of the campaign
and the implications.
One of the authors once worked in a restaurant whose owner decided
to install a computer system without discussion with the staff. The sys-
tem was first used during a busy lunch period and the restaurant had
given the staff almost no prior training. The system did not perform well
and the staff grew determined to get rid of it. They found that system
was sensitive to grease spots on the check. If a service person got butter
on a check, the guest would be charged for all sorts extra items. Some
staff would deliberately put grease spots on their checks to develop false
changes for the customer. When the customer complained about the bill,
the server would explain to the guest the problems that they were having
with the new system. Customers quickly sided with the service person-
nel, and within three months the owner was forced to eliminate the new
system. If management has consulted employees before installation, the
employees might have supported the computer. Management could have
shown the employees how the system would help them better serve the
guest by adding their tickets automatically and keeping them current. This
would have created employee support. Instead, without the proper infor-
mation and training, employees were determined from the beginning to
get rid of the computer.
2.3.5.4. Reward system
Employees must know how they are doing to perform effectively.
Communication must be designed to give them feedback on their per-
formance. An internal marketing program includes service standards and
methods of measuring how well the organization is meeting these stand-
ards. The results of any service measurement should be communicated to
employees. Sheraton, Marriott, and other major hotel companies survey
their guests to determine their satisfaction level with individual attributes
of the hotel. One researcher found that simply communicating information
50 Liljana ELMAZI
collected from customers changed employee attitudes and performance
42
.
Customer-service measurements have a positive effect on employee atti-
tudes. If results are communicated and recognition is given to those who
serve the customer well. If you want customer-oriented employees, seek
out ways to catch them serving the customer and reward and recognize
them for making the effort
43
.
Most reward systems in the hospitality and travel industry are based
on meeting cost objectives such as achieving a certain labor cost or food
cost. They are also based on achieving sales objectives. A few companies
are now starting to give rewards based on customer satisfaction, but these
companies are the exception, not the rule. If companies want to have cus-
tomer-oriented employees, they must reward them for servicing the cus-
tomer. Reward systems and bonuses based on customer satisfaction scores
are one method of rewarding employees based on serving the customer.
How much is dissatisfied guest worth to a hospitality and travel organ-
ization? Too much is probably the best answer to this difficult question.
Dissatisfied customers are customers who usually do not return and who
share their negative experiences, through word of mouth, with acquaint-
ances. Therefore, covering potentially dissatisfied guests into satisfied guests
is a major challenge for hospitality and travel organizations. Empower tools
available to a service organization. Empowerment means giving employ-
ees the authority to identify and solve guest problems to complaints on the
spot, and to make improvements in work processes when necessary. How
many times have you heard the words Im sorry, thats not may job, Im
sorry, its company policy, or Im sorry, thats the way we always do it
from employees of service organizations? You will not hear these excuses
in a service business that effectively empowers its employees.
2.3.5.5. Empowering staff to deliver guest satisfaction
Empowering employees means decentralizing decision-making and
flattening organization charts by giving more power to the front-line
employees who directly serve guests. Empowerment means that manag-
ers must have greater levels of trust in their subordinates and must respect
their judgment. Ritz-Carlton authorizes its employees to spent up to $2,000
42
Albrecht and Zemke, Service America! p. 142.
43
Chip R. Bell and R. Zemke, Managing Knock Your Socks Off Service, New York:
American Management Association, 1992, p. 169.
51 Internal Marketing
to please a dissatisfied guest. Since employees are given more power to
satisfy customers, they should be asked to take ownership of guest prob-
lems or complaints. This means that if a guest tells an employee about
a problem that he or she has experienced, then that employee owns the
problem and must take action to correct it to the customers satisfaction,
even if the problem occurred in another department or division within the
employees organization.
2.3.6. Handling non-routine transactions
A good internal marketing program should result in employees who can
handle no routine transactions, such as Barry Urquharts request for a cap-
puccino. Training programs and manuals can prepare to handle normal or
routine transactions with customers. Internal marketing programs will help
them deal with guests in a positive and friendly manner. But not all trans-
actions are routine. In this chapter we discussed Barry Urquharts request
for a cappuccino, Karl Albrechts request for a late checkout when the hotel
was full, and the hotel guest who locked his keys in his car. One benefit of
an internal marketing program is that it provides employees with no routine
transactions. The ability to handle no routine transactions separates excel-
lent hospitality companies from mediocre ones. A no routine transaction
is a guest transaction that is unique and usually experienced for the first
time by the employees. The number of possible no routine transactions is
so great that they cannot be covered in a training manual.
Management must be willing to give the employees the authority to
make decisions that will solve guests problems. Management should
exhibit confidence in their ability to hire and train employees by trust-
ing the employees sorts, a 25-location chain headquartered in Toronto
believes that having staff do nothing but control other staff reflects poorly
on the organization. He states that the job of an assistant housekeeper is to
go around and check that the maids are doing their job. Having that posi-
tion is an admission that we cant hire the right people. Cooper says that
Delta has successfully eliminated that position. They have a few assistant
housekeepers, who are now in training positions. When their housekeepers
finish a room, they know that the next person in it will be a guest. Cooper
states that the degree of trust makes them far better workers
44
. When we
44
Carla B. Furlong, Marketing for Keeps, New York: Wiley, 1993, pp. 79-80.
52 Liljana ELMAZI
trust employees, they solve guest problems more effectively and create
fewer causes for the guest to complain.
Hospitality companies that rely on rigid policies and procedures rather
than motivated, well-trained, and empowered employees have little hope
of achieving maximum guest satisfaction. This sentiment was expressed
very well by Robert C. Lewis:
The success of the internal-marketing concept ultimately lies with
management. Lower-level employees cannot be expected to be customer-
conscious if the management above them does not display the same
focus. Operations-oriented managers who concern themselves primarily
with policies and procedures, often instituted without regard to the cus-
tomer, undermine the firms internal-marketing effort, reducing employ-
ees jobs to mechanical functions that offer little in the way of challenge,
self-esteem, or personal gratification. Moreover, by requiring employees
to adhere rigidly to specific procedures, the operations-oriented manager
ties their hands and restricts their ability to satisfy the customer
45
.
The issue of no routine transactions will become increasingly impor-
tant in the future. Hospitality firms are now using technology to serve
routine customer transactions. This use of technology will become even
more pervasive. Computerized check-in, video checkout, and robotics will
be adapted to the hospitality industry, so employees will find themselves
dealing more frequently with no routine tasks. Self-confident guests will
take advantages of technology designed to enhance and hasten guest serv-
ice. The uncertain guest to guests with problems will wish to deal with
an employee. As the workplace becomes more automated, employees will
take a greater role in answering questions and solving guests problems.
They must also be prepared to handle no routine transactions.
As Parasuraman says: Customer service earned through several sat-
isfactorily performed routine transactions can be badly damaged by just
one botched attempt at processing a no routine transaction. No amount
of written procedures, guidelines, or specifications can prevent the occur-
rence of such botched attempts; only true organizational dedication to cus-
tomer satisfaction can.
46
A strong service culture enables employees to
make decisions required to handle no routine transactions.
45
Robert C. Lewis, Hospitality Marketing: The Internal Approach, Cornell Hotel
and Restaurant Administration Quarterly, 30, no. 3, November 1989, p. 43.
46
A. Parasuraman, Customer-Oriented Corporate Cultures Are Crucial to Services
Marketing Success, Journal of Services Marketing, 1, no. 1, Summer 1987, pp. 33-40.
53 Internal Marketing
Case study:
Walt Disney Enterprises: A Highly Responsive Organization
Service companies, hotels, hospitals, colleges, banks, and others are
increasingly recognizing that their marketing mix consists of five Ps:
product, price, place, promotion, and people. And people may be the most
important P! The organizations employees are in constant contact with
customers and can create good or bad impressions.
Organizations are eager to learn how to turn on their inside peo-
ple (employees) to serve their outside people (customers). Here is what
the Disney organization does to market positive customer attitudes to its
employees:
1. The personnel staff at Disney extends a special welcome to new
applicants. Those who are hired are given written instructions on
what to expect, where to report, what to wear, and how long each
training phase will be.
2. On the first day, new employees report Disney University for an
all-day orientation session. They sit four to a table, receive name
tags, and enjoy coffee, juice, and pastry while they introduce them-
selves and get acquainted. The result is that each new employee
immediately knows three other people and feels part of a group.
3. The employees are introduced to the Disney philosophy and oper-
ations through the latest audiovisual presentations. They learn that
they are in the entertainment business. They are cast members
whose job it is to be enthusiastic, knowledgeable, and professional
in serving Disneys guests. Each division is described, and the
new employees learn how they will each play a role in producing
the show. Then they are treated to lunch, tour the park, and are
shown the recreational area set aside for the employees exclusive
use. That area consists of a lake, recreation ball, picnic area, boat-
ing and fishing facilities, and a large library.
4. The next day, the new employees report to their assigned jobs,
such as security hosts (police), transportation hosts (drivers), cus-
todial hosts (street cleaners), or food-and-beverage hosts (restau-
rant workers). They will receive a few days of additional training
before they go on stage. When they have learned their function,
they receive their theme costumes and are ready to perform.
Frederick F. Reichheld and W. Earl Sassier Jr., Zero Defections: Quality Comes to
Services, Harvard Business Review, Vol 67, September-October 1990, pp. 105-111.
54 Liljana ELMAZI
5. The new employees receive additional training on how to answer
questions guests frequently ask about the park. When they dont
have the answer, they can dial switch board operators who are
armed with thick book and stand ready to answer any question.
6. The employees receive a Disney newspaper called Eyes and Ears,
which features news of activities, employment opportunities, spe-
cial benefits, educational offerings, and so on. Each issue contains
a generous number of pictures of smiling employees.
7. Each Disney manager spends a week each year in cross-utiliza-
tion, that is, giving up the desk and heading for the front line,
such as taking tickets, selling popcorn, or loading or unloading
rides. In this way, management stays in touch with running the
park and maintaining quality service to safety the millions of vis-
itors. All managers and employees wear name badges and address
each other on a first-name basic, regardless or rank.
8. All exiting employees answer a questionnaire on how they felt about
the working for Disney and any dissatisfaction they might have. In
this way, Disneys management can measure its success in produc-
ing employee satisfaction and, ultimately, customer satisfaction.
No wonder the Disney people are so successful in satisfying their
guests. Managements attention to its employees helps the latter feel
important and personally responsible for the show. The employees sense
of owing this organization spills over to the millions of visitors with
whom they come in contact.
Chapter conclusions:
The interaction of customers (guests) and employees (hosts) has a
great influence on marketing success. In particular, the quality of serv-
ice provided plays the pivotal role in the success of a hospitality and
travel organization. Organizations that devote above average attention to
their employees usually prosper the most. Successful organizations train
their employees to do things right the first time and empower employees
to resolve customer problems and complaints. Service quality must con-
stantly be measured by a hospitality and travel organization, and a variety
of techniques can be used to accomplish this.
All hospitality and travel organizations should apply the relationship market-
ing concept. This means building long-term customer loyalty among individual
customers through customized programs that make guests feel extra-special.
55 Internal Marketing
An organizations customer mix may affect both its image and the
service quality that individual customers experience. Efforts are needed
to manage the customer mix, not only for profitability reasons, but also
to maintain guest satisfaction.
Review questions:
1. Why are employees called internal customers?
2. What is a service culture? Why is it a requirement for an internal
marketing program?
3. Discuss the possible ways that marketing techniques can be used
by human resource managers.
4. What are the benefits of explaining advertising campaigns to employ-
ees before they appear in the media?
5. The handling of no routine transactions will separate excellent hos-
pitality companies from mediocre ones. Discuss this statement.
6. Who are the two major groups of people involved in hospitality
and travel marketing, and what are the most important interactions
between these two groups?
7. How important are a hospitality and travel organizations staff
members to its marketing success and effectiveness?
8. What is the total quality management (TQM) concept and what are
its key principles?
9. Which provide more consistent and higher quality service to customers?
10. What is empowerment and how does it contribute to increasing
service quality?
Chapter assignments:
1. You have been hired by a hotel, restaurant, travel agency, airline,
or other hospitality and travel organization with a reputation for
below-average service. Your task is to significantly upgrade the
service orientation and service quality of supervisors and other staff
members. What steps would you follow in satisfying this objec-
tive? Draw on examples of successful companies in the industry.
Try to come up with two or more creative ideas of your town.
2. You have been asked by your boss to develop a program for measur-
ing service quality in your organization. What technique or techniques
would you recommend be used for this measurement? Write a report to
your boss explaining your plan and how it should be implemented.
56 Liljana ELMAZI
3. Choose a specific hospitality and travel organization and describe
how you would develop a relationship marketing program for it.
How would you attract and recognize repeat customers? What spe-
cial options or services would you offer repeat customers? What
type of database would be developed and how would it be main-
tained? How would you communicate with past guests?
4. Describe the importance of the customer mix concept to a particular
hospitality and travel organization. Explain how the types of cus-
tomers it attracts its image, and how customers service experiences
are either enhanced or made less satisfactory. Make constructive
suggestions to the organizations management on how they could
manage their customer mix more effectively.
References:
1. 1992 Award winner. The Ritz-Carlton Hotel Company.
2. Application summary. Malcolm Baldrige National Quality Award.
1993. The Ritz-Carlton Hotel Company.
3. Henderson, Cheri., Putting on the Ritz. The TQM Magazine
(November/December 1992): 292-296.
4. Partlaw, Charles G., How Ritz-Carlton applies TQM, Cornell Hotel
and Restaurant Administration Quarterly 34 (4): 16-24. (1993).
5. The Ritz-Carlton Hotel Company Web site: http://www.ritzcarlton.
com/html_corp/about-us/fact sheet.asp
6. United Airlines. 1994, Cultivating quality: The Ritz-Carlton.
Hemispheres (January 1994).
7. Watkins, Edward, How Ritz-Carlton won the Baldrige Award.
Lodging Hospitality 48 (11): 22-24 (1992).
Disney: http://www.disney.go.com/
Emirates: http://www.emirates.com/
Four Seasons Hotels and Resorts: http://www.fourseasons.com/
Hampton Inn: http://www.hamptoninn.com/
Lufthansa: http://www.lufthansa-usa.com/
National Institute for Quality Standards: http://www.quality.nist.gov/
The Ritz-Carlton Hotel Company: http://www.ritzcarlton.com
San Francisco Convention and Visitors Bureau: http://www.sfvisitor.org/
ScotRail Railways Limited: http://www.scotrail.co.uk/
Singapore Airlines: http://www.singaporeair.com/
Southwest Airlines: http://www.southwest.com/
57 Segmentation of the Tourist Market
Segmentation of
the Tourist Market
Vania Kuzdova BANABAKOVA
This chapter explores the significance and specialties of the tourist mar-
ket segmentation. The main criteria for segmentation and the most impor-
tant tourist market segments are examined, as well as the specialties of the
segmentation of the international tourist markets. Furthermore this study
looks at the development of Bulgarian tourism, researches its problems
and gives suggestions for improvement. Tourism has been one of the fast-
est developing branches in Bulgaria during the past years. Notwithstanding
this research identifies the existence of many problems. The problems are
predominantly connected with bad marketing and insufficient advertising
national politics. The improvement of the tourist product and tourist serv-
ices can be achieved by segmentation of the tourist market, choice of suit-
able market segment and taking good positions on the tourist market.
The tourist industry combines a wide range of activities, related to
the process of making and realization of the tourist product. The complex
character of the tourist needs demands flexibility and respective variations
of the tourist services and products content with a view of achieving cli-
ents satisfaction. Needs in tourism are orientated mainly to immaterial
goods, which also defines the remarkable characteristics of the offered
tourist product from the point of view of the marketing
1
.
In the first place tourism shall be examined as a branch of the servicing
sphere. In this meaning the tourist servicing fulfils a multilateral function
to create a consumer value by means of producing goods to accomplish
their realization and generating conditions for their consumption.
In the second place the immaterial character of the tourist product
defines its entrench in space and time, which also confirms the opposite
1
Neshkov, M., Technology and Organization of the Tourist Activities, New Bulga rian
University, Sofia, 1996, pp. 7-8.
3
58 Vania Kuzdova BANABAKOVA
direction of movement in the system product-consumer. The consumer
is being removed in space to reach the product and perform consumption
thereto, which is the opposite of the material production where the goods
are moving. As a result, the role of the passenger transport has been rein-
forced as critical to the tourist activity.
In the third place attention shall be paid to the integral, undivided character
of the tourist product. This characteristic sets the complex of the tourist servic-
ing as a main feature. Consequently, a combination of activities and economic
subjects shall be formed as the single compound of the tourist product.
In the forth place the chosen technology and organization of the tourist
activity shall conform to the marketing formulations because of the tour-
ists high requirements to the consumer value of the offering goods, as
well as because throughout the process of servicing the needs of people
are satisfied. The task of marketing is to ensure better economic results on
the base of better servicing of the clients. Therefore, the marketing formu-
lations shall be grounded on the development of politics towards defining
and realization of the tourist product.
Greater and greater segmentation of the way of life has been observed
nowadays. Even in a world that takes more care for the ecological prob-
lems, people continue to choose their best satisfactory life style and the
respective holiday activities, which answer exactly to their needs. This
process affects tourism and leads to the segmentation of the tourist mar-
ket through suitable decisions combining the tourist product with the
tourists types
2
. Attention shall be paid to fact that often tourists are not
steady, namely the given need is not continuously predominant. In a defi-
nite moment a tourist may decide to explore new places and the next hol-
iday may actually satisfy other needs. In the same time tourist directions
are not static. Consequently the processes of changes in life style shall be
analyzed together with the specialty of the tourist resources and market-
ing shall take place in the base of planning of tourist activities. Marketing
is an important element in tourist planning as it forms the perception, the
way of using, and the prices in the tourist sphere, as well as influences
the capacity of the tourist resources.
The goal of this study is to explore of the meaning and specialty of
the segmentation of the tourist market as an important marketing activity,
as well as the tendencies and problems of the tourism in Bulgaria.
2
Rayan, Chr., Recreational Tourism, Open Society Publisher, S, 1996, p. 7.
59 Segmentation of the Tourist Market
3.1. Role and Specialties of the Tourism Marketing
Because of the mobilization of the consumers of tourist services, the
tourism marketing needs to be directed towards revealing of the needs and
motivation, which drive clients to undertake definite tourist trips. This is
the best way for winning a rivalry advantage. The outstripping knowledge
of the needs and the ways of their satisfying decrease the risk of the fast
moral and physical aging of particular services and prolong the period of
optimality of the offering because of the fact that the adaptation of the tour-
ist product towards the behavior of the clients is fragile especially regard-
ing suitable timing. Therefore marketing shall be applied in tourism both in
the short-term and the long-term perspectives. Thanks to marketing stable
development and successful future of tourist companies can be guaranteed
because it can prevent from destroying of the material conditions, which
ensures the development of the tourist services
3
. No tourist would be willing
to visit polluted and destroyed tourist resources; ugly, overbuild and badly
maintained resorts; places with no hospitality and poor level of services.
In the last years the big companies have predominantly acted in the tour-
ist market. In spite of this a large number of small and middle companies
have also participated in the market and offered various services, however,
such services being limited in their volume. The lack of sufficient financial
resources to such companies restricts the application of complex market-
ing activities. And yet some smaller companies apply particular marketing
methods with a view of successfully competing among themselves in the
market. Usually smaller companies combine their efforts into larger research
or advertising campaigns, as well as to into equalizing the conditions and
stimulating the sales without direct competition between them, etc.
However, effective branch marketing is rarely fulfilled because of the
following reasoning:
The effect of the tourist trips usually stems from a complex of het-
erogeneous but completed services and goods provided for by spe-
cialized, organizationally independent economic units;
The management, the organization structure and the technology of
services in each of these economic units are characterized by definite
differences depending on the proprietary side of their activity, the
business sphere, and the scale of work.
3
Rakadjiiska, Sv.and St. Marinov, Marketing in Tourism, Nauka i Ikonomika
Publisher, University of Economics, Varna, 2004, p. 38.
60 Vania Kuzdova BANABAKOVA
This often leads to a relative increase of the effect of marketing efforts of
the umbrella tourist organizations as well as to an increase of its expenses.
The difficulties before the application of marketing in tourism are
often used to justify the lack of purposeful complex marketing activities
in the long run and the reaction only when needed. This kind of marketing
is applied only when unexpected changes in the research, offering, product
or situation require a new behavior of the tourist enterprise. Additionally
this type of marketing does not attract clients and does not contribute to
the increase of competitiveness. It leads only to overtaking of the rivals
without solving the issue of reaching an effective and long-term presence
of the tourist company on the market.
The application of marketing in tourism is also associated with certain
risks, which shall be taken into account
4
:
Real danger of discrepancies over time between the information,
received from clients during surveys, and the utilization of such
information in the activity of the tourist company by means of pur-
poseful investments;
How some tourist companies make use of the advantages, offered by
the marketing. In many cases the whole marketing information from
clients is directed only towards attracting more clients. As a result,
the tourist often discovers the real situation at her expense. The tour-
ist companies obviously do not evaluate the risk they take but at the
same time they know that the risk of clients greater expectations is
relatively smaller that the risk of not making sales and of losing the
rivalry for an eventual client. This type of marketing behavior, how-
ever, does not help for loyal clients and leads to the permanent reo-
rientation to new groups of tourists. In the conditions of a constantly
increasing competition, this market behavior cannot guarantee sta-
bility of the economic results of the tourist companies;
The significance of the human factor for the provision of quality
tourist services requires mainly the application of inside market-
ing by tourist companies through effective connections with the
community. The systematic and quality application can motivate
the activities of different categories of the personnel; create a pro-
ductive team spirit and bond the one-way interests of the particu-
lar member of the personnel with the tourist companys interests
4
Ibid., pp. 38-40.
61 Segmentation of the Tourist Market
as a whole. The purpose is to provide tourist services relevant to
the needs and expectations of the clients, which services supersede
the counterparts offered by the rivals;
The direct interaction between clients and personnel tends to decreas-
ing and has been replaced by the contact with machines. Practically,
marketing shall support the correspondence between automation and
computerization of the servicing process, necessary for the success
of each tourist company, achieved through the new technologies and
technology decisions. At the same time the attractiveness of the human
contact through personalization of the tourist services shall be pre-
served not only as a way of creating a unique combination of services
but also of keeping of the personnel, necessary for its fulfillment.
The application of marketing requires keeping of one and the same
principle and one whole philosophy. At the same time the economic reality
is rich of valuable situations, which force marketing to be fulfilled through
definite specificities related to concrete methods and mechanisms.
Depending on the type of tourism, we can differentiate the following
types of marketing: marketing of sea vacancy tourism; marketing of moun-
tain tourism; marketing of congress tourism; marketing of health tourism;
marketing of village tourism; marketing of ecotourism; marketing of cultural
tourism; marketing of cycling tourism; marketing of hunter tourism, etc.
Regardless the large volume of possible variants for aspect classifica-
tions of tourism marketing, we can generalize that the success of a tourist
company depends mainly on the understanding that marketing is a pro cess.
Through such process the demand of tourist services is explored and satisfied
by means of applying the specific concept of the tourist pro duct by a sepa-
rated system for distribution, fixed price of change and well-planed contact
between the tourist company and its clients aiming at the maximal protection
of the interests of both the economic organization and the consumers
5
.
3.2. The Signifcance and Specialties of the Segmentation
of the Tourist Market
To offer marketing formulations for each tourist enterprise means form-
ing and keeping the clients. As a result, the market shall be identified with
the individuals, which buy and use different goods and services. That is why
5
Tocquer, G., Zins, M., Marketing de Tourisme. Quebec, 1987, pp. 3.
62 Vania Kuzdova BANABAKOVA
the market needs to be examined as a combination of all consumers (real and
potential) of the goods and services which satisfy the appropriate necessities
6
.
The main task of marketing is to get to know the details, wishes, inten-
tions and expectations of potential clients. At the same time, it is impor-
tant that tourist enterprises know who and how many are these groups of
clients, which are equal or similar. On this base, they shall be differenti-
ated as to segment groups of clients, which have got analogical consum-
ing behavior, formed on the base of a maximal inner similarity in relation
to a chosen main criterion and a maximal indicative difference in relation
to the others groups of clients
7
.
Neither of the tourist companies can serve all possible clients because
of their number and different requests. Instead of wasting their marketing
efforts, the tourist companies shall concentrate on clients, which can be
better served by them.
According to Philip Kotler, the purposeful marketing demands appli-
cation of three main steps
8
:
To identify and describe the different groups of clients which
would want individual tourist products or marketing-mix (market
segmentation);
To choose one or more market segments towards which the tour-
ist companies shall be orientated (defining of the purposeful tour-
ist markets);
To determine and underline the main advantages from buying of
the specific tourist product of the chosen tourist markets (position
of the market).
Subject to the present study is the first step hereinabove, namely the
segmentation of the tourist market.
The market segmentation aims at increasing the exactness of market-
ing politics of the tourist company. The opposite politics of the market
segmentation is the application of the mass marketing which offers equal
tourist product to all clients, accompanied by equal characteristics of the
remaining elements of the marketing-mix - according to the price, distri-
bution and promotion.
The main advantage of the mass marketing application stems from the
fact that it creates the biggest potential market associated with lower out-
6
Blagoev, V., Marketing, V Publisher, S. 1998, p. 189.
7
rippendorf, J., Marketing et Tourisme, Geneve, 1972, pp. 67.
8
Kotler, Ph., Management of Marketing, Klasika i Stil Publisher, S. 2002, p. 270.
63 Segmentation of the Tourist Market
comes and lower prices or to higher limits of profit. At the same time, the
markets division into groups has been constantly increasing and hamper-
ing the mass market. The abundance of media and distributional channels
makes the application of marketing practices offering one product for all
clients more difficult.
That is why the forming and keeping of the clients demand the applica-
tion of the market segmentation. As a kind of a marketing method, the mar-
ket segmentation is situated between the mass and the individual marketing.
According to the Philip Kotler, the segmentation of the market is based on
the reasoning that the customers from each segment have got similar wishes
and needs, although not absolutely equal customers exist thereto
9
.
We can examine the advantages of the segmentation of the tourist mar-
ket in the following directions
10
:
The tourist company gets to know the clients which could ensure
the highest profitableness or which are loyal and will not give in
to the rivals;
By the segmentation of the market, the unsatisfied needs of the cli-
ents can be revealed earlier than the rivals, which is a complemen-
tary precondition for ensuring a successful market presence;
Identifying its target markets gives opportunities to the tourist com-
pany to develop better marketing politics directed to them;
Preconditions for the maximal effectiveness of the marketing efforts
of the tourist company shall be created as regards to each target
market segment.
It is recommendable to follow two methods to the application of the
tourist market segmentation:
First method analysis of the tourist market on the base of dif-
ferent criteria: geographical, social-economical, demographic, per-
sonal, lifestyle, attitude towards the market brand, etc.
Second method analysis of the consumer behavior aiming at the
market segmentation by identifying the degree of clients satisfac-
tion from the provided services.
The following rules associated with the tourist market segmentation
shall be complied with in order to ensure it shall reach the desired effect:
Rule 1: The segments shall reflect the changes of tourist research, sig-
nificant for the tourist company, conformable to the goals of marketing;
9
Kotler, Ph., Ibid, p. 271.
10
Rakadjiiska, Sv. Ibid, pp. 48-49.
64 Vania Kuzdova BANABAKOVA
Rule 2: The differentiated segments shall be measurable;
Rule 3: The segments shall be differentiated so as to have the oppor-
tunity for an easy access and contact therewith, and as a consequence, to
ensure the concentration of marketing efforts, and especially, of commu-
nications;
Rule 4: The differentiated segments shall have the optimal size, defined
according of the desired profit of the tourist enterprise.
According to the specialties of the tourist market, is it recommendable
to base segmentation on the information, which shall not characterize only
the potential tourist but the tourist trips11. The necessary information,
characterizing the potential tourist, shall include: age; sex; social group;
nationality; job; income. At the same time, the information characteriz-
ing the tourist trips shall comprise of: destination; transportation means;
purpose of the visits; time of visits; duration of stay, ways of accommo-
dation; participation in different attractions; visited places; individual or
organized traveling, etc.
Consequently, the segmentation of the market is a responsible and com-
plicated process, which according to Philip Kotler shall develop through
the following three stages
12
:
Exploring process : The goal of this stage is to understand the
motivation, attitude, behavior and characteristics of the client;
Stage of analysis : The goal of this stage is to define the factors,
characterizing the information from the exploring stage and to dif-
ferentiate a definite number of maximally differentiated segments;
Portrait stage : The goal is of this stage is to describe each seg-
ment through its distinctive characteristics-behavioral, demograph-
ics, psychically, social-cultural; media preferences. After that each
segment receives a name, based on its distinctive characteristics.
The differentiated and named segments set the basis of the segments
analysis, the choice of the target market segments and the development of
suitable marketing programs for an effective position.
The segmentation of the tourist market demands the selection and choice
of criteria, on the basis of which market segments shall be differentiated. We
can point out the following requirements to the choice of criteria
13
:
11
Rakadjiiska, Sv. Ibid., pp. 49-50.
12
Kotler, Ph.. Ibid, p. 277.
13
Grancharova, B., Segmentation of the Market and Economic Advantages for the
Companies, Offering Tourist Services, Varna. 2003, p. 76.
65 Segmentation of the Tourist Market
To give opportunity for the maximally exact defining of the group
clients;
To ensure the exact explanation for the behavior and intentions of
the consumers;
To give opportunity for defining of the market segments, profita-
ble for the tourist company;
To differentiate market segments, which are relatively stable in time.
One of the criteria classifications for the segmentation of the tourist
market divides them into synthetic and analytic, as follows: (Table 3.1.)
14
Table 3.1.
Synthetic and Analytic Criteria for Segmentation of the Tourist Market
Synthetic Criteria Analytic Criteria
Geographical criteria Region, sub region, country, region in the
country
Types of Market Relations State political and economical borders
Purpose of the Visits Vacation, business, medical, educational,
religious, transit
Necessity, Reason,
Expected Advantage
Physical needs, need of security, need of
belonging, need of evaluation
Consuming Behavior Loyalty, moment of reservation, trip type, res-
ervation method, preferences to special offers,
size of the group, satisfaction of the stay, evalu-
ation of the relation quality - price.
Demographical and Social
Economic Criteria
Age, family status, job, income, etc.
Psychological Criteria Lifestyle, tourist type
Attitude Towards the Price Level of Preferred Prices
According to the presented criteria for segmentation of the tourist mar-
ket in Table 3.1., the suitable market criteria shall also be differentiated.
Regarding the segmentation by the geographical criterion: the des-
tination segments characterize the spatial specification of the markets on
different territorial levels.
Regarding the segmentation by the type of market relations, two main
kinds of markets shall be differentiated: inner (national) and international.
14
Marinov, St., Market Segments of the Tourist Destination, Bulletin of the University
of Economics, Varna, issue 4, 2002, . 72-73 and Rakadjiiska, Sv., Ibid, p. 51.
66 Vania Kuzdova BANABAKOVA
The national tourist market is examined as a combination of tourist supply
and tourist demand, which subjects are the enterprises of a definite national
tourist industry and the people of this country in their capacity of tourists.
The international tourist market is characterized by the fact that the
buy-sale of tourist products get out of the frames of the national condi-
tions. The market relations of the international tourist market are defined
by the existing bilateral and multilateral relationships between the coun-
tries in the external political and economic plan.
According to the existing types of markets relations, built on state-
political and state-economic bases, the tourist market can be divided into
following two main segments:
Segment of the inside visitor, which destination is limited within
the borders of the respective country;
Segment of the foreign visitor, which includes consumersnot cit-
izens of the respective countrywith a destination within the bor-
ders of said country.
Regarding the segmentation by the purpose of the visits, the follow-
ing main market segments shall be differentiated:
Segment of tourists with a vacation purpose: This is the largest
segment of the tourist market. According to the specific aspects of
the vacation purpose, a row of segments can be outlined:
At first place, we can distinguish: tourists with a purpose - main
annual vacation, characterized by a longer stay, and tourists with addi-
tional annual vacation, who participate in one or more vacation trips out of
the ordinary for the year and they stay for a shorter time at the destination.
At second place, within the frame of the general categories of main
and additional vacations, with a view of further specifying the goals of
the trip, we can delimit the following segments:
Tourist with recreational purpose: This segment includes clients who
divides combine restoring to health and strengthening their physical and
psychic powers in the conditions of unique natural tourist resources
(beaches, mountains, forests, etc.) with qualitative fittings (pools, sky-
lifts, etc.). In its turn the recreational segment includes rows of seg-
ments such as: winter holiday, summer holiday, sea holiday, mountain
holiday, village holiday, visiting of towns, sport holiday, etc.
Tourists with cultural-exploring purpose: Said tourists aim at
examining and experiencing spiritual and material cultures and
their objects are the anthropological resources of the destination.
67 Segmentation of the Tourist Market
Visitors of friends and family: The migration processes of fam-
ily members in the 90s of the 20th century in Bulgaria predeter-
mined the existence of this segment.
Segment of tourists with official (business) purpose: This seg-
ment includes people visiting a destination related to their pro-
fessional activities. According to the specific goals of the visit,
business tourists can be grouped into the following sub-segments:
participants in business meetings, participants into conferences and
congresses, participants in exhibitions, etc.
Segment of tourist with medical (medicinal) purpose: This seg-
ment includes tourists aiming at the use of natural health resources
and medical services in adapted material - technical facilities. This
is not only one of the most ancient and specific segments of the
tourist demand but also one of the most perspective segments. The
changed structure of the morbidity rate and the increase of chronic
socially significant diseases not only in Bulgaria but also all over
the world have enhanced the potential of medical purpose trips.
Segment of tourists with educational purpose: The segment con-
sists of trips with a goal of obtaining new knowledge - language,
professional skills, etc. For example, the summer language school
in Elena, Veliko Tarnovo District, Bulgaria, is very popular and
attracts a large number of kids and youths from the whole country
willing to learn English.
Segment of transit visitors: The purpose of such visitors is to
cross the territory of the destination on their way for other destina-
tion for a short time. The transit tourist flow has a serious impact
on tourist consumption and can take part into others segments of
the tourist market.
Worth noting, although tourists goals are easily discernable, the respec-
tive market segments do not exists clearly separated in practice, as well
as do not mutually exclude themselves. As a result the marketing interac-
tions among such segments are hampered. For example, a tourist with a
purpose of participating in a conference in Veliko Tarnovo, the old capital
of Bulgaria, will probably associate its stay with cultural - cognitive goals
and will visit in its free time the landmarks of the town. Consequently, the
tourist will become a member of two segments.
Regarding the segmentation by the needs, reasons and expected
advantages: It is connected with the fact that the purpose of each tourist
68 Vania Kuzdova BANABAKOVA
travel is an expression of definite needs, reasons, and expected advantages
of side of the tourist in relation to the destination. Such needs, reasons and
expected advantages define the choice of the tourist among the offered des-
tinations, and therefore shall be analyzed. However, it shall be admitted that
each specific tourist goal for visiting a particular destination is reasoned on
a number of needs and reasons, which can often be difficult to define.
It is recommendable to use Maslows pyramid with a view of classi-
fying the tourists according to their leading needs, reasons and expected
advantages.15 According to the type of needs, which tourists would like
to satisfy by their preference for definite destination, the following seg-
ments can be delimited: tourists with unsatisfied physiological needs; tour-
ists with unsatisfied need of security; tourists with unsatisfied needs of
social belonging; tourists with unsatisfied needs of social status; tourists
with unsatisfied needs of self-approval.
Regarding the segmentation by the consumer behavior: The differ-
ences among the tourists in this segment become evident in the different
stages: booking, buying and realizing of the travel. The main segments
differentiated according to the consumer behavior and the suitable stages
thereof are presented in Table 3.2.
Table 3.2
Stages of Consumers Behavior,
Behavior Signs and Segments of the Destination
Stages of Consumer
Behavior
Behavior Signs Segments of the Destination
Stage Prior to
Booking
Past experience
and loyalty
Visiting or not visiting the desti-
nation. Loyal or disloyal visitors
Using sources of
information
Preference to printed advertise-
ment (catalogues, brochures,
etc.);
Preference to television
and radio;
Preference to Internet;
Preference to information
from relatives.
15
Ryan, Ch., Researching Tourist Satisfaction: Issues, Concepts, Problems, London,
1995, pp. 53.
69 Segmentation of the Tourist Market
Moment of
booking in
relation to
the beginning
of the visit
Last minute booking (less
than two weeks prior to the
beginning of the visit)
Early booking (more than
two weeks prior to the
beginning of the visit)
Stage of Booking Preference
to the kind
of visits
Visitors preferring organized
travels with fixed price
Visitors preferring unor-
ganized travels
Way of booking Using the services
of tour-operator
Using self-booking systems
Booking directly with
the tourist producer
(hotel, restaurant, etc)
Preference to
special offers
Special offers (e.g., hotel
without specify name)
Offers for free (e.g., pay for
one week of vacation, get
one more week for free)
Stage of Realizing
of the Travel
Stage of using
the resources
and mate-
rial base of the
destination
Active use of the resources
(e.g., jeep safari, mountain
bike, etc)
Inactive use of the resources
(e.g., balneo-tourism for peo-
ple over sixty years old)
Size of the
group
Continuance of
the stay
Visitors who do not stay
overnight
Tourists with a short stay
(spending 1-3 nights)
Tourist with a long stay
(spending 4 or more nights)
Tourists income Visitors with low incomes
Visitor with high incomes
70 Vania Kuzdova BANABAKOVA
Stage after
the Travel
Satisfaction by
the stay in the
destination
Satisfied visitors
Unsatisfied visitors
Evaluation of
the interrelation
quality-price
Visitors with an estimation
of relevancy between
quality and price
Visitors with an estimation
of discrepancies between
quality and price
The segmentation by demographical and social-economic signs aims
at forming the profile of the segments on the base of objective criteria like
age, sex, education, family status, job, income, member of the family, etc.
Often the consumer profile is analyzed and characterized in connection
with the vital cycle of people, systemizing the stages of their vital way. In
this relation as a main market segments can be pointed out: the segment of
kids under 16 years; the segment of non-family youths from 18 to 30 years
old without children; the segment of families with children up to 16 years;
the segment of people from the third age (over 60); the segment of the rep-
resentatives of workers; the segment of the representatives of clerks.
An example for the application of demographical and social-econom-
ical criteria for the segmentation of the tourist market is the representa-
tive research of the real and potential clients of the balneo complex in
Shipkovo, Bulgaria.
In order to differentiate the target market segments, the following
demographics shall be applied with regards potential consumers
16
:
Social status;
Health status;
Marital status;
Number of family members;
Life cycle of the family.
The goal is to accomplish a distribution of the risk among segments,
as well as the opportunity of maximizing sales volume by means of sup-
ply of various medical, healing, and rehabilitating services in accordance
with the potential and resources of the spa centre.
16
Banabakova, V., Some Aspect of the Segmentation of the Spa Tourist Market (a
Closer Look at Case Study on the Village of Shipkovo Experience, Bulgaria), Bucharest,
2006, pp. 53-54.
71 Segmentation of the Tourist Market
Based on the described demographics, the subsequent basic target
market segments can be differentiated:
People who would need treatment and prevention under the pro-
gram of the National Social Security Institute (NSSI): they would
primarily use the medical centre, the mineral water pool, the res-
taurant and the art club;
People who would need treatment, rehabilitation or rest, and would pay
by themselves their stay and spa services: they would also use the med-
ical centre, the mineral water pool, the restaurant and the art club;
Young couples with children under 15: they would use the kinder-
garten, the restaurant, the dairy bar of the art club (until 7 p.m.), the
medical centre with the pool and other entertainments for children;
Couples with children over 15: they would use mainly the hotel and
restaurant parts, the pool and its bar, the art club, various organized
entertainments and the medical centre with the pool;
Couples without children: they would use the treatment facilities,
the restaurant, the art club (which doubles as a night club), the
beauty shop, the medical centre, the pool and its bar, etc.;
Families who would like to escape from the unfavorable environment
of the city conglomerations such as polluted air, congestion, crowded
public transit, alienation, and absence of relationship with nature. In
the village of Shipkovo such clients can find the purity, freshness, and
calmness of the sub-Balkan nature in a combination with a healthy
holiday and treatment and rehabilitation opportunities.
The following additional target market segments can be described:
Clients who do not reside at the spa centre hotel part but would
actively take advantage of the art club, the restaurant, and the bar
at the mineral water pool because no other contemporary places of
entertainment are available in the region;
Residents of the town of Troyan and the surrounding villages who
do not stay overnight at the spa centre but need the healing power
of the water in the village of Shipkovo;
Young local people: an additional survey shows that due to absence
of a sufficient number of contemporary places of entertainment in
the region, young people would also look for rehabilitation and
entertainment at the spa centre.
It should be noted that all actively working or studying people also
need rehabilitation and rest to the maximum possible extent; however, it
72 Vania Kuzdova BANABAKOVA
should be offered at favorable prices. Therefore, specialized organizations
(tourist agents) should ensure the holiday and rehabilitation of the peo-
ple, namely the opportunity to detach people from the everyday stress and
regain effectively their working capacity.
To a great extent human mentality defines the consumers behavior,
therefore the segmentation by psychological criteria is also important. All
psychological criteria can be are applied thereto: feeling, sense, memory, char-
acter, imagination, thinking, feelings, will, interests, inclinations, temperament,
properties, talents, etc. The criteria are bound to the stages of the vital cycle,
the profile of consumers, the stable psychological characteristics and consum-
ers behavior and on their basis particular lifestyles shall be differentiated.
There are different classifications of tourist types, delimited by psy-
chological criteria, which can be used for the needs of segmentation. In
the following exhibition we will examine one of them the Model of
Smith
17
, which according to the author characterizes the tourist types in
relation to their psychological characteristics and preferences to the kind
of their tourist travel (Table 3.3.).
Table 3.3.
Classification of Tourists Based o the Segmentation of
the Tourist Market according to the Model of Smith
Types of Tourists Main characteristics
Explorer
Searches new destinations and contacts
with hostels
Special tourist Searches unusual destinations with a
previously reserved comfort
Untraditional Tourist Searches escape from the crowd
Unusual Tourist Searches untraditional travels to isolated
places with a purpose-extreme activities
Beginner Mass Tourist Travels individually and in small groups;
Searches a combination between comfort
and authenticity
Mass Tourist A representative of the middle class with
middle incomes, which participates in mass
visits of the destination
Charter Tourist Searches reactions in standard tourist
environment
17
Marinov, St., Ibid, p 76.
73 Segmentation of the Tourist Market
The tourist searching is unusually sensitive towards the price; as a
result, the price is often used as a criterion for segmentation. Said crite-
rion aims at differentiating the tourists into groups in accordance with defi-
nite value diapasons. In a strategic plan, this method is suitable to including
new productive features of the destination or the appearance of new territo-
rial markets. As a result, it is necessary to define the quality consumers, who
are ready to pay the price, thus ensuring the desired profitableness. In gen-
eral, we can delimit three segments by the price criterion: high-prices tourist
segment; middle-prices tourist segment; and low-price tourist segment.
Worth mentioning the calm and tourism are part of the way of life,
which people would want to accept and this is the reason it is more suit-
able to characterize tourist according to their lifestyle instead of using the
traditional social-economical classifications. The statement that the social
class is a weaker modifier of consumers behavior is set because of the
following reasons
18
:
The difference in the incomes between qualified and unqualified
manual labor and some jobs of the middle class is actually destroyed
(For example, the teachers earn less than the plumbers).
The increase of incomes allows for greater opportunities for the free
time and the related activities, therefore, the individual demands and
assessments are strongly expressed and more opportunities for form-
ing of marketing niches are created. In addition, the homogeneity
of the social classes values is quite likely destroyed. As a result the
forecast criteria for consumers behavior shall probably be the atti-
tude and values rather than the level of incomes, the age or the job.
There is a high level of instability in relation to the class belonging.
We can generalize that reaching the stable market existence of a con-
crete destination demands the differentiation and choice of suitable mar-
ket segments. The characterization of the chosen market segments to a
great degree predetermines the content of the marketing-mix, the results
and the consequences of tourist activities. That is why the successful mar-
keting of the tourist destination demands exploring and knowing of the
segment structure of the tourist market and the characteristics of the one-
type groups of tourists.
In addition to the criteria for segmentation of the tourist market, repre-
sented in Table 1, three criteria, which role is increasing more and more,
18
Rayan, Ch., Ibid, p. 223.
74 Vania Kuzdova BANABAKOVA
shall be included, namely: the tour-operators who organize the tourist trav-
els; the trade-mark as a main argument for the choice of the tourist travel
connected with the authority of the company; the index of the tourist pen-
etration as a indicator for the stability of the tourist destination
19
.
The tour-operators, which organize a large number of tourist travels,
also apply the segmentation of the market for satisfying their interests.
That is why they are examined as sources of exactly defined types of mar-
ket segments for the servicing tourist enterprises.
Building up the loyalty to the trade-mark in fact means grouping of
the permanent clients to the product, firm or destination, which it repre-
sents. Consequently, a segmentation of the market by the criterion loy-
alty to the trade-mark can be made, as well as the following six market
segments shall be differentiated: accidental buyers; clients, whose choice
is based on the price; passively loyal clients, who buy out of habit; indif-
ferent clients, who are not under the influence of the trade-mark; loyal cli-
ents; permanent clients, who buy because they are sure that the product
always answers or exceeds the promised by the trade-mark.
The index of the tourist penetration expresses the connection between
the general effect of the tourist development and the direct results of tour-
ist consumption. This index can be used for managing the tourist flows
by attracting the most suitable market segments to the appropriate tour-
ist destination; tourist with a continuous or short stay; holiday or business
tourists; families with children or tourists of the third age; active tourists
or tourists preferring passive holidays, etc.
The segmentation of the market demands making important decisions
about the choice of most suitable criterion. The segmentation can be made
on the base of one criterion or more criteria, which shall be definite. As a
result single-variable and multi-variable segmentation is differentiated
20
.
The single-variable segmentation is the simplest form of dividing the
market, and as a result, the most used form for developing of marketing
programs towards satisfying the needs of the particular segments clients
(for example, the general tourist market can be divided on the basis of the
annual income per family member).
The multi-variable segmentation is applied when more than one cri-
terion are used for dividing the general market. In contrast to the single-
variable segmentation, it provides for more information about people from
19
Rakadjiiska, Sv., Ibid, pp. 52-53.
20
Alexandrov, Kr., Marketing. UI Stopanstvo, S. 1999, pp. 87-88.
75 Segmentation of the Tourist Market
the different segments of the market, which allows the precise develop-
ment of the marketing-mix. The latter can better satisfy the needs of peo-
ple from the chosen segment.
The application of the multi-variable segmentation is also connected to
some negative sides, mainly leading to an increase of the number of the
general market segments. Consequently the potential of sales in a larger
number of segments shall decrease. At the same time, the use of a greater
number of criteria for segmentation of the market leads to better and more
accurate marketing programs satisfying the chosen segment. It is recom-
mendable to consider whether the increase of segmentation criteria shall
be associated with an eventual improvement of the marketing program. If
the information collected for the additional criteria is not associated with
bigger exactness of the developed marketing program and its realization,
is shall not be expedient for tourist companies to spend more on collecting
information and other criteria. For example, in the sphere of tourism multi-
variable segmentation can be made on the basis of the following groups of
criteria: level of income, age, preferences to tourist products, style of tour-
ist behavior related to the reasons for undertaking the tourist travel, and
reasons for undertaking the tourist travel related to kinds of tourism.
After dividing the tourist market in different segments, the aimed mar-
kets shall be chosen and examined as parts of the market, including defi-
nite numbers of segments towards which the tourist company shall direct its
efforts and resources. The number of market segments of the chosen aimed
market depends on the goals and opportunities of the tourist company
21
.
The right choice of aimed markets also demands the application of the
following additional criteria for segmentation:
Tastes and preferences of the client;
Clients evaluations of the used tourist services on the basis of past
experience;
Contacts made between the clients and the mediators ensuring the
sales;
Ways of reaction to the prices and to advertisement;
Ways of products acceptance according to the trade-mark, which
is promoted on the market, or to its own properties and dignities.
The right choice of aimed markets is connected with the development
of suitable marketing policies in relation to:
21
Mitev, N. and M. Chiprianov, Marketing and Logistics, Academy of Economics
Dr. A. Tsenov, Svishtov, 2002, p. 38.
76 Vania Kuzdova BANABAKOVA
The products representation exactly answering to the needs and
demands of clients, which form the aimed market segment;
The development of price policies suitable to the solvency of clients;
Ensuring suitable conditions according to the clients demands and
the easy access thereto;
Choice of distributional channels and ways for making sales, ensur-
ing the connection between the tourist product and the aimed mar-
ket segment;
Commitment of chosen resources for the marketing relations
between the demands, traditions and culture of the chosen clients.
Some problems connected to the wrong consideration of the market
seg mentation may come out when choosing the aimed market segments,
namely:
A problem connected with the imprecise outline of the chosen seg-
ment: to avoid such problem, it is necessary to ensure the sufficient
volume of correct information with a view of showing up exactly
the market segments.
It might happen that the choice of concrete aimed markets does not
ensure the best opportunities towards receiving the desired finan-
cial results of the tourist company. To avoid these risks, the market
segmentation shall be examined not only as an independent pur-
pose but also as a source of improving the market positions and
financial conditions of the tourist company.
Problems are possibly connected with the hard access of the aimed
market segment to the distributional and communicational chan-
nels. The problem can be surmounted through a choice of mar-
ket segments corresponding to clients demands and the respective
channels and opportunities, offered by the tourist company.
Often the choice of aimed markets is managed by the aspiration towards
winning the market part and adapting to the market. In the conditions of
fast changing market conditions it is necessary to apply another method
directed to the creation of new markets. The marketing policies shall be
directed to new ideas generation, checking of their compatibility with
the real conditions, and in the presence of benefits for the tourist com-
pany help the process of creating of new standards for the enterprises and
chosen clients.
77 Segmentation of the Tourist Market
3.3. Specialties of the Segmentation of the
International Tourist Markets
In the international marketing, the market segment includes a group of
countries, which show resemblance in relation to definite marketing strat-
egies. From this point of view, the segmentation is a technique by which
different countries are differentiated into homogeneous groups.
There are differences between the countries in terms of economic and
cultural features. As a result, the world market cannot be serviced by
applying of unit policies. Therefore, it is necessary to differentiate one or
more countries in the aimed market segments.
The segmentation of the tourist market as to the international market-
ing can be implemented in the following sequences
22
:
Defining the external tourist markets to be approached by the tour-
ist company: there are many possibilities with a different spread:
the whole world market; separated geographical regions; group of
countries; separated countries.
Ensuring the necessary information on the suitable external markets.
Identifying the groups of consumers with similar needs, wishes
and preferences: the groups shall differ from each other though
these characteristics.
Forming the segment on the basis of definite criteria: at this stage
and on the basis of the analysis of the given information, the tour-
ist company shall decide on the following:
Whether it is necessary to form segments on the basis of crite-
rion country. If necessary, the development of marketing strate-
gies and the marketing-mix shall be considered in relation to the
national specialties of the separate countries or group countries.
Whether it is necessary and expedient to form segments within
the frames of different countries, what kinds of criteria shall
be applied. If necessary and/or expedient, the criteria must be
either the same or different as per the respective country.
Determining the segments profile, including evaluation of their
market potential.
Developing the marketing-mix for the different segments consid-
ered on their specifics.
22
Naidenov, N., International Marketing Analysis, Strategies, Realisation. UI
Stopanstvo, S. 1999, pp. 55-56.
78 Vania Kuzdova BANABAKOVA
Integrating the studies to the strategies and marketing-mix into a
program, that is acceptable for the tourist company and is in a con-
dition to ensure its fulfillment.
The system of criteria for segmentation shall include: the gross national
product per capita of the population; the geographical position; the reli-
gion of the population; the political system, etc. The choice of criteria
shall be considered mainly on the characteristics of the product.
The segmentation by economical status of the countries differentiates
the following five segments: (i) advanced industrial countries in Europe,
North America and Asia; (ii) high-income countries; exporters of petroleum;
(iii) countries with strategic resources, which need time and technologies
to develop modern economics; (iv) countries with developing market eco-
nomics; and (v) countries with increasing poorness, undeveloped economy
and partial isolation.
However, this classification is very general and shall be deepened also
by means of the criterion geographical position, which is useful for the
development of effective marketing policies. This criterion is critical for
the multinational companies because the nearness of the countries allows
their differentiation into blocks, as well as because it is easier to sup-
port communication and transport systems, often the countries popula-
tion share similar cultural habits and traditions and the economical units
are territorially isolated.
The segmentation of the markets for the needs of international market-
ing also demands the application of the criterion religious affiliation as
religion is an important element of contemporary life. It influences quite
powerfully the lifestyle, which in its turn predetermines to a great extent
the marketing policies. The criterion cultural status also is associated
with the formation of homogeneous groups of countries on the basis of
general cultural traditions and current lifestyle.
It is recommendable that segmentation is also accomplished by the
criterion consumers reasons, which can be different for different clients
and markets because of the national and cultural specialties.
In addition, a combination of criteria shall be used: geographical
region and cultural similarities; geographical region and common language;
geographical region and preferences to the kind of tourist products.
An important criterion for the segmentation of foreign markets is the
internal segmentation, which is expressed through forming supranational
market segments on the basis of similar market segments, formed in each
79 Segmentation of the Tourist Market
country by segmentation of the national market. For example, a leading
research, encompassing 15 000 consumers from 14 countries in the world
resulted in the identification of five world market segments according to
the criteria wishes and consumers behavior, namely: active consumers;
consumers-performers; consumers under influence; consumers-traditional-
ists; consumers-adopters
23
.
The segmentation of the international markets demands also the appli-
cation of another important criterion - strategic planning of the products
portfolio. The usage of this criterion leads to the grouping of countries in
homogeneous groups on a three-dimensional basis: market potential, com-
petitive advantage and risk to the company
24
.
The market potential demands to take into account the size, income
and concentration of the population, as well as the interrelation produc-
tion-consumption for the concrete companys product.
The competitive advantage of a company depends on a number of inter-
nal and external factors. The group of internal factors includes: the market
part of the company; the companys resources; advantages, provided for the
clients. The external factors include: the power of the rivals; rivals offering
products substitutes; the local and international business structures.
The evaluation of the risk for the company demands the analysis of each
factor, which causes changes in relation to the companys business with a
particular country, as well as the analysis of the factors causing international
economic risks. Table 3.4. represents the main factors leading to changes in
the market situation and eventual risks connected with them.
Table 3.4.
Influential Factors and Possible Risks to the International Markets
Macroeconomic Factors
Risks, Connected to the
Investments Return
Political system
Armed conicts
Social movements
New international units
Hyperination
Loss of stuff and people
Loss of the freedom of transfer of
goods, people and capitals
Negative changes of the conditions
for investments and others
23
Subhash, C. Jain, International Marketing Management, Ohio, 1996, pp. 387.
24
Rakadjiiska, Sv., Ibid, pp. 228-229.
80 Vania Kuzdova BANABAKOVA
Microeconomic Factors Risks, Connected to Prots
Change of market conditions
Collapse of the economic balance
Politic interests
Local interests
Increase of the competitive advan-
tages, contractions of the market
Discrimination fees, regulation and
limitations of the freedom of enterprise
The segmentation of the international markets also demands an analy-
sis of the economic situation in an international perspective and analysis
of the political and legal environment.
The choice of the aimed market shall be based on a review of the eco-
nomic situation, which varies from one country to another. Therefore, if a
particular country is isolated or it is a part of a general economic spatial
group of countries, the way of positioning of the tourist market is different.
The access of the tourist enterprise in the integrated territory market is facil-
itated because of the presence on the market in one of the countries or is
strongly limited in case the enterprise is foreign for the integrated territory.
The legal and political environment usually is determined by the size
and character of the intervention of the particular government in the inter-
national relations of the economic players. This intervention involves dif-
ferent means like customers rights and obligations, determining of quotas,
demanding of particular medical regime, compulsory permission for par-
ticipation in international markets, announcement of boycott. To avoid the
eventual risk, forecasting and analysis of the legal and political factors
shall be accomplished, as well as the factors influence to the market ori-
entation on each tourist enterprises.
The international tourist market depends also on the following factors:
ways of supporting particular currency rate; conditions guaranteeing the secu-
rity of tourists; ways of claims settlement; characteristics of international
agreements for tourist development agreements between different countries.
An important condition for successful segmentation of the international
tourist markets is the presence of sufficient information with a view of prop-
erly differentiating the correct measures and characteristics of the segment.
In the process of segmentation of the tourist market, the company shall
determine the sides and segments towards which it shall direct its efforts
and the main strategies to be applied.
To generalize, the segmentation of the market is essential not only to
the internal marketing but also to the international marketing and its sig-
nificance stems from the scale and great variety of the tourist markets.
81 Segmentation of the Tourist Market
Given that the segmentation of the tourist market is an important activ-
ity of the tourist marketing, the following tendencies can be observed in
the long term
25
:
Constant increase of the differentiation of the demand;
Appearance of some new specialized markets and market segments;
Contrasting the physical and cultural passive forms of holiday to
the advantages of more active time spending;
Movement towards the direction of maximum personal freedom -
the purpose is to combine elements of the organized holidays with
the clients desires (module design of the tourist product).
The segmentation of the tourist market is related to the previous adjust-
ment of the abandonment of the complete standardization of the tourist
product, which is needed because of the following reasoning: many cli-
ents search opportunities for self-determination and made by itself ;
the advanced level of experience of the population tourist travels, which
leads to a more critical approach directed by quality and income, and thus
directed to a more difficult and rational choice; the increasing desire for
reestablishment of the connection with nature; the higher level of ecolog-
ical consciousness and sensibility to the quality of life as a whole; putting
bigger efforts to education, which is often proving efficient when getting
familiar with the foreign country.
The examined tendencies pay greater attention to the segmentation of
the tourist market and to the process, through which people pass from one
market segment to another. On the other hand, attention shall also be paid
to the interrelation between tourism as an industry and the preferences to
relaxation and free time spending of the actual and potential consumers.
3.4. Development and Problems of Tourism in Bulgaria
During the past few years, tourism has been recognized as a work-
ing and developing branch, and as a result, tourism has acquired greater
importance in the social and economic development of Bulgaria. Its part
in the GDP is increasing as well as the income and currency receipts from
tourist activities. Tourism together with the services and high technologies
branches emerges as a priority of the state and political encouragement,
with a view of their forming as a niche for investments in Bulgaria
26
. In
25
Rayan, Kr., Ibid., pp. 238-239.
26
Capital Newspaper, XIV year, issue 25, 24-30 June 2006, p. 20.
82 Vania Kuzdova BANABAKOVA
this meaning, the accent shall be put to internal tourism-mountain, cul-
tural, spa-tourism and etc. rather than to Black Sea tourism.
Tourism brings 13% of the GDP and after closing of two blocks of the
Atomic Power Station Kozluduy, tourism shall transform from second export
sector after the energy sector, into the first export sector of the Bulgarian econ-
omy
27
. Even though tourism is a privately developed sector, its stable develop-
ment is closely related to the whole strategy and policies of the government.
The goal of this study is to follow the development of Bulgarian tour-
ism, research its problems and give suggestions for improvement.
The good perspectives for tourism in Bulgaria are clearly evident from
the fact that Bulgaria is the only destination in Europe, which has not
reported decreasing numbers of tourists since 1999. According to 2004
data, during the period from January to December 2004, 13, 56% more
tourists with main purpose relaxation and vacation have come to Bulgaria;
and 20, 01% more income from tourism has been reported (data are pre-
sented compared to 2003 figures)
28
.
The European tourism committee to the European Union indicated in
2005 that Bulgaria was one of the fastest developing tourist destinations.
Research shows that Bulgaria outstrips Italy and Iceland by rates of tourists
increase. Bulgarian tourism marked growth of 20%. By 2004, the increase
was associated with the German tourist companies which had included
Bulgaria into their business activities. Most of the Bulgarian Black Sea
hotels had been credited by German tour-operators. That why they had
advertised and attracted German tourists to take back their investments.
Whereas Bulgaria had an access to 1% of the West European mar-
ket 5-6 years ago, nowadays Bulgaria has an access to 5-6% of the tour-
ist market. This trend can also be explained by the fact that it is already
possible to rest luxuriously in Bulgaria .The country is not a destination
for unemployed and retirees only any more.
Worth noting, during the past 5-6 years Bulgarian tourism had gone
trough a true Renaissance. According to some experts, however, Bulgaria
has developed a building industry instead of tourism. Nevertheless the inva-
sion of the hotel business is the most evident indicator of the intensive years
of the branch. The Bulgarian resorts have increased their capacity almost
three times. About 700 - 800 million Euros have been invested in the Black
Sea resorts Sunny Beach and Golden Sands, including the construction
27
Capital Newspaper, XIV year, issue 19, 13-19 May 2006, p. 26.
28
Tourism and Rest Magazine, IV year, issue 2, March June 2005, pp. 54-55.
83 Segmentation of the Tourist Market
of 4 and 5 stars hotels, which represent about 20% of the hotels at the Black
Sea coast. According to data of the Tourism State Agency, there are more
than 300 000 beds in hotels, apartments and holiday resorts only at the sea-
side. Also the interest of investors from Great Britain, Ireland, Spain and
France for holiday properties is considerably increasing.
The forecasts for the tourist sector is that Bulgaria shall be visited by
5,5 million foreign tourists within the next 2 years, whereas the income in
2007 shall exceed 2,5 billion Euros. The World Tourist Organization fore-
casts that Bulgaria shall welcome 20 million foreign tourists in 2020
29
.
The European Association of the Tour-Operators defines Croatia,
Czechoslovakia and Iceland as the most popular European countries among
tourists. Croatia is the first of all also as the best interrelation between
prices and quality. By the indicator natural beauty, Swiss has the leading
place. In Germany the tourist receive the best services against their money.
If you prefer painting, you should visit Venice and Rome.
One of the answers why the foreign tourist would choose Bulgaria
for its summer vacation is Because it is cheap and delicious in Bulgaria,
there are plenty of nice beaches and there is not terrorism. During the
past 5-6 years another answer has also emerged: Because is already pos-
sible to relax luxuriously in Bulgaria.
According to the forecasts of the Tourism State Agency, a 5-6% increase
of the tourists in Bulgaria and a 7-9% increase of the income from tourism
are expected in 2006
30
.
Despite the overall good perspectives outlined hereinabove, it should
be mentioned that the 2006 summer would be a season of tourist stagna-
tion. There is a risk that the 2006 summer would be the first season of a
drop to the tourism in Bulgaria
31
.
The tour-operators TUI and ITS (REWE Touristic) have marked con-
siderable drops in the number of German tourists (10-15% for ITS). Only
Nekerman (Thomas Cook) has marked a 1-2% drop, however, the com-
petitors explain the drop with the moderate results during the past year.
The number of German tourists in Bulgaria has begun to decrease about
two years ago (starting from 2004). Since then the Bulgarian resorts rely
on English tourists. Yet their number has currently decreased with about
29
Nenkova A., The Bulgarian Black Sea in the Trap of Mass Tourism, 18 August
2006, <www2.dw-world.de/bulgarian/wirtschaft/1.193535.1.html>.
30
Capital Newspaper, XIV year, issue 19, 13-19 May 2006, p. 27.
31
Capital Newspaper, XIV year, issue. 28, 15-21 July 2006, pp. 42-43.
84 Vania Kuzdova BANABAKOVA
10%. In spite of this at the beginning of July, 2006, the seaside resorts
have seemed decently populated with tourists.
On the north Black Sea, the Rumanians are the new hit for 2006 because
of the cheaper and newer hotels in Bulgaria than these in the Rumanian sea-
side. But they visit Bulgaria only at the weekends for regret of the hotel-keep-
ers. On the south Black Sea, the Scandinavians are the leading tourist. The
main reason is that the stay in Bulgaria is very cheap. Additionally, a big part of
the Scandinavian tourists last year refused to visit the Islamic countries Egypt,
Tunisia and even Turkey, which is perceived as a more secular country. Also,
Russians, Croatians and Hungarians have interest in the Bulgarian Black Sea.
The most popular resorts in Bulgaria are the Dunes, Sunny Day,
Albena and St. St. Constantine and Elena. The main reason is that said
resorts are possessed by a single owner, the construction is under control and
nature is preserved. The hotels from the groups of Iberostar (Thomas Cook),
RUI (TUI), Primasol, LTI, Calimera (REWE) are also very successful.
The Bulgarian Black Seas hotel keepers do not have reasons for opti-
mism for their incomes next year. And yet they give an account that the
question is not to raise prices but keep the number of tourists in the terms
of high-offering and the low-tide of the German tourists. Keeping hotel
prices low is somewhat positive because by this way a lot of tourists are
attracted in the country and they will spend more on food, drinks, trans-
port and excursions, which can be very expensive.
We can outline the following main reasons for the decrease of German
and English group tourists in Bulgaria for the last 2006 (Table 3.5.):
Table 3.5.
Main Reasons for the Decrease of German and
English Group Tourists in Bulgaria
Germany Great Britain
The economic crisis in Germany,
which reects on the segment of
German clients buying holidays
in Bulgaria.
The reputation of the country and
the continuing rapid construction,
hygiene and rules disrespect.
The tendency to the last minute
bookings, which leads to unreliable
tourists at very low prices.
The later bookings because the tour-
operators pull out their programs to
the middle of the season when the
construction is not so intensive.
85 Segmentation of the Tourist Market
The bad reports for Bulgaria
connected with the mass con-
struction in the resorts, the
loss of their attractive image
and also the lack of sustaina-
ble reputation of Bulgaria.
The holiday apartments which
have been bought by many
Englishmen, where they have
started to welcome guests. As
a result the tour-operators have
lost over 20-25 000 people.
The super offering of beds. Problems with the service.
The Germans have started to travel
differently: they prefer the exotic
beach rather than the ordinary one;
exible elements which can be com-
bined by themselves instead of the
proposed ready tourist packages;
Internet booking instead of tour
agency services.
Worth noting, the low-tide of German tourists from Bulgaria as a
tourist destination does not have only negative consequences because the
risk for the Bulgarian tourist industry to welcome tourists mainly from one
country has been diversified. Also with the help of the German mega tour-
operators which bring tourists from the whole of Europe, the drop will
probably be overcome by mass tourists from different nationalities.
In the background of the examined positive and some negative tendencies
in the development of the tourism in Bulgaria, follows to note that the tourist
business faces a lot of problems whose decisions might help for more dynamic
and effective development of this strategic for the national economic branch.
We can describe the following main problems before the development
of the tourism in Bulgaria
32
:
3.4.1. Mono-structurally development of the branch
The Bulgarian tourism still aims mainly at the traditional mass type
tourism-sea and mountain. The country is famous mainly as a destination
for sea recreative tourism which makes for 70% of the Bulgarian tourism.
The mountain (skiing) tourism makes for 10% and the specialized types of
tourism 20% despite the large potential for development of the latter.
32
Bojinova, M., Borders in front of Tourist Business. Economics Magazine, issue
3, 2005, pp. 18-20.
86 Vania Kuzdova BANABAKOVA
Similar development does not correspond to the natural, historical and
cultural features of the country and makes difficult their fruitful complete
utilization (For example the culture-cognitive tourism realizes only 1% of
the whole income of the Bulgarian tourism given that there are over 40000
monuments of culture from different historic periods, 36 cultural reserves,
about 300 museums and galleries and 7 historic memorials listed in the
world culture inheritance). Compared to 2004 the growth of cultural tour-
ism for 2005 is 0,5%
33
.
Some possibilities provided for by the PHAR ProgramInternational
Collaboration Bulgaria-Greece 2004should be mentioned as a positive
phenomenon. According to the program, municipalities, museums and non-
governmental organizations on the border with Greece which would like
to develop cultural tourism and have respective possibility, shall receive
new options for financing in the amounts of 55000 to 300000 Euros for
realizing of projects in this area
34
. Actually the PHAR program has paid
attention for the first time to business and the participation of private com-
panies and tourist agencies as partners has been encouraged. However, the
project has been related only to the transformation of cultural monuments
on active tourist routes. The idea of the tour-operators has been consult-
ing of the municipalities on how to make advertising materials, where
to distribute them, and how to extract advantages from the money spent
for advertisement and tourist attractions. Until now the practice shows
that similar projects very often are realized in a way that the advertising
materials do not reach the consumers and also the main choice of tour-
ist objects is often not among the most attractive in the area. It shall be
marked that the partners cannot receive financing except for roads, daily
and accommodations resources, which is not a very big stimulus for the
private sector. The hope is that in the future similar initiatives will have
success for the development of cultural tourism in Bulgaria and learn the
lessons past experience related to the lack of legal background, stimulat-
ing the cultural tourism, unclear regulations, institutional framework and
insufficient participation of the business in such projects.
The good bio-resources shall be better used for the development of hunt-
ing tourism. Bulgaria has 56 hunting reserves which in 2003 realized only
2 million Euros. Similarly the mineral and thermal springs in the country
33
Klark, G., The Tourism and the Cruel Competition in the EU, Economics
Magazine, issue 1, 2006, p. 25.
34
Capital Newspaper, XIV year, issue 33, 19-25 August 2006, p. 60.
87 Segmentation of the Tourist Market
are not used completely, especially the development of quality balneotour-
ism. There are about 550 famous deposits with 1600 mineral springs and
deposits of curative mud. However, except for the high category hotels at
the Black Sea, competitive products are being offered only by a few hotels
inside the country. As a result, spa tourism carries only 1-2% of the income
of Bulgarian tourism. Pursuant to the data, the rich balneological resorts are
not utilized and are also under destruction. The experts think that there is
a lack of state policies for attraction of investments in the tourism. On the
other hand, rural tourism has recently begun to be developed in Bulgaria
but it is still oriented towards the poorest segments of the tourist market.
We may conclude that the animation is poorly included in the tour-
ist products, offered in Bulgaria. Even the sea-side hotels still offer limited
number of services. Survey results show that only 46% of the hotels provide
for sport and entertainment facilities, whereas 36% provide for wellness
facilities and 17% for sauna. The share of hotels, which organize trips for
their guests, is also quite small 27%. Barely 20% of the hotels offer services
associated with the local customs and traditions such as participation in car-
nivals, wine-tasting, nights of the Bulgarian traditional cuisine, Bulgarian
folklore, visiting traditional rural houses, safari, fishing and others.
It is recommendable that the offered additional services shall be diver-
sified towards the main tourist product in order to enhance its competitive-
ness in the longer run because such services provide for the better comfort
and useful stay of the tourists. For example, the international management
team of the Kempinski Grand Hotel Ermitag in the Golden Sands Resort
has elaborated a complete system of rehabilitation and health tourist pack-
ages including ultra-modern spa-centre utilizing natural products from Bally,
offering Hawaiian massage Uatzo, as well as complex dentistry services.
The strategy for Stable Development of the Bulgarian Tourism (2004)
for 2005-2010 expects that in 2010 the income from the alternatives of the
sea tourism shall be 45% of the whole income from tourism (for compar-
ison in 2004 the percentage was 20%).
3.4.2. Irregular assimilation of the tourist resources
This problem is connected with the concentration of the Bulgarian tour-
ism mainly in the sea resorts. This disproportion becomes evident from
the statistics showing that 80% of the beds in hotels is situated on 9% of
the territory of the country, mainly in the resorts at the seaside and in the
88 Vania Kuzdova BANABAKOVA
mountainskiing resortsPamporovo, Borovetz and Bansko. During the
past years migration processes from the sea resorts have been observed
which has lead to a risk of low-tide of tourists. The Bulgarian tourism is
marked by a strongly expressed territorial and seasonal concentration, and
as a result during the whole year at average 32% of the beds in the coun-
try has been occupied, whereas at the Black Sea Coast the work load has
been fewer than 30%.
We may conclude that it is appropriate to prolong the active period of
the resorts by way of diversification of the tourist product.
3.4.3. Insuffcient marketing and in particular advertising policies
Worth noting the main problem of the tourism in Bulgaria is the lack of
a united, massive and professionally developed advertisement of the country
as a whole-year tourist destination. The country does even have a clear logo
and in the final analysis it is not clear what the logo is symbolizing - the
roses, the wine or something else. There is a lack of sufficiently developed
complete marketing strategy. Despite the activate participation of Bulgarian
companies on the international tourist market during the past two years, the
comparison with our main rivals Turkey, Greece and Croatia shows that the
marketing and advertisement of the Bulgarian tourism is lagging behind. For
example, ten enormous build-boards with an area of 20 square meters each
with the following sign TUI and Turkey invite you at the Mediterranean
are situated in Frankfurt am Main. For comparison, Bulgaria does not have
similar advertisements as a tourist destination
35
.
Bulgaria owns unique natural and cultural-historic resources, unfortu-
nately, no complex national strategy for development of the tourism exists.
It is necessary to promote the country profoundly not only as a whole but
also by regions.
The government shall facilitate the private businesses in the process
of financing of national tourist advertisement rather than shall act as a
source of money. The advertisement can take an effect only if it envis-
ages Bulgaria as a destination. Each advertisement of a particular resort
just sinks into the ocean of promotions. On the contrary, everyone wins
from the common advertisement of the tourism as a destination, from
hotel-keepers to taxi-drivers.
35
Capital Newspaper, XIV year, issue. 28, 15-21 July 2006, p. 43.
89 Segmentation of the Tourist Market
However, there are not sufficient sources for advertisementnational
and businessnot only abroad and also within the country. The advan-
tages of the web-advertisement are not used very well although it provides
for more attractive and flexible tariffs in comparison with the tariffs of the
televisions, as well as for various possibilities for combinations between
text, sound and the multi media.
The advertisement of the tourist product shall not only attract the atten-
tion to it but shall also give respective information, which demands the
use of professional methods for its construction.
In the project-budget for the implementation of the strategy for Stable
Development of the Bulgarian Tourism, already discussed hereinabove,
the resources for marketing activities (advertisement, marketing research
and others) are forecasted to increase from 10 million Euros in 2005 to
20 million Euros in 2008 and 30 million Euros in 2010.
Furthermore 250-260 million Euros are expected to be allocated from
the structural funds of the EU for the Bulgarian tourism. Presently about
75% of such funds shall be invested into the development of tourist attrac-
tions and the connected infrastructure. The remaining 25% shall be invested
into the development of tourist products through marketing and advertise-
ment, training, increasing the quality of the product and the like
36
.
It becomes clear that the elaboration of a strategy for implementation
of an effective national advertisement for the Bulgarian tourist product
emerges as the major problem. The idea is to utilize public - private part-
nerships for the establishment of national tourist offices out of Bulgaria.
The Tourist State Agency and the state do not have sufficient funding to
buy or rent offices and also to hire personnel. Therefore one possible course
of action is to build such offices together with partners who meet certain
criteria. The latter shall provide for finances, and the Agency shall under-
take to advertise by the offices and to deliver the necessary materials for
Bulgaria. There is an idea to form the budget of the national tourist adver-
tisement using the public-private method. One way to realize said idea is
the creation of an additional fund to the allocated resources from the state
for advertisement and promotion, which fund shall attract resources from
the tourist branch and from the other businesses. The purpose of the fund
shall be to operate together with the state and also to advertise Bulgaria as
a destination. Of course it is necessary to estimate very well whether the
36
Capital Newspaper, XIV year, issue 19, 13-19 May 2006, pp. 26-27.
90 Vania Kuzdova BANABAKOVA
partnerships are in favor of the country and the entire tourist sector rather
than are in favor of a particular interest, organization or business.
The budget of the Tourist State Agency for advertisement for 2006
is 6,2 million leva; however the necessities require over 19 million leva.
Given that tourism in Bulgaria brought income of 1,8 billion leva for 2005,
at least 1% of said income might be reinvested in its development.
3.4.4. Insuffcient quality of the service
The number of the people working in the sphere of tourism in Bulgaria
is quite significant. At the beginning of 2004 approximately 70000 citi-
zens were hired thereto and approximately 180000 additional citizens took
part in the sales of products and services to tourists. Over 6000 families
work currently in their own hotels and restaurants as tour-operators or
agents or are hired in different productions of goods and services related
to tourism.
Although the large number of working places and engaged people in the
sphere of tourism in Bulgaria, the main problem is the lack of highly skilled
experts and professionals. The professional education in this sphere is still
not adequate because it does not respond to the increased requirements of the
tourist business. The high quality tourist services shall be reached through
suitable education and qualification of the personnel and also by passing on
the experience and the traditions. For regret both conditions for ensuring of
quality tourist services are not at the desired level. It is a paradox that in
Bulgaria there are 15 universities, 9 colleges and 56 middle schools, which
train personnel for the tourism. Every year about 3000 people graduate, and
at the same time, the quality of the tourist services has not improved.
Combined efforts between the Bulgarian tourist business and educa-
tional institutions are critical with a view of reaching a quality methodology
as to shaping the professional skills of the personnel engaged in tourism.
Another problem related to the tourist services in Bulgaria is running
out of the qualified staff working in the tourism. People often work for
about two years at the Black Sea coast and after that they choose to work
in some more developed tourist countries. As a result of the big fluctu-
ations in the personnel, the quality of services is constantly decreasing.
Unfortunately the main reason for the fluctuations is the low payment in
Bulgaria. It is not a secret for anyone that the best part of the Bulgarian
91 Segmentation of the Tourist Market
qualified staff in tourism have been realized successfully in other coun-
tries such as Greece, Spain, Cyprus ,USA and Kuwait.
Compared facts show that the level of tourists satisfaction by the level
of services in Bulgaria is still lower than the level of satisfaction by tour-
ist services in Greece and Turkey.
A positive example for the selection of necessary sources towards the
increase of the personnels qualification, as well as for the level of tourist
services is the hotel resort Helios Spa Resort in the Golden Sands Resort.
The management of said hotel intends to demonstrate greater activities
towards investments in the employees qualification despite the conspicu-
ous seasonal character of Bulgarian tourism and the respective personnels
fluctuations. The management concluded last year agreements with many
schools and universities educating staff for the tourist branch. Except intern-
ships and short vocational courses, training modules have been organized
for acquiring skills typical for the professions of the branch such as wait-
resses, bartenders, chambermaids and others. Even the errand-boys stand-
ing at the entrance of the Helios Hotel go through education.
An important precondition for the increase of the services level of
Bulgarian tourism is the introduction of the euro-standards. A serious step
shall be the introduction of the HACCR management system, a system for
analysis of dangers and control of critical points
37
. The system includes
among other a update of the objects infrastructure, an introduction of new
working rules and last but not least change of workers mindset. The
system guarantees to consumers that the particular services and offered
food are safe. The introduction of the system is necessary for food pro-
ducers and providers, including hotels in which food is served. After intro-
ducing the system at a particular facility, the certification process may be
started. The applicable legislation does not demand certification for hotels
and restaurants. However, the certification provides for the added cost of
the respective services. If the Bulgarian hotel-keepers and restaurant-keep-
ers want to welcome solvents tourists, they have to ensure the tour-oper-
ators that the served food is safe. Despite the outlays (the consulting fee
for introducing of the system in a facility with a personnel up to 50 peo-
ple is between five to eight thousand Bulgarian leva), it is recommenda-
ble that tourist facilities enter the system and receive certificates with the
purpose of increasing their competitive powers.
37
Capital Newspaper, XIV year, issue. 14, 8-14 April 2006, p. 71.
92 Vania Kuzdova BANABAKOVA
3.4.5. Poor condition of the infrastructure
The infrastructure is also a serious precondition for the charm of tourist
objects. According to experts only 32% of the whole road net in Bulgaria
is in a sufficient condition. The infrastructure is very important for the
rural, spa, and cultural - historical tourism because a great part of the tour-
ist objects do not provide for a convenient access to them. The roads of
a country are one of the main features which are important for tourists.
That is why they have to be well-marked, clean and safe.
The problems with the infrastructure create difficulties to the tourist organ-
izations which would like to take out the foreign tourists from the resorts
and show them plenty of cultural-historical sites, for example the tombs in
Kazanlyk, Perperikon and Starosel. Unfortunately for more than six years
now no adequate road has been developed to Perperikon, similarly at the end
of the road to Starosel there is a one-kilometer cobblestone lane. The road
to the Borovetz ski-resort is full of pot-holes; nevertheless plans for small,
middle and big Super Borovetz have been drawn at the same time. It is
very important to underline that there is no working economy and working
tourism without good infrastructure. The auto highways are the veins and
the blood, which flow in them, is the business; however, they are blocked in
Bulgaria. Now the Bulgarian hotels in their predominant part provide for a
better quality compared with the hotels in other European countries. But the
infrastructure cuts at least half of the price, which can be otherwise received.
Therefore, Bulgarian tourism holds low prices, pays low salaries to the per-
sonnel and its part in the GNP is lower than the possible figures. The bad
transportation infrastructure impedes the tourist development. In case infra-
structure projects are developed, the portion of tourism of the economy will
reach 10% and tourism shall be in a condition to realize about 6-8 billion
euro turnover and about 10-12 million tourists but only if the prices are differ-
ent. These forecasts are based on the experience of Croatia, Portugal, Ireland,
Spain, and Czechoslovakia. These countries have improved their infrastruc-
ture and as a result, they have become attractive for investors.
The transportation projects, critical for tourism, are the sea airports and
the highways Hemus, Trakia, and Black Sea. The best way to con-
struct said highways shall be concessions given that the state faces difficul-
ties to allocate the necessary funds (about 3 billion Euros) therefore
38
.
38
Capital Newspaper, XIV year, issue 9, 3-10 March 2006, p. 14.
93 Segmentation of the Tourist Market
The water and sewage system at the Black Sea Coast is also in a poor
condition. Despite the economic difficulties the building of infrastructure is
predominantly an obligation of the state and it shall not abdicate from it.
Another main problem related to infrastructure is the super-develop-
ment of the Black Sea resorts in Bulgaria, which have turned them into
concrete cities, not into enjoyable and interesting places for relaxation.
The mountain ski-resort Pamporovo faces a similar problem. The mass
building during the past years in the resorts has gradually led to the disap-
pointment of tourists who are looking for a calm and comfortable atmos-
phere. Moreover the whole infrastructure within the resorts turns out to be
problematic, e.g. building of pavements and gardens between the hotels
which shall be an obligation of the municipality.
In the project-budget for realization of the strategy for development
of Bulgarian tourism the paragraph for building of engineering infrastruc-
ture (roads, airports and others) provides mostly for state sources, as for
2005 they were about 300 million Euros, for 2006, 310 million Euros, for
2007 shall be 320 million Euros, for 2008, 2009 and 2010, 300 million
Euros per year.
Another problem of infrastructure is the material-technical base of the
hotels which is outworn in a certain number of cases and the quality of the
tourist productstar category of the hotelprice correlation has not been
yet optimized. This is valid especially for hotels situated inside the coun-
try, in the mountain and balneological settlements. Also not all of the hotels
have been classified in compliance with the Law on Tourism and the reg-
ulatory acts. Furthermore, the contemporary information technologies and
the regional and national networks have not been broadly utilized.
3.4.6. Limited use of internet
As a result of the limited use of Internet there are no efficient con-
nections between the different hotel systems. The dynamic of the glo-
bal tourist market stimulates the using of permanently evolving programs
with effective application in the sphere of management, communications,
advertisement, distribution and services in tourism. At the same time the
tourist sector is not very popular among the Bulgarian IT companies.
The Law on Tourism, which regulates the development and introduc-
tion of integrated systems for tourist information and national tourist regis-
try, demonstrates the positive change towards the information technologies
94 Vania Kuzdova BANABAKOVA
role in the marketing and distribution processes, in the competitiveness and
the quality of the Bulgarian tourist product.
3.4.7. Mainly offering of mass tourist product
Worth noting the Black Sea resorts predominantly offer the classical
mass product. The 2006 summer demonstrated the secondary features of
the latter. These features are last-minute offers, which attract tourists sensi-
tive to prices in conditions of high-competition. On its part the all inclusive
system (everything included in the price) is a tested method used by hotel-
keepers to guarantee that the guests will spend their money mainly in the
respective hotels. The system is also very convenient for the tourists.
Unfortunately this market segment is ungrateful and the competition is
cruel. And despite the investments in new and luxurious hotels, the whole
vision of the offered tourist product will not change soon. It is recommend-
able to put more efforts in the finishing works of the mass tourist product
to rehabilitate the airports, roads, aqua parks, and sewage system, to plant
parks and gardens, to train personnel, to start advertisement abroad.
We opine that the mistake made by the tourist branch is that after invest-
ing in expensive facilities, advertisement activities do not continue and in this
way the world cannot learn about the newly developed hotels. And regretta-
bly the hotels become outdated. The main reasons for the establishment of
the mass tourist product in Bulgaria are: the type of development, as a result
of which the resorts have started to resemble concrete cities; the characteris-
tics of the tourist product as indiscriminate and permanent; the problematic
hygiene and mainly the lost of due measure which results in oversupply.
However, Bulgaria has the potential to be a destination of mass clients,
as well as of high-class clients. The tourism in Bulgaria has the neces-
sary potential therefore but courageous investments and professionals are
needed. Also a segmentation of the market and long investments in new
luxurious hotels, managed by recognized international companies, shall be
implemented with a view of offering comfort and special conditions. This
is the way to attract high-class western tourists to the Bulgarian Black Sea
Coast. Such category of tourists do not look for low prices, instead are
interested in finding world standards of service and real experience - per-
sonal and unforgettable.
Unfortunately the competition of the market predetermines Bulgaria to
be a place for cheap tourism in the next few years. Yet 3 000 quality rooms
95 Segmentation of the Tourist Market
out of over 25 000 rooms in the Golden Sands Resorts are not enough to
overcome cheap tourism
39
. In fact the five-star hotels at the Bulgarian Black
Sea Coast are only three although the categorized hotels with four or five
stars are about 20% from all hotels at the seaside. The lower categories
hotels continue to execute one marketing method - low prices. That is why
the inflation of the categorization and the traditional marketing method - low
prices close the Bulgarian Black Sea Coast into the mass tourism trap.
For many years Bulgaria has been advertised as a tourist destination
with wonderful beaches and beautiful mountains. The big demand for real
estate in most of the Bulgarian resorts at the seaside have turned the resorts
into the big cities where concrete is more that the grass. Consequently the
property of the resorts began to decrease opposite to the continuous con-
struction process. At the same time, the advertising brochures for Bulgaria
are still popular with the low prices in comparison with the other tourist
destinations.
Nevertheless more and more owners realize that higher profits shall be
achieved through attracting solvent tourists. The country can be interesting
for tourists in two ways: cultural landmarks or entertainment. Following
the massive construction of hotels it is logical now that the investors shall
start to develop golf courses, spa-centre and other attractions, which shall
provide for the new quality of the tourist services and the yearly utiliza-
tion of the hotels.
The ambitions of the Bulgarian tourist industry in the future are directed
to the luxurious and balneo-and spa tourism.
It is necessary to reconstruct the tourist industry not only by the
type of tourism but also by market segments; a considerate state strategy,
and standards for development of the resorts and for services of the sec-
tor have to be elaborated; the advertisement of Bulgaria as a destination
shall be well financed; courageous long-term investments including the
infrastructure and personnel shall be undertaken.
As an example for the development of elite tourism in Bulgaria is the
building of golf courses. Bulgaria has the potential for its turning into
a destination for golf tourism from which millions can be earned as in
Spain, Portugal, Greece, Dubai and others
40
.
39
Nenkova A., The Bulgarian Black Sea in the Trap of Mass Tourism, 18 August
2006, <www2.dw-world.de/bulgarian/wirtschaft/1.193535.1.html>.
40
Capital Newspaper, XIV year, issue 11, 18-24 March 2006, p. 12.
96 Vania Kuzdova BANABAKOVA
3.4.8. Ineffcient role of the great number of branch organization
The number of branch organizations in Bulgaria is need quite big
three national branch organizations (the Bulgarian Association of the
Tourist Agencies, the Bulgarian Tourist Chamber, the Bulgarian Hotel
and Restaurant Association), ten product tourist organization and seven
regional tourist associations. In fact their activity is not sufficiently ben-
eficial to the tourist companies because only 20% of the latter are mem-
bers of branch organizations.
On the contrary the associations of the specialized kinds of tourism play
a very important role, for example: the National Association for Spa Tourism,
the Bulgarian Association for Congress Tourism, the Bulgarian Association
for Alternative Tourism, the Bulgarian Association for Rural and Ecological
Tourism, the Bulgarian Association for Balneology and others.
The abovementioned organizations perform complex activities - commu-
nications, advertising and consulting with the purpose of developing alterna-
tive tourism. They also take part in the practical development of new tourist
products such as creating of eco-roads, new mountain routes and others.
The Tourism State Agency prefers the branch organizations to be
united. They are the only possible partner of the government because the
tourist sector is private. For regret there are controversies between the
branch organizations which for most of the time are personal rather than
professional. A great challenge before the tourist sector is to demonstrate
its unity so that every player would have bigger advantages and the state
will pay more attention to tourism
41
. To a certain extent the arguments are
based on contradictory economic interests.
For example, the interests of the investors, who have already built
hotels at the Black Sea coast, contradict to interests of investors, who are
building hotels at the moment. However, in case there is only one insti-
tution, which can classify hotels, it will also define where the hotels can
be built respecting both private and public interests. As of the moment a
construction permit shall be issued either by the respective municipality
or by certain state authorities.
In this relation, is also necessary to create a ministry of tourism, which
shall protect the interests of the branch. So far it has been quite difficult to
place the problems of tourism within the range of competencies of various
41
Capital Newspaper, XIV year, issue 19, 13-19 May 2006, pp. 26-27.
97 Segmentation of the Tourist Market
state administrations; as well to get a national tourist strategy being elabo-
rated. It is also important to utilize properly the European accession funds.
The examined main problems of the development of tourism in Bulgaria
do not exhaust all the possibilities. Several other problems related to all
businesses shall be mentioned, namely taxation, corruption, unstable leg-
islation, finances, social - insurance system and unfair competition.
The development of the tourism in Bulgaria shall also conform to the
main trends of the tourist preferences and offered tourist products all over
the world, namely
42
:
People travel more often but for a shorter time. Instead once per
year selecting two or three weeks holiday at the seaside, clients often
choose multiple short holidays in a mountain spa hotel or European
capital city. Also the interest to traveling abroad is increasing.
People prefer more and more to organize by themselves not only
short travels but also long travels. That is why tour-operators, which
provide for different components with the opportunity for free com-
binations of flights and hotels, win competitive advantage.
The luxurious holidays are the most preferred. Very often clients
book their holidays via Internet and in this way they jump over
the classical tour-operators. It is almost a rule to combine between
flights with a low-rate airline company and a 5-stars hotel.
According to the facts in 2010 about 30% of the reservations are
going to be for different components of the traveling (for 2000
these reservations were over 6%). As a result the market part of
the tour-operators offering packet holidays will decrease from 45%
in 2000 to 35% in 2010.
The component tourism is stimulated by the increased offers of the
cheap airline companies like Ryanair or Easy Jet; of hotels Marriot
or Hilton, and of tourist portals like Expedia, Avigo or ITur. The
Internet sites of the airline companies give access to links of the
partner hotels and the portals offer everything which is necessary
or possible flights, hotels, cottages, rent-a-car, packets and last
minute traveling.
The tourist portals are not only a comfortable alternative of the
tourist office but they double as tour-operators. Nowadays almost
40% of the turnover of Expedia (Germany) is received from the
42
Capital Newspaper, XIV year, issue 12, 25-31 March 2006, pp. 59-60.
98 Vania Kuzdova BANABAKOVA
mixture of different alternatives created by clients. It is expected
that until 2010 this segment shall increase up to 60%.
The tourist groups are also involved in the Internet business. The
market leader TUI starts offensively with its portal www.TUI.com.
Through the site the client can book packet holidays or choose
between 35 000 hotels, 15 000 vacation settlements and flights
of 150 airline companies. Thomas Kuk marks an increase in
Internet reservations for the next summer season (for 2006).
On the base of the examined trends and problems in the development
of tourism in Bulgaria, we can make the following key conclusions:
It is recommendable to perform a segmentation of the market and
orientation not only to mass tourists but also to elite tourists, as
well to offer them the respective tourist product;
It is recommendable to direct the efforts not only towards the sea
and mountain tourism but also to cultural tourism, spa tourism,
balneological tourism, congress tourism and others;
It is recommendable to enhance the education and training of the
personnel of the tourist sector;
It is recommendable to improve the infrastructure in the country
with a view of increasing the attractiveness of the tourist product
with the help of the government;
It is recommendable to offer common tourist packages with other
countries (for example with the Balkan Peninsula countries) in
order to attract new market segments;
It is recommendable to deepen the offering of tourist packages for
shorter trips and flexible packages comprised of different modules;
It is recommendable that the tourist branch shall be united, as well
as that a Ministry of Tourism shall be established for the better pro-
tection of the interests of tourism as a whole and for the better uti-
lization of the European funds.
In conclusion, we have to highlight that the country has the necessary
potential for the development of tourism; however, its approval as a world
tourist destination attracting solvent tourists demands serious and expedient
efforts on the side of the private business and the government. As a priority
such efforts shall be orientated to the application of marketing instruments
for segmentation of the tourist market, the choice of targeted markets and
the way for positioning of the suitable tourist product thereto.
99 Product Policy in Tourism
Product Policy
in Tourism
Alexandru NEDELEA, George P. BABU
4.1. The Concept of Tourist Product
In general, technical literature defines the tourist product as a combi-
nation of tangible and intangible elements with the role of satisfying the
tourists needs throughout the journey. The primordial role falls to the lat-
ter category that is accounted for by services or by tourist undertakings
through which are valued components of the tangible type, i.e. the tourist
patrimony and infrastructure of a certain area.
Tourist agencies sell complementary tourist service packages (accom-
modation, food, transport, recreation, treatment, insurance) offered under
the shape of distinct tourist products capable of attracting potential tour-
ists. The tourist undertakings that form the structure of a tourist product
are provided by diverse independent enterprises: housing structures with
accommodation functions, alimentation facilities, transport companies, rec-
reation and treatment facilities, tourist equipment renting firms, museums
etc. The tourist product presupposes the undertaking of supplementary
services such as: tourist assistance services (guides), information serv-
ices, intermediation services (booking seats in means of transport, book-
ing rooms in accommodation facilities), other special services: secretarial
(during conferences), translation (during sojourns abroad), baby-sitting
etc. The role of a tour-operating agency is to manage and to co-ordinate
these complementary services so as to produce a complete and complex
supply, adapted to the tourists preferences
1
.
We consider that the analysis performed by J. Krippendorf
2
regarding
the elements that concur to achieve the tourist product contributes to the
clarification of this concept, which includes:
1
J. C. Holloway, R. V. Plant, Marketing for Tourism, Pitman, London, 1992, p. 103.
2
J. Krippendorf, Marketing et tourisme, Ed. Herbert Lang, Berne, 1971, p. 109.
4
100 Alexandru NEDELEA, George P. BABU
natural components: geographic setting, climate, landforms, waters,
landscape, vegetation, fauna, natural parks and reservations, spe-
cial attractions (natural monuments);
general components of human life: language, culture, traditions,
customs, folklore, hospitality etc;
general infrastructure : transport and communication, commercial
network, structure and image of urban demographic distribution,
water and power supplies, sewage, sanitation etc.;
tourist infrastructure : tourist agencies, all categories of tourist trans-
port (cable transport included), accommodation facilities (hotels,
motels, chalets, villas, camps, agro-tourist boarding-houses), ali-
mentation facilities (restaurants, bars, fast-food stalls), recreation
and amusement facilities, healthcare facilities (treatment sanatoria,
specialized hospitals and polyclinics, first aid services), network of
tourist information, commercial network for tourist consumers;
the human factor , represented by the activity of the people who
work in hospitality, whose role is essential in achieving the tourist
proceedings that form the tourist product.
Within this complex system of elements that define the tourist prod-
uct, the tourist patrimony of the area or of the country plays the key-role
in attracting consumers, as it includes its tourist resources, natural, cul-
tural, religious, historical, and human, concentrated under the shape tour-
ist objectives (e.g. a historical site, a natural reservation etc.). The primary
resources of the national tourist patrimony must be valorised with a view
to enhance the attractiveness of a region with tourist potential. The val-
orisation takes place by employing the secondary resources of the tourist
product, which consist in the tourist equipment of the attractive regions
(accommodation, alimentation, recreation, balneal-medical treatment, tour-
ist transport), and in the complementary tourist infrastructure needed in
order to access, to exploit, and to maintain the tourist equipment.
The natural components, the general components of human life, and
the general infrastructure form the original tourist supply, while the tourist
infrastructure generates the derivative tourist supply. The natural factors of
the tourist product represent the most important element of the original sup-
ply. As far as tourist agents (tour operators) are concerned, once they have
decided upon the location of the tourist product, their possibilities of act-
ing upon its natural components are restricted in comparison with the case
of industry, where one can alter all the essential elements of the product.
101 Product Policy in Tourism
The possibilities of altering the tourist product in the long run are more
numerous than the short term ones, while the tourist enterprises degree of
influence is smaller than that of the national organisms of hospitality.
If we analyse the effect of each component of the tourist product upon
the satisfaction of the consumers, we may notice the existence of a syner-
gic process. The role of tourism marketers is to create a form of positive
synergy between the original and the derivative factors of the tourist prod-
uct with a view to enhancing the attraction of tourist arrangements. A tour-
ist product structure made up by an attractive derivative supply and by low
quality original factors will fail to attract tourist demand. Furthermore,
tourists will not visit a historical site in a country if the reception struc-
tures in the area do not guarantee a minimum degree of comfort.
A critical importance in shaping the image of the tourist product falls to
the exterior and interior physical state, and to the cleanness of the building
that offers tourist services. Whats more, the quality of the furniture, of the
equipment, of the tourist means of transport, and of the signalisation of the
tourist facility in question contributes to attract potential consumers.
If we bear in mind a global concept of the tourist product, its quality
depends not only upon the existence of a valuable tourist patrimony and
of a developed tourist infrastructure, but also upon the standard of the
services offered by the people who work in hospitality. Thus, we believe
that, in order to determine and individualise tourist products, one has to
put particular emphasis on the service-offering activity that would valorise
the potential of certain tourist objectives. In this respect, the tourist per-
sonnel must be trained and perfected, and all employees must be moti-
vated so that the services they offer may reach top quality. The quality of
the human resources involved in tourist activities, which implies compe-
tence and quality of service-offering, politeness and charisma, contributes
decisively to the personal satisfaction of the tourists they work for. At this
point we must note that even the general attitude of the locals towards a
foreign tourist who has a different culture, religion, and lifestyle, will con-
stitute an enduring travel reminder, and a factor of either satisfaction of
dissatisfaction. This attitude will put an imprint on a people as either hos-
pitable or inhospitable.
Together with the structural components of the tourist product men-
tioned above, we may also include the institutional resources related to
tourism: regulations and facilitations regarding the development of national
tourism, the system of international agreements with an impact on tourist
102 Alexandru NEDELEA, George P. BABU
circulation, passport and visa policies, currency regulations, the judicial
status of tourist security and protection, the service quality control, the
protection and preservation of the tourist patrimony.
In our opinion, the definition of the tourist product should display a
larger perspective, according to which the product should presuppose a
summus of satisfactions and dissatisfactions experienced by the customer
in the process of tourist consumption. Thus, the tourists satisfactions
refer to the obtainment of relaxation, of recreation, of rest and comfort
throughout the sojourn, or are related to the existence of prompt and ready
services, of a good quality-price ratio, of payment facilities. Social satis-
factions are connected with the need to belong with a group, with the need
for friends, while psychological satisfactions may presuppose experienc-
ing the sentiment of free will, of escape from the daily routine.
The level of satisfaction obtained by each tourist after consuming the
tourist product depends upon its degree of adjustment to the personal
motivations of the respective individual. The diversity of preference and
the tourist motivations make the demands regarding the structure of tourist
products differ from one person to another. The ensemble of tourist serv-
ices observing individualization to the closest detail is also known in tech-
nical literature by the name of tailor-made tourist product.
The dissatisfactions occasioned by the consumption of tourist products
whose level ideally tends toward zero are related to the poor quality
of the services offered (influenced by the competence of both managers
and personnel), to the behaviour of other customers, to the infrastructure
of the respective tourist area etc.
With regard to the tourist product, both technical literature and tourist
practice make use of the term package tour, which presupposes the pre-
liminary combination by the tour operator of at least two of the following
tourist services: transport, accommodation, alimentation, health treatment,
recreation and amusement, car rental, tourist assistance etc. This ensemble
of tourist services is conceived and offered by the tour-operating agency at
an all expenses paid price. The services are dosed in most diverse com-
binations, as there are endless possibilities of detailing that would lead to
the obtainment of different tourist products even in the case of a single
tourist destination or a single form of tourism. We may use as an exam-
ple the multitude of possible variants in getting a tourist circuit under way
in terms of number of stops, of visited tourist objectives, and of their suc-
cession. A function of the environmental conditions imposed by seasonal
103 Product Policy in Tourism
periods, the proportion to which exterior tourist activities (that take place
in the open) and interior activities (that take place within hospitality facili-
ties with functions of accommodation, alimentation, or recreation) contrib-
ute to the conception of a tourist product changes according to the tourists
preferences and motivations.
It must be noted that a certain tourist destination or an accommoda-
tion facility can be part of several different tourist products (e.g. a ten-
day sojourn during the summer season; bed-and-breakfast accommodation
for a two-day tourist circuit; a three-day congress for ninety participants).
Similarly, numerous destinations can offer landscapes, historical monu-
ments, folklore, beaches etc., which are not tourist products themselves,
but must be regarded as the raw material that can be put to various uses,
in order to meet the requirements of the targeted markets, that is, as part
of various tourist products. In conclusion, tourist operators can create and
sell different tourist products that use, simultaneously or alternatively, the
same technical and material tourist base and the same tourist attractions
in terms of certain seasonal characteristics.
The total product concept is employed by Philip Kotler to define
the systemic character of the product as a three-level construct: the core
product, the tangible product, and the developed product
3
. The core (cen-
tral) product represents the essential service or utility conceived to satisfy
the identified needs of the target segment. The tangible (formal) prod-
uct is made up by the specific selling offer that establishes what the con-
sumer will receive in return for his/her money (the quality level of the
product, its features, style, and brand name, are all envisaged). The devel-
oped product comprises all the immaterial elements related to the respec-
tive product, including the services offered to the customer before, during,
and after the sale, which determine the attractiveness of the supply.
If we expand this approach to the tourist product we can consider the
concrete case of a tourist arrangement which consists in a week-end spent
in a hotel by a couple with young children. More specifically, the supply
means two nights of accommodation (breakfast included) in an accommo-
dation facility belonging to a hotel chain.
The core tourist product aims the advantages, the satisfactions per-
ceived by the tourist as likely to obtain by consuming the product: relaxa-
tion, rest, amusement, and self-fulfilment in the bosom of the family.
3
Ph. Kotler, J. Bowen, J. Makens, Marketing for Hospitality & Tourism, Prentice
Hall, London, 1996. p. 274.
104 Alexandru NEDELEA, George P. BABU
The tangible tourist product comprises the elements of the supply as
they are presented in the brochure: two-day accommodation and breakfast
in a certain hotel, a room defined by an exact standard (a specific classi-
fication category), provided with bathroom, telephone etc.
The developed tourist product includes all the component elements of
a global, unique, and attractive experience, which presupposes a series of
advantages offered to the client from the moment of his/her first contact
with the accommodation facility until his/her future visits. In this case we
speak of the firms opportunities to differentiate their own products from
the competitions products. As an example, upon arrival tourists can be
offered a box of chocolates or tickets for a tourist objective or for a rec-
reation facility in the area. These components are tangible, but there are
also intangible elements that belong to the developed tourist product, such
as the psychological advantages (e.g. escape from the daily routine, the
feeling of belonging to an elite), the quality of the tourist services offered,
the hospitality of the hotel staff, the image that the respective product has
among consumers. This last component cant be copied by the competi-
tion, and represents the main factor according to which the tourist chooses
the accommodation facility. The image is made up by physical elements
(architecture, climate, natural style) and by psychological elements (ambi-
ence, lifestyle, social status of clients)
4
.
In technical literature, the developed tourist product presupposes
aspects related to accessibility, atmosphere, client-tourist service facility
interaction, customer participation to the service, and interaction between
tourist consumers.
The accessibility of the tourist product is in close connection with
its price, with the convenient location of the hospitality facilities, and
with their functioning hours, which should correspond to the customers
needs.
The atmosphere and the exterior aspect of the tourist facility are instru-
mental in attracting consumers. In hospitality, the reception facilities and
conditions are part of the tourist service. The quality of sceneries (defined
by colour, radiance, size, form) and the comfort of the place (given by
cleanness, by quality of service, equipments, and ambient music, by room
temperature etc.) help create an atmosphere that determines the satisfac-
tion of the tourists needs and wishes.
4
A. Vorzsak (coord.), Al. Nedelea et al., Services Marketing, Presa Universitar
Clujean, Cluj-Napoca, 2001, p. 191.
105 Product Policy in Tourism
In our opinion, the client-tourist service facility interaction is part of
the tourist product. Besides, the consumers participation to the production
process constitutes an essential feature of the service supply. This direct
involvement of the tourist is most clearly highlighted in recreation services,
which practically give shape and are indispensable to the tourist product.
An important role falls to the entertainers whose responsibility is to create
good humour and an atmosphere of physical and psychical relaxation that
facilitates reciprocal contacts between tourists.
Sample-offering is another example of attracting visitors. Thus, for-
eign tourists often shy from ordering local gastronomic specialties. A solu-
tion in this respect is to sell various food samples, illustrative of a certain
tourist area.
In order to facilitate tourist access to diverse tourism services it is
absolutely necessary to create the best location signalization possible for
all sorts of tourist facilities. Otherwise, a hotels guests might for instance
leave the accommodation facility not knowing that on the premises there
is a keep-fit lounge, or a handicraft shop. It is recommendable that hotel
staff direct and even accompany guests to the respective destinations.
In conclusion, we can state that the tourist product represents a com-
bination of access components, patrimony components, and tourist equip-
ment, according to rules and principles drawn from tourism research and
experience.
A consumer-oriented approach of the tourist product means to observe
several aesthetic and psychological requirements. In this context, we must
note that, in technical literature, product policies and tourist development
policies are often correlated.
Specialists in the field share the opinion that the conception of the
tourist product presupposes not as much an object projection as an envi-
ronment projection. As a result, we note how important may be the choice
of scenery, the inedited location, the picturesque and diverse landscape,
and the accessibility of the site. Furthermore, special attention must be
given to the issue of creating a general ambience by conception and inte-
gration into the chosen natural aesthetic framework of those elements that
make up the artificial environment (buildings, recreational facilities, orna-
mental objects and plants, roads, railroads, and communications).
Tourist aesthetics cannot be separated from tourist products; neither
can it be opposed to the natural landscape as it focuses the interior deco-
ration of hotels, motels, restaurants, game saloons, and discotheques.
106 Alexandru NEDELEA, George P. BABU
4.1.1. The particularities of the tourist product
Tourist marketing is singled out from other branches of services mar-
keting in close keeping with the tourist products specific features. It dis-
plays a systemic character, whose components are inter-conditioned and
must be adapted to the demand both individually (as each has its own mar-
ket) and as a whole.
Yves Tinard
5
highlights the fact that the tourist product enjoys prod-
uct and services characteristics at the same time, and he links the tourist
products specificity and characteristics to the characteristics of the services
it encompasses.
As we have previously shown, the tourist product is a complex, assem-
bled product, wherein are included not only elements of attraction (land-
scape, history), but also elements destined to give value to the former
ones, that is, tourist services. Within a tourist arrangement, the primor-
dial role is allotted to the tourist services that represent complementary
by-products of the global tourist product (accommodation, alimentation,
transport, recreation, health treatment).
Having mentioned this idea, we think it fit to underline that, in general,
the complementarities of the services that account for the tourist product con-
ditions the supplys quality. Thus, when a single service does not meet the
consumers exigencies as far as quality is concerned, a negative imprint is
put on the whole perception of the respective tourist arrangement. As such,
the tour operator that develops the entire package tour must ensure a rigorous
selection of providers according to their capacity of offering quality services.
Furthermore, the marketing efforts of all the firms that contribute to the tour-
ist product development will have to ensure a positive synergic effect materi-
alized so as to satisfy the tourists (consumers) needs and wishes. This can be
achieved by means of co-operation at the level of commercial agents and eco-
nomic organisms involved (hotels, restaurants, transporters, travel agencies,
traders, local communities, national tourist boards etc.), with a view to
6
:
achieving common marketing goals;
defining and assessing individual contribution to global tourist
product development;
5
Y. Tinard, Le tourisme economie et management, Ediscience International,
Paris, 1994, p. 75.
6
G. Tocquer, M. Zins, Marketing du tourisme, Gatan Morin Editure Qubec, 1987,
p. 155.
107 Product Policy in Tourism
establishing product market position and defining targeted markets;
coordinating mix marketing strategies of tour operators involved.
Thus, we believe that the existence of a coordinating organism is
instrumental in order to ensure a most harmonious integration among the
various components of the tourist product. Furthermore, we cant help but
notice that the world tourist market displays a growth tendency as to the
horizontal and vertical integration of suppliers who provide various ele-
ments of the tourist product (e.g., development of hotel chains, building/
purchasing accommodation and alimentation facilities, or transport com-
panies, by major tour operators).
The tourist products modular character allows for great flexibility in
building a personalised supply. On the other hand, such an option enlarges
activity complexity on the part of the travel agency. Even though the tour-
ist supply is still strongly standardised, the ever fiercer competition on the
tourist market calls for more and more frequent use of flexible, modular,
and personalised tourist products. This supply type can produce increased
satisfaction on the part of the customers, who can try a diversified tourist
package, adapted to their specific needs. Not to mention that in the case
of tourism on ones own (lacking any form of organization), the consumer
himself may assemble the tourist product.
If we compare tourism with other domains we notice that the pas-
sage from product to product can be achieved more easily. Thus, a travel
agency can at any time include in or eliminate from its supply structure
different types of tourist products without changes in training, personnel
numbers or operational equipments.
As we have already shown, the tourist product presupposes a com-
bination of tangible and intangible elements whose role is to satisfy the
tourist consumers motivations. The supply of material goods within the
tourist product is relatively limited in comparison with the service sup-
ply; it may, for example, consist in souvenirs (handicraft products, tour-
ist brochures etc.) and various items necessary for the journey and for the
sojourn as such (maps, tourist guides, postcards, photo films, sportswear
and equipment, games etc.). The other tangible elements are exemplified
by the patrimony of tourist resources (natural, cultural, historical, archi-
tectural etc.) which serves as a tourist attraction, as well as by the general
infrastructure and by the tourist equipments.
The tourist products intangible components can be divided into two
categories, by appeal to a self-asserting dichotomy:
108 Alexandru NEDELEA, George P. BABU
services or tourist undertakings that practically play an essential
part in defining a tourist arrangement;
psychological elements: ambience, comfort, luxury, exoticism etc.
This intangible character gives the tourist product an enhanced degree
of difficulty in its development and trading. Thus, selling a tourist product
is riskier than selling material products. Being immaterial, tourist service
packages are difficult to advertise to potential customers; they cannot be
tested before purchase and consumption, neither can clients return them for
substitutes or in case of indemnity. After all, after consuming tourist prod-
ucts, clients only remain with the memory of a pleasant vacation, as, except
for photographs and souvenirs, nothing tangible rests with them (the tourist
product cant have net worth). Consequently, we could compare tour oper-
ators with dream traders, whose task is to persuade potential tourists that
the tourist products they created can satisfy any clients personal needs.
The time-space superimposition of tourist product production and con-
sumption generates a series of inconveniencies specific to tour operators.
Thus, we may note that due to the inseparability of the two processes
the services flaws in quality cant be repaired subsequent to their occur-
rence. As such, we believe that hospitality marketers must acknowledge
as top priority the prevention of such occurrences with a view to meeting
the customers exigencies. If a tourist service is inferior in quality to what
was paid for in advance, then the only course of action to be taken is to
reimburse the entire package or the price differences.
By the way they evolve, tourist services cant be separated from the
person who performs them; their trading requires direct contact between
the producer-performer and the consumer. This objective dependency on
the performer, greater than in other branches of the tertiary line of busi-
ness, makes the tourist services more expensive as far as work force is
concerned.
In comparison with material goods, we note that a particularity of
tourist services is their consumption right in the location where they are
performed, be it the transporters vehicle or the hospitality facilities with
functions of accommodation, alimentation or recreation.
Tourist companies, except for travel agencies that act as intermediar-
ies, are service enterprises conditioned by the presence of the customer,
who has to travel to the production site, that is to a certain destination or
tourist facility, in order to consume the tourist product. Consequently, we
notice that most of the constituent elements of the tourist product (tour-
109 Product Policy in Tourism
ist patrimony, general and tourist infrastructure) share a local character:
they cant be moved about, and their valorisation is limited by the given
location. Furthermore, the tourist product has no reason for being if there
are no consumers, and consequently the tourist infrastructure and the qual-
ified personnel pertaining to it are not given any value whatsoever.
In relation with the tourist demands high elasticity we note the rela-
tively rigid, inelastic character of tourist products, which cant be adapted
to quantity and quality short-term modifications (e.g. determined by cur-
rency rate variations, by economic, political or meteorological conditions,
by diversification of tourists motivations and preferences). The tourist
product supply depends on the general and tourist infrastructure in exist-
ence at a given moment. Besides, as it is primarily made up by personal
performance, the tourist product cant be stored, being a very perishable
product. As a result, if we take into account the seasonality of demand for
tourist products we wont fail to notice the negative effect of not employ-
ing the production capabilities during extra-seasonal periods. As it cant
be stored, the tourist product can only be furnished on demand; the serv-
ices it contains must be rigorously scheduled so as to follow one another
in the order of their consumption.
We consider that the strategy of supplying new tourist products during
extra-season, in order to diminish the negative impact mentioned above,
does not always gain legitimacy as a viable solution. This is because fur-
ther investments in the tourist infrastructure are necessary in order to adapt
it to extra-season conditions. Thus, for example, a seaside hospitality struc-
ture functioning as tourist accommodation facility could be employed dur-
ing extra-season as a health resort hotel, but this would entail an allotment
of further funds in order to furnish the structure with central heating (use-
ful only in winter) and to transform certain rooms in healthcare facilities.
Making such investments and hotel adaptations is not always possible.
Another essential particularity of tourist products is their heteroge-
neity, which is determined by the existence of very complex and diverse
tourist motivations. The tourist consumers tastes and preferences are so
individualised that there are hardly two tourists to ask for exactly the same
tourist product. In other words, we believe that it is practically impos-
sible to perform absolutely identical tourist services (unlike the making
of manufacture products). The existence of quality differences between
different tourist by-products will automatically lead to the modification
of the respective tourist arrangement. Thus, for example, with the hotel
110 Alexandru NEDELEA, George P. BABU
tourist product the rooms differ from one another in terms of rating (the
number of stars), area, appliances, furniture placement, orientation (view)
to beach, lake or picturesque valley.
As a rule, the purchase of a tourist arrangement undergoes a prelim-
inary phase during which the potential client, unable to test the tourist
product in advance (as it is immaterial and intangible), searches for as
much information as possible as to the available offers, in order to cut
short the risk of dissatisfactory tourist experiences.
As a result, we consider that the quality of the client-firm contact is
essential, as well as the very important role that falls to the personnel who
are in direct and permanent contact with consumers: travel agents, door-
men, receptionists etc. Thus, it is absolutely necessary to continuously
perfect the training of the welcoming personnel, the communication with
clients, thus ensuring a personalization of contacts with the consumer-
tourist. The service undertakers own qualities (which are exclusively
related to the development of a strong ability to empathise) are essential
to achieve customer fidelity.
Having performed a complex assessment of gathered information, the
customer compares tourist products and finally picks the one who appears
to be the most advantageous according to his/her wishes and personal
situation. Generally, customers choose those package tours that display
enhanced attractiveness, novelty, exoticism, but also an optimal quality-
price ratio. As a particularity of the tourist product we can mention that it
can be purchased by clients in advance, even long before the moment of
service performance and service consumption proper. During the second
phase, the tourist product is consumed, or better put, experienced, which
presupposes a direct interaction between client and environment, respec-
tively between client and tourist organizations and facilities.
If we analyse peoples behaviour as consumers we note that the tour-
ist product is in competition with both products of immediate necessity
and with home appliances (this competition is the fiercest within an infla-
tionist economy), but also with other similar tourist arrangements, due
to their interchangeable character. Thus, competition doesnt take place
only between tourist product suppliers, but also between the operators
who offer different services that are part of the same product. In practice,
air travel can be substituted by train or car travel; accommodation can be
offered in hotels, villas, camps, private persons who perfected contracts
with travel agencies, agro-touristic pensions etc.
111 Product Policy in Tourism
Because tour operators sell tourist service packages, instead of physical
products, it is possible that the market witness the apparition of compet-
itors who imitate a certain suppliers product. Furthermore, the elements
they offer are similar to the competitions (sunny beaches, transport to tour-
ist destination, accommodation and alimentation services). Consequently,
when a tour operator launches a new tourist product or service on the mar-
ket and it proves successful, the competition can easily imitate it. Whats
more, its legal protection is limited to brand name or trade mark.
We may note among the particularities of the tourist product that each
component can exist and manifest itself not only in interdependence with
others, but also in complete independence. Thus, for example, recreational
and public alimentation services can be consumed separately by local pop-
ulation as well, not only by foreign tourists.
The tourist product fluctuates continuously in terms of territorial dis-
tribution, a characteristic feature determined by various phenomena, such
as extinguishment of mineral springs, of fishing and hunting areas, discov-
ery of new ones, deforestation, cave deterioration, water and air pollution,
all leading to a decrease in attractiveness. Fluctuation is also determined
by the apparition of new tourist attractions and facilities, or by changes in
tourists preferences as to travelling destinations.
4.1.2. Tourist services
As we have already shown, the tourist product is regarded as the result
of associations and interdependences between resources (patrimony) and
services. Tourist services are particularly important because resources are
materialised into various tourist products only by means of specific serv-
ice performance.
In hospitality, we note the existence of a complex system of tourist
services which presupposes the involvement of a large number of per-
formers. Closely correlated with the volume, the structure, and the inten-
sity of tourist demand, tourist services take part into the development of
a tourist product in different degrees, according to case and to the organ-
isers capacity to satisfy customers needs and wishes in the concrete con-
ditions of various areas, resorts, or other tourist attractions.
Analysts in the field made a classification of services contingent on
the structure of the products offered, which lists:
112 Alexandru NEDELEA, George P. BABU
A. Specific tourist services:
a) services that prepare tourist consumption, pertaining to travel arrange-
ments, advertising and potential customers information, development
of all-route travel programmes, of tourist guides and maps, service
reservation for elicited destinations (as with transport, hotels and res-
taurants, cultural, artistic, and sportive events), travel paperwork etc.;
b) basic services:
tourist transport services, such as flat rate travel arrangements (char-
ter and I.T. Inclusive tours), or the situation when tourists ask
travel agencies to provide such services during the tour (including
car rental with or without driver);
accommodation services, that provide conditions for tourist board-
ing in different facilities, at the desired level of comfort, including
the auxiliary services performed on the premises;
alimentation services, undertaken in specialised or non-specialised
facilities.
c) supplementary (complementary) services, designed to inform tour-
ists and to ensure pleasurable pastime on sojourn: recreation
7
, enter-
tainment, sports, trips, cultural and artistic events, sports equipment
rental etc.;
d) special services: balneal-medical treatment, services for congress
(summit) tourism, for hunting, fishing, horse-riding, climbing, parag-
liding, delta gliding etc.
B. Non-specific services: generic services offered to population by dif-
ferent institutions that tourists may resort to on occasion (e.g. post office
and telecommunications, exchange offices, repairs and maintenance etc.).
In this context, we must bear in mind that, among all services that help
to shape the tourist product, only the recreational service is indispensable, as
its absence causes the other services to lose touch with tourism as such.
To continue, we will exemplify by presenting the classic tourist supply
of a Romanian tour operator that has adopted a strategy of service diver-
sification ranging from simple to complex service undertaking:
booking boarding (private pensions too), meal, and transport reser-
vations;
booking tickets for various events: theatre, opera, concerts, sports shows;
7
We must note here that recreation represents an indispensable element (it is
the very motivation of tourism), without which other service types are left aside the
tourist business.
113 Product Policy in Tourism
ticketing services (transport tickets sales);
rest and health treatment sojourn arrangements in mountain or
Black Sea resorts;
hunting, fishing, and horse-riding tourist programmes;
organising receptions, conferences, banquets, cocktail parties;
organised tours to Romanian and foreign tourist attractions;
rural tourism;
study and thematic trips for pupils, students, institutions etc.;
car rentals, couch and van rentals with hired driver;
travel insurance;
automobile transfer to/from airport and railway station;
providing translating guides and company personnel for tourist
groups and individual tourists;
secretariat (during congresses);
tourist consulting and assistance.
We must mention that tour operators usually develop tourist products
by inclusion of a minimal set of services provided for an attractive global
price so as to stimulate the customer into acceptance of the entire tour-
ist arrangement. This strategy is based on the fact that once tourists reach
the sojourn destination they will spontaneously ask for tourist services to
satisfy their personal preferences.
In order to stimulate tourist demand and to achieve high level satisfac-
tion of customers needs, we believe it is necessary that tour operators high-
light as top priority the supply diversification of tourist products, ensuring
their variety and quality, and consequently their market competitiveness.
4.1.3. Tourist product typologies
As we have previously mentioned, the tourist demands and motiva-
tions are heterogeneous and individualised, which determines a tourist
product diversification with a view to satisfying customers preferences
and fighting monotony in the field of tourist supply. Given this particu-
larity, it is natural for technical literature to feature a multitude of tourist
product classifications contingent on various criteria.
Generally speaking, we note that analysts
8
of tourism identify five
large cate gories of tourist products: geographical entities, package tour
8
G. Tocquer, Marketing du tourisme, Gaetan Morin, Montreal, 1987, p. 161.
114 Alexandru NEDELEA, George P. BABU
products, tourist resort products, event tourist arrangements, and pri-
vate tourist products.
1. Geographical entities. The tourist macro-product consists in a tour-
ist destination the size of a continent, of a multinational geographical
ensemble (e.g. South-Eastern Europe), of a country, or of a locality. It
is obvious, though, that this notion makes sense only if there is a formal
tourist product, developed by an organisation which endows it with trad-
ing existence. One difficulty in managing this product type is the very
large number of firms and businesses involved (e.g. national, regional or
local tourism boards, chambers of commerce, professional associations),
as well as the absence of a central coordinating organisation.
2. Package tour products are made up by an ensemble of tourist serv-
ices (accommodation, alimentation, transport, recreation, insurance, tourist
assistance etc.) offered for a global price (for example, a tourist circuit).
If we analyse present-day customer behaviour we notice that experienced
tourist tend to give up purchasing package tours, choosing instead partial
tourist products. These may simply consist in accommodation services by
reservation in a resort hospitality facility, while the rest of services are
purchased by the tourist at the destination.
3. Tourist resort products. Here we can list several types of resorts:
balneal, climatic, thermal, winter sports, all of which experience fierce mar-
ket competition.
4. Event tourist products. We can include in this category sportive,
cultural, religious, folkloric, recreational events that constitute tourist attrac-
tions, but are inconveniently short-lived (e.g. the Vatra-Dornei Snow Feast,
the Rio Carnival, the Cannes Film Festival, the Formula1 Monte Carlo Grand
Prix, various concerts). We can note that it is difficult to manage such a prod-
uct, which requires long organisation terms, considerable advertising effort,
and engenders only short-term profits. This type of product is yearly and rep-
etitious, but if its popularity decreases it is very difficult to adapt and alter.
5. Private tourist products can be developed in relation with certain
activities such as sports (horse-riding, delta gliding, paragliding, climbing,
river rafting, mountain biking, rowing), hobbies (handicraft, music, gas-
tronomy, hunting, fishing etc.), congresses, courses and seminar arrange-
ments (yoga, handicraft, music etc.).
Package tours are the most complex among tourist services, as their
price includes: out and home transport, transfer, company, accommoda-
tion, restaurant, recreation, animation, treatment, special undertakings (e.g.
115 Product Policy in Tourism
congress tourism), and insurance. Package tours are based on the all
inclusive (I. T. inclusive tours) formula and on the mixed formula
9
.
I. Integrated tourist products the all inclusive (I. T.) formula
contains tourist arrangements such as sojourns, circuits, cruises, la
carte products, and specialised products.
a) The sojourn tourist product is a supply of accommodation in a
hotel for a precise period (as a rule, a minimum number of days or
series of 7, 10, 14 or 21 days form the hospitality offer according
to the contract between tour operator and tourist facility), with or
without out and home transport, transfers, restaurant, recreation. It
is specific to resorts (healthcare, mountain, seaside) and to tourist
clubs that share product policies oriented towards a more flexible
supply, offering tourists bed-and-breakfast arrangements or accom-
modation only, as tourists are supposed to make their own sched-
ule according to personal preferences.
A classic example is the rest and treatment arrangement which can
occur all through the year and represents an individualised tourist prod-
uct, adapted to any tourists needs, in keeping with tourist demands and
medical recommendations for specific balneal treatments. Tour operators
also offer specialised sojourns: gastronomic, sportive, healthcare (e.g. tha-
lassic and body refreshment therapy).
b) The circuit tourist product is a voyage, with or without a guide,
which includes out and home transport, bed and board, half
board, or only breakfast, recreation (visits to tourist objectives).
Thus, travel agencies catalogues display discovery circuits (for
instance, foreign tourists visiting Romania are offered a discov-
ery circuit to the Northern Moldavia monasteries combined with
a Black Sea resort sojourn, adventure circuits (e.g. safari), the-
matic trips to unique objectives, memorial houses, museums, exhi-
bitions, fairs (special thematic programmes can be mentioned here,
such as On the Track of Dracula).
Package tour arrangements represent a harmonious combination
between organised and on ones own tourism, which satisfies the tourists
wish to enjoy freedom of movement travelling by personal automobile.
Automotive clubs organise such tourist circuits on itineraries established
in advance and offered for a lump-sum which includes reserved services
9
F. Vellas, Economie et politique du tourisme international, Economica, Paris, 1985.
116 Alexandru NEDELEA, George P. BABU
(accommodation and alimentation) in tourist-chosen facilities along the
tour at given moments.
c) River and sea cruises offer tourists transport, accommodation, res-
taurant, and recreation, both on board and during calls.
A cruise can be traded in one of the following forms:
cruise organised by a ship owner, which integrates all tourist function
from the moment tourists come aboard to the moment they call at port;
cruise organised by a tour operator, as a distinct product, with or
without transport to and from the boarding/calling port;
cruise included as an animation element in a sojourn or circuit
tourist product.
The international tourist market features various types of cruises,
which helps to shape the following typology:
cruises that offer multi-port circuits;
fly and cruise;
cruise and stay this type can be combined with accommoda-
tion on land for a certain period of time;
cruises around the world;
thematic cruises: cruises to visit historical relics, musical cruises etc.
d) A la carte tourist products (unique or on demand) allow for the
combination of various elements on the basis of the information from
the tour operators catalogue, and have the structure desired by the cli-
ent: out and home transport, airport-downtown transfer, bed and board
or bed-and-breakfast in various hotels, car rental, various opportuni-
ties of recreation. The flexibility given by such a tour is determined by
the fact that departure can be made any day from the catalogue, while
return can occur any time after a minimum delay of sojourn days.
e) Specialised tourist products can be all inclusive or partial, circuit
or sojourn, and are generally offered by small tour operators that
apply the specialisation strategy on account of competition and of
tourist demand fluctuation, although they are at a disadvantage by
not diversifying risk.
By product specialisation (a certain destination or a certain theme) or by
customer specialisation (youth and sports camps, vacations for pensioners
and families, tourist arrangement for rural population, for businessmen, for
hunters and fishermen, for climbers), tour operators pursue to stay on the
market at a relatively small but constant turnover, by stabilising their clien-
tele and by undertaking quality services.
117 Product Policy in Tourism
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119 Product Policy in Tourism
II. Mixed formulas are tourist products developed by associations
between transport services and other specific services such as hotel accom-
modation, car rental on arrival, meal coupons that can be used in various
hospitality facilities or resorts.
The largest part of the tourist demand is formed by classic tourist
products (relatively standardised) that are encountered with the follow-
ing: seaside tourism, mountain and winter sports tourism, balneal tour-
ism, rural tourism, weekend tourism and mini-vacations, business and
academic (congress) tourism, cultural tourism etc.
Mountain and seaside tourism account for the largest number of clas-
sic products. Worldwide, we note that mountain tourism is characterised by
a fiercely competing market, claimed mainly by Western Europe (France,
Austria, Switzerland, and Italy), while the international seaside market is
densely concentrated in South-Eastern Europe (Greece, Turkey, but also
Italy and Spain). Seaside tourism displays, as we noted, the following ten-
dencies: an increase of luxury hospitality facilities (by horizontal develop-
ment), of alternatives to hotels (holiday inns, pensions, camps), of private
boarding facilities, and also the construction of hotel and villa clusters etc.
As durable tourist development has become one of the most widespread
marketing concepts, we observe the tour operators interest in developing
natural (landscape) products, such as: nature tourism (active, gentle strolls
on relatively even terrain), contemplative nature tourism, sports nature
tourism (trekking, climbing), national parks and reservations tourism.
If we attempt to make a hierarchy of tourist products, we can identify
six levels in this field too: family, class, line, type, brand, and item. Thus,
recreational tours and rest sojourns exemplify the family tourist products,
satisfying each peoples specific needs. Cultural discovery circuits are, for
instance, a unique class among tourist products.
Product lines can gather together tourist arrangements pertaining to a
certain form of accommodation (motel, hotel, villa), to a certain means of
transport, to a certain form of tourism (e.g. balneal or cultural), or to a cer-
tain resort. Within the product line that presupposes hotel accommodation
we can identify the type of tourist product encountered in five-star hotels.
The tourist product brand name is given either by the name of the
tour operator that developed and launched the product on the market (for
instance, tour operators: American Express, Thomas Cook, Nouvelles
Frontires; recreational centres: Disneyland; hotel chains: Hilton, Holiday
120 Alexandru NEDELEA, George P. BABU
Inn, Marriott), or by the tourist destination (e.g. names of famous resorts,
Saint-Tropez, Antalya etc.).
Hotel groups make use of several trade marks that correspond indi-
vidually to a certain category of hotel chains, with distinct characteristics
(comfort level and price). Thus, the ACCOR hotel group includes no less
than 14 tourist product trade marks: Sofitel, Novotel, Mercure, Les Jardins
de Paris, Pannonia, Ibis, Etap Htel, Formule1, Motel6, Coralia, Thalassa,
Atria, Hotelia, Parthenon.
To exemplify two different trade mark strategies, we mention the
way in which Hyatt and Marriott chains name their hotels. Thus, Hyatt
employs a trade mark expansion strategy. Its name appears in the name
of each hotel category: Hyatt Resorts, Hyatt Regency, Hyatt Suites, and
Hyatt Park. On the contrary, Marriott adopts multiple trade marks; its
hotel types bear the following names: Marriott Marquis, Residence Inn,
Courtyard, and Fairfield Inns. The guests of the Hyatt hotel chain find it
more difficult to differentiate among its accommodation facilities, whereas
Marriott shrewdly adapts its supply to different visitor categories, creating
a name and distinct images for each hotel type.
The name chosen for a hospitality trade mark has to be easily and
immediately retained by the public, to attract their notice and curiosity,
to adequately inspire the idea of leisure and vacation, and to suggest the
image of top quality hospitality frequentation. At the same time, the name
should symbolise luxury, youth, entertainment (for example, Pompadour
village was chosen by Club Mditerrane for its name, which symbolises
the idea of luxury and tradition, in perfect agreement with the basic activ-
ity of this tourist facility horsemanship), while tourists should be able to
abbreviate it, contributing to the spreading of an image familiar with the
public (e.g. Rio de Janeiro- Rio, Saint-Tropez Saint Trop).
Given the intangible character of the tourist product and the impossi-
bility of sample testing, consumers will prefer to buy notorious brands so
as not to run any risk as to the quality of tourist services.
A travel agency may sell arrangements like 7 nights/8 days Medite rra-
nean Sojourn in Antalya, Nile Cruise, Bukovina Monasteries Circuit.
Such products can be differentiated contingent on tourist destination and
motivation, planned tourist itinerary, visited objects, length and duration,
type and category of hospitality facilities. In conclusion, we may state that
the length and depth of the tourist product mix are limited only by the cre-
ativity of tourism marketers.
121 Product Policy in Tourism
4.2. Differentiating and Positioning of the Tourist
Product and Service Supply
4.2.1. Differentiating the tourist supply

If we keep in mind the particularities of the tourist product that we have
so far presented, we note that the possibilities to combine and substitute
different variants of tourist services represent a potential reserve that helps
to individualise tourist offers and to increase their degree of attractiveness,
even within the boundaries of the same tourist destination or form of tour-
ism. Consequently, as package tours encompass a set of heterogeneous serv-
ices, differentiated in terms of time and space, and developed to correspond
best to the tourists individualised needs, we consider that they are the ele-
ment that endows tourist products with endless opportunities of detailing.
In a first phase, the specificity of tourist supply components determines
a certain differentiation between tourist products in what concerns the tours
destination. As such, we consider that, in order to highlight the differentia-
tion of a specific tourist product, one ought not build classic hotels (stand-
ard type) in a rest resort, but rather attempt to harmonise the style of the
establishment with the landscape and with the local and regional spirit.
Among the many tourist products similar in nature and destination,
there are always differentiations because the ambience they are integrated
into is different from one product to another. We can explain this mention-
ing that tourist ambience represents a combination between an artificially-
created setting and a chosen natural landscape, which is unique; thus, we
can say that the repeatability of the artificial setting is shaded off by the
uniqueness of the natural landscape.
Invoking experience in the field as supporting evidence, we consider we
are right to assert that the marketing strategy based on tourist product differ-
entiation proves its importance insofar as the service undertaking supply
is more diversified and more detailed in terms of quality, the risk of disap-
pointing any customer is diminished, and consequently the risk of alienating
some part of the potential clientele is also lessened. At present, the clientele
has opportunities for multiple choices of tourist products, as the competition
makes them more and more attractive, to as many destinations as possible.
Companies that deal in tourism can derive an advantage in comparison
with the competition by a process of top quality selection and perfection
addressing the personnel who come in direct contact with tourists. Their
122 Alexandru NEDELEA, George P. BABU
behaviour (competence, swiftness, politeness, and communication skills)
exerts a strong influence upon customers perception of service quality.
Tourism industry has seen several airlines which try to differentiate
their offer by highlighting the safety and service quality of their flights
(our pilots possess a multi-million miles flight experience). Tour opera-
tor Thomson Holidays, for example, attracts potential consumers notice on
the fact that its agents carry out a rigorous process of service quality check
in the resorts and hotels they propose, in order to cut down complaints and
increase clients satisfaction
10
.
The style of tourist products is a way to differentiate them by the
design and scenery of hotels, cruise boats, and aircraft. We consider that
hospitality marketers must create a distinctive atmosphere to characterise
the tourist arrangement offered to consumers. Tourists usually want to buy
unique experiences to satisfy their tourist needs and wishes.
In hospitality, we note that the intangibility of the tourist product has
as a consequence the making of a product mental representation, wherein
tourist image and identity are generated by a series of factors as follows:
location of facility it plays a key-role in the supplys differentia-
tion and success, both determined by certain reputation and style;
adequate signalisation it facilitates good tourist accessibility;
name, logo, trade mark contribute to the identification of the
tourism firm by consumers;
exterior architectural and decorative ensemble and design solu-
tions for the entrance of the facility;
interior aspect (architecture, furniture, accessories etc.);
interior atmosphere (lighting, decorations, music etc.);
manner of reception (contents, forms, and swiftness);
manner of service performance (personnel bearing, manner of client
service).
Client perception as to the quality of intangible services is influenced
by tangible associations
11
during service undertaking. In order to exemplify
this concept, we can mention the common tourist reaction on entering a
restaurant where the combination between colonnade architecture, diffuse
but resting light, snow-white tablecloths, and shiny cutlery will suggest its
luxury character and top quality services.
10
J. C. Holloway, C. Robinson, Marketing for Tourism, Longman, New York, 1995, p. 72.
11
Ibidem.
123 Product Policy in Tourism
Technical literature documents two categories of tangible associations.
First, it is the objects that possess minimal value per se, are part of a
process, and remain with the customer. For instance, hotel and restau-
rant checks or vouchers issued by a travel agency are part of this cate-
gory. Tourist enterprises try to differentiate the few tangible elements of
the service by giving vouchers, for instance, a personalised design. The
second type consists in ambient tangible associations, which play a key-
role in the service undertaking as such. The exterior and interior aspect of
the establishment, its manner of furnishing and decoration, represent tan-
gible associations that sometimes influence tourist behaviour decisively.
This category of tangible associations, due to their contribution to create
a favourable atmosphere, affects the perception of tourist consumers as to
the service quality of a hospitality operator.
Differentiating the tourist service supply by diminishing its time of
execution is recommended for those tourism firms (travel agencies, rent-
a-car firms etc.) where the customers, who want to make the best of their
time, appreciate and perceive the supply differentiation judging by this
one characteristic swiftness of service.
While highlighting these essential landmarks of success in a compet-
itive context, we also want to mention that tourist product differentiation
is in many cases based on addition of new services that call for highly
trained personnel. Thus, for example, the hotel product can be differenti-
ated by offering special recreational programmes (trips, folkloric shows,
handicraft displays, casino), by ensuring Internet access etc. Supposing
two travel agencies offer the same tour, either can differentiate by organ-
ising meetings with the tourists, offering information about destinations to
be visited, which could help the tourist see significant details or taste
values that otherwise would be indifferently passed by.
4.2.2. Positioning the tourist supply
As part of the tourist supplys strategy of positioningas value hier-
archies, on distinctive positions within the framework of similar entities
we can make use of the following attributes: quality, price, services, safety,
location, satisfied need, advantages offered. Thus, for instance, hotel chain
Motel Six chose the low price characteristic, while Hilton chose location;
Taco Bell opted for a position alternative to classic fast-food restaurants,
while the product B&B Bed & Breakfast (accommodation and breakfast
124 Alexandru NEDELEA, George P. BABU
in private boarding houses) occupied the position of a distinct variant
among other hotel tourist products.
In hospitality, in order to make the best use of the competitive advan-
tages of ones own supply, we believe it is necessary to achieve a tourist
product analysis that allows for comparison with the competitions prod-
ucts and for the highlighting of strengths and weaknesses. For example,
a tourist resort can be considered the best choice for recreation, while
another is outstanding for its rest or healthcare facilities.
If we analyse market developments, we note that a tourist firm finds it
extremely difficult to preserve a competitive advantage, as it can be copied
and improved by the competition. Managers of accommodation facilities,
of resorts and restaurants, might believe that being located on a beach, near
the airport, the ski slope, or downtown, grants them a permanent advan-
tage. Practice, however, shows us that the situation can change: beaches
can wear away or be polluted, ski slopes can lose their popularity/attrac-
tiveness etc. Under such circumstances, inertia, self-contentment, or self-
sufficiency, are extremely dangerous attitudes. Furthermore, we consider
that tourism marketers must be constantly preoccupied that their efforts be
directed towards all the components of the marketing mix, with a view to
upholding their positioning strategy. As such, if a firm opts for the attribute
of superior service, it will have to select competent personnel, to run train-
ing sessions for them, to reward employees who perform quality services,
and to develop advertising messages that tell about its positioning.
4.3. The Tourist Products Life Cycle
The life cycle of the tourist product is a dynamic resultant of the
demand-supply correlation, with a series of oscillations, whose intensity
and volume are determined by the seasonality of tourism activity within a
calendar year. As a result, the viable lifetime of a tourist product is deter-
mined by the sum of seasonal cycles it contains throughout its evolution,
from market launching to decline. We note that on the tourist market prod-
uct replacement frequency is far smaller in comparison with other goods,
and consequently, the tourist products life cycle covers a larger number
of years. We could explain this particularity invoking the smaller diversity
of tourist products in comparison with the diversity of other goods.
On the other hand, we observe that the tourist products life cycle
becomes increasingly shorter; thus, the tourist arrangements offered at
125 Product Policy in Tourism
the dawn of the twentieth century have become obsolete in the process,
being replaced or altered, as a result of modifications of tourist demand.
Nonetheless, we must mention that a products commercial life differs
from its physical life, and thus a resort product continues to live physi-
cally after its withdrawal from the tourist circuit.
In addition, since the tourist product has a modular character, its differ-
ent components have different life spans. Thus, the tourist patrimony will
be the most longevous, arousing tourists interests for hundreds, even thou-
sands of years, while an event tourist product may live for only one day.
A certain tourist destination will attract ever larger numbers of tourists
as it gradually becomes known on the market by both tour operators and
consumers. This will lead to the development of the tourist supply, of the
facilities offered up to a certain point when it can surpass the supply. A
resort product experiences a life cycle whose duration depends on main-
taining its attractiveness on the market.
The classic evolutional phases of the life cycle can be found in a tour-
ist product as well, with the same general characteristics as analysed by
marketing theory. We must note that, in tourism, the launching phase and
the decline phase are usually superimposed on the extra-season periods
(trimester 1 and 4), while the phases of growth and maturity are to be
found during trimesters 2 and 3; this specific evolution repeats itself every
calendar year until the respective tourist product exits the market.
The resort tourist product can have a single cycle each year (as with
seaside resorts that have a maximum trade volume during the summer sea-
son), or two cycles (as with mountain resorts that attract tourists in win-
ter, as well as in summer).
4.3.1. The tourist products innovation cycle
We are of opinion that all companies that deal in hospitality must per-
manently analyse the tendencies of the tourist market and, accordingly, elab-
orate an adequate development programme for new products. However, we
note that, due to high costs required by the conception and implementation
of new products, many firms prefer to purchase extant trade marks rather
than create new ones. Thus, hotel group ACCOR bought the Motel 6 chain,
while Pepsico incorporated KFC, Pizza Hut, and Taco Bell.
The tourist products innovation cycle starts with a brainstorming ses-
sion, where ideas can spring from different sources. Thus, internal sources
126 Alexandru NEDELEA, George P. BABU
furnish more than 55% of the new products ideas
12
. In this respect, we
consider that special attention must be granted to the opinions of the per-
sonnel who come in direct contact with tourists (travel agents, reception-
ists etc.), because they know best the consumers preferences.
The analysis of consumers observations, suggestions, and complaints,
leads to the obtainment of approximately 28% of the new products ideas.
Furthermore, the tourist market displays the tendency that tourist products
be conceived by tourists themselves, while travel agencies have the role
of booking the tourist services demanded by the consumers.
Nearly 27% of the new ideas come as ascertained by trustworthy
sources from analysing the competitions products; thus, hospitality is
to be noted for the easy exchange of information between competitors.
Copying the competitions ideas must mean new products with at least
the same quality level.
Other valuable sources in the process of tourism innovation are: dis-
tributors, suppliers, consultants, advertising agencies, marketing research
firms. The next phases of the innovation cycle in tourism are:
assessing and selecting sources of ideas for new products;
design and concept materialisation of the new product;
testing the new product concept on a targeted customer segment;
product marketing testing and completion;
trading the new tourist product.
The creation of the tourist product must be based on research of the
envisaged market that should obtain information about consumers, com-
petitors, and tourist resources of certain destinations. Assembling the com-
ponents of the package tour comes next, by establishing the tourist services
supplied (quality level, prices, commissions etc.), the destinations of tour-
ist objectives to be visited etc.
The tour operators task is to select service providers and to negotiate
with them so as to obtain the best quality-price ratio, as well as a diversified
and elastic range of tourist services that meet the consumers preferences.
Taking into account the risk involved in launching the new product on
the tourist market, we consider that it is absolutely necessary to test the
concept of the new product. Thus, a tour operator will test the attractive-
ness of a new tourist destination by the initial offering of a single tourist
programme that includes the respective destination into the tour.
12
Ph. Kotler, J. Bowen, Marketing for Hospitality & Tourism, Prentice Hall, 1996,
p. 290.
127 Product Policy in Tourism
4.3.2. The tourist products commercial life cycle
Analysing the tourist products commercial life cycle, we note that
there are difficulties in forecasting the volume of sales for each phase,
and in accurately identifying the moments of passage from one stage to
another (launching, growth, maturity, decline). These points of change can
be noticed with the aid of several markers, such as: the growth rhythm of
sales, of profit rate, the evolution of tourist numbers.
The products life cycle is a useful instrument in elaborating the tour-
ism firm marketing strategies, as they are both its cause and its result.
In practice, we often notice that it is difficult to determine the length
of each phase and the shape of the products life cycle curve. Thus, on
the market, the volume of sales is affected by deviating influences come
from different factors: economic depressions, depreciation or appreciation
of national currencies in countries that send and receive tourists, certain
political events, implementation of development programmes and promo-
tion of new tourist products by the competition. Consequently, we note
that there are several atypical life cycles of the tourist product:
The renewed (invigorated) cycle appears when decline is followed
by revival, and then by the other phases.
Hotel tourist products exemplify this cycle: once they reach the decline
stage, they are revived as the result of investments made to modernise the
facilities and appliances offered to consumers (casinos, night clubs, fitness
lounges, Internet connection, conference rooms for congress tourism etc.),
as well as to increase the number of services that can be provided by the
accommodation facility.
Figure 4.1. Invigorated cycle
V
a
l
u
e

o
f

s
a
l
e
s

Time
128 Alexandru NEDELEA, George P. BABU
The compressed cycle is characterised by the short duration of its
phases. This type of situation can be encountered with event
tourist products.
Each phase of the tourist products life cycle presupposes the adoption
of different marketing strategies.
I. Launching is usually characterised by a slow increase in sales, as
the product is new for both the tour operator (who lacks in experience as
to getting the respective tourist programme under way), and for the con-
sumers, distributors, and competitors.
The initial small profit (even negative at the beginning) and the rela-
tively high price determine high failure rates and high levels of risk. The
tourism enterprises objective is to create notoriety for the product and to
stimulate consumers to try it out. If we take into account only price and
promotion, the hospitality firm can choose one of the classic strategies of
the launching stage:
Table 4.2.
Types of launching strategies
Promotion
Price
Strong Weak
High
Strategy of quick fructication
of the market advantage
Strategy of slow fructication
of the market advantage
Small
Strategy of quick penetration
of the market
Strategy of slow penetration
of the market

1. The strategy of quick fructification of the market advantage presup-
poses the launching of the new tourist product at a high price and with a
sustained promotion effort. We notice that this strategy is employed when
a large part of the potential tourist market does not know about the prod-
ucts existence, while the tourism enterprise is confronted with potential
competition and wishes to create a preference for its trade mark among
consumers (as is the case of event tourist products).
2. The strategy of quick penetration of the market, in launching the
tourist product, is based on small price and high expenses with promo-
tion, which leads to the rapid obtainment of a large share of the market.
It is indicated to use this strategy when the tourist market is large enough,
when the tourists dont know about the existence of the respective package
129 Product Policy in Tourism
tour, when there is strong potential competition, and when we note a
regression of unitary costs with relation to the volume of sales.
3. The strategy of slow fructification of the market advantage requires
high launching prices and little effort in promotion as long as the market is
limited in size, the potential customers know about the product and are will-
ing to pay a high price, while the potential competition is not imminent.
4. The strategy of slow penetration of the market, characterised by
small launching prices and small promotion expenses, is employed when
the tourist market is large, consumers know about the product and are
responsive to its price, and there are a few potential competitors.
II. Growth is a crucial stage when the firm assesses whether the tourist
product in question is a success or a failure. We note a high rate of sales
increase once the product is improved and gains notoriety, being distrib-
uted by an ever larger number of detailing travel agencies. The competi-
tion ranges from low to medium, and the profit is marked by an increase
rate even though the price of the tourist arrangement is lowered.
During this phase, the tour operator employs a series of strategies in
order to sustain the quick growth of the market for as long as possible,
taking the following measures:
improvement of product quality by addition of new tourist services
and characteristics;
penetration of new market segments;
Figure 4.2. Compressed cycle
V
a
l
u
e

o
f

s
a
l
e
s

Time
130 Alexandru NEDELEA, George P. BABU
employment of new distribution channels (e.g. booking and reser-
vation systems, tour operators, travel agencies, transporters sales
networks, commercial networks);
increase in notoriety and image improvement due to actions of
tourist promotion.
III. Maturity is the stage when sales and profits reach maximum lev-
els, the competition is strong, and the product prices are comparable with
the competitions. With products that have a marked seasonal charac-
ter (for example, seaside sojourn or winter sports resort), the markets
moment of saturation corresponds to the period of maximum employment
during the season peak, when the level reached by the engagement ratio of
the accommodation facilities no longer allows the reception of new tour-
ist consumers.
If we take into account the objectives that characterise this phase
safeguarding the position attained on the market, increase of profit we
have every reason to state that the classic strategies pertaining to the
maturity phase of any product are applicable to the tourism enterprise as
well. Consequently, with due modifications, we henceforth invoke them:
131 Pricing the Product
Pricing the Product
Liljana ELMAZI
5.1. Pricing, Theory, Factors and Considerations
Pricing is the final part of the marketing mix. This chapter begins by
explaining that pricing is not only a direct determinant of profitability, but
also a powerful promotional tool. Some inherent conflicts in the duality
of pricing are identified.
There is a difference between the price of a service and the value for
money that customers perceive they are receiving. The concept of value
for money is described. This chapter then points out that the hospitality
and travel industry uses both unsophisticated and sophisticated pricing
approaches. The recommended, cost-based method of pricing is discussed.
The chapter ends by reviewing some specific pricing practices in differ-
ent parts of the hospitality and travel industry.
Have you ever watched the popular game show, The Price Is Right?
If so, you know what that contestants try to guests the prices of various
products, ranging from groceries to expensive motor homes. Every show
has several winners, an obvious necessity for staying on the air. Some
peoples guesses are surprisingly accurate, while others are way off the
mark. What does this show have to do with marketing? The answer may
surprise you-very little! When the pricing of hospitality services deterio-
rates into a guessing game, the price is definitely not right. Prices must
be carefully researched.
5.1.1. Price as an element of marketing mix
An organization must consider not only their impacts on revenues and
profits, but also their effects on other marketing-mix elements. Price is the
only marketing mix element that produces revenue. All others represent
cost. Some experts rate pricing and price competition as the number one
5
132 Liljana ELMAZI
problem facing marketing executives. Pricing is the least understood of the
marketing variables. Yet pricing is controllable in an unregulated market.
Pricing changes are often a quick fix made without proper analysis. The
most common mistakes include, pricing that is too cost oriented, prices that
are not revised to reflect market changes, pricing that does not take the rest
of the marketing mix into account, and prices that are not varied enough for
different product items and market segments. A pricing mistake can lead to
a business failure, even when all other elements of the business are sound.
Every manager should understand the basics of pricing.
Simply defined, price is the amount of money charged for a good or
service. More broadly, price is the sum of the values consumers exchange
for the benefits of having or using the product or service.
All for-profit organizations and many nonprofit ones must set prices
on their products or services. Price goes by many names: Price is all
around us. You pay rent for your apartment, a rate when you stay over-
night in a hotel, tuition for your education, and a fee to your physician or
dentist. Airlines, railways, taxis, and bus companies charge you a fare. The
bank charges interest for using their money. The price for driving your car
on Floridas Sunshine State Parkway is a toll. The price of a front-desk
clerk is a wage, while a bartender receives e wage and tips. A real estate
agent who sells a restaurant charges a commission.
Finally, income taxes are the price for the privilege of making money.
It is important for marketers and managers to have un understanding of
price. Charging too much chases away potential customers. Charging too
little can leave a company without enough revenue to maintain the oper-
ation properly. Equipment wears out, carpets get stained and painted sur-
faces need to be repainted. A firm that does not produce enough revenue
to maintain the operation will eventually go out of business. In this chap-
ter we examine factors that hospitality marketers must consider when
setting prices general pricing approaches, pricing strategies for new prod-
ucts, product mix pricing, initiating and responding to price changes, and
adjusting prices to meet buyer and situational factors.
There are good and bad approaches to pricing, all of which are evident
in our industry. You have probably heard the term price war used in con-
nection with airline, cruise, and hotel pricing. Like all other participants
in wars, companies are killed, others are wounded, and the fortunate ones
return unscathed. Innocent bystanders sometimes are mortally injured in
the cross fine. For example, travel agents see their commissions dwindling
133 Pricing the Product
as airlines and suppliers offer deeper and deeper discounts. As you will see
later, however, all price discounting is not necessarily bad if each partly has
a detailed knowledge of its costs and profit potential.
Pricing is an important aspect of the marketing function for tourism
and hospitality organizations. Management should strive to maintain a
high level of perceived value, and indeed, many managers view this as
the key element to increasing sales and profits. Successful pricing man-
agement involves a great deal more than merely plugging accounting or
cost figures into a formula and generating a selling price. Successful pric-
ing is a combination of many variables.
Pricing is a function of both marketing management and cost account-
ing. When managers establish prices they must take into consideration
marketing factors such as the environment, competition, and the guests
perception of price-value, as well as the cost structure of the operation.
Many managers view the establishment of prices solely as an outgrowth
of cost accounting, but this simply is not true. Instead, the customer and
the entire marketing environment in which the foodservice establishment
operates must be considered when developing prices for all types of hos-
pitality products and services.
The establishment of prices is often in a very haphazard manner. Many
experienced hospitality consultants have found that managers often estab-
lish prices without a thorough knowledge of the cost structure of the oper-
ation and without in-depth knowledge of the marketing environment in
which the business operates. This chapter explains the careful balance
between the hospitality operations and the customer.
5.1.2. Pricings dual role
One of the inherent problems with pricing is that it fulfills two some-
times contradictory roles. If you have taken a basic accounting or econom-
ics class, you already know that, along with costs and volumes of business,
pricing is a direct determinant of profitability. The other role of pricing is
as an implicit promotional-mix element. In a way, a price acts like a mag-
net-it attracts some customers and repels others. People tend to base their
perceptions of services and products partly on the price. A price offer can
also play a central role in an advertising campaign or sales promotion (e.g.,
a two-for-one sales promotion, looked at another way, is a 50-percent dis-
count on two items).
134 Liljana ELMAZI
Some authors say that pricing
has both a transactional and informa-
tional dimension. The dollar amount at
which a service is offered for sale rep-
resents prices transactional dimension.
Conventional wisdom suggests that the
lower the price, the more of the service
will be sold. Your economics class has
probably described this relationship as
a downward-sloping demand curve.
As Figure 5.1. shows, the quantity
demanded falls as the price increases,
but it increases when the price is low-
ered (graph A). The slope of the curve
in Figure 5.1. varies with the elastic-
ity of demand for the changes in their
price. In an inelastic demand situa-
tion, customers are not very price sen-
sitive. The slope of the demand curve
is, therefore, very sleep (graph B). On
the other hand, customers are much
more price sensitive when demand is
elastic. Their demand curve is much
flatter (graph C).
The graphs in Figure 5.1. are based
on some very large assumption.
First, it is assumed that customers
have full information on all hotels,
airlines, restaurants, cruises, tour pack-
ages, travel destinations, or any other
type of hospitality and travel serv-
ice. Although this may be close to
the truth for experts such as travel
agents, must individual customers do
not, in fact, have complete informa-
tion on competitive offerings.
A second major assumption is that
customers gather information without
Figure 5.1. The transactional view
of the price/quantity relationship



Price


P1
P2




Unit Volume
Graph A

Graph B


P1


P2
Q2 Q1 Inelastic Demand
Graph C

P1




P2
Q2 Q1 Inelastic Demand
135 Pricing the Product
considering the prices of each competitors services. In other words, a price
is a price, and it tells nothing else about the quality or features of services.
This is often not the case, because customers tend to read a great deal into
the prices of competitive items. A high price is frequently associated with
high quality, whereas a low price has the opposite connotation.
Imagine that you are planning a trip to Europe and you are trying to
choose a place to stay in London. Other than a long list of hotels with
street addresses, numbers of rooms, and room rates, you have not been
able to get complete information on the quality and range of services pro-
vided by each hotel. You narrow your list to five properties that are clos-
est to the part of the city in which you want to stay. You cannot really
tell much about each of these five possible hotels based on the number
of rooms each has, and you know nothing about the streets and districts
in which they are located. What does this leave you with? The answer,
as you have probably already guesses, in the price of each hotel (or room
rates in our example).
Let us say that theres one property with a room rate of 200 a night,
three in the 100 to 120 range, and one at 40. What assumption would
you make about the hotel that charges 200 and the one that charges 40?
Do you expect that each would provide the same quality and variety of
services and facilities? What about the three that charge 100 to 120? Do
you think that the service and facilities they offer would differ greatly?
Your answers to this hypothetical example should give you some idea
of the informational role of pricing, and the function of pricing as an
implicit promotional element. Without much other information on the
London hotels, you had to use price to gauge the quality of each prop-
erty. Let us see how you did. Did you now that the hotel that charges 200
was more luxurious, with top-quality service and a wide variety of facili-
ties and amenities? Was your perception of the lowest priced property that
it was of a lower quality and had very few of the frills provided by the
most expensive hotel? Were you unable to tell much about the difference
between the three hotels that charge 100 to 120?
Research studies have shown repeatedly that customers tend to associ-
ate higher prices with higher-quality services and facilities. This is espe-
cially true when:
1. Customers do not have sufficient information or prior experiences to
compare features of competitive offerings. As in our London exam-
ple, they are forced to use price as their basis of comparison.
136 Liljana ELMAZI
2. Services are perceived as complex, and there is a high risk of mak-
ing a bad choice. Perhaps you will remember these as the exten-
sive problem-solving or high-involvement decision mentioned in
previous chapters. Again, our London example is appropriate. For
most of us, a trip to London and other parts of Europe involves
complex decisions, with a relatively high risk of selecting unsatis-
factory accommodations.
3. Services are perceived as having a certain snob appeal and carry social
prestige. Can you think of any products that people buy for their
snob appeal than their inherent qualities? How about Rolls Royce,
Porsche, BMV, and Mercedes Benz automobiles? Maybe you thought
of Rolex watches. In our London example, the prestige-conscious
traveler would probably opt for the most expensive, 200 hotel.
4. The difference between the prices of competitive services is minimal.
In this case, guarantee of quality. In the London example, it is proba-
ble that you would select the highest-priced hotel in the 120 range,
if the three hotels charge 107, 108, and 109, for example.
The graph in Figure 5.2. all suggest that a higher price always results
in less demand, and a lower price in greater sales. This is the transactional
view of pricing. It is hoped that you now see that this is not always true
because of pricings impact as an implicit promotional element (its infor-
mational role). The demand curve for a prestige product or service looks
more like the one shown in the graph in Figure 5.2. Demand actually
Figure 5.2. The demand curve for a prestigious tourism, hospitality and travel service.
(From Cohen, William A. 1988. The Practice of Marketing Management, Macmillan
Publishing Company, 474)
Quantity Purchased (Sales)
P
r
i
c
e


Increased as Price Increases


Until Point X, Then Quantity


Purchased Decreases as Price Increases


Point
137 Pricing the Product
increases, to a certain point, as the price goes up. The higher the price, the
more exclusive and prestigious the services or products appear to certain
customer groups.
The two-sided nature of pricing not only reflects its transactional and
informational roles, but can cause conflicts within hospitality and travel
organizations. For example, sales representatives may feel internal pressure
to build volumes (e.g., load factors on planes or occupied room nights in
hotels) without sufficient regard for profitability. Price can be a powerful
promotional tool in getting additional business, but merely having more vol-
ume does not necessarily increase an organizations profits. In other words,
customers who are bought are not always profitable. American Airlines lost
$50 million in 1979 when in imitated United Airlines, 50-percent-off cou-
pons for future flights. United was forced into this promotional approach
because of a long labor dispute. American, however, had not such problem.
American eventually dropped its discount coupon program, launching in its
place airline industrys first frequent-flyer program.
Tourism, hospitality and travel managers are often uneasy about hav-
ing half-empty hotels, restaurants, cruise ships, or airplanes. In some ways,
their concerns are very valid. Inventories of hospitality and travel serv-
ices cannot be stored. They perish almost immediately. Therefore, is it bet-
ter for managers and sales representatives to sell empty seats or rooms at
any price than to lose their sale and use forever? Let us review the def-
inition of marketing to help you answer this question. Marketing activi-
ties, including pricing, are designed to satisfy customers needs and their
organizations objectives. For many organizations, the primary objective is
to make a profit. Having a fill-empty-spaces-at-any-cost mentality, there-
fore, runs contrary to the definition of marketing and shows a sales rather
than a marketing orientation. It is often more profitable to have unused
inventory than to offer too large or too many price deals.
5.1.3. Pricing in different markets
5.1.3.1. The price in pure competition, monopolistic
competition and oligopolistic one
The sellers pricing freedom varies with different types of markets.
Economists recognize four types of markets: pure competition, monopolis-
tic competition, oligopolistic competition, and pure monopoly. Under pure
138 Liljana ELMAZI
competition, the market consists of many buyers and sellers trading in a
uniform commodity such as wheat, copper, or financial securities. A pure
monopoly consists of one seller. The seller may be a government monop-
oly, such as the U.S. Postal Service, a private regulated monopoly, such
as a power company, or a private nonregulated monopoly, such as DuPont
when it introduced nylon
Most hospitality firms operate in monopolistic competition or oligopo-
listic competition. Under monopolistic competition, the market consists of
many buyers and sellers who trade over a range of price rather than at a
single market price. A range of prices occurs because sellers can differen-
tiate their offers to the buyers. Either the physical product can be varied
in quality, features, or style, or the accompanying service can be varied.
Buyers see differences in sellers products and will pay different prices.
Sellers develop differentiated offers for different customer segments and,
besides price, freely use branding, advertising, and personal selling to set
their offers apart. Because there are many competitors, each firm is less
affected by competitors marketing strategies than in oligopolistic markets.
Foe example, in large city there are many sit-down service restaurants.
Each restaurant is differentiated by price and nonprice factors.
Under oligopolistic competition the market consists of a few sellers
who are highly sensitive to each others pricing and marketing strategies.
The sellers are few because it may be difficult to enter the market. Each
seller is alert to competitors strategies and moves. If a major airline cuts
its fares by 10% it will quickly attract additional customers. Other airlines
will cut their fares in reaction to the competition. On the other hand, if an
oligopolist raises its price, its competitors might not follow the lead. The
oligopolist would then have to retract its price increase or risk losing its
customers to competition.
Market demand and market growth are often depend on price level. At
high prices, many customers simply can not enter the market. As the price
of tourist products decreased, more costumers entered the market. In one
sense, prices regulates both the size of a market and how fast it will grow.
5.1.3.2. Price elasticity of demand
Marketers also need to understand the concept of price elasticity, how
responsive demand will be to a change in price. Consider the two demand
curves in Figure 5.1. Graph A a price increase from P1 To P2 leads to
139 Pricing the Product
a small drop in demand from Q1 to Q2. In figure B, however, the same
price increase leads to a large drop in demand from Q1 to Q2,. If demand
hardly varies with a small change in price, we say that the demand is ine-
lastic. If demand changes greatly, we say the demand is elastic.
Suppose that demand falls by 10% when a seller raiser its price by
2%. Price elasticity of demand is therefore 5 (the minus sign confirms
the inverse relation between price and demand) and demand is elastic. If
demand falls by 2% with a 2% increase in price, elasticity is 1. In this
case the sellers total.
Revenue stays the same: the seller sells fewer items but at a higher
price that preserves the same total revenue. If demand falls by 1% when
the price is increased by 2%, elasticity is and demand is inelastic. The
less elastic the demand, the more it pays for the seller to raise price.
What determines the price elasticity of demand? Buyers are less price
sensitive when the product is unique or when it is high in quality, prestige,
or exclusiveness. Chains try to differentiate their brand to create a percep-
tion of uniqueness. Consumers are also less price sensitive when substitute
products are hard to fine. After the closure of the Neil House in downtown
Columbus, Ohio, Stouffers Hotel became one of the few places in the cen-
tral business district to hold a major banquet function. With supply down,
they could charge more for their banquets. They maintained this advantage
until new hotels were build and the market became competitive.
If demand is elastic rather than inelastic, sellers will generally consider
lowering their prices. A lower price will produce more total revenue. This
practice makes sense when the extra costs of producing and selling more
products do not exceed the extra revenue.
5.1.3.3. Inelastic price performance
When a price is inelastic, all aspects of performance are improved
when prices are increased. Lowering price when it is inelastic will hurt
sales, margins and total contribution and increase unit volume, as pre-
sented in figure below:
% change in quality demanded
% change in price
price elasticity of demand
=
140 Liljana ELMAZI
5.1.4. Marketing objectives
Before establishing price, a company must select a product strategy. If
the company has selected a target market and positioned itself carefully, its
marketing mix strategy, including price, will be more precise. For exam-
ple, Four Seasons positions its hotels as luxury hotels and charges a room
rate that is higher than most. Motel 6 and Red Roof Inns have positioned
themselves as limited-service motels, providing rooms for budget-minded
travelers. This market position requires charging a low price. Thus past
decisions on market positioning have a major influence on price.
The clearer a firm is about its objectives, the easier it is to set price.
Examples of common objectives are survival, short-run profit maximiza-
tion market-share maximization, and product-quality leadership.
Survival. Companies troubled by too much capacity, heavy competi-
tion, or changing consumer wants set survival as their objective. In the
short run, survival is more important than profit. Hotels often use this strat-
egy when the economy slumps. A manufacturing firm can reduce produc-
tion to match demand. During a recession a 300-room hotel still has 300
rooms to sell each night, although the demand has dropped to 140 a night.
The hotel tries to ride out the slump in the best way possible by cutting
rates and trying to create the best flow possible under the conditions.
Competitors in the hospitality industry are highly cognizant of price
changes and will usually respond if they feel threatened.
Continental Airlines and other troubled air carriers lowered prices
while in bankruptcy or after emerging in an effort to gain market share.
Price
elasticity

Inelastic

Unity = 1

Elastic


Unit
volume
Sales
revenue


Unit
margin
Total
contribution


Hold Price
Raise Price
Lower Price
Raise Price
Lower Price
Increase
Decrease
No change
Decrease
Increase
Increase
Decrease
Maximum
Decrease
Increase
Increase
No change
Decrease
Increase
Decrease
Increase
Decrease
No change
Inc/Dec*
Inc/Dec*
* The total contribution could increase or decrease, depending on the level of elasticity
and unit margin.
Figure 5.3. Price Elasticity and Performance
141 Pricing the Product
Continental offered a special Peanut Fare in several of its markets, par-
ticularly the east coast. Competitors such as U.S. Air responded directly
and immediately with matching price cuts. The result of most price wars
is a reduction in profit for all members engaged in the war.
Observes of the hospitality industry have sometimes suggested that
competition using a survival pricing strategy should be monitored care-
fully but not necessarily emulated. In the previous case of a troubled 300-
room hotel, the relative importance of that property to the total market
must be understood. If the hotel is one of two in a market such as a small
town, the effect of price discounting could be considerable. On the other
hand, if the hotel is in Orlando, Florida, it is one of many and represents
a fraction of the total room supply.
It sometimes makes sense to allow a competitor to lower prices and
skim off the budget-conscious customers, leaving more profitable business
for competitors who do not lower prices, particularly if the member using
a survival strategy is a small player. The effect of 300 rooms on a market
of 30,000 would indeed be small.
Current profit Maximization. Many companies want to set a price that
will maximize current profits. They estimate what demand and costs will
be at different prices and choose the price that will produce the maximum
current profit, cash flow, or return on investment, seeking current financial
outcomes rather than long-run performance. For example, a company may
purchase a distressed hotel at a low price. The objective becomes to turn the
hotel around, show an operating profit, and then sell. If the hotel owners can
achieve a successful turnaround, they may receive a good capital gain.
Some entrepreneurs develop a restaurant concept with the objective of
selling the concept to a major chain. They realize that the concepts viabil-
ity must be proved through a small chain that produces a hight net profit.
If they can do this, they may attract the attention of a major corporation.
The pricing objective in this case is current profit maximization.
Market-share Leadership. Other companies want to obtain a domi-
nant market-share position. They believe that a company with the largest
market share will eventually enjoy low costs and high longrun profit.
Thus prices are set as low as possible. Marriot strives to be the market-
share leader in its class. When it opens a new hotel, Marriot builds market
share as quickly as possible. For example, Marriott opened its resort on
Australias Gold Coast with $99 rates, six months later the hotel charged
almost twince this rate. Low opening rates created demand. As the demand
142 Liljana ELMAZI
increased, low-revenue business was replaced with higher. Such a strategy
uses price and other elements of the marketing mix to create the aware-
ness of better value than the competition.
Product-Quality Leadership. The Ritz-Carlton chain has a construc-
tion or a acquisition cost per room that often exceeds $300000. Besides
a hight capital investment per room that, luxury chains have a hight cost
of labor per room. Their hotels require well-qualified staff and a hight
employee/guest ratio to provide luxury service. They must charge a high
price for their product.
Groen, a manufacturer of food-service equipment, is known for its high-
quality steamjacketed kettles. Kitchen designers specify Groen equipment
because of its known quality. The company can demand a hight price for its
equipment because of its perceived quality. To maintain its quality, Groen
must have a well-engineered product comprised of hight-quality materi-
als. It also must have the budget to ensure that it maintain its positions as
a quality leaders.
A bowl of chili and a beverage might not exceed $5 or $6 in many
restaurants, but the Red Restaurant in Washington D.C., charges $13 to
$18 fot its southwestern cuisine. Patrons pay for more than just a bowl of
chili. This two-story restaurant cost $5 million to re-create the wide open
spaces of the west. More than 100 craftsmen and artists were employed
to create stunning original designs, such as murals of horses and a cloud
sculpture that flashes blue lightning.
5.1.4.1. Other objectives
A company also might use price to attain other, more specific objec-
tives. A restaurant may set low prices to prevent competition from enter-
ing the market or set prices at the same level at its competition to stabilize
the market. Fast-food restaurants may reduce prices temporarily to cre-
ate excitement for a new product or draw more customers into a restau-
rant. Thus pricing may play an important role in helping to accomplish
the companys objective at many levels.
The case of two upscale restaurants in New York, both owned by
former major league baseball, offers an example of contrasting pricing
strategies. Mickey Mantles restaurant purposely established a hight price
for alcoholic beverages. A ber here isnt cheap said John Iowy, co-
143 Pricing the Product
owner, We charge $3.75 or $4.00. It keeps out the kids. This is a hight-
exposure place. If something bad happened, it would get out real quick.
An opposite pricing strategy is employed at Rusty Staubs Restaurant.
Rustys pricing philosophy for wine is unique for the industry. He believes
that the better the wine, the less the markup. We work on a thin margin,
said Staub. A lot of people in the industry say that you should charge at
least three times the cost of the wine. But were way under that. I want
people to know were one of the great-value restaurants.
Which pricing philosophy is correct, Mantles or Staubs? It all depends
on the objectives an owner is attempting to meet. There is never one pric-
ing strategy that is right for all competitors in the hospitality industry.
5.1.4.2. Pricing objectives
Before prices are established, management must carefully review the
objectives to which they are aspiring. Pricing objectives typically can be
classified into four categories:
Financial
Volume
Competitive
Image
Financial objectives focus on the level of profitability, rates, sales and
equity, and cash flow. Well-managed firms have strategies objectives for
financial performance and price changes will reflect
Volume objectives focus on maximizing sales and buying. The price
must be as low as possible and very competitive.
Competitive objectives are centered on the relative position in com-
peting firms and are set with several reasons in mind. These objectives
needs for survival, eliminating competitors, or maintaining a parity posi-
tion with the competitors.
Image objectives are closely tied to the positioning strategy. This posi-
tion might be that of the organization at the upper or low the price spec-
trum. Hyatt Hotels has long been among the prices among the upscale
hotel brands. They have used price to position properties as unique. At the
same time, Econo-Lodge has long been in cost leader and has used image
pricing to their advantage as well as Hyatt.
The manner in which prices are established has tremendous increase
in sales, profits, market share, and perceived value. When the prices are
144 Liljana ELMAZI
established the management must consciously determine objectives. If the
producing the prices in possible short-term profit is desired to improve
cash flow, the higher prices must be established accordingly. If, on the
other hand, sales levels are lower than desired, prices may be set some-
what lower to increase the demand. The lower-price approach is based on
the assumption that as prices are lowered, sales volume will decrease. If
a larger share of the total market is desired, prices may be lowered, still
further to capture, a larger percentage of the market in a given area.
Establishing prices by clearly defining pricing objectives is a useful
process for any hospitality organization. Consider, for example, which of
the following choices is most important: (1) having a larger percentage of
the total market at a lower profit margin (large market share approach) or
(2) having a smaller percentage of the total market at a higher profit mar-
gin (high short-term profits approach).
5.1.5. Basic pricing philosophies
5.1.5.1. Market approaches
Management must make decisions concerning basic pricing philoso-
phies and strategies. Two commonly used approaches are market skimming
and market penetration.
Market skimming uses a relatively high initial price to produce higher
profits. The word skimming is an important one. The established price
seeks to skim a small part of the total potential market. Market skim-
ming can be used most effectively when the following conditions exist:
A large potential market can be drawn from which a small percentage
of individuals is willing and able to pay a higher price.
Competition is not likely to undercut the established price for the same
or a similar product-service mix.
Management has established or can readily establish a high level of
perceived value for the product-service mix, thereby helping to justify the
higher cost in the customers decision-making process.
Market penetration operates from the opposite perspective. This
approach means that the price should be set at the lowest possible level,
based on fixed and variable costs. Initial profits may be small, and in fact,
the initial months may not produce any profits, but by establishing the
lowest possible price, the penetration approach seeks to acquire a larger
145 Pricing the Product
and, management hopes, a loyal market share. This larger market share
will generate increased sales volume and will, in time, produce larger
long-term profits. Market penetration can be used most effectively when
the following conditions exist:
Target markets are extremely price sensitive, and any increases in proc-
ess will result in immediate and substantial reductions in volume. Lower
prices are likely to discourage new competition from entering the market.
Market approach is correct for all situations. Rather, management must
carefully consider all the market conditions, opportunities, and threats.
Management must remember that one of the most common reasons cited
for failure in the hospitality industry is undercapitalization. Operations
are opened without sufficient financial reserves, initial cash flows are not
what was anticipated, and the venture fails. This type of situation occurs
all too frequently in the industry.
The manipulation of price can have a tremendous impact on the sales
volume of any hospitality organization. Figure 5.4. illustrates the tradi-
tional relationship between price and sales volume. In the figure, when
the price, as measured by the average check, is established at $10 (P1),
D1
P1
D2
P2
D3
P3
2
100 200 300 400 500
4
6
8
10
12
C
h
e
c
k

a
v
e
r
a
g
e

p
e
r

p
e
r
s
o
n

(
$
)
Sales (number of covers served)
Figure 5.4. Relationship Between Price Levels
and Demand (P1, P2, P3 = price)
D1, D2, D3 = demand anticipated at price
levels (P1, P2, P3)
the operation will serve
100 covers (D1); at a price
$8 (P2), the operation will
serve 150 covers (D2); and
finally at a $6 price (P3),
it will serve 200 covers
(D3). Price and volume are
inversely related, so that as
price is decreased, volume
will increase, and as price
is increased, volume will
decrease. If the managers
of the foodservice opera-
tion were not satisfied with
the 100 covers served at a
$10 check average, they
might elect to lower the
price to $8 and serve 150
covers, thereby generating
additional revenue.
146 Liljana ELMAZI
Figure 5.5. illustrates another approach, nonprice competition. In this
example, if the current price is $10 (P1), the corresponding demand is
100 covers (D1). Rather than lower the price to increase the sales volume,
management instead chooses to shift the demand curve from the DC1
position to the DC2 position. How might this be accomplished? How can
the demand be increased without an adjustment in price? Rather than rely-
ing solely on price as the variable that influences demand, management
focuses attention on variables that can influence volume, such as market-
ing. By increasing the influence of such marketing activities as adverting,
it is possible to shift the demand curve to a more favorable position with-
out reducing prices.
D1
P1
D2
P2
DC1
DC2
2
100 200 300
4
6
8
10
12
C
h
e
c
k

a
v
e
r
a
g
e

p
e
r

p
e
r
s
o
n

(
$
)
Sales (number of covers served)
Figure 5.5. Nonprice Competition

(DC1 = demand curve 1, given existing
market; P1 = current price level;
D1 = corresponding demand level on
demand curve DC1; D2 = corresponding
demand level on demand curve DC2;
DC2 = demand curve 2, given expanded
market)
Environmental Factors
Economic factors
Social factors
Political factors
Technological factors
Competitive Factors
Change in prices over time
Competitors reaction
to price changes
Customers Relative
Perception of Value
Quality of products offered
Quality of service
Quality of atmosphere
and environment
Location
Availability of com-
petitive facilities
Cost Structure of the Organization
Fixed costs
Variable costs
Semi variable costs
Desired profits and
return on investment
Figure 5.6. Factors that Affect Prices
147 Pricing the Product
5.1.6. Marketing factors that affect prices
Four major factors have a significant impact on the establishment of
prices for any hospitality organization: (1 environmental factors, (2) com-
petitive factors, (3) customers relative perception of value and (4) the cost
structure of the organization. Figure 6 highlights several of the elements of
each of these factors that have an influence on the determination of price.
To establish the effective selling price, management must possess a thor-
ough understanding of the interrelationships among these four factors.
5.1.6.1. Environmental factor
Management must keep abreast with the developments in the broad
business environment. The broad environmental issues that need to be
examined on a regular basis include the economy, the social environment,
the political environment, and technological environment.
First, management must take into account the relative state of the
economy within the geographic area in which the organization operates.
What are the trends for future business growth, consumer spending, pop-
ulation changes, and other economic indicators? On a broader scale, what
are the national economic indicators projecting? What effect will changes
in these indicators have on the hospitality organization?
Second, management must consider the effects of the social environ-
ment on prices. The shrinking pool of young workers has caused a short-
age of labor for some hospitality operators. This in turn has driven up the
average wage rate, which is directly related to price.
The third environment that management must take into account is the
political environment. All levels of government have a tremendous impact
on the operation of every hospitality operation in the country. For exam-
ple, changes the federal government makes in the minimum wage laws
have an immediate impact on hospitality operations. Government at the
state and local level controls sales taxes, and additional taxes are often
imposed on the hospitality industry. For example, suppose that the state
sales tax is 5 percent and the local government is considering adding a 4
percent sales tax on restaurant meals or hotel rooms. The result in either
case would be in effect a 9 percent sales tax. When the additional tax is
imposed, what is the likely effect on the sales volume of an individual
operation? As prices increase because of the additional sales tax, to what
148 Liljana ELMAZI
extent will this negatively affect sales volume? When consumers pay their
bills, they are concerned with the total amount, and will not often think
to consider that as much as 8 to 10 percent of the bills are taxes imposed
at the state or local level.
The government also directly or indirectly influences prices through the
control of the money supply, which in turn affects the interest rates an owner
must pay as a part of the fixed costs of operating. As the supply of money is
tightened by the Federal Reserve Board, the cost of credit increases, thereby
increasing the cost of operation. Various levels of government also influ-
ence menu prices through taxes on profit, wages and salaries, property, sales
along with license fees, and a host of other taxes and fees. It is a fact of busi-
ness life that government at all levels has become and will continue to be
a silent partner in every hospitality operation in the United States. When
a manager is in the process of establishing or revising prices, the impact of
the government must be identified and studied very closely. Governmental
action is always an important concern in establishing prices.
The fourth change that manager must take into consideration is the
changing technology. Even through the hospitality industry remains a serv-
ice-and people-oriented business, the role that technology plays continues to
grow. The impact of computer applications will continue to manifest itself.
5.1.6.2. Competitive factors
Clearly, close attention must be paid to the actions that competitors
take relative price. Only in the event of a new product or service is pricing
entirely proactive; in most cases it is reactive. As one competitor changes
prices, so too will the others have to respond in some manner.
Most managers tend to be conservative when it comes to price changes.
This is to be expected, for if incorrect decisions are made, the results can
be disastrous. However, it is important that those involved in determin-
ing prices understand the competitive nature of the industry as well as the
price-value perceptions of the consumers.
The following are four questions that every individual will price-set-
ting responsibilities should consider:
1. Is the price an accurate reflection of the consumers perceived
price value?
2. Can the price make consumers who select the brand look good to
their peers and to those whom they might influence?
149 Pricing the Product
3. How will prices change over time?
4. How will competitors react to price changes?
5.1.6.3. Consumers relative perception of value
The consumers relative perception of value must be considered when
establishing prices. The perceptions of the consuming public are not easy
to pinpoint, for they are ever-changing. Management must take this factor
into consideration when establishing prices.
In the end it is the consumer who decides whether a products price is
right. When setting prices, management must consider how consumers per-
ceive price and the ways that these perceptions affect consumers buying deci-
sions. Like other marketing decisions, pricing decisions must be buyer oriented.
We cant see the value of our product explains Carlos Talosa, senior vice-
president of operations at Embassy Suites. We can only set price. The market
value is set by our customers and our ability to sell to it. According to Talosa
Even in recessionary times, consumers arent necessarily buying the cheapest
options, but they are demanding value for their dollars and rightly so. If you
arents value-selling, then you are giving away precious assets.
Pricing requires more than technical expertise. It requires creative
judgments and awareness of buyers motivations. Effective pricing opens
doors. It requires a creative awareness of the target market, why they bye,
and how they market their buying decisions. Recognition that buyers dif-
fer in these dimensions is as important for pricing as it is for effective pro-
motion, distribution, or product policy.
When consumers buy a product, they exchange something of value
(money) for something else of value (the benefits of having or using the
product). Effective, buyer-oriented pricing involves understanding the value
consumers place on the benefits they receive from the product. Such ben-
efits include both actual and perceived benefits. When a consumer buys a
meal at an upscale restaurant, it is easy to figure out the value of the meals
ingredients. But it is very difficult to measure the value that customers will
give to this product. Some guests come for the service, and others put great
value on the chefs ability. Still others may value the restaurants prestige
and atmosphere. If customers perceive that the price is greater than the
products value they will not buy.
Marketers must try to look at the consumers reasons for choosing
a product and set price according to consumer perceptions of its value.
150 Liljana ELMAZI
Because consumers vary in the values that they assign to products, mar-
keters often vary their pricing strategies for different segments. They offer
different sets of product features at different prices.
For example, a quarter-pound hamburger might cost $3 at MCDonalds
$6 at a sit-down service restaurant such as Bennigans and $9 in an exclu-
sive city club.
Buyer-oriented pricing means that the marketer cannot design a mar-
keting program and then set the price. Good pricing begins with analyz-
ing consumer needs and price perceptions. Managers must consider other
marketing-mix variables before setting price. Most hotel and restaurant
concepts are designed by identifying a need in the marketplace. The prod-
uct concept usually contains a price range that the market is willing to
pay. La Quinta Inns identified a market that did not value many ameni-
ties found in a full-service motel, the commercial traveler staying for one
night. These guests did not use cocktail lounges, hotel restaurants, and
banquet and meeting facilities. By eliminating these features, La Quinta
saved money in both construction and operating costs. They passed these
savings along to the customer as lower prices, offering the same sleeping
room at a lower price than that of midscale hotels.
Consumers tend to look at the final price and then decide whether they
received a good value. For example, two people dining in a restaurant receive
their bill and see that it is $80. The diners then decide whether they were
satisfied during the postpurchase evaluation. Rather than going over each
item on the menu individually and judging its value, they judge the entire
dining experience against the cost of that experience. If a restaurant offers a
good value on food but a poor value on wine, charging $7 a glass for house
wine, for instance, a couple who consume six glasses of wine may feel that
the check total is too high when $42 for wine is added to the bill.
Melvyn Greene, a hotel marketing consultant, once interviewed guests
immediately after had paid their bills and were leaving the hotel. Only
about one-fifth could remember the room rate they had just paid. They
could, however, state whether they had received good value. Most of the
guests had stayed for more than one day, made phone calls, and used the
hotels food and beverage outlets. The room rate was only one part of the
charges on their total bill. They tended to accept the charges and sign their
charge card. The guests based their perception of value on the total dollar
amount of the bill, the products they had received, and their satisfaction with
those products. Different market segments evaluate products differently.
151 Pricing the Product
Managers must provide their target markets with product attributes that
the target market will value and eliminate those features that do not cre-
ate value. Then they have to price the product so that it will be per-
ceived to be a good value by the desired target market. For some markets,
this means modest accommodations at a low price, for other markets this
means excellent service at a high price. Perceived value is a function of
brand image, product attributes, and price.
Perceptions of value held by the consuming public are divided into
the following categories: quality of the products offered, quality of serv-
ice, quality of atmosphere and environment, location, and availability of
competing facilities.
Quality of Products Offered. Every consumer who patronizes a
hotel or restaurant forms an immediate opinion of the quality of products
offered. As the perceived quality of the products increases, the price the
consumer is willing to pay for them also increases. This results because
the consumer feels that as the quality of the product increases, so too does
the value; hence the price the consumer is willing to pay also increases.
Consider, for example, the perceived value of two types of restaurant
meals. The first meal consists of a baked potato, a small tossed salad, a piece
of Texas toast and a 6-ounce USDA Choice top sirloin steak. Suppose that
the selling price of this meal was $6.95. Given the food quality, this price
represents value to the consumer, as is evidenced by the growing demand
for family or budget steak houses. On the other hand, a customer might
easily pay two to three times this price for a similar meal in another restau-
rant, consisting of a baked potato, a tossed salad, rolls, and a 6-ounce USDA
Prime top sirloin steak. This meal can also represent value to e consumer
who is willing to pay a higher price for the additional quality that a USDA
Prime Grade top sirloin steak offers. In the eyes of the consumer, both meals
represent a good value for the price. The first meal represents a good value
because the consumer is able to obtain a steak dinner for less than $7.00.
The second meal might also represent a good value to the consumer because
the beef is of the highest quality available and therefore represents value.
The quality of a meal and hence the perceived value is a subjective judg-
ment on the part of the consumer. Generally, the consumer is willing to pay
a higher price if the hospitality operation is offering increased quality.
In addition, the individual consumers perception of value might eas-
ily change with the time of day and the individuals attitude at a particular
moment. For example, a consumer might pay approximately $3.00 for lunch
152 Liljana ELMAZI
at a fast-food restaurant and would consider that lunch to be quality food at
a fair price. The very same individual, however, might spend more than $25
for dinner on the same day and would consider that as a good value as well.
Perceived quality of hospitality products is therefore in a constant state of
change; it depends on the individual and the moment for that individual.
Most corporations engage in some form of market research to deter-
mine the perceived quality and value of their products and services in the
marketplace. These studies are critically important to these corporations,
for even small shifts in perceived value can mean thousands of dollars of
sales either gained or lost.
Quality of Service. The consumer has historically shown an increased
willingness to pay a higher price in those hospitality facilities offering
increased personnel attention and service. Consider the example of the
wide-spread use of concierge or executive-level floors in hotels. Additional
services are provided, but an appropriately higher and more profitable
price is also charged for these services.
Considering the example from the preceding section. The budget or
family steakhouse is usually designed so that the consumer passes through
a cafeteria line and places an order for a main entree. The consumer then
passes through the remainder of the service line and selects the accom-
panying items to complete the meal. At the end of the line, the consumer
pays the cashier and proceeds to a table in the dining area. In contrast, the
consumer expects and is willing to pay an increased menu prices for the
waiter or waitress service offered by the establishment serving the USDA
Prime top sirloin steak dinner at a much higher price. As the quality of the
service offered by the establishment increases, the consumer is willing to
pay an increased price to cover the cost of this service.
Quality of Atmosphere and Environment. The same example, taken
one step further, points out that the higher-priced steak will usually be
served in an environment offering more opulent atmosphere. Once again,
the example holds true: As the level of atmosphere is raised, the consumer
normally expects and is willing to pay a higher price.
Location. The location of the facility and the resulting accessibility
can have a direct impact on the price and perceived value. If, for exam-
ple, a hotel is located in the downtown area within walking distance of
the business and cultural centers, the price changed may be much higher
than that charged by a hotel located in a less desirable location but offer-
ing the same level of products and services.
153 Pricing the Product
Available of Competitive Facilities. As the number of different
options available to the consumer increases, the perceived value of any
one of the available choices must be higher for it to achieve its desired
share of the market. This point may be illustrated by the example of a
locally owned family-oriented restaurant that had been doing business in
the same location for a number of years. Over the course of five years of
operation, the establishment had produced acceptable profits in each year
except the first. With each succeeding year of operation, the establishment
had increased sales and seemed to be moving in a most positive direction.
Then one day, construction began on a new chain-owned and operated
family-oriented restaurant just a half block away. Once the corporate res-
taurant opened, business at the locality owned restaurant began to steadily
decline, and within eight months, the establishment filed for bankruptcy.
What had happened? What had gone wrong? One of the reasons for
the failure was that the perceived value by the local consumers was higher
for the corporate establishment was able to offer a product-service mix
perceived to be of a higher quality, which sold for the same price. The
increased competition was more than the established operation was able
to withstand. As a result, it was forced to close.
The consumers perception of value is extremely difficult to understand
precisely, but it is virtually certain that as the perceived value of a product-
service mix is reduced, the volume of guests will also decrease. Consumers
will most frequently patronize those establishments that offer the most for
the money, or the highest perceived value. If consumers perceive that they
are not being given enough value for the money they are spending, they will
no longer patronize establishments that offer low perceived value.
5.1.6.4. Cost structure of the organization
Professional managers must be aware of the cost structure of the oper-
ation. Establishing prices is a function of cost accounting, yet many oper-
ations have established prices without a complete working of the costs
involved. Management must consider the fixed, variable and semi variable
costs and the desired profits of the owner or stockholders. Each establish-
ment will incur its own cost of operation. It is useful, as a point of com-
parison, to refer to average industry figures determine how a particular
facility compares, but one should not be tied to a strict comparison to aver-
age figures, for these figures may not reflect the unique and individual
154 Liljana ELMAZI
cost structure of a particular operation. When the time comes to establish
prices, the unique cost figures for the individual operation must be consid-
ered on their own merits.
For example, a well-established foodservice operation may be able to
charge a lower price than another foodservice operation charges for a partic-
ular item because the fixed costs for the mortgage might be lower than for
a newer operation with higher fixed costs. The newer operations adjusting
prices to be closer to those of the older establishment might seem to be the
recommended course of action when a manager is considering only the com-
petition, but in the long run, it might be the fastest route to bankruptcy.
5.1.7. Some considerations in determination of prices
Before we discuss the research-based pricing approaches, you should
know more about the variety of considerations that influence prices. A dis-
cussion of these follows.
5.1.7.1. Customer characteristics
The characteristics of customers should play a key role in determining
prices. Some customers are extremely price-sensitive and will react quickly to
even minor price changes (remember elastic demand!). Others do not change
their buying habits, even after major price moves (inelastic demand). You will
probably recall the discussion of high-and low-involvement purchase deci-
sions. It is definitely easier to set high prices and to pass major price increases
to high-involvement customers, because they are less price-sensitive.
Based on the target markets served, it may be possible to use price dis-
crimination (also sometimes called discriminatory pricing). Here, two or
more prices are set to appeal specifically to their respective target markets.
Economy, business, and first-class airfares are an example, as are the array
of rates that most large hotels offer (e.g., regular rack, commercial, tour
group, government, and airline crew rates). The term yield management (or
revenue management) refers to an application of price discrimination by
target market. Yield management is a revenue management approach used
by airlines, hotels, cruise lines, car rental firms, and others to maximize the
sale of their perishable inventories by controlling prices and capacity. In
simpler language, yield management means selling the right inventory unit
155 Pricing the Product
(seat, room, berth, or vehicles) to the right customer (target market) at the
right time and for the right price.
5.1.7.2. Corporate objectives
Because prices are a direct determinant of profitability, the responsi-
bility for pricing is not usually entrusted solely to the marketing manager.
Prices must be set in the context of the overall corporate objectives that
were discussed in Chapter 3. These objectives may, for example, be stated
in terms of profit levels, market share, or sales-volume targets.
5.1.7.3. Corporate image and positioning
Price should be consistent with overall company image and positioning
approaches. For example, a hotel company or cruise line that chooses to
communicate a prestige or deluxe image should set prices well above the
average. On the other hand, a hospitality and travel organization empha-
sizing economy would be advised to take the opposite tack.
5.1.7.4. Customer demand volumes
Another important part of the pricing equation includes the probable vol-
umes of customer demand. The demand for most hospitality and travel serv-
ices fluctuates widely by season, month, week, day of the week (weekend
versus weekday), or even time of day. Added pressure is put on manager to
fill off-peak periods because the services are so perishable. Price discrimi-
nation by time period is a tool heavily used by our industry to smooth out
demand patterns. Examples include early-bird specials in restaurants, special
weekend rates at city hotels, off-peak airfares on certain routes, preseason
rates on cruise lines and at resorts, and reduced weekend car-rental rates.
5.1.7.5. Costs
Although discussed in more detail later, costs are another important
consideration in arriving at prices. The weakness of most of the unso-
phisticated pricing approaches is their lack of regard for potential costs.
Research into likely costs is a must in effective pricing.
156 Liljana ELMAZI
5.1.7.6. Competition
Although the competitive pricing approach is not recommended on its
own, no company should set prices without some reference to their com-
petitors price levels. Intensifying competition is expected in all parts of
the hospitality and travel industry. Customers are also becoming increas-
ingly value-conscious. Rather than using the wait-and-see or reactive
method discussed earlier, it is much more effective for a company to use
a proactive approach, anticipating how their organizations price changes
will influence those of competitors.
5.1.7.7. Channels
When establishing prices for services to be sold through travel trade
intermediaries, commissions must be taken into account. The actual reve-
nue that airlines, hotels, car rental firms, tour wholesalers, and others real-
ize through travel agent sales are some percentage below the price that the
customer see and pays. For example, domestic airlines receive 96 percent of
fares after taxes, and after the typical 4 to 5 percent agent commission.
5.1.7.8. Complementary service and facilities
How will the price of one item affect the sales of others? This is
another important consideration, because most companies in our industry
sell a variety of services and facilities at different prices (e.g., different
airline routes; cruising destinations; brands of lodging properties; menu
items; and classes of automobiles, tour and vacation packages). One typi-
cal concern is that lowering the price of one item too much mat draw sales
away from higher-profit services. In other words, a company must adopt
a portfolio approach to pricing, rather than pricing each item individually
and ignoring the potential impacts on others.
5.1.7.9. Consistency with marketing-mix elements and strategy
Do you remember the traditional four Ps of marketing: product, price,
place, and promotion? Throughout this book there is an emphasis on ensur-
ing that these four marketing-mix elements are as consistent as possible.
For example, higher prices seem appropriate if a company is providing a
157 Pricing the Product
deluxe or premium service. Economical prices fit better with bare bones
service concepts.
Have you noticed anything peculiar about the nine price-influencing
factors just reviewed? Do you see something that they share in common?
Give yourself some applause if you noticed that all nine factors begin with
the letter C. You might recall these factors better if think of them as the
nine Cs of pricing.
5.1.8. Factors affecting price sensitivity
We will now look at some factors that affect price sensitivity. These
include the unique value effect, the substitute awareness effect, the busi-
ness expenditure effect, the end-benefit effect, the total expenditure effect,
the shared cost effect, the sunk investment effect, the price quality effect,
the price spread effect, and price points.
Unique Value Effect. In Houston the Pappas family has converted
failed locations into successful restaurants, taking what had been dead res-
taurants and turning them into businesses with a one-hour-long wait on
weeknights.
The Pappas family did not have to use coupons or other price discounts
to sell their food. They created a perception of value by giving large por-
tions of food at a moderate price, which appealed to the upper lower class
and the middle class. As Ralph Hitz said, give them value and you will
create volume.
Creating the perception that your offering is different from those of
your competitors avoids price competition. In this way the firm lets the
customer know it is providing more benefits and offering a value that is
superior to that of competitors, one that will either attract a higher price or
more customers at the same price.
The K&W chain of cafeterias in north Carolina offers a consistent and
fairly predictable menu of basic items such as chicken breast, prime rib,
and family style vegetables and desserts. Customers sometimes can be
heard complaining about the lack of menu creativity, but they consistently
return. K&N has discovered a price/value relationship that is recognized
and appreciated by a broad spectrum of the people in North Carolina.
Substitute Awareness Effect. The existence of alternatives of which
buyers are unaware cannot affect their purchase behavior. Hotel restaurants
often charge more for meals based on the substitute awareness effect. The
158 Liljana ELMAZI
guest who arrives in the evening, being unfamiliar with the city, will usually
have breakfast in the hotel. The guest knows that a better value probably
exists elsewhere but is unfamiliar with other restaurants in the city. Although
thebreakfast in the hotel may cost twice as much as a meal in a nearby res-
taurant, the search costs, the time it would take to find the restaurant, and
the travel time to it are greater than the dollar savings of the meal.
Restaurants that target the convention market or out-of-town guests
use the substitute awareness effect to their advantage. These restaurants
have large advertisements in the citys entertainment magazines that are
distributed in the hotels. They are often not the choice of the local resi-
dent, who perceives them as overpriced, but they do attract hotel guests
who are unaware of alternatives. There must be a continuous source of
uninformed customers to use the substitute awareness effect as the ration-
ale for charging premium prices.
When consumers discover products offering a better value, they switch
to those products. Many hotel restaurants are empty in the evening. They
are perceived as overpriced by the local market. Hotel guests have time
during the day to find alternatives. These hotels often view food and bev-
erages as a required amenity rather than an opportunity to compete for
local business. A better philosophy is to use food and beverage as a means
to attract customers.
Business Expenditure Effect. When someone else pays the bill, the
customer is less price sensitive. An executive fully reimbursed for all travel
expenses is unlikely to be attracted to a discount rate offer for a hotel room
and a restaurant offering a $9.99 dinner special. This person would probably
prefer to stay in an upscale hotel, have room-service breakfast, and eat lunch
and dinner in a more expensive restaurant. When setting rates, management
needs to know what the market is willing to pay. If a hotel can attract exec-
utives who have a generous travel allowance and are willing to pay high
room rates, they are leaving money on the table by offering discounts.
Airlines will offer a second business class ticket free when one is pur-
chased at full price. Hotels will offer bonus frequent flyer miles. Both of
these promotions are taking advantage of the business expenditure effect.
The airline knows that the business will pick up the full-fare ticket and
the business traveler will be able to take a companion along for free. The
hotel knows that since the travelers company will pay for the hotel room,
cutting prices by a few dollars might not bring in extra business travelers,
but giving the business traveler bonus frequent flyer miles which they can
159 Pricing the Product
use for vacation trips will. The business expenditure effective has numer-
ous applications in the hospitality and travel industry.
Many hotel use information about corporate per diem rates to deter-
mine rate structures and identify target markets that are willing to pay the
price. For example, when the Mandarin Oriental chain entered the U.S
market with a hotel in San Francisco, a survey of potential corporate cli-
ents was conducted to learn their per diem rates. From this information,
target markets were identified.
End-Benefit Effect. Customers are more price sensitive when the
price of the product accounts for a large share of the total cost of the end
benefits. For example, a japonese couple paying $2000 in air fare to travel
to Australia will pay $150 a night for a luxury ocean-front hotel. The $150
is small cost of the end benefit (their vacation). Many families driving to
the Gold Coast from Sydney (a 500-mile trip) are looking for less expen-
sive accommodations. These families are often on a limited budget and
will prefer a less expensive motel a few blocks from the ocean.
When the japonese couples goes to Dreamworld (a theme entertain-
ment park), they will pay the $29 per person entrance fee without hesita-
tion. The $58 admission fee is small portion of the price of their vacation.
However the local family of your looking for weekend entertainment may
view the $29 adult charge and $19 charge for children as high. In this
case the $96 entry fee amounts to a large portion of their entertainment
expenses. To attract the local customer, Dreamworld offers yearly passes
for just twice the single admission charge and second visit passes for $8,
which allow the purchaser to enter any time during the next three months.
Dreamworld knows that if it were to raise its prices by 20%, it would lose
more local customers than international travelers. Thus it is important for
Dreamworld to know its customer mix. If 75% of Dreamworld customers
are local residents, Dreamworld must be cautious about its price increases.
It is common for tourist attractions such as Dreamworld to provide special
rates for local residents. For example, a water slide near Disney World in
Orlando, Florida, offered a special rate to families who could produce a
local drivers license.
Upscale hotels can use the end-benefit effect as a tool to convince poten-
tial customers to pay an additional amount for hotel rooms. A company
holding a two-day sales meeting may spend $500 in air fare, pay $250 in
salary per day, and spend $50 in materiales and $50 in speakers fees per par-
ticipant. Thus, before room, food, and beverage costs, $1000 is invested in
160 Liljana ELMAZI
each participant. A smart hotel sales person may convince the meeting plan-
ner to upgrade by pointing out that the hotel costs are a small potion of the
total costs. The sales presentation might be structured like this: And the dif-
ference between our luxury accommodations and the hotel accommodations
youre considering in only $30 per night or $60 per participant, which is a
small portion of your total cost per participant. Dont you think its worth
$60 to instill pride in your employees and show them that you care enough
about them to put them in one of the best hotels in the city? Surely, the atti-
tude difference this will create in the participants will play a significant role
in the total success of the conference. Lets get the contracts drawn up for
your sales meeting right now while we still have the space.
When working with price, the end-benefit price is an important con-
cept to consider. The end-benefit price identifies price-sensitive markets
and provides opportunities to overcome pricing objections when the prod-
uct being sold is a small cost of the end benefit. To take full advantage
of this effect, remember that many purchase have nonmonetary costs. For
example, a mother planning the wedding of her daughter wants every-
thing to be perfect and to avoid embarrassing moments. High emotional
involvement often makes the buyer less price sensitive.
Total Expenditure Effect. The more someone spends on a product,
the more sensitive he or she is to the products price. For example, limited
service chains such as Hampton Inns. Red Roof Inns, and la Quinta have
made a successful effort to appeal to salespersons. The travel expenses of
a salesperson can be significant, especially for those who average two to
three days a week away from home. A salesperson who saves just $20 a
night can realize annual savings of more than $2000. This savings adds to
the profit of selespeople can save $2000 times the number of selespeople
that they employ. Thus a company with 12 salespeople can save $24000.
The total expenditure effect is useful in selling lower-price products or
products that offer cost savings to volume users. The hotel concepts men-
tioned above provide salespeople with the benefits that they seek in a hotel
clean comfortable rooms, security, free telephone calls, and a coffee shop
nearby.
The total expenditure effect is a dominant decision-making force for
thousands of travelers who are provided with a set figure per trip. Many
truckers are given a predetermined amount of cash such as $500 for a trip.
Expenditures over that level are not reimbursed.
161 Pricing the Product
Not all motels desire the business of truckers, but those who do are
highly cognizant of the fixed expenditure of their guests. They realize that
ample parking for a 16-wheeler, a clean room with two beds, and a rea-
sonable price will attract business.
Hotels that cater to upscale travelers frequently feature one king-sized
bed in a room since few people on unlimited or high-expense accounts
wish to share a room. Quite the opposite is true of truckers or pipeline
construction teams with fixed-expenditure travel budgets. A $40 room
shared by two extends a fixed budget.
Aspen Skiing company is an example of a company that takes the
hotel expenditure effect into account when they make their pricing deci-
sion. They know that most of their customers are from out of state. They
know these customers want well-maintained facilities and are willing to
pay good money for them. Only 20% of their budget on a ski trip goes
toward lift tickets.
Shared Cost Effect. Purchasers are less price sensitive when they
are sharing the cost of the purchase with someone else, extending confer-
ences with a weekend vacation component. Delegates to a conference that
ends Friday may choose to spend the weekend at the resort or hotel if the
hotel offers a special leisure package. This package is especially attrac-
tive because the airfare for the person attending the conferences is usu-
ally tax deductible or paid by the company. The hotel cost of the vacation
is reduced since the expenses were shared.
Sunk Investment effect. Purchasers who have an investment in prod-
ucts that they are currently using are less likely to change for price rea-
sons. For example, if IBM has held its last 10 regional sales meetings at
the Omni in Atlanta, the company will have invested much time working
with the hotels conference service staff. The staff will know exactly how
IBM wants room set up, which menus the conference planners prefer, the
arrival patterns of the guests, and so on. IBM will also have worked with
the staff to avoid repetition of any mistakes made during previous confer-
ences. IBMs meeting planners may have invested weeks of time working
with Omnis staff. Because of this, they may be hesitant to change even
if another hotel offers a lower price.
The sunk investment effect is one reason it can be difficult to get com-
panies to change hotels. Once the company finds a hotel that performs well
and meets its needs, price becomes less of an issue. On the other hand, a
hotel that frequently turns over its convention service and sales staffs will
162 Liljana ELMAZI
require the corporate meeting planner to educate new staff members reg-
ularly. Here the meeting planner has no sunk investment; the planner will
entertain other offers and make a decision based on price.
The concept of sunk investment combined with elasticities of demand
for various customer segments provides a powerful argument for maintain-
ing high prices for corporate customers. Eric Orkin, a pioneer in pricing
and yield management, argues that some hotel chains have erred in follow-
ing the lead of car rental companies by offering large corporations special
discounts at all hotels within their chain. Orkin contends that this prac-
tice provides the lowest rates to those most able to pay and that it inevita-
bly leads to similar moves by competitors, thus removing any advantage.
Adding to this negative strategy is the fact that it often spreads to mid-
sized customers, thus decreasing revenue further.
Price Quality Effect. Consumers tend to equate price with quality,
especially when they lack any prior experience with the product. For
example, a friend may recommend that you stay at the Grand Hotel on
your trip to Houston. If you call to make the reservation and they offer
you a $49 weekend and select another. The grand Hotel may have met all
your needs, but because of the low price, you assumed it would not.
A high price can also bring prestige to a product, because it limits
availability. Restaurants where the average check is more than $100 per
person for dinner would lose many of their present customers if they low-
ered their prices. In cases where price is perceived to relate to quality
or where price creates prestige, a positive association between price and
demand may exist with some market segments. For example, the Gosforth
Park Hotel, an upscale hotel in Newcastle, England, found that occupancy
increased as their rates increased.
5.1.8.1. Price sensitivity measurement
Value pricing has sometimes failed because in reality it was simply
low pricing and became a cost-based strategy without considering the
consumers perception of value. A technique known as price sensitivity
measurement (PSM) helps to establish a balance of price with product or
service value based on consumers perceptions of that value. Value pricing
based on PSM is more likely to be successful than simply picking prices
because they are low and undercut the competition.
163 Pricing the Product
PSM utilizes a target consumer survey with four questions from which
the aggregate results are graphed to give an idea of consumer price sensitiv-
ity. The four questions are: At what price on the scale do you consider:
The product or service to be cheap?
The product or service to be expensive?
The product or service to be too expensive that you will not consider
buying it?
The product or service to be too cheap, so cheap that you would ques-
tion the quality?
Taco bell used PSM to establish prices in its successful pricing strat-
egy. Instead of using the conventional approach to pricing of first devel-
oping a new food item and then determining what the price should be,
Taco Bell first determined what consumers were willing to pay for a spe-
cific type of item and then determined what the company needed to do to
develop a product in that price range. If this price was too low to deliver,
it was dropped from further consideration.
Chapter conclusions:
This chapter focuses on selected pricing theory and objectives, along
with the broad pricing strategies of market skimming and market penetra-
tion. Pricing objectives can be classified as financial, volume, competitive,
and image. Price and nonprice competition, in the form of cost-oriented
pricing, demand-oriented or perceived-value pricing, and competitively
oriented pricing must all be considered carefully. The delicate relation-
ship between price and the level of sales that result are the most impor-
tant consideration.
Four major factors have a significant impact on the establishment of
prices for any hospitality organization: (1) environmental factors, (2) com-
petitive factors, (3) consumers relative perception of value, and (4) the
cost structure of the organization. Management must carefully weigh the
influence of each of these variables when establishing prices for the entire
product-service mix.
Discussion questions:
1. What are the major pricing objectives discussed in the chapter?
Which of these would you consider to have the highest priority?
Why?
164 Liljana ELMAZI
2. What are the major marketing factors that affect menu prices?
What is the potential impact that each of these might have on the
establishing of prices?
3. What marketing strategy and tactics might a manager in the hos-
pitality industry employee to induce more patronage without low-
ering prices?
4. What is meaning of prices dual role?
5. Analyze the relation between price and quality.
6. Discuss the term consumers relative perception of value. How
might this affect a manager when prices are established?
7. What is price elasticity of demand? How we can account it?
CASE Pricing: Rent-A-Wreck, Inc.:
This chapter mentions that some hospitality and travel companies start
off with the intention of using low prices forever. Rent-A-Wreck, a divi-
sion of Bundy American Corporation, is an excellent example of success-
ful application of this long-term, low-rate approach.
Rent-A-Wreck rents cars, vans, station wagons, and trucks for rates
around 50 to 75 percent of those charged by the major car rental companies.
How can it afford to do so? The answer is that it buys and rents used cars.
Vehicles are generally between two and four years old and are in excellent
operating condition. Theyre definitely not wrecks, as the company name
seems to indicate. The positioning statement Dont let the name fool you
makes sure that customers do not get the wrong impression.
The original idea of Rent-A-Wreck was conceived by David Schwartz
in West Los Angeles in the early 1970s. Mr. Schwartz had an interest-
ing background for the business, having worked his way through UCLA
by buying and selling cars for his friends. He remains a driving force
in the company and continues to operate a successful franchise in the
Los Angeles area. Through a franchising program introduced in 1978,
the company now has more than 675 offices in United States, Australia,
Canada, Holland, Norway, Sweden, New Zealand, and the United Arab
Emirates. Shares in the company are publicity traded.
Rent-A-Wreck has two distinct target markets. First, there are people
away from home, traveling for business, pleasure, or personal reasons.
They are the travelers this book focuses on. Rent-A-Wreck also serves
local markets, providing short-and long-term (3 to 12 month) rentals for
those who are without their cars, are moving to another house, or have
165 Pricing the Product
assorted other reasons. The company states that the average length of a car
rental in the United States is about 3 days. At Rent-A-Wreck it is about 9
days. Obviously, the company appeals to the more price-conscious renter
and to persons who need vehicles for more than just a few days.
Traditionally, Rent-A-Wreck offices have not been at airports, but at
the places of business of franchisees, many of whom are used-and new-car
dealers. Again, this is an approach that helps the company keep its over-
head costs and therefore, its rental rates low.
Rent-A-Wreck is an excellent example of a hospitality and travel
organization that is using sales-oriented pricing objectives and undercut-
ting competition by maintaining low operating costs.
Discussion questions:
1. How is Rent-A-Wrecks approach to pricing unique and different
from that of most of its competitors?
2. What types of customers would be most attracted to Rent-A-Wreck
because of its pricing approach?
3. Which other hospitality and travel companies use a low-price
approach, and how do they market themselves?
Web Site: http://www.rentawreck.com/
5.2. Pricing Methods and Strategies
5.2.1. Planning pricing approaches
How do you know when the price is right? The right pricing approach,
therefore, begins with a set of clear pricing objectives. There are three
steps involved in planning prices:
1. Set pricing goals
2. Select pricing approaches
3. Measure and evaluate pricing success
5.2.1.1. Set pricing goals
Most pricing objectives can be divided into three categories:
1. profit oriented,
2. sales oriented, and
3. status-quo oriented
166 Liljana ELMAZI
1. Profit-Oriented Pricing
Prices can be established either to achieve certain targeted profit levels
(target pricing) or to generate the maximum amount of profit (profit maxi-
mization). Target prices are usually expressed as certain percentage returns
on investments or sales. Later in this chapter you will learn about a hotel
pricing technique called Hubbart Formula, which uses a target return on
investment as its base. Target pricing is one of the best approaches to pric-
ing available. With profit maximization, the company sets the price that
will give it the greatest profits, based on forecasts of costs and customer
demands. Profit maximization objectives tend to be used more in the short
term, whereas target pricing is more suitable for long-term application.
2. Sales-Oriented Pricing
Sales-oriented pricing emphasizes sales volumes rather than profits. The
company uses price as a tool either to increase its sales to a maximum or
targeted level or to get a larger share of the market. This chapter has already
alerted you to the fact that sales-oriented pricing does not necessarily lead
to increased profits. Despite the real need for caution, sales-oriented pricing
approaches have proven extremely successful over several years for some
companies. An example, is grocery store chains that offer limited services,
buy in bulk, and self items at substantial discounts. Southwest Airlines is
another good example of a discounter with sales-oriented objectives in our
industry. With its low-fare and no-frills policy, Southwest was one of the
few U.S. domestic airlines to operate profitably in the 1990s.
Sales-oriented pricing objectives can be wither long or short term. In
Model 6s case, low rates are part of their long-term pricing approaches.
Short-term applications include many of those involved with sales pro-
motions. Couponing, for example, usually includes price discounting to
increase sales in the short term. The seasonal demand patterns for many
hospitality and travel services also force many companies to use price as
an inducement in off-peak periods.
3. Status-Quo-Oriented Pricing
With status-quo objectives, the company tries to avoid large sales
swings and maintain its position relative to competitors and travel trade
intermediaries. The most common use of this approach is by compa-
nies that try to match competitors prices closely (the competitive pricing
approach). In certain parts of our industry, smaller-share companies, adjust
167 Pricing the Product
their prices to match more closely those of the market leaders (e.g., Burger
King, Wendys, and Hardees following McDonalds price changes-the fol-
low-the-leader pricing approach).
5.2.1.2. Select pricing approaches
Once pricing objectives are understood, a company can make an
informed choice among several available pricing approaches. These can
be divided into three distinct categories:
1. Unsophisticated approaches
2. Sophisticated approaches and
3. Multistage approaches
1. Unsophisticated approaches
The first category of pricing approaches are Unsophisticated approaches.
The approaches in this category are unsophisticated because they rely
less on research and cost considerations than they do on the intuition of
managers. They are generally nor recommended, but are discussed here
because they occur in our industry.
Competitive Approaches. As you have already seen, this is a status-
quo approach to pricing-companies set prices based on their competitors
prices. It tends to be a reactive or wait-and-set method, because prices
are moved up or down as competitors price changes become known. In
todays highly competitive hospitality and travel markets, it is essential to
consider ones competitors when pricing, but this should not be the only
consideration. Every individual organization has a different cost/profit
structure and customer base. A certain price level may produce large prof-
its for one company but result in no profits or a loss for another.
A strategy on going-rate pricing is the establishment of price based
largely on those of competitors, with less attention paid to costs on demand.
The firm might charge the same, more, or less than its major competitors.
Some firms may charge a bit more or less, but they hold the amount of
difference constant. For example, a limited-service hotel chain may charge
$10 more than Motel 6 in markets where they compete. This form of pric-
ing is quite popular. When elasticity is hard to measure, firms feel that the
going price represents the collective wisdom of the industry concerning the
price that will yield a fair return. They also feel that holding to the going
price will avoid harmful price wars.
168 Liljana ELMAZI
Follow-the Leader Approach. This is a modification of the general
competitive pricing approach used mainly by smaller market-share com-
panies. Again, it is a reactive rather than a preplanned method. Smaller
companies wait for the new prices introduced by the market leader or
leaders, and then they peg their own prices to these. In general, changes
follow the direction (either up or down) of the larger forms. Because most
smaller organizations operate with more slender profit margins than those
of the market leaders (who enjoy considerable economics of scale), it
can be dangerous for them to follow the leaders blindly. Market leaders,
because of their volume advantage, can generally absorb larger cuts in
prices. They also have more to gain from slight increases in prices.
Intuitive Approach. Institute pricing is the least scientific method,
because it involves no research on costs, competitive prices, or customer
expectations. Some have called it the gut feel approach because it relies
most heavily on the managers intuition. You already know how impor-
tant marketing research is to effective marketing decisions. Thus, you will
quickly realize that this is not a good pricing approach.
Traditional or Rule-of-Thumb Approach. Over the years, certain
traditional or rule-of-thumb pricing has developed in various parts of the
hospitality and travel industry. In the lodging sector, it was believed in
the 1970s that $1 should be charged for every $1,000 of capital invested
per room in each property. For example, a hotel that cost $100,000 per
room to build should have a room rate of $100. Another with a per-room
investment of $150,000 should charge $150. Many now believe that this
rule of thumb has become obsolete as hotel construction costs have esca-
lated quickly and intense competition has held hotel rates down. Because
a 40-percent food cost was quite typical among restaurants in the 1970s,
multiplying a dishs food costs by a factor of two and one-half was a
common rule of thumb. The mechanics of this approach are very sim-
ple-just find out what the rule of thumb is and plug in your own num-
bers. However, you have probably already spotted serious flaws in this
approach. Again, there is no research or consideration of customer expec-
tations and competitive prices.
All four unsophisticated approaches have some common features. First,
they are based on little, if any, research. Second, they take into account
only one of the factors that influences prices-what competitors are charg-
ing. Third, they do not consider an organizations unique cost/profit struc-
ture or its customers expectations and preferences.
169 Pricing the Product
Before we discuss the more sophisticated, research-based pricing
approaches, you should know more about the variety of factors that influ-
ence prices. A discussion of these factors follows.
2. Sophisticated Approaches
What you have just learned is that pricing involves balancing a vari-
ety of factors carefully. You now know that it is insufficient to look at
one factor only, such as competitive prices. The more sophisticated pric-
ing approaches are normally used only after a company has carefully
researched the consequences of pricing decisions.
a. Target pricing is an example of a pricing approach based on a
profit-oriented objective. The target is usually set in terms of a specific
return on investment that the company wants to achieve. In some cases,
the target may be expressed as a percentage of sales.
One target pricing method that is popular in the lodging industry is the
Hubbart Formula. It is used to establish room rates and involves building
an income statement up from the bottom to determine the rate that is nec-
essary to provide a predetermined return on investment. Figure 6 shows
how a Hubbart formula room rate is calculated. The rate thus calculated
does not include travel agent commissions and discounts offered to spe-
cific target markets. These two items must be projected before a final,
advertised (or rack) rate can be estimated. Figure 2 provides a hypotheti-
cal example of such a calculation.
Desired After-Tax Return on Investment
PLUS
Income Taxes
Interest Charges
Insurance
Property Taxes
Depreciation
Administrative and General Expenses
Marketing
Energy Costs
Property Operation and Maintenance
MINUS
Food and Beverage Department Revenues
Telephone Department Revenues
170 Liljana ELMAZI
Other Department Revenues
PLUS
Food and Beverage Expenses
Telephone Expenses
Other Department Expenses
EQUALS
Required Room Profit
PLUS
Room Expenses
EQUALS
Required Room Revenues
ALL DIVIDED BY
Projected Number of Occupied Room Nights
EQUALS
Average Rate per Occupied Room Night After Discount
and Commissions

Figure 2. Examples of target pricing: Hubbart formula method or
determining room rates. (Adapted from Tourism is you business: Marketing
management, 1986)
Required Room Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . $555,476
Projected % of Occupied Room Nights =
(total rooms 365/year) % occ (Occupancy Rate = 0.65) . . 11863
Target Average Net Rate Per Occupied Room Night . . . . . . . . $46.83
Step Two: Calculate Specific Room Rates for Each Target Market
Occupied
Room
Nights P
e
r
c
e
n
t
Discounts
Offered
Avg. no. of
persons per
room
Target Markets 593.13 5% 5.0% 1
Regular Business 593.13 5% 12.5 % 1
Commercial Rate Business 4745.00 40% 20.0% 1.5
171 Pricing the Product
Conference/Meeting Groups 1779.38 15% 25.0% 2
Motor Coach Tour Groups 4151.88 35% 15.0% 2.5
Pleasure Travelers
Total 11862.50 100% 1.5
Required Average Rate Before Discounting Equals . . . . . . . . . . . . .$64.70
Required Average:
Required Average Rates by
Before
Dis-
count
Less
Dis-
count
Aver-
age
Rate
Single
Rate
Double
Rate
Regular Business $64.70 5% $61.46 $61.46
Commercial Rate Business $64.70 13% $56.61 $56.61
Conference/Meeting Groups $64.70 20% $51.76 $49.26 $54.26
Motor Coach Tour Groups $64.70 25% $48.52 $48.52
Pleasure Travelers $64.70 15% $54.99 $54.99
Target Markets
Numbers
of Room
Nights
Average
Rate
= Revenues
Regular Business 593.125 $61.46 = $36,456
Commercial Rate Business 593.125 $56.61 = $33,578
Conference/Meeting (single) 2372.5 $49.26 = $116,868
Conference/Meeting (double) 2372.5 $54.26 = $128,731
Motor Coach Tour Groups 1779.375 $48.52 = $86,343
Pleasure Travelers 4151.875 $54.99 = $228,331
TOTAL ROOM REVENUES 11862.5 $53.13 = $630,307
Figure 2. Hypothetical Hubbart Formula example for a hotel.
How discounts and commissions are handled by the Hubbart Formula.
Target pricing methods, such as the Hubbart Formula, are effective
because they consider several of the nine Cs of pricing:
1. A detailed forecast of costs and profit levels (Costs)
2. Estimated of demand (Customer Demand Volumes)
3. Consideration of price preferences of individual target markets
(Customer Characteristics).
4. Specifications of financial objectives (Corporate Objectives)
5. Estimates of commissions paid to travel trade intermediaries
(Channels)
172 Liljana ELMAZI
Once the target rate is calculated, it may be adjusted slightly in relation
to competitors prices or for better alignment with the corporate image/
positioning.
b. Price Discounting and Discrimination
Volume Discounts. Most hotels have special rates to attract custom-
ers who are likely to purchase a large quantity of hotel rooms, either for
a single period or throughout the year. Hotels usually offer special prices
or provide free goods for association and corporate meeting planners. As
an example, suppose that a convention held by an industry association is
attended by people who pay their own room charges. The association may
prefer to receive a free room-night for every 20 room-nights booked, rather
than a room rate that is $5 lower. They can use the free nights for their staff
and invited speakers, reducing the associations total costs. Besides group
rates, hotels offer corporate rates to companies that will guarantee their use
of the hotel for an agreed-upon number of room-nights each year.
Discounts based on Time of Purchase. A seasonal discount is a price
reduction to buyers who purchase services out of season, when the demand
is lower. Seasonal discounts allow the hotel to keep demand steady during
the year. Hotels, motels, and airlines offer seasonal discounts during sell-
ing periods that are traditionally slower. Airlines often offer off-peak prices,
based on the time of day or the day of the week that the passenger flies.
International flights adjust the price according to seasonal demand. A flight
from Auckland to Sydney may cost $599 round trip during the Christmas
season, while in july the same flight may cost $329. Restaurants offer early
bird specials to attract customers before their normal rush. Unfortunately,
the varjous discount rates offered by a company sometimes clash to negate
the desired positive effects. Restaurants commonly offer senior-citizen dis-
counts but would also like to induce this market segment to visit the res-
taurant early in the evening before the rush begins. Senior citizens often
feel no reason to accept the early bird special since they will qualify for
a discount at peak hours. Discounting is a common as practice in certain
parts of the tourism and hospitality and travel industry. Simply stated, it
means offering fares, rates, or prices below those advertised.
Discriminatory pricing (also sometimes referred to as price discrimi-
nation) is a form of discounting. In discriminatory pricing and discounting
in general, services are sold to some customers at lower prices. However,
173 Pricing the Product
the price gap does not actually reflect any real difference in the costs of
providing the service.
Discriminatory pricing refers to segmentation of the market and pric-
ing differences based on price elasticity characteristics of these segments.
Price discrimination as used in this chapter is legal and is viewed by many
as highly beneficial to the consumer.
Companies often adjust basic prices to allow for differences in cus-
tomers, products, and locations. In discriminatory pricing, the company
sells a products or services at two or more prices, although the difference
in price is not based on differences in cost.
Suppose, for example, that a steak dinner has a menu price of $20 and
the demand is 100 dinners at this price. If the restaurant lowers the price
to $14, demand increases to 200 dinners. If the variable costs for preparing
and serving the dinner are $8, the gross profit in each case will be 41200.
However, if we assume that of the 200 persons willing to pay $14 for the
steak 100 were part of the group willing to pay $20, $600 of potential
income is lost from these 100 customers.
Price discrimination works to maximize the amount that each customer
pays. In the case above, we would charge $20 to customers willing to pay
$20. Those who are only willing to pay $14 would be charged $14. How do
we do this? We cant ask the customer. Would you like to pay $20 or would
different prices to different segments, offering the highest price to those seg-
ments that are less price sensitive. For example, our standard price is $20
or would you like to pay $14? Obviously, everyone would say $14. Instead,
we give different prices to different segments, offering the highest price to
those segments that are less price sensitive. For example, our standard price
is $20 for the dinner. We offer an early-bird special of $14 to diners arriv-
ing before 6 P.M. A person who works until 5 probably is unwilling to rush
home and rush to the restaurant to take advantage of the discount. This cus-
tomer prefers to relax at home after work and arrive at the restaurant at 8
P.M. However, retired persons who may be more price sensitive, but less
time sensitive, would be attracted by this special. The restaurant could also
choose to send a coupon in a direct-mail coupon package to prospective cus-
tomers. The pricesensitive customers would keep the coupon and use it the
next time that they went out to eat. Many people who receive the coupon
would throw it away. These customers do not want to be out to eat. To these
customers the $6 savings is not worth the hassle of using the coupon. Price
discrimination discriminates in favor of the price-sensitive customer.
174 Liljana ELMAZI
The supersaver fares on airlines usually require an advance purchase
and a stay-over on a Saturday night. The weekend stay eliminates most
business travelers, while the advance purchase eliminates family emergen-
cies and business trips made on short notice. Airlines know that business
travelers and those traveling for emergencies are less price sensitive; that
is, they exhibit inelastic price behavior. Airlines offer low fares with the
leisure traveler in mind. The leisure traveler uses discretionary income to
pay for travel and as a result is more price-sensitive than the business trave-
ler. A reduction in price often results in additional demand from the leisure
segment. For example, in travel industry, coach seats range from $629 to
4129 for a senior citizen who has purchased tickets in advance through a
multiple-coupon book. The lower fares are aimed at the price-sensitive lei-
sure traveler. Like the airlines, many hotels discriminate between the lei-
sure and business segments. Hotels is central business districts that cater
to business travelers suffer low occupancy on weekends.
Many of these hotels have developed lower-priced weekend packages
to entice the leisure traveler.
Low variable costs combined with fluctuations in demand make price dis-
crimination a useful tool for smoothing demand and bringing additional reve-
nue and profits to most businesses. This form of pricing uses lower prices to
attract additional customers, without lowering the price for everyone.
Major sectors of the hospitality industry, such as airlines, hotels, cruise
lines, and railroads, are faced with enormous fixed costs. Companies in
these sectors are faced with the need to fill seats or beds.
Here are a few examples:
Many fast-food chains offer discounts to senior citizens (often requi-
ring customers to show proof of age or a house card certifying
their status as senior citizens).
Several major national airlines and lodging chains have clubs for
older travelers. After paying a modest membership fee, these trave-
lers receive discounts on airfares and related supplier services (e.g.,
hotels and car retails). United Airlines Silver Wings Plus offers
people age 55 and over discounts on published fares, and many
other travel price breaks.
Most major car rental firms have corporate rate plans. Business travel-
ers who join these plans automatically receive discounted rental rates.
Almost all hotels and resorts have a multitiered list of rates. The
corporate or commercial rate is by far the most common discounted
175 Pricing the Product
rate, and it works much like the program used by car rental firms.
Other below-rack rates often include those for government person-
nel, airline crews, tour groups, convention/meeting guests, seniors,
and sports teams.
Examples of Airfare Categories for a Flight from Detroit to Los Angeles
First class: 32 seats, 36 fares
Examples of first-class fares:
$ 944, normal first-class fare
$ 849, normal fare with 10% senior-citizen discount
$629, free upgrade from full coach fare for Worldperks Gold member
$305 or $239, free upgrade on 14-day advance purchase excursion fare for
World-perks Gold member, limited number of seats at each fare.
Free, Worldperks frequent-flier award ticket
Coach class: 256 seats, 22 fares
Examples of coach fares:
$ 629 normal fare
$566, normal fare with 10% senior-citizen discount
4466 or $238, one 0 way military fare; limited number of seats at each fare
$309, bereavement fare
$239 excursion fare with 14 day advance purchase
$189, visit USA fare, good for foreign travelers
$179, excursion fare (sale currently in effect) with seven day advance pur-
chase
$129, senior-citizen travel based on coupon booklet
Special fares:
Convention fares, usually 5% off lowest excursion fare or 40% off nor-
mal coach fares
Group fares, specially negotiated for group travel; generally close to low-
est excursion fare
Bulk fares, special deals for tour operators
Tour fares, for travelers on a tour package, such as a cruise
Corporate fares, negotiated with certain corporations; can be from 10 to
35% off the full coach or first class fare
176 Liljana ELMAZI
To price discriminate successfully, the following conditions must be met:
1. Different groups of consumers must have different responses to
price; that is, they must value the service differently
2. The different segments must be identifiable and a mechanism must
exist to price them differently.
3. There should be no opportunity for persons in one segment who
have paid a lower price to sell their purchases to other segments
4. The segment should be large enough to make the exercise worth-
while
5. The cost of running the price discrimination strategy should not
exceed the incremental revenues obtained. This is partly a func-
tion of criterion.
6. The customers should not become confused by the use of different
prices.
Discounting and discriminatory pricing can be based on four different
criteria.
They include:
1. market,
2. form of service provided,
3. image place, and
4. time.
Target market You have already read several examples of this type of
discounting, for example, some target senior citizens and business travelers.
Form of service provided A few add-on services are not provided,
but the discount that it offered is much greater than the cost of the deleted
services. For example, an airline offering a discount fare may not issue
boarding passes to passengers until check-in-time.
Place Prices are varied according to the location of the facilities and
services. For example, some resorts charge more for beachfront rooms,
although other rooms are available at lower prices.
Time Discounting according to time period is a very common prac-
tice in our industry because of the perishability factor. The weekend pack-
ages now offered by most urban hotels are a good example. Room rates
are discounted to attract pleasure travelers on weekends, when business
volumes traditionally fall from their weekday highs. Early-bird discounts
offered by restaurants are another example; diners are given a price break
if any eat before rush periods.
One application of discriminatory pricing is yield management.
177 Pricing the Product
Originated by the airlines, it is an example of discriminatory pric-
ing based upon several of the previously mentioned criteria. You proba-
bly know about the advance-booking and nonrefundable fares that have
become popular. In addition to the standard three-class system (economy/
coach, business/club, and first class), typical restrictions include day of
departure, minimum length of stay, Saturday stayovers, and the ability to
modify or cancel the itinerary.
A yield management system is used to maximize a hotels yield or con-
tribution margin. This is done by the rates that a hotel will charge and the
number of rooms available for each rate based on projected occupancies for
a given period. These systems help hotels achieve the maximum contribu-
tion margin based on the demand for hotel rooms. The concept behind yield
management is to manage revenue and inventory effectively by pricing dif-
ferences based on the elasticity of demand for selected customer segments.
An effective yield management system establishes fences to prohibit
customers from one segment receiving prices intended for another. For
example, business travelers on an expense account exhibit somewhat ine-
lastic price behavior. Leisure travelers are commonly more price sensitive
(price elastic). A typical fencing strategy for leisure travelers would be to
require a Friday and Saturday night stay with a 30-day advance reservation.
This effectively fences out business travelers, who then pay higher rates to
stay during a business week with little or no advance reservations.
Yield management involves the development and use of different rate
classes based on the projected demand for the service. These rates are used
to maximize yield. The formula for yield is
A hotel with sufficient history can project occupancy based on current
booking patterns. If low occupancy is projected, the hotel will keep lower
rate classes open to increase occupancy. The lower rates will typically use
price discrimination techniques that favor the leisure traveler. Sheraton,
for example, has 21-day advance supersaver rates. The idea is to create
extra demand with low rates attracting guests that the hotel would not
have received.
If the projected occupancy is high, the lower rates will be closed and
only the higher rate classes will be accepted. Today, several computerized
Room nights sold actual average room rate
yield
Room nights available room rate potential
=.
178 Liljana ELMAZI
systems are available that automatically project occupancy levels for a
given date and suggest pricing levels for each day. It is common for a yield
management system to increase revenues by at least 5%. Reservations for
Hyatts Regency Club concierge floors climbed 20% after Hyatt imple-
mented yield management system.
Yield management systems must be based on sound marketing. They
should be developed with the long term value of the customer in mind.
One early yield management system cut off reservations from travel agents
when projected occupancy for a given date was high. This was done to
eliminate travel agency commissions when the hotel could sell the rooms.
This system saves money in the short term by saving travel agency com-
missions. However, in the long term the hotel could lose a significant por-
tion of its travel agency business. Think of the person who wants to stay at
the Regal Hotel in Orlando and fly to Orlando on Delta. The travel agent
informs the client that the airline is confirmed, but no rooms are availa-
ble at the Regal, so a reservation was made at the Gaton Hotel. The cli-
ent calls the Regal only to find that rooms are available.
The client now thinks the travel agent is pushing the Gator hotel and
gets upset with the travel agent. The travel agent becomes upset with the
Regal and refuses to book future business with them. The Regal gains
short-run extra revenue but loses the travel agents business in the long
term. Yield management programs should focus on long-term profitabil-
ity, not just the maximization of one days revenue.
With some yield management systems, customers staying a longer
period can be charged more than those staying only a few nights. Normally,
one might expect a concession for longer stays. Sometimes the longer stay
may might expect a concession for longer stays. Sometimes the longer
stay may take the guestinto a period of high occupancy. These yield man-
agement systems average the occupancy over the guests stay. For exam-
ple, based on the occupancy levels in the following table, a guest checking
in may 8 and checking out May 10 would be quoted a $65 rate as the low-
est available rate. A guest checking in May 8 and checking out may 12
would be quoted $85 as the lowest available rate, since the hotel can sell
rooms for may 10 and 11 at minimum of $105 a night. Under this system
the staff must be well trained to explain rate differences to the guest.
Projected occupancy:
May 8 60% May 10 85%
May 9 60% May 11 90%
179 Pricing the Product
Yield management systems can be useful in managing the number of
rooms available for transient demand. Most hotels have a base of transient
demand composed of individual guests who pay a high rate. Some of these
transient guests are business persons who may stay in the hotel several
times during the year. Groups make their reservations well in advance of
the transients: thus a salesperson sometimes wants to take the sure busi-
ness. When group business displaces transient business, the average rate
drops and some displaced transient guests may never return, deciding to
stay at an alternative hotel. Yield management systems help eliminate the
problem of displaced transient guests by projecting the number of tran-
sient rooms that will be used on any given date.
If used properly, yield management systems can provide extra reve-
nue. A good yield management system benefits both the hospitality com-
pany and the guest. It opens low-rated rooms for the leisure traveler during
times of low occupancy and saves rooms during periods of peak demand
for the business traveler willing to pay full rates. The company gains, since
yield management focuses on maximizing revenue, not cutting costs.
A yield management system requires the availability of good data.
This has forced many hospitality companies to go back to the basics and
develop sound information retrieval system for internal data, such as
booking patterns without even using yield management,the company is in
a far better position to make intelligent management decisions.
An effective yield management system depends on several variables.
These are the ability to segment markets, perishable inventory, ability to
sell product in advance, fluctuating demand, low marginal sales costs, high
marginal production costs (can easily add another room), booking pattern
data information on demand pattern by market segment, on overbooking
policy knowledge of effect of price changes, a good information system for
internal and external data, and ability to fence customer segments.
Use of yield management within the hospitality industry is expand-
ing to new sectors. The Dalmahoy Golf and Country Club Resort near
Edinburgh, Scotland implemented a yield management program for its
golf-course operation.This tied the costs of an annual membership to the
time and day that the purchaser used the golf course.
Regarding the ethics of yield management, many industry observers
and consumer advocates have voiced concern. Steve Hall, executive direc-
tor of the International Institute for Quality and Service in Tourism, has
180 Liljana ELMAZI
responded to these concerns. Revenue management is important, it is
honorable, it is ethical, and it is fair.
Although yield management may be ethical, it may not be viewed as
fair by the guest. A study of perceived fairness of yield management dem-
onstrated that many common yield management practices used in the hotel
industry were viewed as highly unacceptable by survey respondents.
Unacceptable practices:
1. Offering insufficient benefits in exchange for restrictions
2. Imposing too severe a restriction on discounts
3. Not informing customers of changes in requirements to receive
price discounts.
Acceptable practices:
1. Availability of information concerning pricing options
2. A substantial discount offered for cancellation restrictions
3. Reasonable restrictions for a discounted rate
4. Different prices for products perceived by the customer as different
The types of price reductions involved in discounting are not the price
cutting (or price slashing) variety used by companies that react quickly
and often rashly to competitors price moves. Discounts are carefully
researched and preplanned pricing programs or designed to achieve spe-
cific objectives. They are based on a thorough review of the impact they
will have on costs and profits. Discounting programs are often instituted
for several months or years.
c. Last-Minute pricing
The ongoing fear of product spoilage from unsold inventory creates a
market for last-minute inventory selling. The use of revenue management
helps considerably to reduce this problem, but many members of the hospi-
tality industry such as small hotels do not use yield management systems.
Private companies known as consolidators or travel consolidators
acquire excess inventory from diverse members of the hospitality indus-
try, create consumer packages, and sell them at discounts to the public.
Participating suppliers such as bed and breakfasts and guest ranches often
sell their available inventory as discounts of 50% or more.
Airports in Germany contain booths in which travelers may purchase
these discounted travel packages. The product assortment varies accord-
ing to availability at various destinations but bargain rate travel packages
are available for flexible travelers.
181 Pricing the Product
The Colorado Hotel and Lodging Association provide last-minute res-
ervations at below-market rates for its 540 members.Travelers make res-
ervations without a service charge by calling 1-800- ENJOY-CO.
While last-minute pricing provides an outlet for unsold inventory, it is
not a substitute for effective marketing and a well-devised pricing strategy.
d. Price Lining
Price lining is a technique borrowed from the retailing industry, espe-
cially retailers of clothing. It involves, pre-establishing prices that the
company feels confident will attract customers. For example, a restau-
rant may find from experience that the most popular prices for its entrees
are $7.95, $9.95, and $11.95. When it changes its menus, therefore, it
looks for dishes that can be sold for these prices and provide a satisfac-
tory profit. Another example is a travel agency that establishes a range of
prices for vacation packages than best suits its clientele.
e. Psychological and Odd Pricing
Psychological pricing considers the psychology of prices, not sim-
ply the economics. Earlier in the chapter we discussed the relationship
between price and quality. Prestige can be created by selling products and
services at a high price.
Another aspect of psychological pricing is reference prices; these are
prices that buyers carry in their minds and refer to when they look at a
given product. A buyers reference price might be formed by noting current
prices, remembering past prices, or assessing the buying situation. Popular
products often have reference prices. For a given type of restaurant, most
consumers have a preconceived idea about the price or price range of cer-
tain items, such as a cup of coffee, a strip steak, or a hamburger. For exam-
ple, a pizza chain may advertise its medium pizza for a price that they know
is $2 less than the competition to establish a reference price for pizza eat-
ers. But their price for beverages and extra items will be the same as that
of the competition. The reference item creates the perception of value; con-
sequently, little would be gained by cutting the price of the other items.
Customers tend to simplify price information by ignoring end figures.
For instance, there is greater perceived distance between $0.69 and $0.71
than there is between $0.67 and $0.69. Consumers also tend to round
figures. One restaurant study found that consumers round prices ranging
from $0.86 to $1.39 to a dollar, from $1.40 to $1.79 to a dollar and a half,
182 Liljana ELMAZI
and from $1.80 to $2.49 to two dollars. If this is the case, there may be
little change in demand caused by a price increase of $0.30 from $1.45 to
$1.75, but there may be a significant decrease in demand between $1.75
and $2.05.
The length of the field is another consideration. The jump from $0.99
to $1 or the jump from $9.99 to $10 can be perceived as a significant
increase, although it is only $0.01. Taco Bells value prices were all under
$1, and therefore only two digits.
Psychological Pricing is a finishing-touch pricing method, in which
a price that has been set by using another pricing technique is modified
slightly to provide added appeal. The basic strategy is to avoid prices set in
round numbers, such as $10, $100 or $1000. Psychological pricing means
using slightly lower prices to give customers the perception of added value.
Instead of listing a price rounded off to the nearest $100, Club Med uses
an $899 figure for the Family Escape package. You will notice many prices
that use some odd number, rather than only even numbers (e.g., prices end-
ing with forty-five cents, forty-nine cents, ninety-five cents, ninety-nine
cents, or ninety-nine dollars). These numbers are based on the belief that
odd numbers induce greater sales than rounded, even ones such as fifty
cents, one dollar, or one hundred dollars.
f. Promotional Pricing
Promotional pricing involves using short-term price reductions to stim-
ulate temporary sales increases. Many types of sales promotions fit into
this category, such as two-for-one and cents-off coupon offers.
Promotional Pricing. When companies use promotional pricing, they
temporarily price their products below list and sometimes even below cost.
Promotional pricing takes several forms. Fast-food restaurants will price a
few products as losers to attract customers to the store in the hope that they
will buy other item normal markups. Donut shops may offer coffee for 25
cents, knowing customer will usually buy a least one donut. A Jack-in-the
Box offers hamburgers for a dollar, knowing that they will sell french fries
and soft with each order. During slow periods, hotels may offer a special
promote rate to increase business. Rather than just discount prices, well-
managed will create special events: a Valentines weekend special includ-
ing a champagne upon arrival, a dinner for two, and breakfast in the room;
or after package including a room, tickets to a play, dinner for two, and
break for two. These promotions give the guest a reason to come: the bund
183 Pricing the Product
product adds value for the customer. The promotion creates a positive in
whereas straight price discounting can create a negative image.
The gaming industry is particularly aware of the importance of pro
bundling and promotional pricing Bruce Rowe, director of gaming infor-
mation technology development at Promus Companies, stated: We are in
the adult entertainment business; our main product offer is gambling and
there are many components that support it, such as hotel entertainment
facilities, and restaurants. Harrahs views hotel welcome to the hotel, said
Rowe, but to maximize revenue, casinos must ensure pricing are readily
available for the most profitable gaming customers. Pricing at Harrahs
reflects the fact that the companys main product offer is gaming and a
hotel room is only a supporting product for gaming.
g. Leader Pricing
Leader pricing is a form of promotional pricing in which a company
offers one or more services or products for a short time at a price below
its actual costs. These items are commonly referred to as loss leaders. Very
common among retail stores, leader pricing is used by some hospitality
and travel companies. For example, some pizza-delivery companies offer
free Cokes with the purchase of a pizza (the Coke is the loss leader). The
role of the reduced-price items is to induce sales of other items offered by
the company (in this example, the pizza).
h. Cost-Plus Pricing
Cost-plus pricing, also known as markup pricing, involves adding a cer-
tain dollar amount or percentage to the actual or estimated costs of a serv-
ice to arrive at a final price. This dollar amount or percentage represents
the desired contribution margin. Using traditional, rule-of-thumb markups
in a particular part of the industry is not recommended, as you saw earlier.
In addition, using cost-plus pricing on its own is not the ideal approach. It
is much better to combine cost-plus pricing with other techniques, such as
break-even analysis, and also to consider other elements of the nine Cs of
pricing besides costs.
i. New-Product Pricing
Many companies find that they can justify changing prices to cor-
respond to the product life cycles of their services and facilities. Are
identified four potential strategies to introduce a new service: (1) rapid
184 Liljana ELMAZI
skimming, (2) slow skimming, (3) rapid penetration, and (4) slow pen-
etration. In price skimming, the organization charges an artificially high
price, because it knows that there are some customers who are willing to
pay this price so they can be among the first users of the service. A skim-
ming price is artificial because the company knows that it will eventually
have to reduce the price.
For example, the first tourist into space in 2005 paid a premium to
do so. Penetration pricing uses the opposite approach-introducing a new
service at a low price to get a quick stronghold on a significant share of a
market. The Southwest Airlines case discussed earlier is a good example.
The company offers cut-rate fares to grab a sizeable share of the domestic
airline travel market. A company using the penetration pricing approach
may or may not intend to continue it in the long run
Pricing strategies usually change as a product passes through its life
cycle. The introductory stage is especially challenging. Several options
exit for pricing new products: prestige pricing, market-skimming pricing,
and market-penetration pricing
Prestige pricing. Hotels or restaurants seeking to position themselves
as luxurious and elegant will enter the market with a high price that will
support this position. Night-clubs may charge a cover charge to attract a
certain type of clientele and create an image of exclusiveness. In each of
these cases, lowering the price would reposition the business, resulting in
a failure to attract the target market.
Market-Skimming Pricing. In some situations, a business may hold
a proprietary product advantage relative to competition because its prod-
uct has a unique capability. In such a case, the business may pursue a pre-
mium price strategy while still delivering superior customer value until
competition can match its source of competitive advantage.
But under what conditions is a skim pricing strategy likely to work?
When a business has a considerable, and sustainable, differentiation advan-
tage in a quality-sensitive market that has few competitors and is difficult
for competitors to enter, a skim pricing strategy is viable for new prod-
uct pricing. When feasible, a skim pricing strategy allows a business to
systematically penetrate markets as it adds production capacity. As the
demand for a high-priced segment is saturated, price can be lowered to
systematically attract more customers until prices reach a level affordable
to most potential customers.
185 Pricing the Product
Price skimming is setting a high price when the market is price sensi-
tive. Price skimming can make sense when lowering the price will create
less revenue. For example, the owner of the only motel in a small town in
Louisiana can set high prices if there is more demand than rooms. Price
skimming can be an effective short-term policy. However, one danger is
that competition will notice the high prices that consumers are willing
to pay and enter the market, creating more supply and eventually reduc-
ing prices. Price skimming is common in industries with high research
and development costs, such as pharmaceutical companies and computer
firms. It is seldom possible for an extended period of time in the hospital-
ity industry due to the relative ease of entry by competitors.
Market-Penetration Pricing. At the other end of the price spectrum,
a business may pursue a penetration pricing strategy in order to preempt
competition and build a large share and volume advantage. The price leader
can often both gain an early cost advantage with a large volume and charge
lower prices, discouraging competitors from entering the market.
A cost leadership position can enable a business to use penetration pric-
ing to build market share and discourage competition from entering the
market or staying in the market. In this situation, the share leader is simply
further down the cost curve and is able to price at a lower and still maintain
a desirable contribution margin. Thus, when cost reduction is volume- sen-
sitive and product differentiation is minimal, a penetration pricing strategy
may be a viable path to market leadership and profitable growth.
Rather than setting a high initial price to skim off small but profitable
market segments, other companies set a low initial price to penetrate the
market quickly and deeply, attracting many buyers and winning a large
market share. Theodore Zincks, a cocktail lounge in downtown Dallas,
opened with prices about 20% lower than the competition. Management
had negotiated a low lease, giving Zincks a competitive advantage.
Competitors could not match Zincks to attract many customers quickly.
Several conditions favor setting a low price: The market must be
highly price sensitive so that a low price produces more market growth,
there should be economies that reduce costs as sales volume increases, and
the low price must help keep out competition.
The foregoing strategies are used primarily when introducing a new
product. However, thy can also be useful with existing products.
The Skim and penetration pricing and favorable are shown in table
following:
186 Liljana ELMAZI
Table 5.1
Skim and Penetration pricing and favorable conditions
Pricing Favorable condition
Skim pricing
Considerable condition
Quality-Sensitive Customers
Sustainable Advantage
Few Competitors
Few Substitutes
Difcult Competitor Entry
Penetration pricing
No/ Limited Differentiation
Price- Sensitive Customers
No Sustainable advantage
Many Competitors
Many Substitutes
Easy Competitor Entry
Product-bundle Pricing. Sellers who use product-bundle pricing com-
bine several of their products and offer the bundle at a reduced price. For
example, hotels sell specially priced weekend packages that include room,
meals, and entertainment offer commercial rates that include breakfast and
newspaper. Price bundling can promote price must be low enough to con-
vince them to buy the bundle The items added to the core service showed
more value to the customer than they cost to provide.
Product bundle pricing is a strategy that has been well developed by
cruise lines, tour wholesalers and casinos. Cruise lines typically offer fly-
cruise or fly drive cruise packages in which the services of an auto rental
company, airline, cruise line, and hotel are combined at a price well under
the cost of purchasing each separately.
Hotel casino operations often use product-bundle pricing for the pur-
pose of attracting gamblers who spend heavily in the gaming area. The
hotel room may be priced below cost and used as a loss leader. Food, bev-
erages, and entertainment are often included in the bundle and may also
be priced below cost or given free.
Price Points. The concept of price points is well known and used
throughout the industry. Some restaurant operators, particularly chain
operations down menus, also employ the concept. Price points are impor-
tant to hospitality industry.
A retailer cannot maintain sufficient inventory to offer prices varying
by only $1.00 between $29.95 and $32.95. Instead of selections at $29.95,
187 Pricing the Product
$30.95, $31.95, and $32,95, a retailer will select of point, such as $32,95,
and no others in that range. The idea behind simplify inventory and to force
consumer is actually willing $32.95 if that is the only price point availa-
ble within a certain price. A restaurant operator must make similar price-
point decisions. The manager must select cuts and price points that will
satisfy customers and maximize revenue. There is no reason to offer an
$11.9 point cut if customers are willing to pay $12.95. Price points vary
by retailer and by restaurant.
Value pricing. The term value pricing is confusing. It could be argued
that anything product/service is purchased, at any price, the buyer must have
perceptive value in that product. Value pricing has become synonymous with
the everyday low prices (EDLP). It has been used as a marketing strategy
by members of the hospitality industry, such as Taco Bell and Southwest
Airlines: Value pricing can be extremely risky. Properly conceived and
cuted, it can earn positive results. It can also be disastrous. It its simple
form, value pricing means offering a price below competitors on a perma-
nent basis. This is different from promotional pricing, in which price may
temporarily lowered during a special promotion.
Value pricing is risky if a company does not have the ability to cut
significantly. It is usually most appropriate for companies able to increase
long-run market share through low prices (taco Bell) or niche players lower-
cost operating basis who use price to differentiate their product (South west
Airlines). A study of value pricing in retail stores showed that retailers
can be profitable charging low prices but only when they have low costs.
Prior to initiating a strategy of value pricing, managers must ask them-
selves:
What will happen if this starts a price war?
Can our company significantly lower costs or increase productiv-
ity to compensate for lower prices
What is the price elasticity of our products?
Can we gain significant market share or ensure a strong market
niche position with this strategy?
Can we reserve this strategy if it doesnt work, or will we create
price levels that cant be sustained and cant easily be raised?
3. Multistage Approach
This chapter has outlined a wide variety of pricing techniques, some
very unsophisticated and others more technically correct. You know that
188 Liljana ELMAZI
pricing should carefully consider nine factors (competition, customer char-
acteristics, customer demand volumes, costs, channels, corporate objec-
tives, corporate image and positioning, complementary services and
facilities, and consistency with marketing-mix elements and strategy).
For effective pricing, therefore, a multistage approach is a required,
including the following steps:
1. Determine company objectives and specific pricing objectives
(Corporate Objectives).
2. Identify and analyze the target market or markets (Customer
Characteristics).
3. Consider the companys image and the positioning of services relative
to target market or markets (Corporate Image and Positioning).
4. Forecast the demand for services at various price levels (Customer
Demand Volumes).
5. Determine the costs of providing services (Costs)
6. Evaluate potential competitive reactions to alternative prices
(Competitors).
7. Consider the impact of prices on travel trade intermediaries
(Channels).
8. Consider the impact of prices on sales of complementary services
or facilities (Complementary Services and Facilities).
9. Consider the impact of prices on other marketing-mix elements
and other aspects of the marketing strategy (Consistency with
Marketing-Mix Elements and Strategy).
10. Select and use a pricing approach to arrive at a final price.
Measure and evaluate pricing success. How did the selected pricing
approach influence sales? This is the last of three steps in price planning,
but no less important than the first two. While both price and sales changes
are very measurable, it is often difficult to separate out the impact on sales
by pricing alone. Other factors, such as the organizations non-price pro-
motions, changes in customer spending patterns, competition, local indus-
trial activity patterns, and even the weather may also have had an impact
on sales. Therefore, it is important when measuring the success of pricing
to keep track of these other factors- especially competitors prices-and to
estimate their influence on sales. The best way to evaluate pricing success
is again through marketing research. Research studies can be designed to
determine if new customers were attracted by price or whether other fac-
tors were more important. Non-customers can be surveyed to find out why
189 Pricing the Product
a new pricing approach did not appeal to them. Whatever research design
is chosen, the most important factor is that thorough research and analysis
be done to back up the measurement of price and sales changes.
5.2.2. Pricing strategy process
It may appear that market-based pricing is the preferred approach to
pricing in a market-focused business, but there are situations in which
cost-based pricing may be the better approach.
What is the same in both cases is the inputs to a pricing strategy.
As outlined in figure, the process starts with costumers, competitors, and
positioning. On the basis of the different combinations of these three fun-
damental inputs, a business might pursue either a market-based or a cost-
based pricing strategy.
Market-based pricing starts with customer needs and the benefits a prod-
uct creates relative to competitors products. On the basis of customer ben-
efits, price is relative to competition to create a superior value. In this way,
price is set in the market, not at the factory or in the financial department.
The goal of market-based pricing is to create a price that delivers a superior
value. This value could be real in terms of economic value or a perceived
value based on differences between perceived benefits and perceived costs.
Economic value pricing. By considering the total cost of ownership
incurred by target customers, a business can price its product to produce
an attractive savings (economic value). For example, in figure, the price of
a businesss product is higher than the price of the competitors product,



Customers
Needs/ Benefits
Price sensitivity
Demand/ Growth
Competition
Number/ Entry
Positioning
Objectives
Positioning

Market Share
Differentiation
Cost/ Supply

Market
Situation

Cost-
Commodity Pricing

Based Pricing
Cost Leader Pricing
Competitive Pricing
Market-
Economic Value Pricing
Perceived Value Pricing
Based Pricing
Segment Pricing





Impacts
Market Share
Customer Value
Profitability
Figure 5.7. Pricing Strategy Process
190 Liljana ELMAZI
but the customers total cost of ownership is lower. The business saves the
customer money on the basis of lower costs over the life of the product.
The level of economic value and price are set relative to what is an attrac-
tive savings to customers, not on the cost of manufacturing and marketing
the product. The cost and margins are the businesss problem not the cus-
tomers. Customers are the interested in savings or economic value, and the
higher the savings, the more attractive the businesss product. There are var-
ious ways a business can lower the cost of ownership and, hence, achieve
higher price levels while still creating a superior value for target customers.
Perceived value pricing. Some customer benefits are more difficult to
quantify in terms of economic value, yet they have an important perceived
value. Another approach to market-based pricing is perceived-value pric-
ing. The perceived benefits derived from the product, service and brand
(image or reputation) yield a certain level of a total perceived benefits. The
net difference between perceived overall benefits and cost is perceived cus-
tomer value. In this case, the strength of the businesss overall benefits ena-
bles it to charge a price higher than competitions (price premium) and still
create a larger overall perceived value for customers.
Segment pricing. Market-based pricing starts with target customers,
and the goal is to create a superior value, so it seems reasonable that seg-
ment price strategies would be developed in response to different segment
product- price needs. Customers in different segments generally have dif-
ferent product needs and different price needs. A price-sensitive segment
would be attracted to low price regardless of additional product or service
benefits. A quality-sensitive segment may pay more for the extra benefits
(product, service or brand) they desire. Thus, the market based price could
be different for different segments within a market. Pricing is a critical part
of customer value and business profitability. If prices are high, it is great
for margins but could result in a low customer volume if perceived benefits
are less than perceived price. In competitive markets where product differ-
entiation is feasible, market-based pricing presents a pricing logic designed
to deliver high levels of customer value and business profitability.
5.2.3. Techniques for price establishing
When management establishes prices, several approaches can be used
either individually or in combination which derived from pricing strategy
process:
191 Pricing the Product
1. cost-oriented pricing,
2. demand-oriented or perceived-value pricing,
3. competitively oriented pricing, and
4. maximum gross profitability pricing.
Cost-oriented pricing, as the name implies, is based on the costs
associated with operating the hotel or restaurant. Numerous fixed and var-
iable costs, such as food, labor, rent, insurance, and energy, may be exam-
ined as the basis for establishing menu prices. Cost-oriented pricing is the
oldest pricing method and is the most widely used within the industry.
Demand-oriented or perceived-value pricing is pricing from the oppo-
site perspective. For example, rather than thinking that a menu item costs
X dollars to prepare and should therefore be sold at x dollars plus some
additional amount, perceived-value pricing examines price from the cus-
tomers viewpoint. What is the perceived value of the product or service to
the customer? How much would customers be willing to pay for this prod-
uct or service? This approach to pricing is frequently employed for unusual
items or highly personal service. For example, what is the perceived value
of banquet services, or the perceived value of the additional amenities that
guests receive when they stay on the concierge or executive-level floors
that many upscale hotels offer? These factors must be carefully considered
when the perceived value of a product or service is determined.
The goal of this pricing method is to increase prices to the highest pos-
sible level without causing the number of guests to decline. This obviously
is not always easy to do, for the price of some products or services might
be raised slightly the number of guests would fall dramatically. In these
instances, larger price increases can be implemented with no reduce in
the demand. Economists refer to this as the elasticity of demand. A prod-
uct or service is said to be inelastic if, when the price is raised or lower
than demand for the product remains at roughly the same level as before
that was changed.
This pricing approach boils down to the simple statement. The state-
ment simply changes what the traffic will bear. What the traffic if is varies
tremendously depending on this situation. For example, if you are stand-
ing on a busy intersection at noon, and several foodservice establishments
were within walking distance, then the price you would be pay for lunch is
likely to be influenced by the choices available. However if you were at an
amusement park and wanted to have lunch or if you are attending a sport-
ing event and desired a meal, the only foodservice available to you may be
192 Liljana ELMAZI
operated by the owners or concessionaries of the facility. For this reason, the
degree of competition has been reduced, and the result is that the customer
is likely to pay to a higher price for the same meal. These facilities have the
customer as a captive client, and as a result, they often raised prices far
higher than would be possible if the degree of competition were higher.
Competitively oriented pricing, as the name implies, places the empha-
sis on price in relation to direct competition. Some firms allow others to
establish prices and than position themselves accordingly, either higher or
lower. This method assures that the price an operation charges for products
and services will be within the same range as the competitive operations in
the immediate geographic area. This method does, however, have several
drawbacks. First, one operation may have a cost structure totally different
from that of another operation. The first establishment might be brand-
new and have a mortgage with a high interest rate that must be paid each
month. On the other hand, the second operation might be well established
and have a much lower payment each month. For this reason, the second
operation would have lower fixed operating expenses and therefore could
charge a much lower price, even if all other expense were equal.
Second, other expenses might also vary among different operations.
Labor costs might be higher or lower depending on the skill level of the
personnel, their length of service in the operation, or numerous other fac-
tors. In actually, nearly every expense could vary considerably among dif-
ferent hotels and restaurants with the same basic product-service mix.
For this reason, it is extremely risky for managers to rely on the prices
of a direct competitor when setting their own prices. Each operation is
unique and has it own unique cost and profit structure. This is not to say
that management should not check to determine the prices a competitor
is charging, just to keep in eye on the competition, but it does mean that
prices should never be based solely on prices charged by a competitor.
Maximum gross profitability pricing takes into consideration the
relationship between price, number of units sold (volume), cost of goods
sold, and total profitability. Management attempts to find he pricing level
at which the number of units sold at a specific price will produce the larg-
est gross profit. This is not to say that the price will be established higher
or lower than might otherwise be the case. Rather, it means that the idea
pricing takes into careful consideration the relationships that exist among
selling price, number of units sold, profit per unit sold, and total gross
profit for the total number of units sold.
193 Pricing the Product
The price the company charges will be somewhere between one that is
too low to produce a profit and one that is too high to produce any demand.
Products costs set a floor for the price, consumer perceptions of the prod-
ucts value set the ceiling. The company must consider competitors prices
and other external and internal factors to find the best price between these
two extremes. Companies set prices by selecting a general pricing approach
that includes one or more of these sets of factors. We will look at the fol-
lowing approaches: the cost-based approach (cost-plus pricing, break even
analysis, and target profit pricing), the buyer-based approach (perceived-
value pricing), and the competition-based approach (going rate).
5.2.4. Determining a breakeven point
For a given price strategy and marketing effort, it is useful to deter-
mine the number of units that need to be sold in order to break even ( pro-
duce a net profit equal to zero).
Another guideline that can be used when prices are being determined
is the breakeven point. The breakeven point, as the name implies, is the
point at which the operations revenues match its costs. The breakeven
point takes into consideration the revenues and fixed and variable cost.
One technique that is most useful in establishing discount programs is
break-even analysis. It involves developing charts that show the relationship
of costs, customer demand volumes, and profits. These charts help managers
determine the points of which certain prices or customer demand volumes
will over all the fixed and variable costs of providing the services. There are
called the break-even points. A food cost does not vary with the volume of
sales (e.g., property taxes on buildings, interest charges on equipment). A
variable cost changes directly with sales volume (e.g., a 10-percent increase
in sales produces a 10-percent increase in the variable cost item). Labor costs
and materials used in the production process are normally variable costs.
A good example is the cost of food in restaurant meals.
Break-even volume is the volume needed to cover fixed expenses on
the basis of a particular margin per unit.
Figure shows a break-even chart for a hypothetical situation. As you
can see, the total units purchased are plotted on the horizontal axis. Costs
and revenues are measured on the vertical axis. The break-even point is
where the total revenue line intersects the total cost (fixed plus variable)
line. Figure assumes the following:
194 Liljana ELMAZI
The variable cost per unit sold is $30.
The selling price per unit is $100.
The contribution margin (difference between selling price and var-
iable costs per unit) is $70 (i.e., $100 minus $30).
Total fixed costs are $280,000.
Total Costs & Revenues



$140,000
Profit
Total
Revenue





Break Even Point




Total
Costs
Variable
Costs



Fixed Costs
4000 3000 2000 1000
0
700,000
600,000
500,000
400,000
300,000
200,000
100,000
6000 5000
Figure Break-even chart.
The formula for calculating the break-even point is
TOTAL FIXED COSTS
BREAK-EVEN POINT (UNITS)
CONTRIBUTION MARGIN
=
$280, 000 $280, 000
BREAK-EVEN POINT 4, 000 units
$100 $80 $70
= = =
-
(see Figure)
In the Figure example, the break-even point is 4,000 units (which
could, for example, be occupied room nights in a hotel or airline or cruise
passengers). The 4,000 figure was calculated as follows:
What would happen if the selling price in was lower than $100-65$,
for example? As you have probably guessed, the break-even volume
195 Pricing the Product
of units would increase. In fact, it would double from 4,000 to 8,000
($280,000/$65-$30).
Besides helping to identify the break-even point, the charts can be
used in target pricing. If the company knows how much profit it needs
to generate a desired return on sales or investment, it can determine the
required sales volumes in units and dollars. Take another look at Figure
5.8. and you will see how this works. Let us say that this company needs
a profit of $140,000 to provide its targeted return on investment.
To determine the break-even point, the following formula is used:
BREAK-EVEN POINT =
TOTAL FIXED COSTS + TARGET PROFIT
SELLING PRICE
PER UNIT
VARIABLE COST
PER UNIT
(for $140,000 prot)
$280, 000 $140, 000 $420, 000
6, 000 units
$100 $30 $70
+
= = =
-
Figure 5.8. The Breakeven Point
The sales volume required to achieve the $140,000 prot objectives is
$600,000 (6,000 $100 per unit).
There are some limitations to break-even analysis, and you should be
aware of them. First, such an analysis assumes that the variable cost per
unit sold is exactly the same at every sales-volume level. But there are
often some cost items that do not vary directly with sales volumes (e.g., a
100-percent increase in unit sales produces a 60-percent increase in costs,
remains constant at all levels of production). This is not always the case,
because fixed costs may increase at certain levels of sales (e.g., more
equipment is required and the company borrow additional funds to finance
the purchase, which results in increased interest charges).
A third, questionable assumption is that price has no impact on mar-
ket demand. Despite these limitations, break-even analysis is a useful tool
for analyzing the relationships of costs, prices, customer demand volumes,
and profits.
Variable Costs
Breakeven Point (BEP) Fixed Cost 1
Total Sales
a
a
= -

e o
1 $58, 000
Breakeven Point (BEP) $20, 000 $56, 249.99
$90, 000
- a
= =

e o
For example, consider the following monthly figures:
196 Liljana ELMAZI
The breakeven point can either be displayed by means of a graph or
it can be calculated by means of a formula. It is very simple to calculate
and will provide a benchmark figure against which to compare the actual
performance of the operation. The breakeven formula is shown in Figure
5.8., and the breakeven chart is shown in Figure 5.9.

Total Revenue Line

D
C

E

Breakeven Point
Loss Area



Total Fixed
Cost Line
Total Cost Line
Profit Area

C
o
s
t

o
f

S
a
l
e
s


(
0
0
0

o
m
i
t
t
e
d
)
Unit Sales (000 omitted)
10
10
20
30
40
50
60
70
80
90
100
20 30 40 50 60 70 80 90 100
F.C
T.C
LL
A
V.C
Figure 5.9. An Example of a Breakeven Chart
Courtesy: Jack Miller, Menu Pricing and Strategy, New York: Van Nostrand Reinhold
1980, pp. 31-41.
Price and break-even market share. Because break-even volume is
an unconstrained number, the reasonableness of the break-even volume
requires additional considerations. Because market share is constrained
between 0 and 100 percent, break-even market share provides a better
framework from which to judge profit potential and risk. To compute
break-even market share requires only that we divide the break-even vol-
ume by the size of the target market, as shown next.
Break Even Volume
Break-Even Market Share 100
Market Demand
=
If the market demand for a tourism and hospitality product were one
million units per year, then the break-even market share would be nine per-
cent when the break-even volume is 90000 units. If the businesss target
share is 10 percent, then the risk of a loss is grater because the break-even
197 Pricing the Product
share is close to the target share. Or, put another way, this business decision
would feel a lot better if the break-even share were three percent and tar-
get share 10 percent. In a situation in which the break-even share is higher
than 10 percent, the assessment of profit potential and risk is very easy.
5.2.5. Price changes
5.2.5.1. Initiating price changes
After developing their price structures and strategies, companies many
face occasions when they want to cut or raise prices.
1. Initiating Price Cuts
Several situations may lead a company to cut prices. One is excess ca
Unable to increase business through promotional efforts, or other meas-
ures, a hotel may resort to price cutting. In the 1970s, many companies
dropped follow-the-leader pricing, that is chabout the same price as their
leading competitor and aggressively cut to boost sales. As the airline,
hotel, rental car, and restaurant industries learned in recent years, cutting
prices in an industry loaded with capacity in excess generally leads to
price wars as competitors try to regain in share.
Companies may also cut prices in a drive to dominate the market crease
market share through lower costs. Either the company starts lower costs than
its competitors, or it cuts prices in the hope of gaining market share through
larger volume. In January 1991, Burger king launch promotion to cut the price
of its Burger Buddies, two 1-ounce hamburgers, from 89 cents to 29 cents.
The fast-food restaurant hoped that the price promotion would increase store
traffic. They also made sure that they would not lose money on the promotion
by requiring customers to buy french fries and a soft drink to get the Burger
buddies at the 29-cent price. Taco Bell started the pricing trend several years
earlier when it slashed prices on its basic products to 59 cents. MC Donalds
entered the price war with 59 cent hamburgers, french fries and soft drinks.
In mid-1991, Taco Bell sought to become the value leader in the fast-
food industry by introducing a line of snack items for 39 cents. The new
menu items were rolled out after test marketing in Los Angeles, Dallas/Fort
Worth, Oklahoma City, and Youngstown, Ohio. The new items lowered
check averages, but required the same amount of labor to make as the
larger items. Taco Bell claimed that the products overcame these disadvan-
tages by expanding their customer base.
198 Liljana ELMAZI
2. Initiating Price Increases
On the other hand, many companies have had to raise prices in recent
years. They do this knowing that price increases may be resented by cus-
tomers, dealers, and their own sales force. However, a successful price
increase can greatly increase profits. For example, if the companys profit
margin is 3% of sales, a 1% price increase will increase profits by 33%
if sales volume is unaffected.
A major factor in price increases is cost inflation. Increased costs
squeeze profit margins and lead companies to regular rounds of price
increases. Companies often raise their prices by more than the cost increase
in anticipation of further inflation. Companies do not want to make long-
run price agreements with customers. They fear that cost inflation will
reduce profit margins.
For example, hotels prefer not to quote a firm price for conventions
booked three years in advance. Another factor leading to price increases is
excess demand. When a company cannot supply all its customers needs,
it can raise its prices, ration products to customers or both. When a city
hosts a major convention, hotels may charge rates that are twince the aver-
age room rate. They know that the demand for hotel rooms will be great
and they can take advantage of this demand.In passing price increases on to
customers, the company should avoid the image of price gouger. It is best
to increase prices when customers perceive the price increase to be justi-
fied. Restaurants had an easier time implementing increased menu prices
after the price of beef jumped, because their customers noticed this price
increase in the supermarket. If food prices are going down while the other
costs of operating a restaurant are going up, it is difficult to gain customer
acceptance of the need for a price increase. Restaurant managers should try
to time price increases so that they will be perceived as justified by cus-
tomers, such as when increases in the price of food receive media attention,
after an increase in the minimum wage, or when inflation is in the news.
Price increases should be supported with a company communication pro-
gram informing customers and employees why prices are being increased.
5.2.5.2. Competitor reactions to price changes
A firm considering a price change has to worry about competitions.
Competitors are most likely to react when the number of voved is small,
when the product is uniform, and when buyers informed.
199 Pricing the Product
The question that keeps many managers awake at night is what will
my competitors do in response to my price change? If a business lowers to
gain share, and competitors follow, there is likely to be very little real share
gain. And at reduced margins, with a limited increase in volume, total con-
tribution is likely to go down. On the other hand, if a business raises prices
to improve margins and competitors do not follow, the business could lose
share and lower total contribution, even with higher margins.
In any given market, competitor response to price change is going to
depend on a variety of supply and demand forces, as outlined in figure
below. As the supply and demand forces in figure align to the left, com-
petitors are less likely to respond to a price cut. As these forces shift to
the right, they will contribute to the likehhod of a full and fast competitor
response to a price cut. Overall, there is generally a high degree of price
interdependence among competiting tourism and hospitality firms.
One study showed that the average competitor price response elastic-
ity was 0.71. This means that if a business lowered its prices by 10%, it
could expect competitors to follow with a 7.1 % price decrease.
One problem with trying to use price as a competitive advantage competi-
tors can neutralize the price advantage by lowering their price competitive mar-
ket where supply exceeds demand, this often sets wars in which the industry
as a whole loses. In the United States, Bur.. and MC Donalds are locked in
a fierce battle for market share. When these fast-food giants cuts its price, the
other usually follows. Ninecent Big Macs are matched by 99-cent Whoppers.
Supply Forces
Variable Cost Structure
Capacity utilization
Product perishability
Product differentiation
Competitor financial position
Strategic importance
Demand Forces
Price elasticity
Efficiency in price shopping
Customer loyalty
Market growth rate
Complementary products/ services
Substitute products
Competitor Response Elasticity
None Partial Full
High ----------------------------Low
Full -----------------------------Low
None----------------------------High
High ----------------------------None
Poor ----------------------------Strong
Low-----------------------------High
Inelastic ------------------------Elastic
Low-----------------------------High
High ----------------------------Low
High ----------------------------Low
None----------------------------Important
None----------------------------Many
Figure 5.10. Forces that help shape competitor price response
200 Liljana ELMAZI
In early 1991, British Airways cut its 30-day advance purchase 33%.
Delta and PanAm matched British Airways. TWA more than the British
Airways offer by slashing its fares to Landon by 50%. British ways lost the
competitive advantage of lower fares when competitors matched its price.
5.2.5.3. Trade ally reactions to price changes
Earlier mention has been made of the reaction of travel agents to heavy
discounting by airlines.This is example of trade ally reactions. The hos-
pitality and travel industry represent such an interconnected and interde-
pendent group of firms that pricing actions by major participants such as
airlines, cruise lines, and ski resorts have a domino effect on others.
Shoeshine attendants sometimes complain that a dramatic cut in airfares
is bad for business. Airports are jammed with people wearing sneakers san-
dals, and other footwear that requires no polish. Business travelers are lost
in the crowd and may not see the shoeshine stands due to the traffic.
Suppliers to firms that offer deep discounts may also be asked to offer
special discounts or risk losing business. Independent firms such as lim-
ousine services and food vendors may be tempted to raise prices due to
increased traffic.
Communities such as resorts and convention cities are greatly con-
cerned by the pricing activities of airlines, ski resorts, and other principal
players and may be expected to exert considerable pressure on managers
concerning their pricing strategies.
They want to keep prices low to encourage tourism. Besides pressure
for low price from some local governments, governments also view the hos-
pitality industry as a source of income by local, state, and federal govern-
ments. Visitors to a region are seldom voters in that area and are therefore
viewed as excellent tax revenue sources by elected officials Room taxes,
airport departure taxes, sales taxes, and other imaginative taxes directly add
to the price of a hospitality product. In some heavily taxed areas, taxation
and visitor tariffs may add 20% to the price.
This situation often requires strong political action by the hospitality
industry and supportive groups such as local retailers. Hotels in New York
State won a three-year battle to repeal a 5% tax on rooms. Hotels in New
York city were particularly hard hit. Guests will still be forced to pay 14,25%
plus a $2 surcharge on hotel rooms. Hoteliers argued that the tax was a
major factor in driving convention and meeting business from the city.
201 Pricing the Product
Following the repeal of the 5% tax, Stephen Morello, president of the
New York Convention and Visitors Bureau, stated: Tomorrow well be
calling the 44 conventions worth 4 52 million that said they couldnt come
to New York City last year because of the tax.
5.2.5.4. Responding to price changes
Here we reverse the question and ask how a firm should respond to a
price change by a competitor. The firm needs to consider several issues.
Why did the competitor change the price? Was it to gain more market
share, to use excess capacity, to meet changing cost conditions, or to lead
an industry-wide program change? Does the competitor plan to make the
price change temporary or permanent? What will happen to the compa-
nys market share and profits if it does not respond? Are other companies
going to respond? What are the competitors and other firms responses
likely to be to each possible reaction?
Besides these issues, the company must make a broader analysi must
consider its own products stage in the life cycle, its importance in com-
panys product mix, the intentions and resources of the competitor, possi-
ble consumer reactions to price changes.
In 1989, when Marriotts Fairfield Inns were just getting started, they
preferred a special $19,95 coupon, $16 less than their average daily rate.
The competitors decides not to match the rate because Fairfield had only
30 tells at the time. Joan Ganje-Fischer, vice-president of Super 8, said
that major chain such as Super Eight, Econo Inns, or Days Inns offered
the 41 special, it would catch the attention of the other organizations. A
price would be the likely result of such a cut by a major chain. But since
Fair Inns consisted of only 30 units, major competitors were unwilling to
red rates across their hundred-plus motel chains. Fairfield Inns used size
to advantage, recognizing that the larger chains would be unwilling to give
revenue from hundreds of hotels and thousands of rooms to match the p
of a 30-unit chain.
At the end of a pilot strike against United Airlines, the company
announced a refund of half the cost so may flight taken during a one-week
period. United wanted to attract customers who were forced to use other
lines when it cut service during the strike. By limiting price reductions to
week, United avoided getting into a price battle. Competitors chose not to
discount fares conceded United the lower fares for a week.
202 Liljana ELMAZI
These example show how companies can avoid competitive reaction
to price changes by planning those changes carefully.
5.2.6. Pricing guidelines and policies:
increasing sales and profts
If the prices established by management must strike a very fine bal-
ance between the consumers need for value and the owners need for
maximum return on investment, prices must be determined to induce new
patronage. At the same time, prices should be developed so that the new
prices will not drive away any of the current guests. Therefore, one of the
major goals of any pricing method should be to maintain the current cli-
entele while adding to the total volume by inducing first-time patronage.
Prices should be established with the maximum long-term profits of
the firm in mind. It would be easy to set prices at a level that would pro-
duce very high rates of return for a brief period of time, but after a few
weeks, the consumer would realize that the perceived price-value was very
low. When this happens the total volume and profitability is likely to fall
significantly. Therefore, the wise manager decides to focus attention on
long-term rather than short-term profits. This pricing philosophy is most
likely to enjoy the greatest long-term success. It is like the story of the
hare and the tortoise, in which the slow but sure tortoise had eventually
covered more ground than the speedier hare.
Many managers are tempted to reduce prices in the hope that more
patrons will purchase the item and the result will be increased gross sales
figures. This is a trap for the unwary manager. Simply stated, for the opera-
tion to enjoy increased gross revenue, many more patrons need to be served,
and increased volume unto itself is no guarantee of increased gross sales.
Figure 4 illustrates one example in which the gross revenue from a reduced
price is lower, even though more guests (25 percent) were served.
The term marginal revenue refers to the difference between the gross
sales at the old price and the gross sales at the revised, or special, price.
The goal of management should be to produce positive marginal revenue,
or an increased total gross sales figure. In Table 5.2., however, the opposite
was the result. Even though the manager was able to serve 25 percent more
patrons, the resulting gross sales figures were less than before the menu
price had been changed. This reduction in gross sales is compounded by
the two major expense items, for food and labor will have to increase for
203 Pricing the Product
the operation to serve the additional 30 patrons. Therefore, the reduction
in gross sales is even more dramatic when it is coupled with the resulting
increase in expense. When both of these factors are combined, the obvious
result is reduced profits, or increased losses, despite the fact that 25 per-
cent more covers were served.
The caution for managers is this: Reduce prices as a means to increase
volume only after all other marketing and merchandising avenues have
been exhausted. A creative manager should be able to devise hundreds of
marketing techniques that will result in increased gross sales. The truly pro-
fessional manager can produce both increased volume and increased prof-
its while holding costs below projected figures. Finally, the establishment
of prices is not something to be left to chance. Prices should be established
after careful analysis of the factors discussed earlier in the chapter.
Table 5.2.
Marginal Revenue
Menu Price Covers Served Gross Sales
Luncheon Hamburger $4.95 120 $594.00
Hamburger Special $3.95 150 $592.50
5.2.6.1. Cost margin analysis
This is a technique that is particularly useful when analyzing menus.
This section will provide a brief review of the technique. For a more
complete discussion of the technique, refer to Menu Engineering in
Computer System for Foodservice Operations, by Michael Kasavana
1
. It
combines the use of food cost percentages with the contribution margin
relationship of the various menu items. The overall goal of cost margin
analysis is to optimize the overall contribution margin to total sales, while
trying to minimize the total food cost. In order to use this analysis, each
menu item is scrutinized based on three factors:
Popularity
Food cost percentage
Weighted contribution margin or total contribution to profit
1
Michael L. Kasavana, Computer System for Foodservice Operations, New York:
Van Nostrand Reinhold, 1984, pp. 149-188.
204 Liljana ELMAZI
To complete the analysis, the following information is needed from the
sales history and the accounting records: the number sold for each menu
item, the food cost of each item, and the selling price of each item. Each
menu item is compared with the other available items. Menu item that sell
above the average (mean) number of items sold are classified as popular,
while those selling below the average number sold are considered unpop-
ular. For example, suppose that the average number of each entree sold
was 225 for a given period time. Those entrees that sold in excess of 225
would be considered popular, while those selling fewer than 225 would
be classified as unpopular.
The same type of calculation is completed based on potential food
cost. Items with potential food costs below the average potential food cost
for the group of menu items are considered low-cost items, while those
above the average potential food cost foe the group of menu items are
considered high-cost items.
Finally, the weighted contribution margins for all of the menu items
is divided by the total number of menu items to determine the average
weighted contribution margin (AWCM), as shown in Figure 5.11.
While a graph of this type will not by itself make the determination of
prices any easier, it will provide a basis for identifying those menu items
that are the best candidates for improving and building upon. For example,
those items considered to be problems would be those with a very low
contribution margin and a very high food-cost percentage or cost of goods
sold. Those considered standards have a high food-cost percentage, but at
the same time have a very high contribution margin. Items with a low con-
tribution margin and low food-cost percentage are considered to be sleep-
ers, because they have potential. Finally, those items with high contribution
margins and low food-cost percentage are considered to be primes because
of their potential for contributing to profitability. The example cited here
has been related to a foodservice operation, but the same technique can be
applied within hotels or other hospitality operations
2
.
2
David Pavesic, Cost Margin Analysis: A Program for Menu Pricing and Design,
in Dimensions of Hospitality Management, edited by Robert C. Lewis, Thomas J. Beggs,
Margaret Shaw, and Steven A. Craffot, Westport, CT: AVI Publishing Co., 1986, pp. 291-305.
Weighted / Total Contribution Margin for the Group of Menu Item
AWCM
Total Number of Menu Items
=
Figure 5.11. Average Weighted Contribution Margin
205 Pricing the Product
The potential food cost and the average weighted contribution margin
are used as the dividing lines when constructing a graph such as the one
shown in Figure 5.12.
5.2.6.2. A model for determining prices
Barry
3
has suggested a model or framework that managers can sue
when they face actual pricing decisions:
Step One: Recognize the pricing need and situation.
This can be the need to set a new price, change an existing price, or
react to a price change made by a competition.
Step Two: Understand the life cycle differences.
Pricing must be approached differently in various stages of the life cycle,
for the objectives will be different at various stages of the life cycle.
Step Three: Prioritize pricing objectives.
The objective discussed earlier in the chapter included financial, vol-
ume, competitive, and image objectives. Just as your product-service mix
cannot be all things to all people and you must identify target market seg-
ments to be successful, so too you must determine which of the objectives
is the most important.
Step Four: Establish a basic pricing strategy.
The two broad pricing strategies discussed earlier in the chapter were
price skimming and penetration pricing.
3
Barry, pp. 370-371.
Figure 5.12. Cost Margin Analysis
PROBLEMS
Low-contribution margins
High food-cost percentage
STANDARDS
High-contribution margins
High food-cost percentage
SLEEPERS
Low-contribution margins
Low food-cost percentage
PRIMES
High-contribution margins
Low food-cost percentage
F
o
o
d

C
o
s
t

P
e
r
c
e
n
t
a
g
e
Weighted Contribution Margin ($)
High
High
Low
206 Liljana ELMAZI
Step Five: Set prices.
Using the information and methodology that is most appropriate for
the situation, establish the prices.
Step Six: Implement the prices.
This calls for the implementation, monitoring, and changes of prices
as necessary.
A Touch of Technology:
Priceline.com
Priceline.com is a Web-based service that allows travelers to bid the
prices they want to pay for airline tickets and other travel services
(cars and hotel rooms)
Priceline.com started offering the service in April 1998.
It uses a technique known as a reverse auction.
Customers enter where and when they want to travel by air, name
a price and commit to price with a credit card, and then wait to see
if any airlines accept the price offer.
A number of U.S. domestic and international airlines provide their
inventory through Priceline.com.
The company hopes to expand its services by offering other non-
travel products and services in the future.
The Web site can be accessed at http://www.priceline.com/
Chapter conclusion:
Arriving at the right prices for hospitality and travel services is impor-
tant for marketing as well as profitability reasons. Both unsophisticated
and sophisticated pricing approaches are used in the hospitality and travel
industry.
The most effective pricing results from a multistage approach that con-
siders nine factors (corporate objectives, customer characteristics, corpo-
rate image and positioning, customer demand volumes, costs, competitors,
channels, complementary services and facilities, and consistency with mar-
keting-mix elements and strategy). Value for money is another important
concept to be evaluated in arriving at the optimum prices.
Pricing is by no means an easy task. Many variables must be consid-
ered as management attempts to strike an often delicate balance between
consumer demand and the price level.
207 Pricing the Product
Management should not rely too heavily on a single variable. Finally,
several pricing guidelines and policies are discussed. These included the
use of cost margin analysis and breakeven point calculation. The last sec-
tion of the chapter provides a six-step model for approaching the estab-
lishment of prices.
Case: Price Fixing
Federal legislation on price fixing states that sellers must set prices
without talking to competitors. Otherwise, price collusion is suspected.
Price fixing is illegal per se: that is, the government does not accept any
excuses for price fixing. Even a simple conversation between competitors
can have serious consequences.
During the 1980s, American Airlines and Braniff were immersed in
price war in the Texas market. Each carrier undercut the other until both
were offering absurdly low fares and each was losing money on many
flights. In the heat of the battle, Americans CEO, Robert Crandall, called
the president of Braniff and said: Raise your fares 20%. Ill raise mine
the next morning. Fortunately for Crandall, the Braniff president warned
him off, saying: We cant talk about pricing! As it turns out, the phone
conversation had been recorded, and the U.S. Justice Department began
action against Crandall and American for price fixing. The charges were
eventually dropped. The courts ruled that because Braniff had rejected
Crandalls proposal, no actual collusion had occurred, and that a proposal,
to fix prices was not an actual violation of the law. This case and others
like it have made most executives very reluctant to discuss prices in any
way with competitors. In obtaining information on competitors pricing,
they rely only on openly published materials, such as trade association
surveys and competitors brochures.
Questions for Discussion:
1. What are pricing approaches in the hospitality and tourism industry?
2. What is market-based pricing?
3. What are pricing techniques?
4. Discuss the term consumers relative perception of value. How
might this affect a manager when prices are established?
5. What elements of perceived value would be important in develop-
ing a market-based price?
208 Liljana ELMAZI
6. What factors and assumptions influence your choice of new product
price strategies?
7. Why is break-even market share potentially more valuable to a
marketing manager than break-even volume?
8. What factors and assumptions influence your choice of new product
price strategies?
9. Why new product pricing creates a unique opportunity to build a
price umbrella and to skim price?
10. Why is break-even market share potentially more valuable to a
marketing manager than break-even volume?
Distribution Policy in Tourism 209
Distribution Policy
in Tourism
Alexandru NEDELEA, George P. BABU
6.1. Concept and Role of Distribution in Tourism
In the welcoming industry, the distribution is a very important compo-
nent of the marketing mix that encloses a complex of activities that take
place in the space and time that separates the tourist service provider from
the consumer. It encloses both a network of units and a series of actions
that have the purpose to offer consumers tourist products, as well as an
assembly of relations in which participants to distribution enter (tourist
service providers, agents, tourists).
If we consider the special character of tourist services we can identify
the existence of some fundamental differences between the distribution of
material goods and tourist products distribution.
Therefore, the tourism companies (except for the travel agencies that
appear as agents) are companies who provide services conditioned by the
actual presence of the client in order to receive the service.
As the tourist service package cannot be mailed to the client, the tour-
ist will have to go to the product in order to consume it within the trip (in
welcoming structures, leisure, balneary treatment facilities, etc). Tourist
service provider companies, except for those in towns, are located fairly
far away from the tourist areas that are in areas that offer a tempting offer
from the point of view of spending spare time.
So, we appreciate that in the welcoming industry it is necessary the
attraction of the tourist consumer towards the locations that provide tour-
ist services in a certain resort and country. This role is fulfilled in tour-
ism by the distribution through an activity of stimulation and information
of possible tourists about the structural characteristics and components of
the offered products. This way, it is clear the facility of electing a tourist
6
Alexandru NEDELEA, George P. BABU 210
destination by the consumers imposes the diversification of the advertise-
ment products (flyers, catalogues, brochures) given to the tourists. In the
conditions in which tourist cannot test or verify the product before consum-
ing it, we realize the importance of the information given by the service pro-
viders, travel agencies and tour operators related to the classification level
of the hotel, the means of transportation, itinerary, tourist, tourist objectives,
ensured services, price, buying conditions and reservation procedures.
This way we see that, in tourism there is a close relation between the
distribution and advertising policy.
According to the agents possibilities to collaborate with service pro-
viders in order to sell a tourist product one can adopt various distribution
strategies in order to establish a certain volume and structure of the commu-
nication mix that will be used in the capitalization of the tourist potential.
Establishing distribution channels has influence also over the price
policy of the tourist product. Taking into consideration that, in the price
structure, the distribution costs occupy a big percentage, tourism operators
intend their reduction. Therefore, the service providers can adopt different
price policies according to the agents they use in the distribution process.
For instance, the tourist unit will adopt a low price strategy when it col-
laborates during the selling process of its offer, with a travel agency that
ensures the selling of a great volume of products.
It is to be mentioned that the characteristic of intangibility of tourist
service products comes as an advantage offering the advantage of elimi-
nating problems of physical distribution, deposit, handling, stock control,
and losses resulted from its damage.
Tourism distribution implies the manifestation of an assembly of fluxes,
with certain characteristics generated by the specific of the tourist product,
which are combined in tourist services mix. Therefore, we can identify
1
:
Negotiation and transaction flux that develops between partners of
the exchange act, that is between actual providers of tourist serv-
ices (accommodation units, restoration supply units, transporters,
etc.), agents (tour operators, seller travel agencies, receptor travel
agencies
2
, reservation associations, bus trips organizers, etc.) and
tourists. We repeat as characteristic of these transactions the fact
1
B. Rosenbloom, Marketing Channels: A Management View, The Dryden Press,
Chicago 1984, pag. 271.
2
In this work we will use the term receptor agencies. Of the most used terms re-
ceptive agencies (who follows the French variant, without avoiding, in Romanian, a certain
Distribution Policy in Tourism 211
that they do not aim at a palpable material good, but to an offer of
services. The role of the distribution service is ensured both by the
selling locations (direct or pre paid), and the locations for the trans-
action negotiation.
Property title flux (over some services that are to be provided later),
materialized by the buying of the consume right (reservation of a
place in a welcoming structure or means of tourist transportation);
Promotional flux who precedes the buying and accompanies the
service provision; encloses and assembly of messages and infor-
mation for the tourist market and possible tourist consumers. The
role of this flux is to ensure the increase of the distribution activ-
ity efficiency and to speed the promotion of tourist products.
Informational flux encloses the entire transmission operations for
every information necessary in the distribution process, both for the
circuit that starts with the service provider and ends at the client
(details regarding its characteristics, modifications that can come
between the selling and providing moment), as well as other way
round from the tourist to service provider (information regard-
ing the satisfaction degree, reclamations, preferences, suggestions,
market tendencies). Welcoming industry agents transmit informa-
tion and give specialty advise to clients regarding the possible itin-
eraries, means of making a trip, variants of tourist destinations to
choose, available service offers, as of each of them;
Finance, risk, demand and payment flux; the income from selling
is cashed and sent to suppliers through the distribution service.
Because tourist products are perishable and cannot be deposited to sat-
isfy a future demand, their suppliers are determined to conceive and apply
a distribution policy that ensures an optimal capitalization of the personal
tourist potential by going to different categories of agents. Therefore, a
room in a hotel, a place in a restaurant, or a plane ticket must be sold
every day, because the lost sale at a certain moment is lost for ever. For
instance, anybody realizes that a room that was not rented today cannot
be rented tomorrow two times.
On the other hand, the perishability of the tourist products is counter-
attacked, in a way, in the hotel industry, by the fact that distribution comes
into scene, which has the role of selling before the moment of the service
ambiguity given by the main meaning of the word receptive), receiving agencies, reception,
with activity of receptive etc. we preferred this because of its concision and clarity.
Alexandru NEDELEA, George P. BABU 212
provision. Organized and semi-organized holiday trips are usually reserved
before the actual consummation of the reserved and paid services. This
thing is possible through the tourist services reservation operations through
direct distribution channels to tourist and through indirect channels that
is through agents.
If we take into consideration the cyclic, temporary character of tourist
activities along the year, we reach the conclusion that it is necessary an inten-
sification of the actions and efforts of distribution and promotion during low
season, in order to stimulate the tourist demand. In this way, one can choose
the organization of some selling points in the demand concentration areas
(big industrial companies, trade companies, and university campuses), using
some mobile selling agents in order to strategically cover the entire geo-
graphical area of the travel agencys market, the syndicate collaboration.
Marketers from welcoming industry must take into consideration the
fact that tourism implies a change of location, with different reasons, to a
place outside the residence, fact that leads to some difficulties related not
only to space and time, but also to the lack of information, different laws,
custom norms, currency regulations, risk and insecurity. The distribution
law is facilitated by the buying and consume of the tourist services by cli-
ents who prefer to buy, before leaving, the tourist product through chan-
nels of distribution that bring it closer.
The welcoming industry distributors conceive the tourist product after
the activity of compared analysis and selection of some tourist service
packages that corresponds from the quality point of view to the prefer-
ences and exigencies of clients in relation to destinations, used means of
transportation, accommodation and restoration conditions, leisure options.
In consequence, the tourism distribution has the role of adapting the tourist
demand upon petition, as a result of some reference market research. After
these actions, and after the analysis of the obtained results, the agents from
the welcoming industry are in the position of offering specialty assistance
to tourism services providers.
We notice the fact that the tourist product is seldom bought by non
experimented tourists directly from service providers, because of the lack
of time and reference in developing research activities and contacting dif-
ferent offers from the market. Reducing the consumers effort the tourism
agents can group the services of some providers and synchronize them in
a combination that aims to awake tourist interest, thus establishing a cor-
respondence between the segments of offer and demand. More, the role
Distribution Policy in Tourism 213
of specialized distributors is that of identifying the service providers who
have the most advantageous rates, control the contract documents, obtain
visas, and solve post-selling litigations.
We must mention that, taking into consideration the specific of the
tourist product, that is immaterial and intangible, this is distributed only
as information and ambiance, and its buying means only the access to a
right of future consumption, confirmed and guaranteed through a tourist
title. The consumers trust in this title and the quality of future services
depends only of the image that the chosen agent has for the trading of
products among the possible clients. Therefore, in our opinion, the eco-
nomic authority, of distributor influences the image of the tourist product.
In case the tour operator or selling travel agency is characterized through a
positive image on the market, it has all the chances to register an increased
efficiency in the distribution processes. But, the same realities of the area
underline the fact that an unfavorable image of the agent generates the
lack of capitalization of the contracted vacancies. As a result, in this case,
the main attribution of the distribution, that is ensuring transfer of tourist
services from providers to consumers, is no longer fulfilled.
Using agents in the distribution process, the tourist services providers
take advantage of experience, wide range of developed activities, estab-
lished contracts and their efficiency and therefore they can focus their mar-
keting efforts on the increase in the quality of the offered services. More, we
notice the agents are able to conceive a complex, more attractive offer that
results from the combination of some complementary tourist services.
One of the distributions functions is contracting possible consumers fact
that implies looking for, discovering and communication with these ones.
Because direct contact of possible consumers (located at some distance from
the receptive tourist locations) is difficult and expensive, tourist service pro-
viders attend to agent distribution. This allows both the reduction of number of
selling contacts for suppliers (and buying for tourists), as well as the increase
of the sales volume through a better geographic coverage of the areas that
generate tourist clients. We see that in this respect, the achievement of the
network effect of the distribution system formed of a complex assembly of
trading points located in consumer issuing and receptive spaces. This break
of agents on various markets in the territory makes it easy to inform possi-
ble tourists even at their residence place. In distributing tourist services we
notice the splitting of the provider network from the selling one, in the case
in which the anticipated buying is done through travel agencies.
Alexandru NEDELEA, George P. BABU 214
Given the distribution role to offer tourist products to consumers, we
consider that using agent agencies in developing distribution processes is
necessary since the tourist attraction locations are placed at bigger dis-
tances from the demand formation area. And in welcoming industry there
must be a correspondence between the tourist offer and demand volume
and the dimensions of the distribution network.
If we analyze the trading process through agents of the tourist services
and products, one may see that there is a series of disadvantages of this
type of distribution. We notice the limitation or even the disappearance of
control over the external markets of the tourist service provider compa-
nies. Together with the development of the distribution network they tend
to have a soft contact or even inexistent with local travel agencies and
even with possible clients of these markets. Moreover, the final contrac-
tual price that the consumer has to pay for the tourist service package is
bigger as the number of agent distribution units increases.
In the welcoming industry agents look for the achievement of some
own objectives that differ, to a certain extent, from those of the service
providers. Therefore, such distribution rings aim at maximizing their own
profit and not the one of the supplier. Altogether, agents are primarily pre-
occupied with the promotion on the market of a favorable image of their
own company and to a smaller extent to promote the image of the tour-
ist service providers.
Considering that on the market there is a surplus of offers from tour-
ist service providers, travel organizers have the possibility to select only
certain suppliers to conceive and distribute attractive tourist products. As
a result, we see that together with the increase of the competition between
providers, their degree of dependency on the distributors increases. So, they
decide on the structure of the tourist packages they sell, according to the
consumers preferences and not according to the suppliers interests. Agents
concentrate their efforts on selling some very attractive products that bring
an immediate benefit neglecting the offers or the destinations less known
and asked by the clients. more, agents, in their quality of travel organizers,
aim mainly at selling their own products, made up by the assortment of
some individual offers and secondly at selling the latter separately.
In conclusion, we think that distributors play an extremely important
strategic role on the tourism market, the capitalization of the capacities of
the tourist service provider depending on them.
Distribution Policy in Tourism 215
6.2. Distribution Channels
Generally, we see that in specialty literature, the distribution channels
are defined as being groups of independent organizations, involved in the
process of offering a product or service for its use or consume
3
.
The analysis of the distribution channel aims inclusively at making
successions of transfers of property titles onto the product between differ-
ent rings of the distribution channel.
The decisions that the travel company has to take when it comes to
distribution are complex and often difficult to modify because of the links
established between company and agents (contractual arrangements, trust
relations, etc). Also, we see that the time limit of building an effective net-
work is often large.
In designing a distribution system in the welcoming industry one has
to take into consideration the analysis of multiple factors influence (tour-
ist categories, level and frequency of demand, nature, degree of attrac-
tiveness and competitivity of the offered product, agents characteristics,
competitions strategy, tourism units potential, local specific and the dis-
tance between the possible consumers and the tourist location); then there
is the establishment of distribution objectives and identification of the
distribution strategy principles. In our opinion, in such a complex and
extensive perspective, the design of a viable distribution policy is a very
important task for marketers because its effects affect directly the rates
and prices and naturally, the efficiency of the tourist activity.
As each system of the distribution channel generates a certain level of
sales and costs, we think that it is necessary to thoroughly select the mem-
bers of the channel, respectively the agents. These have the role to con-
trol the tourist services flux creating equilibrium between the providers
offer and the type asked by the tourists. The option regarding the distri-
bution channels will be related naturally to the intentions of entering vari-
ous markets, their efficiency, the influence they are about to exercise over
the tourist consumers.
In comparison to the development of the classical commercial agents
network specific for the trade with various goods for the population or
industrial consumers, it is necessary to mention the fact that the tourism
agent system is relatively new, growing step by step, as the industry has
3
L. W. Stern, A. I. El - Ansary, Marketing Channels, Prentice Hall, Englewood
Cliffs, 1992, p. 1.
Alexandru NEDELEA, George P. BABU 216
extended. So, in the 50s at the beginning of the tourism development, the
role of agents was minor between service providers and consumers. Its role
was only of reserving accommodation by the travel agencies. Later, together
with the development of tourism, in the distribution channels structure the
tour operators appeared (coming from travel agencies), who conceive the
tourist products under the form of more and more complex service pack-
ages. If we analyze the welcoming industry we see that together with the
development and diversification of the tourist offer, the distribution chan-
nels become wider, being made of different types of agents.
A more comprehensive look pointed at the systematization after an
essential criterion, gives us the opportunity to notice that in tourism, the
trade of tourist products is done either through direct distribution, where
providers (transporters, accommodation units) sell their services without
agents to the tourist, the final consumer, or through indirect distribution
(mediated), case when they use agents. These are located both within the
tourist issuing markets (travel agencies, tour operators, offices of transport
companies, reservation centers of hotels, etc), and at the destination loca-
tion of the trips (receiving agencies, specialized in welcoming tourists).
Figure 6.1. Distribution channels in tourism
Tour operators

Travel agencies

Touristic services providers
Tourist
The accommodation services of a hotel can be traded by using lots of
distribution channels, out of which we mention: their own selling force,
through a central of reservations, a tourism office, club or association,
hotel representation office, through a tour operator and then through sell-
ing travel agencies (travel agencies).
Distribution Policy in Tourism 217
If we analyze the tourism market we see that in the direct distribution,
the service providers capitalize their micro products that are their services,
independently of other demands of services. But, through the indirect dis-
tribution, although there are traded some individual services too, the main
segment of the agents offer is made of tourist services packages assem-
bled under the shape of a contractual product. On the other hand, from the
perspective of the tourist we see that this one, once he gets at the desti-
nation, will consume both the services enclosed in the tourist product and
other local directly distributed services.
The welcoming industry providers simultaneously use different distribu-
tion channels in order to achieve a competition climate between agents and
to attract different groups of tourist consumers with different buying habits.
At the same time, they try to capitalize advantages and respectively, avoid the
appearance of inconvenient of each direct or indirect distribution channel.
Considering the temporality of the tourist demand, the service providers
show in high season a preference for the short channel of distribution and
in low season for the large channel. Also, in case of some far away tour-
ist markets (especially internal ones) the distribution channels are generally
larger, their structure having a bigger number of agents. So, in Europe, the
most used distribution channel for the abroad voyages is the one in which
they are conceived by tour operators who assemble tourist service packages
and then sell them to consumers through the travel agencies.
In the The Tourism System, R.C. Mill and A. M. Morrison make
a classification of the distribution channels in tourism according to the
degree of control that they exercise
4
:
Consensus channels are characterized through the fact that none of
the channels elements has control over the distribution system, the
participants seeing that it is in their best interest to collaborate. We
mention that in North America and in Great Britain tourism distri-
bution channels tend towards this type.
Vertically integrated channels where all the wholesalers and retail-
ers functions are controlled by one organization (usually by a tour
operator).
Tour operator v ertically coordinated channels. Their control on the
channels is done according to some contract or financial engagements
performed with retail travel agencies in the franchise system.
4
R. C. Mill, A. M. Morrison, The Tourism System, Prentice Hall, New Jersey,
1985, p. 402.
Alexandru NEDELEA, George P. BABU 218
Each member of the tourism distribution channel seeks to satisfy
its own desires and needs (as it is stated in the table below). Therefore,
the consumer is interested in the existence of a variety of products from
which he can choose in order to spend a vacation that satisfies him at a
very high level. The retail travel agency wants to present its clients a var-
ied offer that may lead to the achievement of a high margin of profit. As
for the tour operator, he wants both a high volume of sales and benefit
but also the development of tourist products that motivate retailers and are
of a low risk for the wholesaler. In his turn, the service provider is inter-
ested in reducing the distribution costs, together with a maximum atten-
tion to his products within the distribution channel.
Table 6.1.
Needs and desires of distribution channels members
Service provider Tour operator Seller travel agency Client
High volume of
sales.
Loyal clients
High protabi-
lity
Reduced distri-
bution costs
Maximum at-
tention of the
channel to its
products
High volume
of sales
High prot-
ability margin
Reduced risk
Products that
are to motivate
seller travel
agencies
High volume of
sales
High protability
margin
Favorable image
Periodical renewal
of products
High quality ser-
vices from service
givers
Knowledge of the
tourist product
Tourist product
diversication
New travel prod-
ucts
Assistance in
evaluating prod-
ucts and for the
buying decision.
Qualied per-
sonnel, quality
services
Source: adapted after S. Wahab, L. Crampon, Tourism Marketing, Tourism International
Press, London, 1976, p.102.
In the absence of a direct property, the service providers seek to increase
the agents motivation by offering commissions per selling volumes, study
tours for information them about the product.
After mentioning a few elements and general characteristics we can
say that, at an analytical look the tourism market knows a permanent evo-
lution regarding the used distribution channels as a result of the continuous
Distribution Policy in Tourism 219
adaptation to the changes in the tourists buying behavior, the increase/
decrease of the tourist demand, the life cycle of the tourist product, the
appearance of new competition and of new distribution channels.
6.2.1. Direct channels
The distribution of the tourist services (of transportation, accommo-
dation, restoration, recreation) through direct channels by the performer
(with no intervention from an agent) is specific for the unorganized form
of tourism / on your own (individual tourists, small groups of persons as
families, affinity groups, etc). Thus, in this situation (the feature of most
of the tourists in Europe
5
) we notice that the tourist conceives the trip
himself, asking the travel agencies at first hand the services he considers
necessary and according to his preferences. This type of consumer is an
experienced tourist, characterized by the desire to have, during his trip, a
greater mobility, independence for asking certain services, without being
related to an organized group. Namely, these tourists are looking for the
psychological satisfactions that come from the possibility to get out of cer-
tain tourist programs pre-established by some organizers and to express
their own independence of will.
When, at a certain moment, there is a an request great enough com-
pared to the offer on the tourist market, we can notice that the tourist
services companies appeal to the distribution through direct channels, the
agent intervention not being necessary anymore. Nevertheless, it is easy
to notice that there is a series of advantages of this type of distribution,
which presents the privileged of a permanent direct contact with the
potential clients. Consequently, the travel operator can easily and rapidly
identify their needs, desires and preferences according to the tourist offer
and thus he can consolidate in a realistic and correct way (even in a scien-
tific way we could say) the marketing policies, further to the transforma-
tion and the analyze of the gathered information about the clients, about
the competition actions and about the situation of the market.
In plus, another strong point that we can notice is the fact that the
information flux from the travel agencies performers towards the clients,
and inversely is operative and rapid, thus reducing the misunderstand-
ings caused by the informational distortions regarding the quantitative and
5
L. Lickorish, C. Jenkins, An Introduction to Tourism, Butteworth Heinemann,
Oxford, 1997, p. 164.
Alexandru NEDELEA, George P. BABU 220
qualitative features of the travel products, misunderstandings with greater
risk of appearance in case there is an interposed agent between the two
parties. The direct sales system is well accepted and satisfactory for the
clients, as through the personal balance, at first hand, these one experience
a special consideration and attention from the providers.
The sale of the travel services through direct channels permits to the
provider unit the exercise of a greater control upon the distribution and
the features of the travel product. The selling price for the clients is free
of agent taxes, thus obtaining a superior profit. If we have in view that the
agent payments represent between 8% and 25% of the selling price of the
traveling product
6
, it becomes obvious the motivation of the tendency of
some tourism providers to eliminate the agents. We mention that this is the
case of the air companies that created their own travel agents and of the
accommodation structures that organized their own reservation centers.
Another advantage of the direct distribution is the fact that the cash
flux of the travel agents are improved in case a part of the incomes are
realized before the actual performance of the contracted services.
But we must also notice there is a series of inconvenient of the tourist
distribution services without agents, having as example the great number
of contracts that must be established with the clients. Moreover, the econ-
omy realized further to the absence of the commissions of the agents is
often exceeded by the supplementary costs determined by the self admin-
istration of the distribution system and of the necessary investments for
the promotion of the tourist product that, in this case, represents the exclu-
sive responsibility of the provider. During the low season, because of the
decrease of the tourist request, it is necessary to appeal at agents in order
to valorize in an efficient way the available tourist capacities.
The short distribution channel is the most appropriate for the simple
tourist products, as for example the reservations at the air companies or
at the accommodation structures, while more complex products (such as
the circuits, the cruises) impose the intervention of a travel agency or of
another agent. In plus, we can notice that the direct distribution is more
frequently used by the restoration units than by the accommodation ones,
as the agents from the welcoming industry consider that the distribution
of the places in a restaurant is not profitable enough
7
.
6
G. Tocquer, M. Zins, Marketing du tourisme, Gatan Morin, Montral, 1987, p. 195.
7
F. Buttle, Hotel and Food Service Marketing, Cassell, London, 1993, p. 278.
Distribution Policy in Tourism 221
The direct distribution is more often encountered in the internal tour-
ism than in the international one, because the potential clients have or can
obtain more information about the offers on the internal market.
In the case of the non organized form of tourism, the client addresses
directly to the travel agency, asking for services during the traveling, or
by anticipated reservations, confirmed by the tourist units.
The hospitality industry as is well known needs the organization
of a places reservation system for the tourist structures of accommodation
and alimentation, as for the transport companies (the air lines, the road,
railway and maritime ones). This system is highly related to the promo-
tional device of the traveling companies.
The direct contact of these units by the potential clients supposes
inclusively asking for the information regarding the features of the offer
by phone or in writing (by correspondence, fax, Internet). In case this one
corresponds to the tourists demands, there will be a reservation request
(order), which is accepted or not according to the existing availabilities.
The anticipated reservation constitutes for the future client a certainty for
the respective service, there served place being blocked at his disposal.
The specialty literature
8
records the distribution by correspondence,
known in the 70s by the Suisse and the Federal Germany travel agents,
that was based on three factors: the high quality of the catalogue or the
brochures which must provide all the exact and in detail information
regarding the traveling destinations, the contact of a company that has
earned a solid reputation in the domain of the mail sales and the exist-
ence of an important addresses folder. The Neckerman, REWE and Quelle
German distributors have included in their sale catalogues by correspond-
ence products as tourist circuits and journey type. The distribution of the
tourist products for the old aged people in the USA and Great Britain
appeals in a great respect at this channel. On the tourist market we can
identify three cases of this direct channel used by: the travel agent that has
no selling points; the traveling product producer that has its own agencies,
but appeals to this complementary modality of distribution; the classical
seller by mail who diversifies his offer adding at his product catalogue
tourist products elaborated by himself or by the famous travel agencies.
The phone distribution is highly used in the welcoming industry in
Germany and Great Britain, the potential clients being ensured sometimes
8
R. Lanquar, R. Hollier, Le marketing touristique, Presses Universitaires de France,
Paris, 1981, p. 100.
Alexandru NEDELEA, George P. BABU 222
the free calls (free phone or le tlphone vert) for the order of the
tourist services provided by the air lines, the accommodation structures,
and the rent-a-car companies. After the phone call, the potential client
receives a detailed offer either by mail or further to a sales agents visit.
During the last years, the travel operators began to experiment the dis-
tribution through automatic methods. Thus, in some supermarkets, hotels,
banks, airports have been installed automatic ticketing machines of the
transport companies. Satellite ticket printer permits the release of tick-
ets of the travel agencies in an electronic way, and the ATMs (Automate
Ticketing Machines) are systems of the air companies by which the cli-
ents have access to the information regarding the flight schedule, they can
make reservations and obtain tickets by the insertion of a credit card. The
specialists anticipate that this distribution method will know an increased
development in the whole world.
Some providers from the tourist industry (air companies, bus trans-
port, the hotel chains) open selling points (offices, bureaus) by buying or
renting some spaces in the airports, railway stations, hotels, meeting cent-
ers, commercial ones or in places situated in zones with great visibility
and intense circulation.
In the world, we can notice that, once the explosive development of
the information technology and of the electronic commerce, the use of the
telematic distribution channel earns more and more fields in the traveling
domain. Thus, the potential traveling consumers who are connected to the
Internet can access the sites of the provider companies of tourist services
in order to obtain information regarding their offer, the selection of the
tourist products and the order, on-line reservations directly at home.
By continuing to put under analytical observation the tourist market,
we have the possibility to notice that, even though the direct channels
present a series of advantages whose repertory we have detailed above
the travel company cannot limit to the exclusive practice of the direct
(at first hand) distribution of its offer.
6.2.2. Indirect channels
The indirect distribution of the tourist services is a feature of the organ-
ized and half organized forms of tourism. By these modalities, the tourists
who prefer not to organize themselves the trip and the holiday journeys
appeal to the travel agencies which take the responsibility for ensuring the
Distribution Policy in Tourism 223
necessary services. It is natural to suppose that, this way, the buyer has
the possibility to inform himself about the different destinations and the
traveling programs offered on the market, he can evaluate them, compare
them and then chose the appropriate tourist product. In plus, he has the
advantage that he can buy at once all the complementary services neces-
sary during the trip, at a lower price and in a shorter time than if he had
directly appealed to the tourist services providers. Further to the activity
of the travel agencies of assembly and selling the services under the form
of modular tourist products, we can notice a decrease of the number of
transactions of each tourist provider and client.
Analyzing the existing situation on the tourism market, we consider
there is a series of reasons for which the tourists appeal to the agent
traveling agencies for buying a holiday ticket:
The accommodation : the travel agencies buy a considerable con-
tingent of rooms long time before. They guarantee the accommo-
dation of the tourists at the most popular holiday destinations that,
otherwise, would not be available at the moment of taking the
decision regarding the holiday destination;
The reductions : further to the negotiations, the travel agencies
obtain important reductions that they transmit to the clients. These
holiday packages can be 25% less cheap than the alternative of
direct buying of the composed tourist services;
The accessibility : as part of the modular tourist product there is
also the visit to some popular attractions or the participation to
different entertainment programs to which, otherwise, the tourist
would have a more difficult access;
The comfort : the contractual trips have the advantage of a single
payment for all the services and facilities included, that exempts
the tourist from the care of the acquisition of each service and the
payment for each part of them;
The variety : the contractual trips offer all the services, attractions
and facilities available in the area, which would be hard to obtain
on his own;
The financial security : ensured by the law in matter.
A series of marketing researches9 revealed that the importance of the
travel agencies as agents proportionally increase with the distance that
9
J. Krippendorf, Marketing et tourisme, Herbert Lang, Berne, 1971, pag. 133.
Alexandru NEDELEA, George P. BABU 224
separates the tourists residence to the travel destination. Consequently,
it is rational to develop direct distribution channels for the close markets
and to appeal at agents for the markets that are at distance from the pro-
vider companies of tourist services.
The closer the selling points are from the potential clients, the more
efficient is the tourist distribution, being able to satisfy a larger area of
covering the demand. Thus, appealing to agents, the tourist services pro-
vider companies can have access to markets inaccessible through a direct
distribution because of the necessary investments and publicity expenses.
While using indirect channels, we can notice the agents lance and promote
the tourist offers of the provider companies on a larger scale (on a greater
number of markets) compared to the direct distribution. Meanwhile, hav-
ing in view that the local agents know very well the reference market,
these ones will conceive and put in value only tourist products correspond-
ing to the demand, according to the own marketing research.
The costs implied by the intervention of the agents in the tourist dis-
tribution are covered by the commissions encashed either by the tour-
ist services provider companies (for instance, the commission given by
the hotel-keeper is of 5-20%, the level of 10% being more often prac-
ticed, including in Romania), either from the travel agencies. The two
sources for the recuperation of the costs of the distribution rings are the
discounts given by the providers to the publicity costs, with which these
ones are selling their services, and the commercial allowances included
in the detailed prices practiced by the travel agencies. Consequently, as
we said before, the global price demanded by the travel agencies for the
offered products increases according to the number of agent rings. It is
obvious that, due to the competition between the different travel agen-
cies, we can arrive to the elimination of the agents that are proving to be
extremely expensive.
6.2.3. Types of agents
For the elaboration of an efficient distribution strategy, a special impor-
tance has the chose of the agents, which must consider a series of crite-
rion such as: the specialization degree of the partner agency, its activity
area, and the adopted marketing policies.
In the welcoming industry, the base structure of the agents is com-
poses as it was revealed by our previous references by wholesalers,
Distribution Policy in Tourism 225
represented by tour operators, and retailers, which, generally, correspond
to the travel agencies. There are also the selling agencies of the air com-
panies and of other transport enterprises (car companies, railway), tourism
offices, commercial networks, banks, insurance companies, union organ-
izations, reservation centers, clubs, sport associations, of the retired, reli-
gious groups (specially those for pilgrimage), the specialized departments
of the great enterprises, the tourism points from the university centers, the
newspapers etc.
The internal and external agents from tourism can be grouped in agents
for the emitter tourist markets and agents at the destination place. In the
second category there are the reception markets that offer the tourists the
specialized assistance, recommendations and information at arrival and
during the trip.
The travel agencies have been created further to the result of develop-
ing and intensification of the tourist circulation, playing the role of distri-
bution commercial companies for the facilitation of the organized contacts
between the potential tourist clients from the country (zone, county) of res-
idence of the tourists and the tourist services provider companies (hotels
an restaurants, transport companies, entertainment companies, etc) from
the reception area, chosen by the tourists as destination for visiting and
spending the holidays. In this context, we notice the fact that the travel
agencies organize, offer and develop a diversity of tourist arrangements,
which include the transport, the staying and the agreement during the
enterprise trips. Consequently, in the offered tourist product there are not
only the providers services, but also the combination logistics of the serv-
ices taken with the services of the agencies, that contributes to a higher
degree of originality of the tourist products and to a greater satisfaction
for the consumers of the bought services.
The travel agency represents the main distributor for the tourist prod-
ucts because it presents two great advantages from the other distribution
forms: the almost complete protection of the tourism consumer and the
financial guarantees given to the tourists and the providers. On the inter-
national tourist market, as for the repartition of the travel agencies on con-
tinents, the situation is presented in figure 6.2.
In Europe, the differences between the countries as for the number of
agencies are very big. Very developed in Germany and Great Britain, the
commercialization through a travel agency is not playing a major role in
France, Spain and Italy.
Alexandru NEDELEA, George P. BABU 226
In the specialty literature and in the terminology of the World Tourism
Organization is used the term of journey agency, which is different from
the Romanian concept and terminology.
In the countries with an intense tourist activity, the journey agency is
an independent company or a company network having as activity object
the reservation and the selling of the tickets for the transport means and
the selling of the tourist products made by the tour operators.
In conclusion, by journey agency we understand a commercial com-
pany that has as object of activity: the insurance of all services related to
transportation, accommodation in the reception structures or tourist activ-
ities of any type; the organization of individual or collective journeys, at
a contractual price, with a program either established by the agency, either
at the free choice of the client. On the tourist market we notice the fact
that some journey agencies offer only a part of these activities. In plus,
we must mention that every person who sells journeys must belong to the
Figure 6.2. Repartition of the travel agencies on continents
Source: Vellas, F., Becherel, L., International Tourism, Houndsmills Basingtoke, London,
1995, p. 117
Distribution Policy in Tourism 227
staff of a certified agency or to act as correspondent of an agency, under
its responsibility.
In the Romanian practice and law the term travel agency is fre-
quently used. In the European Union countries, according to World Tourism
Organization, there are two types of travel agencies:
Retailer, that gives to the public the information about the possibili-
ties for the journey, accommodation and conditions for the services. They
are authorized by their suppliers to sell the respective services at the pr-
cised prices. In the selling contract (ticket, voucher), it is mentioned that
the agency is acting as agent.
Wholesaler (tour operator), that conceives, prepares and sells the con-
tractual tourist products destined to be distributed either directly, by their
own offices, either by the retailer agencies.
Analyzing the international tourism market, we can notice that the most
spread form of organization of the tourism agents from the countries of the
European Unit is that of the small independent agencies implied specially for
the sale of the services in detail. In plus, there are a small number of big com-
panies that operate specially in the North countries implied in conceiving and
arranging the tourist products. It is about the tour operators that distribute
their services directly to the clients or through some small retailer agencies.
In this developing process of a travel agency it appeared a series of tourist
organization that, in parallel with the traditional activity of agent for the sale
on the basis of license of the traveling tickets (train, plane, etc), they took the
organization of the contractual trips with different means of transport that they
resell to the small travel agencies and to the tourism offices; these ones, at their
turn, they become sub-agencies for the sale of the respective arrangements.
The process of quantification of the exact number of travel agencies
from the European Union countries is difficult to realize. The most recent
statistics indicate for Great Britain 7142 and for Germany 6301. These
two important countries from the developing state of the welcoming indus-
try are followed by Italy with 5174 agencies in 200. Greece, the famous
tourist destination on the international market, has also a great number of
small agencies (over 3000) being specialized in the in-coming tourism.
The greatest number of agencies related to the population is in Greece (30
agencies at 100.000 inhabitants), followed by Luxemburg (17/100.000),
Holland (almost 16), Great Britain (more than 12), Germany (10)
10
.
10
http://www.world-tourism.org.
Alexandru NEDELEA, George P. BABU 228
If we analyze the international tourist market, we can make the follow-
ing hierarchy of the organizations from the welcoming industry:
The great tourist companies, that have transformed into monopo-
list organizations, having a great network of offices and valoriza-
tion; these ones occupy the biggest part of the organized tourism for
sending and receiving on the international tourist market from the
respective countries. In order to ensure some supplementary distri-
bution channels, the big tourism groups tend to extend their activ-
ity area, using as sales points the super market network, the bank
offices network, of the penny banks, of the insurance agencies etc;
The average travel agencies, that are selling their own arrange-
ments, contracted with foreign partners and that are partially taking
the arrangements of other stronger tourism organizers; their activ-
ity area is smaller than the one of the great companies, generally
limited to the regional level;
The small agencies and offices, the most numerous ones, but often
without external tourist programs of their own, acting in the inter-
national tourism as sellers of programs of the great companies. In
order to resist the competition of the great tour operators, these agen-
cies and offices concentrate their activity on the forms of the internal
tourism or they are offering external traveling programs for the mass
(study and professional travels, youth programs, intellectual travels,
balneal medical tourism, maritime cruises etc). Despite their great
number the small tourism agencies and offices occupy a modest part
of the tourist activity volume from the respective countries.
6.3. Tour Operators
The individuality of the tourist in search for the appropriate product and
the conviction that the individual organization can make the trip to cost less
represented a break for the tour operators. They the tourism operators
have, in fact, the role to conceive the complete tourist product further to the
assembly activity of its different component parts (transport, accommoda-
tion, alimentation, agreement, treatment, renting services) and to distribute it
to the tourists directly or by the agent of the retailer travel agencies, exempt-
ing the ultimate beneficiary from efforts, risks and time consumption.
These organizers of tourist travels, named voyagers, close contracts
with numerous partners-service provider companies in the internal or
Distribution Policy in Tourism 229
external market, from which they rent in time (sometimes 6-12 months
before) the transport, accommodation, meal capacities, etc. (except the
cases in which they own these capacities).
Named also wholesalers of the tourist industry, the tour operators deal
with the selection, the assembly, the constitution and the commerce of the
tourist offer on the market under the form of a service package that they
include in the tourist catalogue distributed by the retailer travel agencies.
It is estimated that the tour operators are selling 80% of their products
through retailer agencies and 20% directly
11
.
The tour operator includes in his tourist product the reservation of the
places in a hotel from a sea, mountain or balneary resort, the insurance of
the transfers from the airport or railway station and back, the city tour for
the visiting of some tourist attraction places, the reservation of places for the
airplane, the bus etc., establishing a global price for the whole service pack-
age. As these travel producers reserve places in a great number at the accom-
modation, alimentation, airplane, bus units etc, they take advantage of price
reductions from the performers of the tourist services, fact that permits them
to practice, at their tour, global prices more accessible for the services pack-
ages, than if each client reserved and paid on his own all the services.
We should recognize the important position of the operator travel
agency, given the fact that this one directly engages its name and respon-
sibility, by the choice of the products integrated in the tourist package.
The tour operator will be considered by the clients and the travel agen-
cies that are selling its product, the main responsible in case of the offer of
some inappropriate components of the tourist package. Thus, the selection
process of the tourist services providers must be very rigorous. It is con-
sidered that being selected by a prestige tour operator represents a qual-
ity indication for a tourist products provider (the reception structure with
accommodation function, alimentation unit designed for serving the tour-
ist, transporter etc).
Generally, the tour operator conceives the tourist product long time
before (even a year before) putting it for sale to the public through its own
agencies (branches, offices) or independent ones, being necessary the esti-
mation, on the basis of the demand research, of the number of clients who
will ask for the respective holiday packages, in order to reserve places in
the tourist structures of reception and in the transport mean.
11
J. P. Treboul, Les stratgies des entreprises de tourisme, Presses Universitaires
de France, 1998, p. 98.
Alexandru NEDELEA, George P. BABU 230
The tour operator with a complete offer occupies himself of all the
travel types but, more than half of their turnover comes from the group
and individual trips. American Express and Thomas Cook are two of the
greatest agencies in the world that offer complete services, having offices
in almost all the countries.
As a result of the competition intensification, the organization of exter-
nal travels are more and more concentrated in the hands of a relatively small
number of tour operator strong organizations and agencies, some of them
having monopolist positions on the tourist market from their countries. For
instance, we can cite the tourist market in Germany where, further to a strong
competition pressure and to the concentration and centralization phenomenon,
there are two dominant tourist groups: Touristik Union International (TUI) and
Neckerman Und Reisen (NUR). In these conditions, a series of small tour-
ist companies couldnt resist to the monopolist [pressure; some of them had
to stop their activity and some emerged with stronger tourist organizations,
respectively are exclusively acting as sub agencies of these companies.
In conclusion, we can see that, at the beginning of the third millen-
nium, the main tour operators became transnational, taking the dominant
positions on the market of trips and tourism
12
.
R.C. Mill and A.M. Morrison cover the products offered by the tour
operator agencies in three categories
13
:
The escorted tours in which such an authorized person escort groups
of tourists / the individual tourist during the whole trip in order to
ensure that he has quality services. This guide is/must be polyglot
and have good communicational abilities that permit him to com-
municate with people and solve all their problems (inappropriate
situations, luggage lost, sickness, other unexpected situations)
The hosted tours that suppose the insurance of the tourist services
at the destination place, without having a special person to escort
the group of tourists during the trip
The package tours are composed of organized circuits, individual
or group ones, that include air transport services, road services, but
that do not suppose the existence of an escort for the tourist from
the trip organizer.
12
M. M. Kostecki (coord.), Marketing for Services, Globalisation, Client-Orienta-
tion, Deregulation, Ed. Pergamon Press Ltd., Oxford, 1994, p. 4.
13
R. C. Mill, A. M. Morrison, The Tourism System, Prentice Hall, New Jersey,
1985, p. 407.
Distribution Policy in Tourism 231
The tour operators can be differentiated not only from the perspective
of the types of products they offer, but also according to other criteria,
such as the level/degree of their integration and the offer capacity. Thus,
J. Barr refers to the tour operator agencies as general, specialized and
organizers of punctual trips
14
.
1. The general tour operator agencies (universal) propose to a non
structured clientele all the possible tourist products (circuits, jour-
neys, cruises etc). Such a diversity of offer creates problems related
to the quality of each tourist product, of the competence in devel-
oping negotiations with the tourist services provider companies
and of the necessary capital for these activities. The advantages of
these tour operators are the decrease of the risk and the large pos-
sibilities of the offered products and the chain of the tourist serv-
ices providers for the creation of the journeys.
2. The specialized tour operator agencies conceive and offer for sale
thematic tourist products.
The strategy specialized on the clientele presents a special importance
having in view that this one represents the main component of the micro
environment of the travel agency, the final destination of the economi-
cal efforts of this one. The tour operators can specialize in a certain cat-
egory of clientele, such as: the just married, students, children, third age
population, and sportsmen. For instance, the Kuoni agency addresses to
a luxury clientele, Options Vacances and UCPA aims the young, Art et
Vie addresses to the education staff, Voyage Conceil aims the rural pop-
ulation. Other travel organizers, in their efforts to impose themselves on
the market, have chosen as aim groups the following tourists catego-
ries: the old (Britanic Saga Holiday from Great Britain, with an aggres-
sive strategy, their products not being accessible to the clients under 60,
Club Rennaissance from France), just married (Le Chteau de Breuteuil
addresses to the just married couples from Japan), the young adventur-
ers (Top Deck Travel from Great Britain), homosexuals (International Gay
Travel, from USA, that groups an air company, 28 tour operators and 172
travel agencies), the disability persons (Handicaps sans frontires).
The theme specialized strategy. All the services (transport, accommo-
dation, alimentation, agreement) and the tourist products offered by these
tour operators are adapted to a certain theme. In order to sell more tourist
14
J. Barr, Vendre le tourisme culturel, Economica, Paris, 1995, p. 92.
Alexandru NEDELEA, George P. BABU 232
products, the tour operators realized that these ones should gain by charm
and originality. Thus, the modular services that compose the tourist prod-
uct must be combined in order to be developed according to a theme. For
instance, Kore and Art et Vie have in view cultural themes, Visa Tonic
aims the health journeys, SIP specialized in the organization of pilgrim-
ages, Unosel organizes linguistic journeys, Explorator is specialized in the
adventure events. Similarly, the journey producers can specialize on a cer-
tain activity (hunting and fishing, golf, music, adventure, pilgrimage, bal-
neal cures etc) or on a certain transport mean (bus circuits, cruises etc).
The destination specialized strategy. According to the market features
on which it acts in and the segment of tourists it addresses to, the travel
agency is looking for ways of gaining the potential clients acceptance: the
realization of tourist products that take place in a certain country, area,
region, resort, that is fashionable due to the encountered features (sunny
seaside, density of the tourist objectives, their originality, the natural phe-
nomenon rarely met etc). For instance, the Africatours built its image as
specialist in the African tourist destination (in collaboration with the Paris-
Dakar rally organizers), a similar situation is the case of the Havanatour,
Cosmovel agency that proposes numerous programs in Turkey, Transtour
is exclusively interested in the East countries.
Among the advantages of the specialty strategy we can mention:
This strategy constitutes for more travel organizers a logical solu-
tion to face the competition and the instability of the tourists
behavior. In case of a specialized tour operator, the priority is the
quality of the tourist product and the price. This way the producer
can make clients faithful, the evolution of the turn over permitting
to have reasonable incomes.
The specialized strategy is good at the beginning of the activity,
when the tour operator or other tourist products producers aim the
increase of the turn over.
The specialized strategy of the tour operators is often considered by
specialists as risky, the explanation resulting from the fact that, if the
aimed market is suddenly affected by a stabilized event, the tourist oper-
ator can register a sensible reduction of the turn over. For instance, the
tour operators specialized strictly on a certain geographic destination are
specially affected in case of a coup detat, that develops insecurity (thus
Egypt and Israel have been considered risky countries)
Distribution Policy in Tourism 233
In the welcoming industry we can notice a non differentiation strategy,
the factors that determine it being: the increase of the competition on the
international market and the accentuation of the market behavior of the
tourist buyer. Consequently, the bidders and the producers adapted them-
selves and passed to: the influence of the quality and the dimension of the
tourist demand (by aggressive marketing politics), the increase of the offer
attraction and of the efforts to particularize it. Having in view all these
adaptations suppose great financial efforts, we remark the increase of the
bidder companys dimensions by their integration or grouping.
3. The Organizers of punctual journeys assembly at order tourist
products for certain events (sport events, artistic ones, congresses
etc) or for certain groups (associations, committees).
The activities developed by a tour operator for a contractual journey
have several phases
15
(echeloned on several months or, sometimes, years)
that form a configuration with quasi general availability, in the following
possible succession:
1. The research of the tourist market and the planning of the objec-
tives that include four important moments:
The analyze of the market, of the tourist circuits;
The study of the marketing policies and of the tourist destina-
tion of the competition
The establishment of the marketing ;
The elaboration of the project design of the tourist product
2. Missions and demarches of the agencies marketers
Exploration ad familiarizing visits, meetings at the accommo-
dation units, reception travel units, transport mean renting com-
panies;
Negotiation and closing of the contracts with the tourist services
provider companies
Issuance of an offer demand for several reception tourism agencies
3. The conception and the assembly of the tourist products: the defin-
ing and the stage establishment for the layout; the selection of
the visiting tourist objectives, the establishment of the type and
category of the used transport means, of the reception structures
(accommodation and alimentation), of the temporal elements; the
calculus of the global price for the service package;
15
G. Tocquer, M. Zins, Marketing du tourisme, Gatan Morin, Quebec, 1987, p. 198.
Alexandru NEDELEA, George P. BABU 234
4. The realization and the distribution of the tourist catalogues
16
.
From the diachronic perspective (historical one) it is imposed the
observation that the relationship between the tourist services providers
and the tour operator agencies have evolved. At first, all the tour operators
paid in advance the rented tourist capacities, that advantaged the services
providers and that, this way, ensured the integral incomes, no matter the
occupation degree of the respective capacities. It is natural to suppose the
increased risk of the organizations of not recovering the invested sums.
The diversification of the destinations and of the providers on the mar-
ket permitted to the tour operators to change their economical behavior,
starting not to accept anymore the renting on their risk of the services pro-
viders capacities. Thus we see the system of the partial capacity contracting
(allocations of capacities) that foresees in exchange of the advantages of the
including of the individual services in the structure of the composed prod-
ucts, the tour operator agencies paid integrally only in case of their effec-
tive consumption. Please note that in contract there is a regulation that says
that, for the non use of the tourist rented capacities, the tour operators must
bear some penalties representing percentage quotas from the value of the
non used services. Thus we see that the most part of the risk of the non sale
of the tourist products pass to the suppliers of tourist services.
The relationships between the individual modular tourist services pro-
viders (hotels, restaurants, transport companies, agreement centers) and the
tour operator agencies are conceived under the form of contracts where
there are the rights and the obligations of the two parts related to the use
of the tourist capacities, as a series of technical data:
The detailed presentation of the services from a quantitative point
of view (the tourist contingent expressed by the number of places,
rooms or meals daily) and qualitative (the classification category);
The contract duration and the dates (periods) established for the
places reservation (in the reception structures of accommodation, in
16
What we name phases of the flow sheet for the realization of a tourist prod-
uct is also encountered in other specialty works under the name of types of activity.
This would oblige us to their evidence as successive travel moments, in even a rela-
tive chronology. In the cited volume (p. 198) G. Tocquer and M. Zins, who inspired
such a variant, offering a concrete example of fabrication of a tourist product, enu-
merates the operations by establishing the execution date in a precise time interval. We
preferred this formula adding (or reorganizing) sequences suggested by the tourist prac-
tice, without generalizing the proposed order, which van be modified according to the
particular conditions of the activity.
Distribution Policy in Tourism 235
the alimentation units destined to the tourists, in the transport means
etc) which must be confirmed or cancelled in a certain term;
The prices are established, generally, in the currency of the desti-
nation country
The retribution modality of the tour operator; it will be also appre-
ciated the maximum commission demanded by the tour operator;
The penalties that must be paid in case of the non respect of an
obligation or term
The payment conditions (advance payment, partial or integral, guar-
antees, admitted terms etc). Generally, we can see the tendency of
the travel organizers to temper the payments towards the provid-
ers, using the accumulated sums the moment of their encashment
(long before the trip) and their effective payment;
Vouchers used as offset that guarantee the services performance by
the tourists and the payment of the providers.
The selection of the tour operators as agents supposes from the pro-
vider companies to well know their partners as for the size, the reliability,
the areas in which they act, the marketing policies promoted on the tour-
ist market, the relationships with the retailer agencies and their prestige
among the clients, the travel agencies and the official bodies.
In the world, the main tour operators can be found in Germany (TUI
and NUR detain over 50% from the German tourist market, Touristik Union
International being the biggest provider of trips in the world) Great Britain
(Thomson, First Choice, Airtours; the first two have over 60% from the
national travel market), France (Club Mditerrane strongly implanted
on the external markets; Nouvelles Frontires, Sotair) and United States
of America (American Express Travel, Thomas Cook, Cartan).
If we analyze under the balance of the present tendencies, the evolu-
tion of the tourism providers, we can see some major aspects:
a tendency of vertical integration, concretized by the fact that some
tour operators integrate their own agency network by an associa-
tion system;
a tendency of assuming the function of retailer by the direct sale of
the tourist products to the potential consumers in order to eliminate
the distribution costs for the payment of the travel agencies and to
give a high security that the product is sold preferentially to other
similar products. In plus, in the contracts with the travel agencies,
the tour operator has different reasons of mistrust: the interests of the
Alexandru NEDELEA, George P. BABU 236
travel agency agree with its own at the moment; it sells the products
of the competition too, thus they must be stimulated with an over
commission; the agency defends its own clientele interests more
than the travel organizers; the information and the sale agreements
provided by the tour operator are often ignored by the retailer.
6.3.1. Seller travel agencies
The retail travel agencies distribute the tourist products made by and
promoted by organizer agencies, as well as isolated services of provider
companies, cashing a commission calculated to the volume of sales. As a
result, the risk of partial capitalization of packages belongs to the whole
seller and obviously to the service providers because the retail travel
agency does not buy tourist services in advance.
It is estimated that, nowadays, there are about 70.000 active travel agen-
cies world wide
17
(they have a tourism license) with more than 200.000 sell-
ing offices of which 45.000 are in Europe. Tourist issuing countries group the
biggest part of the retail agencies, half of them being located in Europe.
Retail travel agencies have a wide range of activities or tourism.
Both are accepted, of which we remember:
Give special assistance to tourists, offering them information and
recommendations (advise services) regarding the possible tourist
programs, the itinerary, rates and selling conditions of the offered
services (accommodation, transport, restoration, guide, leisure
etc.); present tourist products of tour operators with the help of fly-
ers and of other advertising materials;
Sell national and international travel tickets (ticketing) for plane,
train, bus, ship, etc., for which usually it takes a commission of
10% of the tickets value;
Sell individual services: accommodation reservations in welcom-
ing, structures, treatment, leisure, assistance, car rental with or
without the driver, obtaining tourist visas, tourist insurance, trans-
fers, exchange, issuing travel checks, luggage expedition, etc.
Use computerized reservation systems ( Worldspan, Galileo, Sabre);
Cash from tourists the counter value of the tour operators tour-
ist products;
17
World Tourism Organization, Tourism Statistics Service, 2000.
Distribution Policy in Tourism 237
Make data bases regarding clients, necessary for them and the
travel planners, following the tendencies and assimilating reclama-
tions and preferences of each segment of the consumer entities.
As for the counseling services of the travel agencies, the world wide
studies
18
reveal the fact that they influence only in half of the cases the
choice of destination. While half of the clients that come to the agency
have already decided upon the destination, the other takes into considera-
tion a wide range of possibilities.
Regarding the agent role of the travel agencies, G. Tocquer and M.
Zins make a distinction between the numeric and value distribution of the
tourist products
19
. Therefore, according to them, the numeric distribution
expresses the percentual relation between the selling offices (agencies) in
which a certain product is presented and the total number of agencies on
a given area. The value distribution, in its turn, represents the turnover of
the selling offices (agencies) in which the product is presented in relation
to the total turnover of the assembly of agencies from a given area (it is
about the turnover that makes reference to the product category that is
considered). Because not all distributing agencies offer the same selling
potential, the tour operators and the individual providers of modular tour-
ist services are interested in being present with their offer in those retail
agencies that ensure a big selling potential.
The travel agencies select the accommodation units whose services
distribute to tourists taking into consideration criteria as:
The name achieved regarding the security of reservations;
The name achieved in offering quality services;
The easy collectiveness of the commission;
The rate level for rooms;
The efficiency of the reservation system;
Commission rate;
The computerized reservation system;
The relations with the hotels marketing representatives.
In the conditions in which the retail travel agencies come in direct and
permanent contact with a stable and faithful clientele, whose preferences
are more and more known, it appears the tendency to take over also the
function of tourist programs conceiving and assembly, becoming thus tour
operator agencies.
18
C. Marcon, Marketing du tourisme, Poitiers, 1997, p. 35.
19
G. Tocquer, M. Zins, Marketing du tourisme, Gatan Morin, Quebec, 1987, p. 200.
Alexandru NEDELEA, George P. BABU 238
6.3.2. Other agent categories
To ensure local continuity and coordination of services, as well as the
consumers assistance at the destination of his / her vacation, the travel
agencies and the tour operators from the issuing areas, close contracts with
the receiving agencies from the voyages destination areas. These receiv-
ing agencies integrate locally, different services (accommodation, leisure,
trips, local transportation) under the form of some tourist products that
they sell to the tour operators.
The receiving travel agencies are usually located in balneary resorts and
have the role of distributing rooms and assist tourists with their meal serv-
ing. In Romania they are known as Receiving Offices of the Resort and
have the role of placing tourists, according to the asked and payed accom-
modation unit category. For instance, a tourist who paid for accommodation
at villas will be sent to the villa or room. For tourists who spend their stay
at a previously chosen hotel or another individualized accommodation struc-
ture, when buying the trip, there is no need to go to this kind of agency.
G. Tocquer and M. Zins present the case of some receiving agencies
that are not located in tourist regions. So, some American voyage plan-
ners who sell France, buy this product (of type geographic entity) from
the British reception agencies. As a result, we notice that regions, towns
or resorts interested in selling their tourist potential on an external market
must take into consideration mainly the influence on the receiving agen-
cies and then on the foreign tour operators.
Incentive travel planners are the whole sellers of tourist tours who
assemble service packages that include transport, accommodation, and lei-
sure, these being offered by the companies, as reward for those employees
who have achieved or surpassed the objectives established by managers.
The incentive travels include services that do not appear in the classical
tour operators catalogues. Because the incentive travels are directed to
persons that travel as a result of a reward given at the working place, they
are considered as being part of the business tourism.
The difference between the incentive products and the vacation pack-
ages freely chosen comes from the fact that the first reunite the elements
selected according to the life style and wishes of those involved as their
beneficiaries (organization of receptions, banquets, participation to cultural
or sports events, visiting interesting places, often related to the employ-
ees place of work).
Distribution Policy in Tourism 239
Using incentive travels as a motivation instrument in order to increase
the work productivity is a more and more frequent practice of North
American, European and Asian companies. This way there is a multipli-
cation of this kind of offers from the receiving tourist structures, trans-
port and specialized travel planners (for instance, only in the US there are
almost 500 of these kinds of planners of incentive travels)
20
. Among incen-
tive travel planners we mention American Express, Havas, Kuoni.
It is thought that at an international level, about 11 millions of persons
travel as a result of receiving this kind of reward. It is interesting that only
30% of those involved in Europe are accompanied by family members
compared to the 70% in the US. More than half of the total demand for this
kind of travels comes from the United States of America. As for Europe,
the first place is held by England and Germany, Paris and London being at
the top of European destinations. We must notice that lately Eastern Europe
is seen as the most appropriate destination for incentive travels because it
offers a wide variety of attractions preferred by tourists (town centers rich
in cultural heritage, attractive sceneries, not affected by urbanism, recog-
nized national cuisines, balneary resorts). The inferior quality of infrastruc-
ture and the low capacity of organization represent the main obstacles for
the development of incentive travels in this part of Europe.
If in the beginning, the incentive travels were destined totally to the
leisure of worthy employees, as well as to team building, nowadays we
feel the tendency of specialized agents to create programs that combine
business with leisure. Business meetings held as part of vacations within
some exotic destinations allow corporate companies to improvein a con-
text that combines business with pleasurethe best employees.
In the second half of the eight decade of the 20
th
century, derived forms
of the incentive travel appeared as: professional voyages, (who include con-
ferences and visits with technical character), travels incentive checks (given
through the company to the best employees), sponsored trips (proposed by
the company to suppliers, clients, their distributors). We must mention that
this form of tourism implies the planning by the company of a professional
program, the organization falling into the concern of the travel agency.
Convention/meeting planners offer their services to associations, cor-
porations, non profit organizations, governmental or education institutions
interested in developing such events (conferences, exhibitions, etc). These
20
Ph. Kotler, Hospitality and Travel Marketing, Wiley, New York, 2000, p. 322.
Alexandru NEDELEA, George P. BABU 240
specialized tourist distributors are involved in the solving of some tasks
as: budget elaboration, selection of the welcoming structures where events
will take place, negotiation of accommodation rates, meals and air and land
transport for the participants, planning congress progress (including leisure
activities), reservation of tourist services etc.
Transport selling offices. Although they collaborate greatly with the
travel agencies in order to distribute their own products, many transport
companies (air, land, railway or water transport agencies) have often, in par-
allel, their own selling offices. Sometimes they act as a travel agency issu-
ing own tourist products that is packages of services that include, besides
transportation, accommodation, meals, leisure during the stops and at the
place of destination of the trip. For instance, water transport companies,
as tour operators, offer cruise type products in which they enclose a wide
range of services (number 1 at an international level in cruise planning is
Carnival Company). The most known European cruise planners are: the
French (Paquet, Club Mditerrane), the Greek (Chandis, Epirotiki), the
Italians (Costa), the Scandinavian (Kloster, Royal Caribbean Cruise Line),
the Russian and British (P&O, White Star Line, Cunard Line)
21
.
Agencies of air flight companies collaborate with travel agencies through
which they cover 80% of the sales
22
, also proposing to them tourist programs.
Besides, they plan own tourist products of the contractual voyage type, who
enclose the air transport to some capitals and a stay in those towns.
Bus companies ensure, upon petition, the tourist transportation for tour
operators, having a network of regular international lines (in Europe, for
example, Europabus has developed, in America there is the well known com-
pany Greyhound). Tour bus operators assembly and distribute tourist prod-
ucts who add services of transportation, accommodation, meals, luggage
handling. The clientele of theses agents is formed of young persons (pupils
and students), third age persons and members of some associations (clubs).
Tourist clubs offer their members (in exchange for a tax) access to a
series of tourist products (tours and cruise type) at smaller prices. This is
possible because of the collaboration with the ticket consolidators
23
who
21
St. F. Witt, M.Z. Brooke, International Tourism Management, Union Hyman
Ltd., 1995, p.368
22
R. Lanquar, Le tourisme international, Presses Universitaires de France, Paris,
1995, p. 63.
23
J. Burke, Marketing & Selling the Travel Product, South Western Publishing,
Cincinatti, 1991, p. 105.
Distribution Policy in Tourism 241
intermediate the trade of unsold tourist products that cannot be capitalized
through normal distribution channels. Generally, it is about air plane tick-
ets, the clients having the possibility to choose from a series of destina-
tions and dates of departure, without knowing the air plane company with
whom they are going to fly, but a few days before.
Some tourist information centers assume the role of agent offering
tourist services specious a computerized reservation and information sys-
tem fort he accommodation units named Etna).
Selling through official institutions and tourism offices is generally
disputed by the professional in the area, who asks these not to exceed their
promotion role. Though, a series of tourism offices develop these kinds of
activities directly or through parallel organizations of the travel agency type.
There is no doubt that this tendency will increase in the future and that tour-
ism offices will occupy a very good position in the distribution area.
Selling tourism services and products in the commercial centers is
done through the big stores (like them well known Carrefour, Leclerc,
Euromarch, Lafayette, Printemps in France, Kaufhof or Karstadt in
Germany, SDB in Danemark), hyper markets and supermarkets, libraries
or tobacco booths, etc. Actually, we find it important to mention that NUR,
the third operator from Europe was created in 1963 by the Neckermann
und Reisen store chain. The commercial centers had the advantage of
being transited by important fluxes of clientele, and have important finan-
cial means to develop. Generally, this distribution system implies the loca-
tion of the agency at the entrance of the store, behind the cashiers desk,
or close to the most visited area. Such an economic procedure can be seen
both as an insinuation of the welcoming industry in the trade activity but
also as a diversification of products that the store has to sell.
Representation companies of the accommodation units close con-
tracts with different welcoming structures for which they develop agent
activities of sales (taking over the reservation demands and sending them
to the hotel), client information about the accommodation possibilities,
promotion among tourism agents and possible consumers, as well as mar-
ket research. The commission level of these companies id of 5% or 10%,
depending on if the beneficiary of the services is or is not intermediated
by a travel agency
24
. Such companies specialized in representation acti-
vate in more countries from Europe but especially in America, Canada and
24
C. Theodore, Services daccueil, Centre International de Glion, 1990, p. 6.
Alexandru NEDELEA, George P. BABU 242
Great Britain, their development having started in the last quarter of the
century. The founders of such a system of reservation are in many cases a
group of more independent hotel chains, of small dimensions, or of impor-
tant hotels. The welcoming structures with accommodation function that
have sufficient promotional budgets close contracts with one or more rep-
resentation companies.
If we analyze the international tourist market we see that the role of
the representation companies is major in the case of hotels located far
away from their clients (as it is, for instance, the case of European accom-
modation units for the Japanese clientele).
The biggest hotel representation company was until recently Utell
International (Great Britain), created in 1975. This was representing the
hotel chains Inter-Continental and Sofitel. In 1997, from the associa-
tion between Utell International and Anasazi Travel Resources resulted
Resolutions Inc., with 1,5 millions of rooms in 7700 hotels, the social
office being in USA.
The obligations of the representation company are mentioned in the
contract:
Usually there is a clause of exclusivity in the sense of the non rep-
resentation on a certain market of some hotels that are part of the
direct competition; reciprocally, the hotel can be asked a unique
representation in a certain area (market);
Publishes advertising materials for the hotel
Takes advertising actions, and proves them by clippings from
newspapers; most adds are inserted in professional tourism maga-
zines majority their subjects being the travel agencies;
Fulfills the role of sales agent by taking over the reservation demands
and their transmission to the hotel; actually Utell International, was
a computerized reservation system.
The obligation of the accommodation unit is to send the representa-
tion company all the publicity materials (brochures, rate lists, photos, snap
shots, video tapes). Besides publishing them the representation company
will also go to the mass media, will take part in international tourism exhi-
bitions, and will maintain permanent contacts with the travel agencies,
both at their own sales offices and at the travel agencies offices. Utell
International had 46 sales offices, form where one could receive infor-
mation about every hotel and where the offer could be seen on a monitor.
Distribution Policy in Tourism 243
Practically, the location of the hotel was indicated on a map that allows
the emphasis of all interest centers from the neighborhoods.
The representation company develops tourist market researches and
as sales agent ensures the room reservation according to a differentiated
period system, established together with the hotel. Such a procedure can
be applied also in the case of other reservation systems when the hotel is
not connected to a network:
open periods, during which the hotel accepts reservations in the
limit of the given number of rooms;
upon command periods, to whom it corresponds an agreement
of the hotel for each case of reservation;
Closed periods, when no reservation can be made.
Computerized reservation systems make it easier to reserve and con-
firm during the chain travel agency hotel and the other way round.
Corporate Travel Departments. A greater number of corporations
prefers to organize the travel departments for the own personnel than to
go to the services of a travel agency. Therefore, the employees of these
departments know very well the needs, wishes and preferences of the per-
sonnel and ensure it the same services as a travel agency. They are respon-
sible for spending efficiently the amounts allocated to travels in the big
companies. Contrary to the travel agencies the employees (specialized) of
this department do not receive commissions from the tourist.
Implants represent offices (subsidiaries) of travel agencies, made in the
companies whose personnel take all kinds of business trips regularly and
frequently. The host company personnel takes advantage in a small measure
from the services of the implant for the private transfers during holidays.
One should notice the difference between the sales office integrated in
the network of a travel agency, opened to all consumers and the implant
that is reserved for a reduced clientele. The company hosts freely the
implant, in return benefiting of preferential rates for its tourist services
(including planning incentive travels for the employees). The main activ-
ity of the implant (for instance BTI America, Moritz Travel) is the sale and
ticket reservation for means of transportation, which represent in average,
90% of the turnover
25
. After conquering the assembly of the great multi-
national companies, the implants have orientated towards the market of
25
J. Pasqualini, Jacquot, B., Tourismes.Organisation, conomie et action touris-
tiques, Dunod, Paris, 1991, p. 71.
Alexandru NEDELEA, George P. BABU 244
medium and small national companies, where the employees transfers are
shorter and the budget is lower.
The number of implants in USA has started to decrease in the 80s
as a result of the tendency of the big companies to go to exterior travel
agencies or even to create their own departments specialized in tourism.
Therefore, almost 35% of the American corporations have a travel plan-
ning manager and 26% of the corporations have a tourism department for
their own personnel
26
.
Selling tourist products through banks aims especially to the business
clientele, who is offered trip plans, plane tickets, hotel reservations, rent a
car at the destination. In Holland, for instance, a number of 4 banks dom-
inate the tourist distribution and own 3000 sales offices; in Brazil, more
than 80% of the travel agencies are controlled by banks; in France, Crdit
Agricole has founded Voyage Conseil one of the biggest French tour
operators and Crdit Lyonnais has founded the tour operator Slitour
27
. It is
actually the case to separate two cases. On one hand, the existence within
banks (similar to any big company or corporation) of some services / spe-
cialized departments that cover (frequently with the help of some travel
agencies or of service providers) the own tourist needs (or assimilated to
the tourist ones) and on the other hand the constitution near banks (within
them) of some actual travel agencies, with all attributions and possibili-
ties. In this latter case there is of course the exercise of the exceptional
economic power (financial) of the bank and the tendency to multiply (as
economic agent) the activities that generate income (profit).
Continuing or to be more exact, closing the enumeration of other cat-
egories of agents, we remind that in Great Britain, the mail system takes
care of the plane tickets sale, travel insurances and performs currency
exchange, the tendency being that of extension outside the area of the tour-
ist distribution. Actions of experimental sale of tourist products through the
mail offices have been launched also in Germany (Deutsche Bundespost),
France and Holland.
Finally we can mention that certain limited services of tourist distri-
bution can be found at the hotel receptions, vacation centers, amusement
parks and even at gas stations.
26
Ph. Kotler, Hospitality and Travel Marketing, Wiley, New York, 2000, p. 321.
27
Y. Tinard, Le tourisme conomie et management, Ed. Ediscience Internation-
al, Paris, 1994, p. 445.
Distribution Policy in Tourism 245
6.3.3. Computer and contract distribution reservation systems
In tourism, reservation systems are used usually in case of accommoda-
tion and transport services, but also in case of luxury restaurants, camping
places, (during high season) and even for beaches and sky slopes. The res-
ervation system has to be able to list the vacancies and register reservations
and annulments in the moment they are done. According to a licensed source,
we can underline the presence of three types of reservation systems
28
.
1. A manual system where the evidence of vacancies is operated in
some diagrams of vacancies, the travel agencies sending their res-
ervations, or cancellations by phone, to the providers.
2. In a superior formula, that benefits from an adequate logistics, res-
ervations are registered in the informatics system folder of the pro-
vider who gets in touch with the travel agencies by phone.
3. The option that tends to adapt to the requirements and possibilities
of the informatics era, the service provider operates a completely
automatic reservation system that can be accessed on line by the
travel agencies.
Travel agency reservation. When a client enters the travel agency to
buy a vacation package he can consult a brochure that includes products
of the type he asks for and he will be assisted (helped and advised) by the
travel agent in order to take a decision. Once the client has decided the
travel agency will make the reservation in the name of the client, includ-
ing the following elements: destination (country, resort); check in, name
of passengers, type of transport and the code number; the number of the
vacation (found in the brochure); number of nights, number of the flight/
destination airport and the code, age of children, other special requests.
The reservation can be sent through a computerized system, by fax or
other means (it is a must to send a written request). The tour operator will
confirm the reservation by the same means, together with the invoice. When
receiving the confirmation, the agency will consult the client to see if the
details are the ones that he wants and will cash the counter value of the trip.
The ticket (voucher) will be sent to the agency 2 weeks before the departure
date to make sure there are no modifications in the flight program.
Hotel reservation. Part of the hotel contract, this reservation implies
the following obligations:
28
J. C. Holloway, C. Robinson, Marketing for Tourism, Longman, New York, 1995,
p. 146.
Alexandru NEDELEA, George P. BABU 246
For the hotel allowing access to the accommodation space at the
settled date and for which he agreed;
For the client (contractor) payment of the mentioned rate.
We see that if conditions regarding the date, etc are not respected by
one part or the other, the material responsibility is invoked. More, there
will be a degradation of the image of the accommodation unit among the
clients, fact that will drift them away from the hotel in the future.
The hotel reservation is made directly by the beneficiary (individual or
legal person), at the accommodation unit, or through an agent: travel agency,
reservation office, representation company, friends, etc. (see table).
Table 6.2.
Reservation system structure in Europe and world wide
Systems Total world wide (%) Europe (%)
Direct
Own reservation system
Independent reservation system
Travel agencies
Tour operators
Others
*
35,1
14,0
5,3
19,8
18,1
7,7
38,8
10,8
5,8
18,7
19,0
6,9
Total 100,0 100,0
*
Representation companies, transport companies, web site/Internet
Source: Worldwide Hotel Industry Study, Horwath International, New York, 1998, p. 20.
From the point of view of the used means, the reservation request can
reach the hotel verbally, (by phone or directly at the reception), in writ-
ten, (letter, telegram, fax, teletext, request) or through an informatics net-
work. Although the most used one is by phone, it also presents a risk for
the service provider.
Computerized reservation systems combine the memory capacity of
computers (who update and deposit information) with the facility of com-
munication through which the travel agencies are rapidly informed on the
vacancies at a certain moment.
Both the manual and the computerized systems allow the operation of
over booking through which there are accepted in a reasonable proportion
more reservations than the number of vacancies. Therefore they sell more
units (plane seats or rooms) than the actual capacity. Although this practice
is often criticized, (in certain circumstances being even illegal), the service
Distribution Policy in Tourism 247
providers say that the over booking is a technique, (an accepted trickery) of
distribution that is justified in the case of the big number of tourist cancel-
lations. The attempt to introduce some guarantees or reservation annulment
taxes has proved to be useless in the case of plane tickets, but it is used in
the welcoming structures. We should mention that the over booking practice
from economic reasons, but involving risks, including legal and service
providers image damaging risks must have a correspondent strategy in
order to solve the very probable situations when the number of real clients
is bigger than the one of the existing accommodation units (places).
From experience, the hotel must estimate the level of over booking.
Therefore, in high season, this can be about 13-15%, with up to 5 percent
less than the last average of cancelled bookings or of non shows of cli-
ents to the hotels. It is obvious that there can be situations when the tour-
ist who made a booking will be informed that there is no room available.
This situation is going to upset the tourist, and can lead to its loss as a
client. Generally, at an international level, it is considered that the hotel
must pay to the tourist the one night accommodation at another hotel and
transport him / her to that hotel
The hotel booking system must be analyzed from a complete perspec-
tive, as an integrated system with airline companies, rent a car companies,
travel insurances, travel agencies.
Big hotel complexes or chains have installed their own booking sys-
tems through computer. Inter-Continental (Contractual II), Holiday Inn
(Holidex), Ramada (Roomfinder), Marriott (Marsha), ACCOR (Resinter),
Mridiens (Alpha 3), Sheraton (Rezervatron), Hilton (Hiltron). They have
booking offices located in the main countries from where tourists come.
Clients can obtain information or book rooms by phone, telex, fax or
Minitel at any booking offices or accommodation unit within the hotel
chain, these being interconnected through a computer network to that sys-
tem. The biggest success has been registered by UTELL system, part of
the THISCO plant (The Hotel Industry and Switch Company). Among the
associate members of THISCO we mention: Hilton Hotel Corporation,
Holiday Inn Corporation, Intercontinental Corporation, Marriott, Sheraton,
Ramada Inc, Hyatt Hotels, Days Inn, Best Western etc.
Before the development of Internet as a distribution mean, the air-
plane companies would sell 80% of their tickets through travel agencies,
to whom they would pay 7% sales commission, these agencies being gen-
erally, small ones (over 35.000 in USA). Airplane companies have noticed
Alexandru NEDELEA, George P. BABU 248
that a on line reservation costs between 12 and 15 USD per ticket while
the travel agencies would charge 30 USD per ticket. The airplane com-
panies wanted very much to sell directly to the consumers, to save the
difference of commission. The objective was that of reducing the sale
commission of the ticket to 10 USD in order to eliminate from the compe-
tition the travel agencies and implicitly to impose the Internet as an exclu-
sive mean of distribution.
But, the first wave of virtual travel agencies has encountered many
difficulties because they did not manage to control the price structure of
that segment. This lasted until an apprentice in the Internet Priceline.
com has managed to gather al the elements necessary to a new business
concept: consumes came with the specific request of their trip, they would
establish their own budget. The airline companies, extremely interested in
completing their vacancies in big planes like Boeing 747, came to meet
those requests. The consumer paid a tax only if his / her request was ful-
filled. Initially, many airline companies announced that they would not
be part of this auction system, but later, because it was very expensive
to operate an empty airplane, they saw the opportunity in that site who
receives many requests for plane tickets and that there are persons willing
to pay. Presently, on line reservations represent one of the most dynamic
segments of Internet trade, just as the airline companies wanted. Actually,
at the moment, the direct ticket sale represents 60% of the entire transac-
tion volume of the travel agencies through the Internet.
Contractual Distribution Systems have been created by the airline
companies, and later, through the Internet, travel agencies, tour opera-
tors, independent welcoming structures, chain hotels, rent a car compa-
nies, cruise planners have connected to them. These computerized systems
allow their users (especially travel agencies and companies and to a smaller
extent individuals) to obtain information regarding vacancies, rates, ticket
booking and sale. As a result, we may notice that, by connecting to these
computerized networks, the travel agencies can plan themselves tourist
products, without being forced to ask the tour operators to do so.
On the international tourism market contractual distribution systems
are operational, they are known as such and have a famous namenatu-
rallyinternational, whose number of users and ensured services perma-
nently increases
29
:
29
V. Maraka, Rservation: la guerre des rseaux lectroniques, Les Echos, 1996.
Distribution Policy in Tourism 249
Worldspan belongs to the air companies Delta, Northwest, TWA
and Abacus and it is used in more than 80 countries by more than
21.000 agencies, representing 50% of the total of Internet reserva-
tions, covering 487 airlines, 45 car rental companies, 25 tour oper-
ators and 191 companies that have 35.000 hotels.
Sabre network created by American Airlines, is connected to
more than 29000 travel agencies (123.000 of terminals), that can
make reservations to 300 airline companies, 13.000 hotels and 25
rent-a-car companies
Amadeus system founded by AirFrance, Iberia, Lufthansa and
Continental Airlines, has taken over the control of the computer-
ized distribution network System One, who was/is operational in
America. The 2 systems together are used by over 57.000 travel
agencies world wide 152.000 of terminals), offering services to
700 aircrafts, 23.000 hotels, 41 rent a car companies.
Galileo was created by British Airways and Alitalia, later,
Swissair, KLM and Olympic Airways came to this distribution sys-
tem. This service allows the access to over 500 air flight compa-
nies, plus 40 rent a car companies and 45000 hotels world wide.
Appolo is the United Airlines system. There are about 7000
agencies in the world connected to it, except for Europe. In 1990
it started to be known under the name of COVIA, the stock pack-
age of 50% being held by United Airlines and 50% by Alitalia,
British Airways, KLM, Swissair, and United States Air.
Pars was developed by Trans World Airlines (TWA), after Sabre
being the most ambitious American distribution system in tourism.
Almost 6000 travel agencies (1170 in Europe), 43 hotel chains and
16 rent a car companies in the world are connected to this compu-
terized network of reservations. PARS is very well implemented
in Switzerland, being adopted by Swissair. In 1990 it merged with
DATAS II (created by Delta Airlines), functioning under the name
of WORLDSPAN (World Travel Agency Information Services)
30
.
Other computerized reservation systems are: Gemini (Air Canada
Airlines International), Start (Germany), Travicom (Great Britain), Esterel
(French multi server network that allows the travel agency the access to
its service providers informatics systems), Axess, Marsplus, Reservec
30
P. H. Collin, Dictionary oh hotels, tourism and catering management, Peter Collin
Publishing, Teddington, Middlesex, 1994.
Alexandru NEDELEA, George P. BABU 250
2 (Air Canada), ResAid (Scandinavian Airlines), TraviSwiss (Swiss Air),
Jalcom 3 (Japan Airlines), Resana (All Nippon Airways), Abacus
(Singapore Airlines, Cathay Pacific, Malaysia Airlines and a partnership
with Amadeus), Avis Wizard Direct Input Reservation System (Avis rent-a-
car), Arrow (Amtrak railway company) etc.
We note the fact that, while all the computerized hotel booking sys-
tems function at a unique level, (fact that means that for instance, it is not
possible to book a room that does not belong to that chain hotel or a seat
in an airline company using the Holidex system), the contractual distribu-
tion systems belonging to the airline companies allow to receive informa-
tion and book seats (services) for different accommodation units, airline
companies (without making any favors to founding companies), rent a car
offices, railway companies, travel agencies etc.
The contractual distribution systems, initially accessible only through
travel agencies connected to these networks, have started to develop direct
access ways (for information and on line booking) also for individual
through the Internet or Minitel.
The location of Internet offers the possibility of functioning to some
completely virtual travel operators (electronic travel agencies), that do not
have personnel, fixed means or a fixed organizational structure, the entire
operations of intermediation being done through the Internet.
6.4. Distribution Strategies
The typological complexity of the offers and the strong competition
between them, the continuous evolution of the buying behavior of tour-
ists impose the issuing and simultaneous application of more distribution
strategies. In their planning process marketers must establish the type of
the distribution channel appropriate for the services and / or sold tourist
products, and also, to select the agents with whom they will collaborate.
Taking into consideration the typological diversity of the distribution
channels and their continuous evolution as a consequence of the Internet
explosive development impact and the intensification of the competition
in the area, the election of the distribution form represents a complex pro-
cedure, that must take into consideration factors as: nature and the level
of atractivity of the tourist product, the level and degree of demand, tar-
get segments on the market, the situation on the tourist market, the local
Distribution Policy in Tourism 251
specific, the chosen distribution system of the competition, the distance
between the tourist service providers and the possible consumers etc.
As we mentioned before, the agents selection (mainly travel agen-
cies) will have to be done according to their specialty on different tourist
products, market segments, (for instance, the sale of a package destined
to third age persons cannot be efficient when it is done through an agency
for young people), activity volume, (including the quantities of requested
services), name and position of theta operator on the issuing markets, the
distribution policy adopted, the division in time of requests (even or une-
ven), territorial action power, the network of sale offices that it has, the
payment conditions (payment efficiency), size, diversity, and efficiency of
the advertising and last but not least, the ability of the employees.
The distribution strategies adopted by tourism operators take into con-
sideration: the sale of a tourist service by going to more agents, to the
same consumers segment, the sale of the same product through differ-
ent channels of distribution to various segments of public consumers, the
sale of more products through different distribution channels to one or
more consumers segments on the market. As one can easily notice, in
this attempt to classify the component objects of strategies, the quantita-
tive criterion is very important, the three aimed elements tourist service,
distribution channels, consumer segments being involved (combined) in
variated numerical proportions.
From the number of agents perspective (together with their location)
we can see three strategic options of tourism distribution:
1. Exclusive distribution is the restriction of a small number of agents
(even only one) who exercises on a certain market or geographical area
the exclusivity of distributing products or tourist services, as a given and
assumed privilege through contractual conditions that govern the relation
provider distributor. It is to expect that the primary bidder try to impose,
within the bilateral agreement, some conditions that would determine the
agents to sell only certain products (usually its products) and not the ones
of the competition.
Applying an analysis of exclusivity dimensions to the reality from
the tourist activity we may notice that this type of strategy of distribution
has different configurations, of which we mention:
Giving exclusivity for all the tourist products Romanian for exam-
ple to one tour operator agency in a certain geographical area
of the market (for instance East cost, USA);
Alexandru NEDELEA, George P. BABU 252
Exclusivity given for the entire market (or for a geographical
region) for one tourist product (for instance, exclusivity for the
operator Nippon Travel for the program Dracula on the Japanese
market; exclusivity on the German market for the voyage planner
NUR for trips to the Danube Delta);
Reservation of exclusive rights for only one agent for a certain
market segment and a certain product (tour operator Look Voyages,
for instance, exclusivity given in France for organizing trips for
young and students);
Exclusivity for a certain agent on a certain market, for a tourist
product, a resort, a welcoming structure or a leisure center
As we can deduct form the previous examples, as there are more fac-
tors that give the dimension and character of the exclusivity, the combi-
nation possibilities exercising space, number of products, aimed market
segment, number of agents, etc. create a strong diversity of strategies
of exclusive distribution, offering, the exclusivity itself, certain relativity.
It is enough to reveal that in the same space (geographical territory) can
act: more agents for one product, one agent for more products, one agent
for a certain market segment. But what is essential in our opinion for the
function of exclusivity as a real strategy is for it to ensure a high degree
of tourist circulation, the choosing of the agent with exclusive distribution
rights being done from the perspective of a maximum efficiency al and a
special, preferential reciprocally profitable relation.
2. Selective distribution implies choosing and using a number of
limited agents whose distribution activity is appreciated as being more
efficient than the competitions, having the possibility to ensure a higher
volume of sales for the tourist products. Adopting this strategy allows the
tourist unit to perform a more efficient control over certain market seg-
ments, in the conditions in which they have fewer expenses.
If the distributors show different trade qualities from one case to
another, the tour operator can for instance renounce to those less efficient
in order to concentrate its attention upon the more dynamic sales offices,
to whom it can offer increased commissions, according to the reached
objectives.
In consequences, we think that the selective distribution strategy
presents major advantages:
Time gaining because the sale through a high number of distribu-
tors implies a high degree of responsibility;
Distribution Policy in Tourism 253
Chances for the improvement of the companys image by renounc-
ing the agents characterized through a mediocre dynamism, who
affect inevitably the offered tourist product;
The creation of a trustful climate; in the conditions in which the
tour operator proposes an advantageous system of giving the com-
mission to a limited number of travel agencies, they consider this as
a preferential treatment, laying the bases of a rapid development of
relations based on trust between the planner and the best retailers.
Each service provider chooses its partners according to their power
of negotiation, its name and costs. Using this strategy, the provider can
adapt more quickly to the modifications that come in the structure or pref-
erences of clients.
3. Intensive distribution implies the use of a big number of channels
and agents through which the services reach the final consumers. If we
study the tourist market we see that this strategy is adopted even in the
not organized tourism by the service providers through the development
of a large network of accommodation structures or restoration with differ-
ent levels of classification for the use of the tourists. When a tour opera-
tor is not sufficiently known on the tourist market it will seek to sell its
offer through a very big number of distributors to increase the number of
sold products and to make a name.
In case of important market segments characterized through a big
number of possible tourists it is recommended to use extended distribu-
tion systems, with lots of agents. More, in case on a certain market there
are conflicts between competing tourist companies who apply an inten-
sive distribution strategy, having a great number of distribution units, it
is less possible that a tourist company enter in competition by selecting a
limited number of agents.
The distribution cost is an important source of conflicts and of emerg-
ing and exercising some force relations between travel agencies. The direct
distribution knows a continuous increase in tourism. Therefore we see that
while tour operators with financial power open their own sale offices,
(giving up the travel agencies), the service providers try systematically
to enter in contact with clients in order to transform the commission they
would give to the agent into an advantageous rate, by offering a smaller,
and more attractive price.
The tourist welcoming structures intend, in their turn, to develop their
own clientele, first with the help of the tour operators and travel agencies,
Alexandru NEDELEA, George P. BABU 254
and then looking to determine tourists to come in a direct relation to that
hotel. These kinds of situations that appear in the tourist distribution gener-
ate tensions and a diminution of credibility between providers and agents.
On the tourist market there is a tendency of vertical integration of
accommodation, transport, trip planning and distribution activities, there-
fore have appeared many companies that are able to ensure all of these
services under the form of a package. In this way, tourist operators as Club
Mditerrane, Nouvelles Frontires, TUI, Owners Abroad represent exam-
ples of successful integration of the distribution network. The main objec-
tives that they had in mind were the improvement of the control over the
tourist product, to beneficiate of smaller distribution prices, and use imme-
diately the amount cashed from clients even before they began their trip.
Therefore, the Nouvelles Frontires, products, for example, are sold only
through agencies belonging to this network, (and of course, by phone,
Minitel and Internet). The company foresees that this way, the distribution
cost is only 4,7% of the turnover, compared to 8-12% for the other forms
of distribution
31
. Club Mditerrane has also decided to develop its own
network, but also closing distribution agreements with Havas Voyages and
American Express. This club is a particular case of total integration of
planning activities (as tour operator) and selling activities (travel agent) of
the tourist product, of building the infrastructure for the vacation resorts,
of offering transportation services (Air Libert), accommodation, alimen-
tation, leisure.
Noticing the integration tendency of the direct sale to consumers from
a tour operator (just like those mentioned above) as well as the tendency
of retail travel agencies to organize trips, we can anticipate the disappear-
ing of retail travel agencies from the distribution channels.
The previous vertical integration needs some important investments
necessity in the welcoming structures (hotels, vacation resorts) and in
transportation means (buses, planes). Tour operators who own such facil-
ities and means of transportation tend to orientate their clients towards
their own tourist products who capitalize these capacities. One example
of such an integration is the company Thomson who includes the big-
gest tour operator in Great Britain - Thomson Holidays, the chain hotel
Thomson Overseas, air plane company Britannia Airways and a distribu-
tion network - Lunn Poly.
31
J. P. Treboul, Les stratgies des entreprises de tourisme, Presses Universitaires
de France, Paris, 1998, p. 7.
Distribution Policy in Tourism 255
Many seaside resorts have been developed by the railway companies
that were looking for new businesses. Canadian Pacific Railway has rep-
resented an important factor for hotels, the railway companies also hav-
ing an important role in developing tourism in Japan.
Viajes Melia Company (Spain), third agency in the world with 80
agencies in Spain, 53 abroad, has the monopoly of bus transportation in
its country. It groups around it 7 companies, out of which we mention:
Melia Ylia (naval transport), Hotels Melia, Club Melia (credit cards, pref-
erential rates), Melia International Hotels.
Some airline companies have adopted vertical integration strategies cre-
ating their own hotel chains in order to propose their clients complete tour-
ist product, to ensure the accommodation of the personnel, to establish
relations to a certain destination, and to obtain rights of exclusivity, out of
the wish to have the control over the passengers movement and to meet the
very profitable market, that of accommodating in hotels local investors. Air
France, for instance has owed the hotel chain Meridin; Pan American has
bought Intercontinental Hotels, JAL the Nikko Hotels, United Airlines has
created the Western International Hotels chain, and Trans World Airlines
(TWA) has founded the Hilton International Hotel chain.
But meeting financial problems, the airline companies have been forced
to sell their hotels. Therefore, Pan American sold the Intercontinental to
Grand Metropolitan, and Landbrokes, the big British conglomerate of leisure
industry bought the Hilton in 1987 from Allegis, through United Airlines.
What we notice in the vertical integration phenomenon is the fact that
it was manifested especially in the trip industry, under the form of service
packages. Therefore, big tour operator agencies have tried to maintain low
prices, to ensure the access to destinations and accommodation places and
to maintain the control of quality through a progressive implication in all
departments and stages, from demand, through transport (airlines control),
to destinations (controlling or owning the accommodation structures).
In the beginning, the European retail agencies used to make a lot of
tourist packages, being thus able to include in their offer small charters
and to reserve an adequate number of rooms in hotels. Later, we see that
the profit rates have decreased progressively and the survival of travel
agencies has started to depend on the existence of bigger tourist traffic
together with an increase in the competition on the Inclusive Tour market.
The operation development at a larger scale was supported by the increase
in the planes capacity. As a result, a few big travel agencies have merged.
Alexandru NEDELEA, George P. BABU 256
So, at the end of the 70s the first six tour operators held more than 75%
of the tourist demand of the all inclusive type in Great Britain (the big-
gest, Thomson, having more than 1 million of passengers per year). In this
context, a few of the main charter lines have been bought by tour oper-
ators. Some of them have even bough shares in the hotel industry of the
destination countries.
Airline companies have integrated, vertically, the voyage planning
activity (tour operating), representatives in this way being the proce-
dures of Air France and Jet Tours or of companies British Airways and
Lufthansa. So, the group Air France besides the transport activity includes
tour operators (within Jet Tours), a hotel chain (Meridien) and distribut-
ing agencies. KLM (Holand), national airline company groups: Holland
International Travel, Martin Air (charter), controlling 65% of the contrac-
tual voyage production.
Pursuing the same logic, some accommodation structures have created
their own airline company to ensure the transportation of their clients. the
foundation of the airline company Air Libert by Club Aquarius, the ver-
tical integration process Air Libert Look Voyages and the acquisition of
the airline transporter Corsair by the tour operator Nouvelles Frontires
had the same objectives, that of exploiting at the lowest price a service
that is part of the composite tourist product offered to the final consumers.
More, Nouvelles Frontires has its own hotel chain Paladiens.
The ACCOR Group that gathers the hotel chains Sofitel, Novotel,
Mercure, Ibis, Etap Hotel, Formule 1 and Motel 6 has founded the tour oper-
ator Episodes, specialized in planning short trips and week-ends, also achiev-
ing a vertical integration (in this case ulterior) of the offered services.
A big number o associates (Auberge de Jeunesse, VVF, UCPA) are the
owners and administrators of the accommodation unit, tour operators, dis-
tributors but do not control transport companies. International Telephone
Telegraph (ITT) has added the chain hotel Sheraton and Avis rent a car
company.
Analyzing the international tourist market we see that many compa-
nies do not want to integrate the assembly of their services in their com-
panies because of various reasons
32
:
Competence. There is the question if a tour operator has the voca-
tion of leading an airline company, a network of travel agencies, or
32
Y. Tinard, Le tourisme conomie et Management, Ediscience International,
Paris, 1994.
Distribution Policy in Tourism 257
to exploit a hotel. And, if a service provider can become the best
in one of these areas?
The necessity of achieving new skills. In the situation in which the tour
operator becomes hotel owner or air line company it must know very
well the correspondent activities, in order to be able to negotiate.
Absence of given services. For example, Club Mediterane has
become a tourist operator in hotel industry because of the neces-
sity. Therefore, the specific of its product, in relation to the exist-
ent proposals, have forced it to become independent.
Active market danger. An airline company will never wait for a
tour operator to fill his planes, a hotel will never hope for the tour
operator to book the entire capacity.
The necessity of important capitals. Service providers must mobilize
important amounts of money in order to vary the various activities.
The monopoly of the service providers. In case a tour operator is
forced to go to a provider that has a monopoly (Airline Company
etc.), the latter may have the tendency to abuse of its position.
Mediocrity of the performances of other economic agents. Because
of this reason Nouvelles Frontires has developed its own travel
agencies network.
On the international tourism market we can identify also the manifes-
tation of a tendency of horizontal concentration (integration), through
an assortment of the travel agencies that take part at the same level of
the production process, accommodation, alimentation, transport, trade, etc.
Among the objectives and advantages of such a development we may
underline the obtaining and maintaining of a dominant position on the
markets, a better coordination of different types of activities, the access
to the capitals market, improvement of the investment capacity, a better
position in front of the banks, the control over the sale offices, the use of
a computerized rapid and modern booking system, computer administra-
tion, standard tourist product (and adaptation to the clients requests) and
of course, a better economic efficiency.
Adopting a horizontal integration strategy is encountered at the level of:
Hotels, as example we can mention the voluntary and integrated chain
hotels developed including as franchise network (Holidays Inn, Hilton,
Marriott, Choice Hotel, Inter-Continental). More than the new con-
structions, the frequent mergers and acquisitions are those who lead to
permanent modifications in the world hierarchy of hotel groups.
Alexandru NEDELEA, George P. BABU 258
Food supply units ( McDonalds, Burger King, Kentucky Fried
Chicken, Pizza Hut);
Rent a car units ( Hertz, Avis, Budget);
Tour operators, who have founded very powerful groups in almost
every country: Thomson, Owners Abroad and Airtours (in Great
Britain), TUI and NUR (in Germany), American Express (in USA);
for example, the German holding TUI the first trip planner in
the world was founded by the merger of 6 medium size agencies
who continue to trade under their trademark, while TUI ensures a
series of common functions: plane ticket booking, hotel booking,
financial policy coordination, advertising and trading.
Travel agencies, certain powerful agencies, increasing the number
of sale offices by integrating other weaker agencies (for instance,
Lunn Poly in Great Britain, Selectour in France and Ask MrFoster
in USA). Small independent travel agencies disappear slowly, loos-
ing their clientele, while the big networks of agencies are developing
and offering more elaborated products. Some agencies apply to the
integrated and voluntary networks under the form of franchise.
Observing the level analyzed above, for which integration strategies
are exercised, as well as the travel market as a whole, we see that the hor-
izontal integration tendency is manifested both at the level of the service
providers and at the level of distributors. When integration enters the area
of distribution, it will start a reaction that will be materialized in a simi-
lar phenomenon at the level of providers, reaction that will be influenced
by the wish of not producing ruptures in force relation between the two
economic functions, and to be ensured, by joining and amplifying the spe-
cific activity and wanted competitiveness.
Varied development of the distribution network and of services under
a unique trademark implies a strategy used by Club Mditerrane (for the
accommodation and leisure services), by McDonalds the second gen-
eration (for fast food restaurants) and by American Express (for travels).
Tourist operators who adopted this complex strategy seek to benefit at the
same time of the name of the trademark, the effect of the network and the
opportunities of each location on the market.
As in any area of the competition economic activity, there is a contin-
uous competition on the tourist market, tour operators being basic com-
ponents of the distribution channels, having to stand up to different types
of competition. Therefore, the direct ones, (the other whole sellers) are
Distribution Policy in Tourism 259
differentiated either through price, (in most of the cases), or through the
nature of the tourist product previously assembled and distributed, the
service providers (hotel chains, airline companies) create their own prod-
uct and develop distribution channels (travel agencies, reservation offices,
Minitel, phone, Internet). Moreover, the relations of tour operators with
travel agencies are often tensioned, the big retail agencies even taking up
the activity of planning trips. The computerized systems for the contrac-
tual distribution allow these agencies the planning of tourist travels at the
request of the consumers.
Although the automatic distribution means from tourism (ATM, com-
puter booking systems, contractual distribution systems) have known an
accelerated development in the last years, the specialists in the area launch
the idea that they will not lead to the elimination of agents because tour-
ists need the counseling services from the travel agencies. The problem
for marketers is in what way the offensive of computer age will modify
the role of agents within the distribution system in tourism.
6.5. Conclusions
The analysis of specialty literature in the area of tourism marketing mix
allows us to conclude that, in tourism, the role of attracting the consumer
towards the spaces of provision and consume of the tourist products from a
certain resort or country, is fulfilled by the distribution through an activity
of stimulation and information of possible tourists over the characteristics
and structural elements of the offered products. As a result, there is a very
close relation between the distribution policy and the advertising one.
The intangibility characteristic of the tourist services offers the advan-
tage of eliminating the problems of the physical distribution, depositing,
handling, stock control and losses as a result of their degradation
Another conclusion is that the tourist product is rarely bought by the
non experimented tourists directly from providers, because of the lack of
time and competence in developing research activities and contacting var-
ious market offers. Reducing the consumers effort the tourism agents can
group the services of some providers and synchronize them in a combi-
nation that aims to awake tourist interest.
The tourist product is distributed only as information, image, and
ambiance, and its buying means only the access to a right of future con-
sume, confirmed and guaranteed through a tourist title.
Alexandru NEDELEA, George P. BABU 260
Using agent companies in the distribution processes is more necessary
as the tourist attraction areas are located far away from the demand for-
mation area. Together with the increase of the competition between the
providers in tourism it also increases their level of subjection towards dis-
tributors, the latter deciding upon the structure of the service packages that
they sell, according to the consumers preferences and not according to
the interests of the tourist service providers.
On the tourist market there is a vertical integration tendency of accom-
modation, transport, trip planner, distribution activities, therefore have
appeared many companies that are able to ensure all of these services under
the form of a package.
Moreover we can identify the existence of a horizontal concentration
(integration) tendency, through an assortment of the travel agencies that
have the same activities. Among the objectives and advantages of such a
development we may underline the obtaining and maintaining of a dom-
inant position on the markets, a better coordination of different types of
activities, the access to the capitals market, improvement of the invest-
ment capacity, a better position in front of the banks, the control over the
sale offices, the use of a computerized rapid and modern booking system,
computer administration, standard tourist product (and adaptation to the
clients requests) and of course, a better economic efficiency.
We find the horizontal integration strategy adopted in hotels (voluntary
and integrated hotel chains), alimentation units (Mc Donalds), rent a car
companies (Hertz, Avis), tour operators, who have founded very powerful
groups almost in every country (for instance TUI and NUR in Germany),
travel agencies.
261 Promotion Policy in the Tourism Industry
Promotion Policy in
the Tourism Industry
Alexandru NEDELEA, George P. BABU
7.1. Tourist Promotion-Concept, Particularities and Objectives
The promotion in tourism stands in an ensemble of efforts of commu-
nication which regards the permanent transmission, on different channels,
of some messages destined to inform also the potential clients but also the
tourist operators about the characteristics of the tourist products and serv-
ices offered, with the purpose of consolidating a positive image and culti-
vate a favorable attitude towards this and the firm, and also to determine,
in the mentality and customs of buying and consumption of the tourists,
convenient modifications of the suppliers industry (transmitter or benefi-
ciary of the messages).
Seems natural to attach to this attempt of defining the observation that,
in generalalthough nowthe tourist promotion undergoes a process of
perfecting and adapting, being necessary to act towards adapting the strate-
gies by the virtue of positioning between a product with complex character-
istics and the permanent evolution and a consumer with a diverse motivation
and an accentuated flexibility of the demand, in the conditions of a market
which is a continual transformation. So, from the product to the consumer,
by means of the specific market, these essential factors from the route of
tourist promotion, mark out the striking characteristic, complexity and the
tendency of changing (evolution). That is why, the elaboration of a strategy
for promotional communication at the level of the tourist enterprise, inte-
grating it in the global strategy, conceiving a promotional mix in order to
realize in an efficient way the instruments of the promotion, which consti-
tute the premises and rigors for coordinated actions, coherent, interdepend-
ent (intelligently correlated) in this essential domain for a tourist operator.
Taking in consideration the main role of the performance in the tourist
domain, the particularities of the promotion in tourism are being influenced
7
Alexandru NEDELEA, George P. BABU 262
by the characteristics of being intangible, variable, inseparable and per-
ishableness of the services. We remark these difficulties with which the
marketers from the tourism are being confronted in their approach of pre-
senting a tangible product, not created in the moment of promotion and
which can vary regarding this moment.
The promotional activities in tourism need important investments due
to the large geographic areas of the tourist markets, of the manifestation of
a bitter international competition and the intangible character of the tour-
ist product. From this last perspective, it can be said that the intangible
nature of the tourist services leads to the growth of the importance of the
promotional strategy, the main element of this, consisting in the invest-
ment (partnership) with tangible attributes of the services, by connecting
them to certain specific benefits. In this way, the communication media
need to suggest the rapidity and the efficiency of the performed services
by the tourist agencies, the high level of comfort assured by them, the used
images reproducing the exterior and interior aspect of some accommoda-
tion structures, restaurants and modern entertainment centers.
In hospitality, due to the dominant part of the intangible elements in the
structure of the tourist product, the image of the tourist offer, which corrobo-
rates the ones of the firm (welcoming unit, travel agency, etc) of the services
and product, and also of the tourist destinations, influences in a definite way
the buying decision of the consumers. The image that they create regarding
the places, objectives and human communities which will be visited, at the
qualitative level and the diversity of the services, contribute to the develop-
ment or the diminution of the degree of attractiveness of a tourist area (spa,
area, country) Plus, we consider that is necessary that any image of the offer
or of the tourist product be integrated and harmonized with the global image
of the region and country which consists the specific destination.
Let us mention in the context, that, beyond the promotional and sys-
tematical efforts, at the formation of a tourist image, concur a series of
factors associated to the beneficiary: tourist information accumulated by
this one (before and during the voyage), the way in which the tourist
will evaluate (through the personal exigency and anterior experience) used
services during the trip and in the tourist destination, the estimations or
even judgments in accordance with his personal values.
The sources of the tourist information are diverse, but the main impact
has it the personal communications. In this way, the tourist decision regard-
ing the destination, optimum period for the trip and the tourist agency
263 Promotion Policy in the Tourism Industry
which can mediate the voyage, is being influenced by the recommenda-
tions and information usually subjective of the persons from his company
(social channels) which have experimented the respective tourist serv-
ices. At this there comes also the information obtained from the tourist
units (voyage agencies, hospitality structures, tourist offices), expert chan-
nels (opinion starters, recommendations), also through impersonal com-
municational media (media, atmosphere and events).
In their concerns to offer the potential tourists the possibility of find-
ing out in detail the structure and the components of the services and tour-
ist products and to cultivate them a highly convincing image regarding
the vacation destinations, the tourist firms need to assure a complex and
multidirectional information of the potential clients, depending on the seg-
ments of the market to which they are addressing to. During this, in the
initial approach it must be regarded de fact that the image of the tourist
product which is being promoted is influenced especially by the quality
(comfort level, classification category) and the diversity of the comple-
mentary modular services, also in the level of attractiveness of the tourist
sights (natural, cultural resources).
A promotional factor with a high importance in tourism is the degree in
which the tourist image, created as a result of the promoting actions, corre-
sponds also to the expectations and preferences of the consumers, but also
with the realities with which they come in contact during the voyage. Well-
known the importance of the image in promoting the tourist product, we
observe the apparition in the case of some firms of a tendency to resort at the
creation of an ideal image (unreal) of their offer. Falling into the temptation
of such a policy leads without any delay, to risks, there may come up some
negative effects on the activity of the tourist operator. It is easy to understand
that the discrepancy between the positive image deceiving to the tourist and
the inferior reality of the expectations involves natural disillusionment and,
as a consequence, to renounce in the future at the respective acquisition (or
the other proposed by the same) or, it can get at the critical situation that the
tourists solicit compensations. Depending on the degree of satisfaction pro-
voked by the usage of the tourist product, its beneficiary can recommend (or,
on the contrary will make a promotion, in the negative sense) to the per-
sons of his entourage to that package, that destination or intermediate travel
agency. As a consequence, we consider that it is extremely important that
the marketers from the tourist domain take into account the tendency of the
consumers of services, in general, and of the tourists in particular, of giving
Alexandru NEDELEA, George P. BABU 264
a much more importance to the communication by the word of mouth, in the
detriment of the ones paid by different tourist operators. The force of persua-
sion and influence of the personal communication of an individual that has
consumed a certain tourist product is considerable due to the credibility of
the transmitter, who, in the opinion of the receiver, is objective and cannot
be suspected of a bond without any firm that offers tourist services. Hereby,
we appreciate that, assuring first of all, the satisfaction at the most high level
of exigencies and preferences of the tourists, is recommended that the staff
implicated in such an activity suggest them (even through discreet induce-
ment) to make an oral promotion, telling to their friends about the satisfac-
tions that they had during the voyage and holiday destinations.
The whole communicational system of the supplier tourist industry
must contribute at contouring of a specific identity in order to emerge it
from obscurity and differentiated from the competition. A specific identity
in the public awareness means, of course, more then a simple and com-
mune image, without any informative and prestige reference. It can be
realized through systematic steps, starting with the formation of a distinct
physical identity. Associated with the fame, once obtained, the identity
will facilitate the spreading of a positive public image, sustained continu-
ously by physical elements easy to identify (brand, symbols, sigle, etc).
It also seems important to accentuate that the messages, the whole
communication destined to the promotion of a tourist product, to be more
efficient, must have at its base the research of the needs and motivations
of the potential tourists. The tourist image offered to the public becomes
productive in realizing the purpose for which it has been conceived
only if it demonstrates implicitly that the object of the communication
(a certain product, destination or tourist sight, range of services) is being
adapted at the needs and preferences of the tourists. Plus, temporarily, the
actions of communication in tourism are being positioned in the period
before selling the product (the purpose of the promotion being the accept-
ance by the potential tourists) but also in the period of the consumption
(when it is wanted to stimulate the commerce of complementary tourist
services during the voyage or at the place of the vacation).
The purposes of the promotion policy in tourism are being formulated
differently, depending on the stadium in which the regarding potential
consumers are being situated, aiming to change them from the cognitive or
emotional stadium, to the behaviorism, meaning at the final act of acqui-
sition of the tourist product.
265 Promotion Policy in the Tourism Industry
1. Within the framework of the cognitive stadium it is pursued to draw
the attention of the potential consumer upon the existence of a certain
tourist agency and also of its offer, being desirable formulations such as:
the growth of the notoriousness of the welcoming unit X from
15% to 25 % within the European tourists, during this year, in
comparison with the last one.
informing of almost 70% of the present clients of the tourist agency
Y regarding the launch of a new tourist product (equestrian cir-
cuit to discover the rural area of Maramures).
2. In the emotional stadium, the purpose of the tourist promotion may
be, also, defined in statistic terms, existing sociological means of measur-
ing the options based on feelings, attitudes, preferences:
during the present year, the consumers proportion who have a
favorable attitude towards the suppliers firm will increase from
20% at 30%.
the development from 10% at 25% of the proportion of the poten-
tial consumers which prefer the station X, to other ones.
3. In the behavior stadium, the parameters of anticipation and engage-
ment (in the end, control of the achievement of the objective) are found
in precise formulations of some concrete objectives;
realization until the month of April of the reservations at accom-
modation for the summery season in proportion of 65%;
the growth with 10% of the number of the circuits sold in com-
parison to the last year;
By the anterior examples, it is obvious, we believe, an observation: in
order of realizing a control of the efficiency in the advertising investments,
in it needed to avoid the conception by the marketers from tourism of some
promotional objectives with general character, without quantification, of a
certain type:developing the tourist circulation towards the destination X,
by creating it a favorable opinion among the potential consumers from the
areas that send out tourist fluxes. Instead of such a formulation, I will pre-
fer a definition of the action objective of communication, such as: devel-
oping in the next 12 months with 30% of the number of German tourists
who spend their vacation in the Neptun station.
Without any doubt, in the practice of the tourist activity, the reper-
toire without elements of quantification is reach. Contains also formula-
tions such as: the development of the consumers interest from the market
with a tourist sending potential in comparison with the products given by
Alexandru NEDELEA, George P. BABU 266
the tourist agency or service provider; the stimulation of the tourist con-
sumption and periods of extra-season (preferably: the development with
25% in comparison with the last year of the tourists number accommodated
in a welcoming unit from the seaside during the winter period); the realiza-
tion of high coefficients of using the tourist capacities (of transport, accom-
modation, alimentation, entertainment); the growth of the effective demand
of complementary services and so of the medium tourist costs for the one
day of the holiday. Without denying the value of the directions of action,
such objectives have an efficiency inversely proportional with their level
of generality and validity (for any similar tourist entity). Therefore, well-
founded on a pertinent exploration of the market and on deep knowledge of
the offer, of its trumps, the purposes of the promotion policy are, in our opin-
ion, realist projections, which stimulate concentrated efforts, of some quanti-
fying achievement limit (also in the initial state but also in the final one).
Similar to other domains that suppose some efforts of the same man-
ner, the components of the proportional mix in tourism include tourist
advertising, public relations, direct marketing and trade power. Everyone
from these categories of means of communication present, however, a
number of particularities, less numerous in comparison to the ones that
marked the differences in the policy of price and product.
7.2. Tourist Advertising
As a result of the intangibility of the tourist products, we observe that
the advertising in this domain is difficult to realize, regardless if the adver-
tising medium to which it is being resorted id printable (press, fold out,
guides, tourist posters) or electronic, audio-visual: Internet, television or
radio. The intangible character and, as a consequence invisible of the tour-
ist services impose that the advertising these ones should be permanent,
changing the message depending on the object of the action and keeping
certain symbols.
Therewith, the advertising in tourism stands under the imperative sign
of highlighting certain tangible elements, to help the tourists understand
and evaluate the provided services. Hereby, it should be taken into con-
sideration the physical characteristics of the provided service or some rel-
evant objects that symbolize the service itself. For example, in the case
of restaurants, the advertising can mark out qualities in general, searched
of the physical facilities offered (clean, elegant, rustic), in order to offer
267 Promotion Policy in the Tourism Industry
some clues regarding the qualitative level or the nature of the provided
services in that tourist unit. Similarly, the elegance, comfort and the pos-
sibilities of pleasure provided by a cruise in the Mediterranean Sea can be
associated with tangible elements, visible, (that reduce the abstract nature
of the tourist services), as: ship, entertainment spaces arranged to offer the
tourists a pleasant ambiance, passengers booth., etc
It can be appreciated that, in the field of services, in general, and in
tourism in particular, the advertising is mainly symbolic and less descrip-
tive, emphasizing very much on the emotional aspect, on the means of
suggestion and the invitation to dream and not on the description of the
service. Aware of the risk of slipping from the domain of science into the
one of emotional approximations, but, in the same time, trying to under-
stand the psychological sector of the promotional effort, we have dared to
say that the tourist advertising must convert into actions the dreams peo-
ple have, see and experiment new things.
The advertising in tourism communicates, alike, through the physi-
cal image and also through message. Almost it is not conceived to make
an advertisement to a tourist product without presenting images that sur-
prise and synthetize symbolic elements, suggestive for the destination, of
the tourist product. Also, the advertisement, characterized by a conceptual
polyvalence, contains, besides the logical information, the psychological
one, sustaining a battle of images. The marketers from tourism do not
sell, in their specialized part, properly products (hotel rooms, restaurant
places or in a bus), but dreams, tempting virtual realities, a certain atmos-
phere of relaxation, cultural, an emotional feeling, sensations and possi-
ble perceptions. Accordingly, the advertising will accentuate the emotional
part of the message, creating a climate of emotional attractiveness around
the tourist product, and, then, in view of defining a favorable attitude, will
feed the cognitive side of this information in order to sustain the attach-
ment already created.
We remark, therefore, that in the tourist advertising, (but not as an
exception) the prior importance of the psychological information, com-
paratively with the logical one, the last put across in a series of rational
arguments and precise information about the tourist offer. Thereby, for
example, the advertising in favor of some circuits of discovering the
monasteries from the North of Moldavia, beyond the exact data, and with
the role of persuasion, it will be resorted to the emotional side, highlight-
ing the emotion provoked to the tourists by the atmosphere of historical
Alexandru NEDELEA, George P. BABU 268
evocation, the sensation/ feeling of quietness, transcendental, induced to
the visitors of these places. Similarly, the advertisements from tourism
will have to suggest, for example, the emotional feeling generated by the
mountain landscape. It is being created, in this way, a certain emotional
feeling linked by a certain product or tourist destination.
The psychological axis of the advertisement can be rational, using
arguments such as small prices, a high level of comfort, punctuality and
the safety of transport medium, or emotional, when the accent falls on
the emotional motivation through arguments of aesthetic nature, like the
design of the hotel, the novelty of the architecture or some facilities for
pleasure occasioned by a certain destination or even the photographs of
some stewardesses.
The concepts of tourist propaganda and tourist advertising: the
role of the former is that of making known and understood a country, an
area or a tourist station, of cultivating in large circles of potential tour-
ists the attraction for cultural values moral, natural attractions, of present-
ing data about the economic results, scientific and social progress, about
the classic and contemporary, about historical tradition, about the folklore
art, architecture, music.
It could be configured in this way, the potential of a tourist area, with the
final purpose to arouse the interest and the desire for visiting it by a large
number of persons. Therefore, while the tourist propaganda would have a
large character, general, pursuing the propagation of ensemble image, adver-
tising in tourism regards a more limited area, performing the role of inform-
ing the consumer on a certain tourist product, well determined, offered on
the market in a certain period. Through the means of tourist advertising it
is created among the potential consumers a favorable opinion towards the
suggested tourist product, stimulating in this way the sales.
The classification of the promotional efforts in the above formula may
be considered, in the virtue of relevant differences, pertinent and also effi-
cient. Although, in our opinion, two reasons could justify giving it up, in
favor of a unique (eventual) classification in the interior of the concept
of tourist advertising, which supposes, obviously, putting out the one of
tourist propaganda. The first reason is linked to the pejorative connota-
tions that the word propaganda by over demanding it by the totalitarian
regimes. Besides, even when certain organisms (political, diplomatic, etc)
make efforts of this nature on behalf of a country, area, etc, speak, usu-
ally about the promotion of that image. The second reason takes into
269 Promotion Policy in the Tourism Industry
consideration the fact that to delimit propaganda from advertising uses,
in this case (in tourism) a quantitative criteria. If it really has a tourist final-
ity, not even the so-called propaganda cannot remain at the level of a
simple image promotion of one country or area, without making more con-
crete suggestions (of destinations, or representative attractions). The tourist
advertising can, so, promote the main image of a country, synthetizing a
complex of social, cultural, historic and psychological specific characteris-
tics of a country, for example and, also, a diversity of tourist products. The
former, represents the wide context in which the latter is found.
The purpose of the efforts of promotion can be a certain product (cir-
cuit, vacation, cruise), a tourist firm (hotel, travel agency) a station (spa,
winter sports), geographical area (for example, Black Seaside) or a coun-
try as a vacation destination, the supplier being a tourist service pro-
vider (accommodation unit, transporter), an intermediate (tour operator)
or an office of tourist promotion. Usually, the advertising campaigns of
the great tourist units, destined to the tourist markets issued from abroad,
are entrusted to some branches or local agencies, which know better the
potential consumers preferences and can adapt the promotional message
depending on the cultural specific of the receivers.
Taking into account that the people, as we have mentioned, already,
dream and aspire towards places, destinations, remote countries, exotic,
the advertising has the role of converting that dreams and aspirations into
action. As a result, the purpose of capturing the interest and give rise to
the wishes of the consumers to visit a country, we consider necessary that
the message of the advertisement should highlight the tourist attractions
(mountains, lakes, forests, architectural monuments, folklore, popular cus-
toms, and gastronomy). In this way, it should be created an image that is
capable of including the essence of the natural characteristics, sociologic
and cultural of a country, suggesting to the receivers not also the diver-
sity of the tourist offer, but also the character of uniqueness and attrac-
tion of the tourist products.
Here is the case to underline that the advertising in favor of a voyage
or a destination, must accentuate on the unique elements, original, authen-
tic, the tourist accepting to travel only in the conditions in which they are
convinced that can live new experiences (with everything that can con-
tain: undiscovered images, special human contacts, knowledge of civili-
zation values, etc.) different from the ones they find in their local area.
Therewith, taking in consideration the complexity of the motivations of
Alexandru NEDELEA, George P. BABU 270
practicing tourism, we consider necessary, in the creation of the messages,
using the research results from the motivational perspective of the tourist
demand and of the tourists themselves.
Understanding the complexity of the motivations invoked previously,
and the tourist activity in general, but assuming the risk of schematiza-
tion, due to the need of schematizing, we identify, in the conception of the
informative documents and tourist promotion four more important catego-
ries of advertising strategies (which in practice interfere with one another):
1. The informative strategy and the communication of the documen-
tary type is the most spread in the conception of the advertising
materials (folding, brochure, guides, and catalogs). The abundance
of the precise information corresponds to a real demand of knowl-
edge, but it can also have a negative impact regarding the satisfy
the needs of tourist dream of the receivers.
2. The seduction strategy - to convince/seduce a potential tour-
ist is necessary to flatter his tastes, to anticipate his expectations,
to treat him like a close person. In this way, the tourist catalogues
of high luxury products insist on the exclusivity of the offer the
messages being characterized by texts full with metaphors, adjec-
tives. It is a strategy that banks on an adherence obtained without
too much thinking (profound thinking of the receiver).
3. The aesthetic strategy it is distinguished usually through the usage
of an original format, by a small number of photographs (technically
and artistically created) highlighted by a number of spaces. Using, for
example, as colors, only white and black, and also short texts (usually
poetic) it can induce the state of nostalgia for those tourists that come
back to tourist destinations which remind them of their childhood.
4. The pedagogical strategy brings in foreground the instructive inten-
tion, being characteristic to the tourist documents while concen-
trate on curiosities (offering numerous information, digits), places
and less on the person of the beneficiary. In fact, it is appreciated
that an authentic pedagogical strategy combines the three previ-
ously mentioned, succeeding, to inform, to seduce, to like (by its
aesthetic arguments) and to enrich spiritually the future tourist
1
.
The advertising in tourism can regard the familiarity of the potential
consumers with a destination, a tourist service provider (hotel, restaurant)
1
M. Boyer, Ph, Viallon, La communication touristique, Presses Universitaires de
France, Paris, 2000, p. 121.
271 Promotion Policy in the Tourism Industry
or travel agency, in order to attract them, prolong the season period of the
tourist activity, the launch of a new product or entering new tourist mar-
ket, promoting a favorable image of the tourist offer. Also, the advertising
can contribute at the consolidation of the image of a station, at the growth
of the notoriety and its prestige, by informing the potential tourists regard-
ing the characteristics of that specific destination. There is, also, situations
in which must be modified and ameliorated a brand image already existing,
but considered as negative on a certain market(for example, the image of an
expensive tourist destination or with risks deriving from the political insta-
bility of the area or the inferior qualitative level of the provided services).
Depending on the geographical area of transmitting the message, the
tourist advertising can be done at national level, voyage agencies and in
the holiday destination. In the case of the first two levels, the advertising
regards providing information about that specific tourist product, and at
the vacation place, this regards the creation of a favorable image to the
tourist experienced product, being sustained by the tourist units by pro-
viding quality services.
Approaching more towards the exigencies of form and content of the
advertising effort, we must underline the fact that the lack of clarity and
conciseness of the message can determine its receiver (the potential tour-
ist) not to scan it all, can lead to misunderstandings with negative impact
to the supplier or even have a reverse effect, by creating an underprivi-
leged image of this one. The advertising in tourism must be provocative,
shocking, but must not exaggerate or deform reality, but to assure a con-
cordance between the content of the transmitted messages and the quali-
tative level of the services provided effectively to the consumers. In this
sense, is being expected that the promotion of some services which prove
to be in reality misfit to lead to the discredit of the reputation of that spe-
cific tourist unit.
In view of the conception and realization of the advertisement, the
marketer must identify the target, to pick the means (one of the media
components) and the support of the message, to establish the theme (sub-
ject), to decide on the moment or period of the campaign, the structure of
the add, to evaluate the economic effort (budget) necessary and to esti-
mate the effects that can be obtained.
The target of the advertisement of a product or tourist destination is con-
stituted also from potential tourists but also from the persons or the institu-
tions that have the role of recommending, voice leaders or intermediates.
Alexandru NEDELEA, George P. BABU 272
The tour operators (accommodation units, travel agencies, stations)
collaborating with the advertising agency , choose the medium ( one of the
communication media, for example) and the proper support , depending
on the market studies, of the units capacity or tourist area that makes the
campaign, of the price list and the type of provided services ( for exam-
ple, in the case of superior quality hotels, it will be used luxury magazines,
daily newspapers read only by the elite, and for the stations and accom-
modation units destined to the large public it will be resorted to media),
on the type of tourist product offered and the target segment of the market
(for example, for the sport vacations and the event type products it can be
used the radio, television and magazines for young people, and to the fam-
ily vacations, especially the ones destined for the women, taking into con-
sideration the role in adopting the decisions of spending the vacation).
Passing at the next link of conceiving and materialization of the tour-
ist advertising establishing the theme- we remind the preference of
the potential clients (which stands on the fact that even the decision of
selecting the alternatives supposes an effort, and also the human tendency
towards a minimal level of this one) of standing in front of a limited
range of proposed tourist products, accompanied by the sensation, trans-
mitted properly, that beforehand somebody else has opted, selecting only
the best ones. Therefore, for facilitating the election and buying decision,
the theme of the message will be more simple, avoiding the long series
of proposals and contiguous arguments.
In the tourist practice, we often find situations in which, because of the
reduced volume of the budget with advertising destination of the firms in
this domain, publicity campaigns are being conceived, having a complex
thematic which gets together messages of hotels, stations, tourist regions.
Also regarding the content of the messages, must be mentioned that these
give aspects regarding the specific attractions of the tourist area (scenery,
historic sights, architectural monuments, treatment base, beaches, lakes,
folklore, popular customs) at the advantages offered in a station (favor-
able climate, sports, pleasure means), accommodation conditions (comfort
degree) categories of classifying the welcoming units (hotels, campings,
etc), transport conditions, price level, etc.
Establishing the period (moment) in which the advertising campaign is
in process, supposes a good knowledge of the different tourist markets in
order to transmit the message in the most favorable interval for the poten-
tial customers to take the best decision. For example, while the vacations
273 Promotion Policy in the Tourism Industry
for practicing the winter sports are being announced in Great Britain start-
ing the end of September, in other countries the moment with maximum
of chances of impact is being placed in other periods, depending on the
national peculiarities and the school holidays.
The French publicist David Ogilvy has proposed some principles to
follow in conceiving the tourist advertisement
2
, principles that we give,
due to their value, (at least) as a guide:
highlight the differences, particularities, because the tourists travel
to accumulate new experiences, to see something that there is nor
present in the residence area;
if you announce a tourist product at a convenient price, place this
mention at the beginning;
use specific facts, concise, avoid generalities, because only the
concrete facts can determine the client to buy without seeing the
tourist product;
present the product as being first class; a mediocre add leaves
the impression of a mediocre firm, arise reluctances in being con-
tacted;
do not hide the best (convincing) argument for selling (for exam-
ple, small price, location), but place it in the letterhead of the add,
otherwise this will pass unobserved among the others;
explore any aspect of novelty regarding the product;
avoid the enumeration of a multitude of aspects; choose a theme
proposing something palpable;
photograph the aboriginals, and not the tourists, because any inland
population may seem exotic for the ones that do not know it;
choose intelligently the photographs and their subtitles (legends),
because these ones are twice more important (read), more decisive
that the proper text.
After these recommendations we add, that the marketers that conceive
the text for the advertisement must avoid giving it a rigid form, a sequence
of cold particularities of the tourist offer. The announcement must be writ-
ten in a dynamic style, elegant, modern, not to bore the receiver, but to fas-
cinate the reader interest, provoking the desire to purchase that specific
tourist product. In this way, for example, the impersonal announcement,
conceived in terms of the type: a vacation at the seaside is unforgettable,
2
R. Lanquar, R. Hollier, Le marketing touristique, Presses Universitaires de France,
Paris, 1982, p. 89.
Alexandru NEDELEA, George P. BABU 274
has a capacity of persuasion smaller than a formulation in a direct style,
personal: only at the seaside, in the station X you will spend an unfor-
gettable vacation.
In its ensemble, the text of the advertisement contains, necessarily,
asset of arguments, invoked with the idea of synthetizing and mark out
the characteristics and advantages of the tourist product and associate it
with suggestions on the modality of obtaining some supplementary infor-
mation regarding the offer for the tourist consumers. The used expressions
are recommended to be simple, suggestive, avoiding the clichs, conven-
tional collocations and trying to evoke pleasant feelings for the receiver
(getaway from the daily routine, rest, relaxation), in accordance to the
tourist motivation of these ones.
It is true that, sometimes, are easier to identify the exigencies and prin-
ciples of such efforts and harder to put it practice. That is why we observe
that, usually the Romanian advertisements suffer by the abundance in mobi-
lized clichs to suggest certain ideas. Therefore, some of the most used
expressions are the ones like: we assure a high quality of services at acces-
sible prices; we guarantee the quality of the provided services; ambi-
ence and comfort; intimacy and comfort; liveliness and good-mood.
Too many times, the conclusion of the entire announcement of the firm is
found in the collocations: hospitality and good-taste, or hospitality and
comfort, these being a kind of summit of the synthetizing spirit, but also of
the formalism and stereotype. Also, a lot of the tour operators that resort to
advertisements assume the exclusiveness of the advantages in unconvincing
formulas (unique global conditions; offered only by only through),
the credibility value of the announcement being diminished.
The realization of an efficient promotion activity we consider it is not
possible without signing it up on the coordinates of an authentic aesthetics
of the advertising creation. In this context, it is essential the elaboration
of some suggestive images, with evocative power, in behalf of the tourist
product. Filling up the advertising text, the image has a special importance
due to the capacity of drawing and keeping the attention and enlarge the
credibility of the message, materializing the attractions and tourist facili-
ties proposed to the consumers. In this way, he is being offered the main
role in obtaining the expected emotional effects in presenting the attrac-
tion of a scenery, station, or sight.
Capturing best the attention of the reader, the photographs (a domain
with special predilection in the tourist communication) must make the
275 Promotion Policy in the Tourism Industry
potential consumer to dream about it, creating him the desire to offer him
the vacation or the proposed circuit by the travel agency. One single pho-
tograph, chosen with attention values more then a set of small photographs
that distracts the receiver. The publicity in black and white conditions of
the photographs, illustrating tourist destinations may lead to a contrary
result from the one expected, due to their inadequate quality copying. On
the contrary, choosing a publication that uses color photographs assures
to the tourist publicity the attraction and the suggestion which are need-
ful to make it more convincing.
When it is resorted to drawings, photographs and colors the illustration
must fit the tourist product, creating a whole together with the message. If
this integration is not respected, appears the risk of focalizing the atten-
tion towards illustration, in the detriment of the message.
The ambience photography suggests particular images, limited, which
give the potential consumer the impression that is being expected in the
accommodation unit or that he just has to sit at the table in order to be
served. It succeeds to create that dream-alike images that determine the
apparition of the motivation that stands at the base of tourist consume. In
sequence, the architectural picture has the role of marking out the medium
in which is placed the tourist unit. Is wanted that the images include tour-
ists to suggest the companionship of the vacation places.
The color has a significant contribution in conceiving the tourist mes-
sage, because only this one can suggest the idea of entertainment, the
exotic of the destination, exciting aspects occasioned by the realization of
a tourist voyage. For example, it is not obtained the same effect on the
receiver if it is presented Las Vegas by night, in black and white or if it
is made in colors, fully of life, action and attractions.
It is being appreciated that each color (dominant) is adequate for one
theme or suggestion, being recommended in the case of ocean cruises to
be used the sea blue or green, for presenting the voyages in Ireland the
green, and in Russia-red.
The slogan of an advertisement in tourism must express the essence
in a concise way, expressive, attracting, and exciting. It fulfills the task
when it remains in the memory of the potential consumer and of course
if it influences his decisions.
We present some inspirational slogans:
JInfo Tours travel agency: Travel with the grand ones!
NET: You know when, we know where!
Alexandru NEDELEA, George P. BABU 276
Happy Tour: The place where you shall go before getting somewhere!
Marshal Tourism: Any dream can come true!
Sun Holidays: Trust your vacation to the professionals!
Bucovina Estur: The place where the perfect vacation begins!
Val sIsere: The winner station!
Calimanesti Caciulata: A station for all four seasons!
Inter-Continental: Before you check in, we check everything out!
Continental: Once Continental, always Continental!
Ramada Inn: If you stay one night in different hotels of Ramada Inns,
you will not be back home for almost two years!
Romanian tourism: You come as a tourist, and leave as a friend!
We also mention that the graphic form of the slogan can use different types
of suggestions characters (for example, the letter A from Paris can take the
form of the Eiffel Tour, the letter O can be represented as a sun, etc.).
An important category of promotion means used in tourism is the
graphic publicity. By a harmonious collocation between an informative
text and suggestive illustration, different forms of this one (foldings, bro-
chures, catalogs, tourist maps, billboards and press ads) permit the visu-
alization of the tourist products.
In the context we also remark the main role that the tourist informa-
tional documents have it (foldings, brochures, guides, catalogues) form the
viewpoint of the using degree, of usefulness and efficiency, these being con-
ceived and distributed by the travel agencies, accommodation units (indi-
vidual units or hotel chain), transport societies, stations and tourist areas,
tourist offices. These also explain why the printing and the distribution
costs of the catalogs and foldings represent the main mart of the marketing
budget in tourism. These are a necessary expense, because it represents the
main instrument for selling of the tour operators
3
. The professional from
the tourism came up to the conclusion that must be distributed approxi-
mately 10 catalogues of tourist brochures in order to sell a trip
4
.
The offered information in these materials refer to the location and
the way of accessing these accommodation units, the way to contact them
(phones, Web address), the comfort degree (star number), diversity and
quality of the services, printed costs, nature characteristics, possible itiner-
aries, tourist sights from the are. Usually, it is recommended the separate
3
C. Cooper, Tourism. Principles & Practice, Longman, London, 1996, p. 260
4
R. Lanquar, Le tourime international, Presses Universitaires de France, Paris,
1995, p. 29.
277 Promotion Policy in the Tourism Industry
presentation of the costs at the tourist products (taking into account the
perishable character of the information); by inserting a loose leaf which
permits making the necessary modifications, depending on the season,
inflation rate, etc. It is obvious also the necessity of writing these docu-
ments in more languages, the translation being preferably provided by spe-
cialists form the respective country, who know best the interest area of the
potential customers. In their turn, the illustrations of the tourist informa-
tion documents must highlight the welcoming units (architecture, interior
design), pleasure possibilities, attraction sights, but also environmental
elements (mountains, forests, lakes, cascades, etc.) pursuing the creation
of an assembly of good suggestions in order to generate the feeling of a
pleasant ambiance (environment) and transmit the impression of anima-
tion (by presenting the people in the specific moment of consuming the
vacation. We appreciate that in tourist advertising, a quality picture has a
major promotion impact in comparison to the best text possible.
The tourist catalogue has each page conceived after the same structure:
tourist destination, length, period, the description of the program of the tour-
ist services, one or two pictures. But we cannot ignore the risk that this rep-
etition, necessary by reasons of assuring the clarity, lead to the satiety of
the receiver: what will he understand form a long series of pictures of some
sunny accommodation units, with rooms orientated towards the ocean,
with small sand and other general places which abound in publicity texts?
In the tourist catalogues it is recommended also the consultation of the
web address of the tour operator for more information and on-line reser-
vations, suggestions and questions of the potential customer, being sent
via electronic mail.
The guides represent a specific tourist publicity means, having the role
of presenting the sights of some itineraries, different vacation destina-
tions, including maps, illustration, sketches of some routes. As an example
of such guides, internationally recognized, we can mention: Les Guides
Bleus, Les Guides Verts Michelin, Guide du routard, Rough Guide which
contain recommendations and appreciations of the quality report tourist
service costs assured by different welcoming units.
The loose leaf or the tinsel stands for the communication regarding am
event, organizing of a trip, travel agency or tourist structure opening, having
the character of a launching publicity, of reminding or even occasional.
The tourist advertisement is the oldest promotion means in an agency,
and the best at presenting the aesthetic quality. It can take the form of
Alexandru NEDELEA, George P. BABU 278
posters used in the agency, tourist offices, welcoming units, tourist mar-
kets, and the display being also possible on billboards or vehicles. Placed
in circulated places (airports, railway stations, subways, intersections,
malls, stadiums), these publicity means offer exciting tourist images and
contain short information (for example, the address and phone number of
the tourist service provider).
The press advertising has some advantages which make it indispens-
able in a large and systematic promotion campaign. First of all, the chances
of being received are, in general, estimated at the beginning by knowing
the edition, the media rating which it is respectively resorted to. Secondly,
the sociological studies made on the publicity space supplier presents the
segments of the population which they are addressing to, and on his turn
offers this piece of information to the beneficiary of the ads, who can
select the message transmission channel, depending on the market seg-
ment which he has targeted.
No matter if it is about the written press or audio-visual, the advertise-
ment must be transmitted before the begging of the tourist season, in the
case of summery demands (for examples, on the seaside). And in the sit-
uation of units that have a demand with a relative long length, the mes-
sages will be transmitted throughout the whole year.
As it is well - known, there is also a specialized tourist press, printed by
the tourism offices or other professional structures. It is destined to the travel
agencies, tour operators, and other professionals who have a direct influence
on the patronage. For example, we can mention: In France Le Rpertoire
des voyages, LEcho touristique, La Gazette Officielle du Tourisme, LAgent
de Voyages ; In Germany- Der Fremderverkher, Fremdenverkehrswirtschaft
International ; In Italy - Agenti di Voiaggi ; in Spain- Spic and Editur; in
Great Britain Travel Trade Gazette and Travel News; In the U.S.A.
Travel Agent, Travel Trade, Travel Weekly and Travel Management Daily; in
Romania Voyages in Romania (with variants edited in different languages
destined to the international tourist markets).
In radio advertising, the marketers, in their trial of surpassing some
disadvantages of this promotion form, must select and associate to the
transmitted spoken message that songs or sound effects which create the
state of vacation, suggesting the exotic, relaxation, pleasure or a certain
tourist destination (for example, a waltz of Strauss sends the listener to
Vienna, the sound of bagpipe suggest Scotland, the drums for Africa, the
ships siren suggest a cruise; from the same category is also the sound
279 Promotion Policy in the Tourism Industry
of airplane liftoff, laughter and sounds of glasses during a party, exotic
animal sounds, etc). Radio message transmissions can be done through
central radio stations or local; stations, with part time or fulltime tour-
ist publicity programs (for example the shows in more international lan-
guages of the station Radio Vacanta form our country).
The tourist radio messages present, as we were anticipating, weak
points, not able to detail the advantages offered by the product or tourist
unit, as it happens in the case of written press, and also it cannot demon-
strate the truth of the affirmation done, as it can do the television.
The television advertising, like the tourist activity that is serving, is
largely seasonal, sports being broadcasted in the period in which, as the spe-
cialists say, are taken the vacation decisions, usually, until February for the
winter vacation, and respectively, from March until June, for the summer.
The messages transmitted to the potential customers through television are
attractive and convincing, because they permit a benefic association between
image, animation, text and music. Although, we remark that the television is
an expensive media, the publicity it is justified only in the mass tourist pro-
motion, being used by the big transporters and main tour operators.
The system of communication with the tourist includes, of course, the
ones which take in consideration the real client, found in the process of
consuming the offer for which he had opted. From this perspective, a
first category of the external means, which, in the case of a tourist tour
operator (accommodation unit, agency), includes also the road signaling
(signposts for that sight), the firm, exterior aspect. The signaling boards
have an extremely important role for hotels, because it assures the guid-
ance to the potential tourists towards the unit and make the service selling
possible. Connected to these boards, there are other aspects: localization,
legibleness, explicitness and repetition of the logos.
The other category, of the so-called internal communications, is formed
by the signals included in a fix ensemble of indications which help the cli-
ent orientate and act intelligently and efficient in the tourist unit, taking
part in an active way to the service provision (for example, in a hotel - the
board numbers from the rooms, the inscriptions from the reunion halls or
the ones that guide you to the reception, restaurant, bar etc.)
To the real tourist (onto which a great promotion influencing can be
done in order to become a loyal client or transmitter of good impressions)
it is also addressing the impersonal communication channels. We include
hare the atmosphere or the conceived ambiance for provoking positive
Alexandru NEDELEA, George P. BABU 280
reactions towards the tourist firm, services and/or products. We also have
in view the design and the decorations of the places (architecture, and
exterior design of the hotels and restaurants, the aspect and the interior
atmosphere furnishings, accessories, illuminating, music etc.) which cre-
ate an atmosphere of trust in the quality of the provided services.
7.3. Public Relations
In tourism, the public relations regard on one hand the maintenance
and amelioration of the trust an favorable image on the tourist firm and
the provided products, and on the other, the establishment of connections
with different public categories (from inside or outside the firm), capable
to affect the development of the unit.
The action from the intern public relation area (the personnel of the
travel agency, accommodation units, alimentation and pleasure, transport
societies, guides etc.) follow the creation of a pleasant working environ-
ment, of a permanent collaboration with positive effects under the report
of activity efficiency and detail knowledge of all its components, products
and services that form the offer of the unit. In this way it is being assured
among the personnel the useful information regarding the strategies, ori-
entation, objectives and trends of the tourist firm, and, in the other sense,
information gathering that the employees obtain through the direct con-
tact with the tourists, and also their opinion and suggestions regarding the
improvement of the services.
We can appreciate that the relation with the intern public (attention
must be paid to the behavior problems of the personnel towards the cli-
ents) have an important role in tourism, because the human contact of
the employee with the consumer makes part from the tourist product. All
personnel contact categories with the tourists, however strict in may be
professionally, if are characterized by coldness and indifference, and do
not generate attraction toward the firm, become a stagnation factor and
even of regression of the tourism. A professionally well-prepared person-
nel plays a capital role in gaining and maintenance of the publics interest.
All the employees of the tourist units that come in contact with the con-
sumers contribute, through their attitude at the development or decrees on
the interest index towards that specific tour operator.
The relationships with the press follow the promotion of the notoriety
and image of the tourist firm, the creation of a favorable climate between
281 Promotion Policy in the Tourism Industry
this and other categories of the public, facilitating the appearance in the
media of some information regarding the products and services offered by
the tour operator. The techniques used in the relationships with the press
include not only ways of settling and maintenance with the contacts (and
the personnel), but also forms of communication through the press.
The press announcement of the tourist firm is preferable not to have
only this product labelbut also a title that stirs the interest. Its content
will synthetize the updated information that can be useful for the journal-
ists (from the general or tourism press, editors of pages or shows with tour-
ist profile). It is wanted that the given information create the impression
that are expected by the readers/listeners and so they serve the interest of
the one that transmits them to the public (edition or audience increasing)
and no not represent only publicity in the use of the tourist firm.
The tour operators can organize press conferences with the occasion
of some special events (tourist offer launch, recent information), during
which the information are transmitted directly to the media representa-
tives. In the same category with the means through which public relations
are created, we include the appearance in the written press, radio or tel-
evision of some interviews with the representatives of some travel agen-
cies or welcoming units.
The creation of events is, first of all, a problem of imagination, the tour-
ist firm can create a special moment, with public echoes, from the open-
ing of some new offices, stations, new ways of transport or welcoming
units, from the anniversaries of the agency or other accommodation units;
but can be, also, underlined as an event the moment in which a station has
reached the important number (round one) of foreign tourists who came on
vacations, the one of signing in a station, tourist international agreement ,
organizing (beginning) of a gastronomic week with a certain topic (for
example, the organization in the abroad tourist offices of a gastronomic
week, wines, folklore from our country); events can be also considered the
culinary art expositions (with tasting of specific products from one tourist
area, different contests or festivals especially organized for promoting the
tourism, or film, music festivals etc). Of course, all this - in the presence
of the tourists, media representatives and other tourist agencies.
This type of manifestations, public relations can be occasioned by
other indirect special events which draw the attention of the public on the
value of the tourist offer: the discovery of historic vestige, or archeolog-
ical objects with the occasion of digging made in a certain tourist area,
Alexandru NEDELEA, George P. BABU 282
offering a sport trophy in a station, organizing a scientific congress in a
tourist region.
Invitations for journalists and opinion leaders for documentaries at
that place (in a certain station and welcoming unit), in the perspective of
publishing some materials in favor of that specific tourist offer, is an effi-
cient tool, but not always at the hand of the any travel agency. We must
remark that written articles after some vacations of the journalists in the
tourist destination are difficult to control; the tour operator can only hope
that the provided services have left a good impression and this positive
aspect will be specified in the article. The choice of the program must
be well organized, closely followed, and after the realization, keeping in
touch with that respective guest is obligatory, even after the apparition of
the presentation article.
In order to improve the information of the clients or distributors a cer-
tain instrument of the public relations is used organizing some reunions
with the representatives of the partners, an occasion to complete the image
of a station presented by the direct publicity and, in the same time, it is
verifying also the information it has transmitted, with the purpose of know-
ing its effects, convincing power on the potential tourists. These reunions
can take the form of some audio-visual presentations, (short dissertations,
and after that the main part of the time being reserved to the projection
of tourist films in order to impress the public), conferences and seminars.
During these, will gather: tourist specialists, travel agencies, hotels repre-
sentatives, and other agents form tourism, balneologists, media represen-
tatives. This kind of gathering become, usually an occasion of launching
new tourist products, of presenting the original characteristic of some ser-
vice packages offered to the consumers.
Due to the specific of the tourist offer, the film can become an instru-
ment in public relations, transmitting maximum of information on the
tourist product without having the aggressiveness of the publicity spot. Its
emission regards either a large public (on television, during some shows
without publicity, documentary programs or journals) or a specialized one
(special projections in front of professional groups, clubs etc.)
Information and images regarding the tourist areas can be skilful
inserted also in artistic films (television serials or for cinema) realized by
independent producers or tourism units. The promotion offices in tourism
participate at the realization of such films, supporting the activity of the
script writers and producers who accept that the film events (the filming)
283 Promotion Policy in the Tourism Industry
is done in certain tourist regions in the course of launching and that offer to the
scenery and the tourist design an important place in the action. (The National
Tourism Organization from Japan sponsors the making of a new series of the
movie James Bond 007, action which is taking place in Japan
5
).
The tour operators and the powerful travel agencies include in the pub-
lic relationships also the setting up of some tourist clubs that gather as
members loyal clients, partners, new important consumers. In this case,
here is being organized informational and educational reunions for the
tourists, to familiarize with the way in which a contractual voyage can be
purchased etc. This type of club promotes quality offers for loyal clients,
who can benefit from scale down for the tourist product that they have
purchased. The gathering organized by the clubs have the purpose of cre-
ating a relaxed environment, to favor the changing impressions about the
trips, through which must be created, maintained and ameliorated the trust
and the interest for that special travel agency.
7.4. Promoting the Sales of the Tourist Product
Because the tourist offer has, in general, a seasonal character, the tour-
ist product must be sold in a relatively short time, imposing an intense
activity of promoting the sales.
In tourism, the sales promotion regards the stimulation of the tourist demand
on short term of the consumers and distributors of tourist services and prod-
ucts. Among the objectives of the sales promotion in tourism, we mention:
introduction of a new tourist product in the products range already
known, by an intensification of the influencing efforts of the poten-
tial tourists and also of the intermediates (travel agencies, tour
operators);
the rise of the sales volume of the products/services in extra-season;
the increasing of the sales of the tourist products entered on the
market by prolonging the season periods ( creating, in this purpose,
supplementary motivations), through the stimulation of a loyal atti-
tude towards a certain destination;
The main technique in promoting the sales in tourism are the bonuses
and the promotional gifts, discounts (special offers, group sales), promo-
tional contests, games, lotteries.
5
Look Japan, vol 47, nr. 541, Tokyo, 2001, p. 2.
Alexandru NEDELEA, George P. BABU 284
The bonus stands in giving a supplement advantage or stimulant to an
intermediate or a tourist, having the role of emphasizing the loyalty towards
a certain tourism operator, but also to reward a buying act. The forms in
which the bonus is found in tourism are diverse, consisting in an object
(handicraft, calendar, map, pocket book), or in a free voyage or trip offered
to the tourist which has manifested a special loyalty towards the accom-
modation unit, airplane company, product, station, tourist destination; the
client who has convinced and organized a group of tourists to participate
at a certain tourist program, the representative of a partner travel agency,.
Welcoming units can offer gifts to the clients who have accumulated points
or vignettes, depending on the number of stays or the bill quantum.
The bonus is considered by the tourist a special advantage in the meas-
ure that this kind of bonus is not given to any client, starting a spontane-
ous act of buying, if it is attractive enough.
The discounts are the most used techniques in promoting the sales in
tourism, being realized in different forms:
preferential costs (decreasing) offered by the welcoming units,
which regards the stimulation and the prolongation of the trips;
discounts in the restaurants for the clients that are being accom-
modated in the hotel;
preferential costs in weekends by the accommodation units with famil-
iar customers, during the week, is represented by the businessmen;
stimulating costs for promoting a future business, usually offered to
group leaders, conference planners, business meetings, tour operators
and other persons capable of offering the hotel a substantial income;
discounts for the first voyage in a travel agency;
discounts in extra-season;
discounts offered to the clients that buy tickets for station on the
seaside with at least 30 days before the opening of the season;
the discount form the global price of a distinct service package, in
comparison to the one issued by summing all the individual serv-
ice costs (group sales);
practicing a decreasing cost in relation with the amount of services
(the number of kilometers of the trip, days of accommodation);
offering some hospitality checks which permit to get some dis-
counts at the accommodation costs and meal services in the units
with which the travel agencies have special contracts in this spe-
cial purpose;
285 Promotion Policy in the Tourism Industry
discounts on sales costs of merchandises bought by the tourists for
a minimal sum, established before;
special offers consisting in discounts during some events (champi-
onships, festivals) or for certain category of clients (newly weds,
pupil, students, trade union members, pensioner, veterans etc.);
In the tour operators practice we find different variants of discounts
depending on the number and length of the periods for which have been
offered, the relative level of the discounts and their correlation with other cat-
egory of facilities. By the tourist discount technique is wanted to determine
the potential clients to make a first acquisition, influencing the occasional
consumers to come back in a certain accommodation unit or station and real-
ize the increment of sales level towards loyal clients... we mention that this
promotion technique can be efficiently used by the tourist service provider
firms, but also by the intermediates (travel agencies, tour operators), if it is
used periodical and not trough a continuous activity, because then systematic
discounts intervene it can get to a degradation of the brand or prestige.
In the promotion series are also included the gratuitousness given to
certain category of clients in the case of certain services:
to families with children, containing in exempt from paying (some-
times only to the accommodation services and transport, other
tomes at meals) for one or more children;
of the type: two night at the price of one (a variation of the week-
end costs, in towns, in a weak period ) or giving a free week to the
tourists who buy one week or two in the course of the trip;
to the VIP clients (fruit basket, or drinks in the rooms, promo-
tional gifts);
to a female client (a rose, appetizer);
a free product to the one hundred buyer;
free transport for the clients that have spend on their own a holi-
day in that welcoming units;
free transport to the airport to the passengers who use regular
flights of certain airlines;
giving some free season tickets for mountain cable transports for
the tourists who buy winter tourist products;
free courses about practicing some sports (alpinism, sky, skating,
swimming, paragliding, river rafting) in the benefit of the child of
the family that have bought vacation packages through travel agen-
cies specialized in such activities;
Alexandru NEDELEA, George P. BABU 286
offering a free trip, supplementary for the tourist who buy tourist
products in the extra-season (for example, a third week free for
the trips of more than 14
th
days, at the end of the season) ;
offering as a stimulus a trip/ free circuit to a group organizer (that has
convinced the tourists to buy such a product); similarly, we remark
the offer to the bus drivers by the restaurants from the tourist routes
in order to influence the choice of the restaurant for eating;
Considering the determined role of the tour operators and group organ-
izers in orientating the demand for certain destinations, distributors are stim-
ulated by the offering of gratuitousness to one or more tourist services or
some money bonuses, depending on the big number of group members.
We can includes in the category of the tourist sales promotion instru-
ments also the facilities offered at the simplification of the conditions or
elimination in great part of frontier formalities, considering the problems
with the entering visas and good transported or brought by the tourists,
frontier control, taxes and other obligations of the destination countries.
At the discount and that of gratuitousness chapter, the list of modifica-
tions and moments of application long enough, with alternatives found
in practice and literature - can be improved by the marketers imagination
(censured by the knowledge of the economic mechanism and prognosis
power of the advantages and risks).resorting with parsimony at this instru-
ments or, more severe, eliminating them has a negative effect on medium
and long term, degrading the image of the brand or keeping it in deadli-
ness. This type of strategy betrays either the precarious character of the
budget destined to the promotion or even the demure economic force of
the firm, or the lack of elasticity and mobility in adopting the decisions
with punctual validity in time and rapport to some segments of the cli-
entele). On other side, the excess of imagination in creating the facilities
(without economic support and doubtful effect) may lead to an extremely
reach repertoire of discounts and gratuitousness which destroy, at least on
short term, the financial stability of the fir, existing, as we have already
mentioned,. The risk of appearing some doubts in the mind of the tourists
regarding the solidarity a real prestige of the ones that use: in despair
different facilities to tempt their clients.
The contests and games organized on tourist themes (on the radio, tele-
vision or press) are used for creating round some products or tourist desti-
nations of an interest atmosphere among the potential consumers. Service
providers or travel agencies which organize contests in order to promote
287 Promotion Policy in the Tourism Industry
the sales, must, in our opinion, create the tests in order to establish a nat-
ural connection between the content and the tourist product that is pro-
moted and offered as a prize. In this way, in will be done discreet and
efficient information of the potential clients on the tourist offer, but also a
sensitizing of the media representatives about it. [We are doing a specifi-
cation herevalid also in other anterior referencesregarding the media:
in the conditions in which in Romania is more and more put in question
the problem of surreptitious advertising, if the tourist units do not resort
to perfidious strategies, at the law limit, is recommended that they insti-
tute clear relations, mutual advantages with editors and journalists. The
extremes in the collaborations will be the paid publicity and, creation of
some events of such an importance and so reasonable that the editorial,
journalist have the impression that is (also) in his benefit to make pub-
lic (in detail) the fact. In the contest above mentioned,, the newspaper,
radio station or television may be co-interested, understanding that by the
prize offered, through the emulation generated among the readers/ listen-
ers, and also through the diversity of the newspapers/ shows contents, it
may be obtained increased editions / audience, or their consolidation.]
In tourism practice we remark that, without being excluded, the free
attempt is a technique of sales promotion, rarely used (for example a lux-
ury hotel will not permit the attempt of trying rooms for a few hours).
Still, with the purpose of familiarizing the tourist destinations and for
the information through a live testing of the tourist products, some tour
operators, hotels, transporters and tourism offices organize promotional
stimulating trips for the travel agencies.
7.5. Direct Marketing
Thanks to the technological evolution in informatics and thelematics,
direct marketing permits to a tourist firm a personalization of the far com-
mercial contacts, with a selected clientele. Characterized by a great flexi-
bility towards client needs, special discretion vis a vis the competition and
large possibilities of evaluation of the actions efficiency, the direct market
resorts to mailing, catalogues, direct meetings, telemarketing and Internet.
Mailing (correspondence, message). One primordial requirement of
this direct marketing technique is assuring the originality of the message,
and can be done through an accentuated perspective for each client. To high-
light the products quality and retain the attention of the tourist is necessary
Alexandru NEDELEA, George P. BABU 288
that the message is accompanied by foldings which offer suggestive images,
characteristic to the different tourist service packages.
In order to use this technique, the tourism marketers must realize fold-
ers with the all ready existing clients and their e-mail addresses (on the
basis of the information from the vouchers or sold tickets) and potential
clients (vehicle owners, large income persons, solicitor in writing or via
telephone of information about the tourist offer)
The travel agencies and tour operators promote their contractual prod-
ucts through mail catalogs (for example, in U.S.A., this is the main way
of commercializing tourist products for old persons).
Some voyage organizers use the so-called green numbers (telemarket-
ing), which permits to be contacted by free phone by tourism agencies and
potential clients in order to transmit information or make reservations.
The Internet. The communication strategy of the tourism firm has
been revolutionized by using the Internet, this becoming a direct market-
ing instrument that many resort to, because of the advantages that offer
to the consumer (rapid consultation of the information, non-stop function-
ing, global coverage, interactive presentation of the color pictures and ani-
mated graphics illustrating destinations and tourist sights, relatively small
costs) and also to the tourist supplier (access to the international mar-
kets, rapid re-actualization of the information, on-line reservations, meter
the access by the potential clients, combining modular tourist services in
a complex form, on the basis of clients requests.) By using intelligently
the structure, design and content of the site, the promotional message can
be efficiently directed towards different public categories and it can influ-
ence the image of the tour operator onto the virtual market, and, implic-
itly, the realized sales level.
The accessing of the Internet page of a travel agency creates to the
potential clients some significant opportunities:
obtain diverse and detailed information( in the form of text, sound,
static image or video-clip) about the tourist destinations and about
the modular services that are available, realizing even virtual tours;
to compare the content of the offers from different competition
travel agencies, choosing the one that suites best the requests and
personal needs;
launch a personalized demand with the help of electronic applica-
tion of searching and selecting, which will identify the most suited
tourist offers;
289 Promotion Policy in the Tourism Industry
to combine itself different complementary services in a tourist
product integrated and adapted to personal demands;
to reserve or to buy the complete tourist product or different mod-
ular complementary services.
We must remark that, for the tourist firms that have a Web address on
the Internet, it is indicated to place ads and virtual links (banner) in other
sites which have a large audience and with a convenient profile. The sup-
pliers image will be, also improved by publishing some congratulation
messages or appreciation from the part of the client that have had a benefit
over the tourist services of that to operator and who expresses his delight
regarding the special quality.
The interaction experimenting of some virtual tours, of some tourist
destinations, by accessing some promotional sites on the Internet, may
become a complementary attraction integrated in the tourist package offer.
In this way, the virtual reality is not used only as an informational inter-
face between the potential client and the tourist product, but as a supple-
mentary possibility of pleasure, experimenting the novelty and unpreceded.
As examples of on-line tourist guides we can mention: Lonelyplanet,
Roughguides, Travelguide, Vtourist, Etravel, Honeymoons, Ptreviewtravel,
Expedia, Leisureplanet.
After the apparition of the electronic tourism agencies (for example,
www.A2btravel.co.uk, www.DigitalTravel.com) it has been asked if the
classic travel agencies will be threaten or disappear. It seems that these
agencies have adapted to the situation and have created a Web page,
cumulating the distribution service and promotion. Plus, it has been dem-
onstrated that people feel the need to be guided by a person (travel agent),
to talk to that person face to face.
7.6. Personal Selling
The marketing strategies of the tourism firms conceived, depending on
the tourists needs are transposed in practice by the marketing power.
Knowing the needs of the consumers and its selection criteria con-
dition the success of the sales realized through the means of the tourism
operators. In this way, in the preliminary phase of the relation between
the selling agencies and the potential clientele must be made a research
regarding the motivations, wishes and preferences of the potential consum-
ers regarding the tourist services. The contact between the selling agent
Alexandru NEDELEA, George P. BABU 290
and the tourists permit to the first one to identify the selection criteria for
a tourist destination (convenient price, diverse possibilities of entertain-
ment, high level of comfort, quietness, natural and cultural sights) and
propose it and present the product that has the largest chances of satisfy-
ing the clienteles requests.
Personal selling plays an important role in tourism, due to the need
of the consumer to inform himself about vacation travels. The mission of
the implicated person in the act of selling is to convince the client on the
tourist qualities (originality and attractiveness of a certain product or tour-
ist destination), which means large knowledge and an adequate behavior
towards the potential consumer.
The activities performed by the travel agencies (in the voyage agen-
cies and tourism offices) and the representatives f the accommodation units
or hotel chains suppose a good specialization of the marketing power. The
professional profile of such tourism sellers must gather a series of char-
acteristics, like: a great energy, dynamism, enthusiasm, amiability in the
client relations, capacity to sense their psychology, understanding and tol-
erance in the eventual confrontations with the unadvised clients, capacity to
solve the litigations with the clientele, initiative spirit and adaptation to the
most unwonted demands, persuasive abilities, inspire trust and understand-
ing, presence and irreproachable education, pleasant and optimistic look,
neat clothing, a good knowledge of foreign languages. To this personal
attributes, the ones that form the marketing power in tourism must add the
knowledge of the service range that can be offered to the consumers, of the
tourist offer of a station (access, geographic location, climate conditions,
natural and cultural patrimony, tourist infrastructure endowment).
The marketing power searches the tourist markets to discover new cli-
ents and for knowing better the heterogeneous demand of the different cate-
gories of tourists. It represents the characteristics of the new tourist products
and new combinations of provided services, which can correspond in a larger
extend to the motivations and desires of some unsatisfied consumers cate-
gories until that moment. Also participates at the negotiations that the firm
initiates with distributors, partners, (before the act of buying or reservation),
offering information regarding the suppliers projects about the enlargement
of the service range and the launch of new tourist products.
The tourism agent must posses diverse information about the long
time commercial relations, which needs a prognosis horizon regarding the
development of the service range.
291 Promotion Policy in the Tourism Industry
One of the attributions of the marketing power stands in the participation
at tourism fair and exhibitions. These occasion the useful efforts, like direct
contacting of potential clients and organisms that provide tourism clientele
(trade unions, school units, artistic and cultural scientific or sport organizing
committees, employers association), but also of the intermediates interested
in the distribution of the tourist products. Also, has the possibility to appreci-
ate the public reaction regarding the different presented service packages, to
contribute at the image improvement on medium and long term of the repre-
sented firm, to realize professional contacts in the sense of studying the com-
petition and identifying the rends and novelty on the tourist market.
The frame of mind of the visitors in tourism fair is in general, favora-
ble to the communication of tourist themes, the spontaneous dialog being
stimulated by moments of relaxation and search for new possibilities in
spending the vacations. The marketing power implicated in the organiza-
tion of such a manifestation will have to quantify, in the end, the reserva-
tions made and the promotional materials solicited by the visitors.
To mention, in the end of these notes, the existence of universal tourist
exhibitions (that promote more forms of tourism), specialized (for exam-
ple, for winter sports, camping, etc), national and international. Among the
last ones, the best known are ITB (Berlin) the most important promo-
tional manifestation destined especially to the professionals, Fitur (Madrid),
World Travel Market (London), Salon Mondial du Tourisme (Paris), BIT
(Milan), Romanian International Travel Show (Bucharest), Japan Travel
Fair (Tokyo), Sky Group Show, Pow Wow (U.S.A.), Tanguis (Mexic).
7.7. Conclusions
From the viewpoint of the promotion particularities in tourism we can
mention the fact that, due to the dominant proportion of the intangible ele-
ments in the formation of the tourist product, the image of the tourist offer,
which corroborates the ones of the operator, services and products but also
of the tourist destinations, influence in a definite manner the buying deci-
sion of the consumers. One of the conclusions regarding this element of the
market mix is that the tourism advertising may regard the familiarization of
the potential consumers with a destination, a service provider (welcoming
unit) or tourism agency, in order to attract them, prolong the seasonal period
of the tourist activities, launching a new product or entering a new tourist
market, promoting a favorable image of the tourist offer.
Alexandru NEDELEA, George P. BABU 292
As a result of the intangibility of the tourist product, we observe that the
advertising them is difficult to realize, no matter the advertising media if it
is printed (press, foldings, guides, tourist posters) or electronic, audio-visual:
Internet, television or radio. Without the ambition of formulating actual conclu-
sions, strictly extracted and syntethised from the exposure of the approached
issues, we record at the end some thoughts regarding the premises which, at
the present stage of the beginning of a new millennium, obtrude the dimen-
sions and particularize the steps of the promotion in tourism:
1. The emphasis on the globalization process is accompanied on the
one hand by the expansion of the use of global distribution sys-
tems and the promotion through Internet on world level, and on
the other hand by the reinforcement of the tourists tendency (eas-
ier and easier to satisfy) to travel and spend their holidays in fara-
way exotic places, over the borders, which dont make up anymore
an obstacle in the way of the so called planetary nomadism.
2. The tourist market is unique, but it represents one of the most
important dream markets of the present day. In the case of the
high-tech of life, the dream, and afterwards its actual living in the
surroundings of the tourist destination can be not only an alterna-
tive for the spiritual and emotional poverty of the human being
through its inclusion in the gearing of some sophisticated techni-
cal means from the professional and domestic universe, but also
the chance of human regeneration under all aspects).
3. The world today (and probably, the one of tomorrow) is one of
comfort, of aspirations pluralism, people travel a lot and they
atomize themselves through travel; the fundamental human atti-
tude towards life has a more emphasized hedonistic tint.
In these conditions, well-inspired and skillfully conceived, the promo-
tion steps benefit by premises which ensure the success, by orientating its
psychological nuances and options for an offer under the sign of comfort
generating satisfactions.
4. The mentioned favorable premises do not contradict still the valuations
of the specialists from The World Tourism Organization, according to
which almost no activity in the world needs such an active, clever,
and aggressive promotion as the tourism. This assertion, which has the
endorsement of The Worlds Tourism Organization, finds its confirma-
tion in the arguments from point 3 of the present consideration, and,
at the same time, in the complexity of the tourist phenomena.
293 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
Customer Satisfaction,
Loyalty, and Value and
Profitability in Tourism
Liljana ELMAZI, Alexandru NEDELEA
Today companies face their toughest competition in decades, and
things will only get worse in years to come. In earlier chapters we have
argued that to succeed in today` s fiercely competitive marketplace, com-
panies will have to adopt a marketing philosophy. In this chapter we spell
out in more detail how companies can go about winning customers and
outperforming competitors. The answer lies in doing a better job of meet-
ing and satisfying customer needs.
To succeed, or simply to survive companies need a new philosophy. To
win in todays marketplace, companies must be customer centered; they
must deliver superior value to their target customers. They must become
adept in building customers, not just building products. They must be
skillful in market engineering, not just product engineering.
Many companies think that obtaining customers is the job of the mar-
keting or sales department. But winning companies have come to realize
that marketing cannot do this job alone. In fact, although it plays a lead-
ing role, marketing can be only a partner in attracting and keeping cus-
tomers. The worlds best marketing department cannot sell successfully
poorly made products that fail to meet consumer needs. The marketing
department can be effective only in companies in which all departments
and employees have teamed up to form a competitively superior cus-
tomer value delivery system. Consider McDonalds people do not swarm
to the worlds 14,000 McDonalds restaurants only because they love the
chains hamburgers. Consumers flock to the McDonalds finely tuned sys-
tem delivers a high standard of what the company calls QSCV: quality,
service, cleanliness, and value. The system consist of many McDonalds
8
294 Liljiana ELMAZI, Alexandru NEDELEA
components, both internal and external. McDonalds is effective only to
the extent that it successfully partners with its employees, franchisees,
suppliers, and others to deliver exceptionally high customer value.
In this chapter we discuss the philosophy of customer-value-creating
marketing and the customer-focused firm. It addresses several important
questions: What are customer value and customer satisfaction? How do
leading companies keep current customers as well as get new ones? How
can companies practice total quality marketing?
8.1. Defning Customer Value and Satisfaction
More than 35 years ago, Peter Drucker insightfully observed that a
companys first task is to create customers. However, creating custom-
ers can be a difficult task. Todays customers face a vast array of product
and brand choices, prices, and suppliers. The company must answer a key
question: How do customers make their choices?
The answer is that customers choose the marketing offer that gives
them the most value. Customers are value-maximizers, within the bounds
of search costs and limited knowledge, mobility, and income. They form
expectations of value and act upon them. Then they compare the actual
value they receive in consuming the product to the value expected, and
this affects their satisfaction and repurchase behavior. We now examine
the concepts of customer value and customer satisfaction more carefully.
8.1.1. The value of customers
The value of customers is obvious in the sense that a businesses fail with-
out them. Perhaps less obvious is the fact that few service businesses can
survive long without a substantial number of repeat customers. Especially
for hotels, restaurants, and other hospitality operations, survival and suc-
cess depend more on retaining the loyalty of guests with quality service
than attracting one- time customers with promotions and sales blitzes.
Customer satisfaction: a key market performance metrics
There are many ways to measure customer satisfaction. However, one
common measure of customer satisfaction can be derived from customers
ratings of their overall satisfaction on a seven-point scale that ranges from
0 (very dissatisfied) to 6 (very satisfied), as shown table below:
295 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
0 1 2 3 4 5 6
Very
Dissatised
Moderately
Dissatised
Slightly
Dissatised
Neutral
(neither)
Slightly
Satised
Moderately
Satised
Very
Satised
When this method of measuring customer satisfaction is applied to
a sample of customers, we can compute an overall measure of customer
satisfaction. Assume, for example, that an interview with 100 customers
of a hotel produced an average score of 4.32. An overall average of 4.32
does not tell us much and is not likely to get managements attention. To
increase the sensitivity of this measure, we need to index it in a more
meaningful way. By dividing the average score by the maximum score of
six (very satisfied) and multiplying by 100, we can create an index that
varies from 0 to 100. When this index is used, the overall average of 4.32
translates to a score of 72, where 100 would be a maximum. Management
can quickly discern that the business has achieved a 72 level of customer
satisfaction, whereas a 100 would be equivalent to 100 percent very sat-
isfied customers.
Is an overall customer satisfaction score of 72 a good level of perform-
ance? That depends on what the businesss overall score was in earlier
measurements, its target objective, and the overall score given to a lead-
ing competitor. Lets assume that an overall score of 72 is an improvement
over earlier average scores and that the average score of a leading com-
petitor is 62. Those numbers would lead many businesses to feel pretty
good about their level of performance and perhaps become complacent in
their pursuit of customer satisfaction. Also, efforts to increase customer
satisfaction cost time and money, and many managers may argue that the
incremental benefit is not sufficient to a to justify a cost.
To really understand customer satisfaction and to leverage its profit
potential, we need to expand our view of customer satisfaction.
8.1.2. A wide-angle view of customer satisfaction
An average customer satisfaction score of 72 (where 100 is the maxi-
mum) may be viewed as acceptable, and even very good. However, man-
aging to the average masks our understanding of customer satisfaction and
opportunities for increased profits.
If we expand our view of customer satisfaction by reporting the per-
centage for each category on our customer satisfaction scale, a more mean-
ingful set of insights emerges.
296 Liljiana ELMAZI, Alexandru NEDELEA
The average customer satisfaction score of 72 was derived from 74 %
who reported varying degrees of satisfaction, 10 % who were indifferent
or neutral, and 16 5 who reported varying degrees of dissatisfaction. The
10 % who were neutral in their customer satisfaction are certainly vulner-
able to competitor moves, but it is the 16 % categorized as dissatisfied
who are very serious candidates to exit as customers. Thus, our immedi-
ate concern should be our dissatisfied customers.
What is the value of a loyal guest One way of answering this ques-
tion is to think of the present value of a guest as the first- time sale you
make to him or her, and the future value of the same guest as the rev-
enue potential from the guest over a specified period of time. Table 8.1.
shows the monthly, one- year and five-year revenue potential of a dinner
guest for three different restaurant segments. The exhibits calculations
drive home the fact that when guests walk through the door of a business,
they bring with them the potential for a sizable future revenue stream for
the business.
Table 8.1.
The value of a repeat dinner guest
Type of
restaurant
Check
average
Meals
per month
Revenue potential
1 month 1 year 5 years
Fast food
Casual
Upscale
$4.50
$12.0
$35.0
3
2
1
$13.50 $162 $ 810
$24.00 $288 $1440
$35.00 $420 $2100
Using a specific dollar amount when communicating the potential
value of a guest can help managers emphasize to their employees just
how potentially valuable each customer is.
The figures in table 8.1. actually understate the value of a guest. The
revenue potential of a loyal guest also includes the new business that he
or she brings to the property through positive word-of-mouth referrals. In
addition, recent research into service-related businesses strongly suggests
that revenue and profitability are higher for purchases made by repeat cus-
tomers than for purchases made by first-time or one-time customers.
Hotel and restaurant managers might agree that repeat guests are more
profitable than first-time guests, basing their agreement on an intuitive sense
or gut feeling. However, few managers would be able to back their intu ition
with facts and figures from their accounting or information systems.
297 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
8.1.3. Customer delivered value
The customers assessment of products overall capacity to satisfy his
or her needs. The difference between total customer cost of a marketing
offer is profit to customer or customer delivered value. Total customer
value is the total of all the product, services, personnel, and image values
that a buyer receives from marketing offer.
Total customer
(Product, services, personnel,
and image values)
Total customer cost (Monetary, time, energy, and psychic cost)
Customer delivered value (Prot to the customer)
Figure 8.1. Customer delivered value
Total customer cost is the total of all monetary, time, energy and psy-
chic cost associated with a marketing offer (figure 8.1.). For example,
a business traveler will value a nonstop flight over a direct flight that
makes a stop because of the reduced travel time. They may avoid certain
airports as connecting points because they are large and require a lot of
walking. Going from the east coast of the United States to the west coast,
they may prefer to change planes in Memphis rather than Dallas. Finally
they will prefer an airline that has a good on-time record and a good cus-
tomer service record. This can reduce the physic cost of worrying if the
plane and baggage will arrive on time. These attributes create value for
customer. Suppose that an airline offers a nonstop for $25 more than a
competitors flight stopping in Dallas. The flight stopping in Dallas will
take two hours longer and require changing planes. The hassle of walk-
ing through the airport and the two hours of extra time will increase the
total customer cost of this flight even though it is $25 less than nonstop.
The business traveler will prefer the nonstop because it has a higher cus-
tomer delivered value.
Luxury hotel guests were asked which hotel features would cause them
to be more loyal to a hotel. A total of 18 possible benefits developed from
in depth interviews were listed. The hotel customers were asked to rate
each feature on a scale from 1, would have no impact on loyalty, to 7,
would have a great impact on loyalty. In a separate area of question-
naire they were asked which of these features were offered currently at
hotels to which they were loyal. If one considers what hotels are actually
298 Liljiana ELMAZI, Alexandru NEDELEA
doing and compares this information to what customers would like hotels
to do, one is easily able to see where hotels are either meeting the needs
of guests or falling short. This is denoted as a gap (performance-impor-
tance).The gap for loyalty features is shown in Table 8.2.
Table 8.2. shows that there is tremendous opportunity to increase
loyalty further. Of the 11 features tested, only one has a positive gap.
Interestingly, the top two features where the largest gaps occur should be
very easy and inexpensive for luxury hotels to implement. This type of
analysis helps managers identify areas of opportunity for creating more
customer delivered value. In this case they see those attributes that create
loyalty or value. They also see those areas which most hotels do not offer,
giving them a chance to create a competitive advantage. Finally, they can
cost out the price of providing the features. For example, giving guests
unexpected periodic upgrades can be inexpensive if you are using unsold
suites for this program.
If a seller finds that competitors deliver greater value, it has two alter-
natives. It can try to increase total customer value by strengthening or aug-
menting the product, services, personnel, or image benefits of the offer.
Or it can decrease total customer cost by reducing its price and simplify-
ing the ordering and delivery process.
Table 8.2.
Gap Analysis of Loyalty Features
FEATURE
PERFOR-
MANCE
(%)
IMPOR-
TANCE
(%)
GAP
The hotel provides upgrades when a
available.
18.7 69.4 -50.7
You can request a specic room. 4.9 44.7 -39.8
If the hotel is likely to be sold out at time
you normally visit, someone from the ho-
tel will call you to ask if you would like
to make a reservation.
3.0 37.7 -34.7
The hotel uses information from your
prior stays to customize services for you.
24.3 57.7 -33.4
The staff recognizes you when you arrive. 15.1 38.3 -23.2
299 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
Employees communicate the attitude that
your problems are important to them
24.0 42.6 -18.6
The hotel has a frequent stayer program
that allows you to earn points toward free
accommodations.
9.6 27.8 -18.2
The hotel has a credit card that allows you
to accumulate points toward the hotels
frequent stayer program each time use it.
5.1 19.6 -14.5
When you return to this hotel, you regis-
tration process is expedited.
31.2 41.1 -9.9
The hotel provides you with occasional
gifts.
18.7 23.7 -5
This hotel has connections with individu-
als or organizations that help you enjoy
your stay or be more productive
19.5 13.4 6.1
8.2. Customer Satisfaction
Thus costumers from judgments about the value of marketing offers
and make their buying decisions based on these judgments. Customer satis-
faction with a purchase depends on the products performance relative to a
buyers expectations. A customer might experience various degrees of sat-
isfaction. If the products performance falls short of expectations, the cus-
tomer is dissatisfied. If performance matches expectations, the customer is
highly satisfied or delighted. But how do buyers form their expectations?
Expectations are based on the marketer and competitor information and
promises. Marketers must be careful to set the right level of expectation.
If they set expectations too low, they may satisfy those who buy but fail to
attract enough buyers. In contrast, if they raise expectations too high, buy-
ers are likely to be disappointed. For example, Holiday Inn ran a campaign
a few years ago called No surprises, which promised consistently trou-
ble-free accommodations and service. However, Holiday Inn guests still
encountered a host of problems and the expectations created by the cam-
paign only made customers more dissatisfied. Holiday Inn had to with-
draw the campaign.
Still, some of todays most successful companies are raising expecta-
tions and delivering performance to mach. These companies embrace total
300 Liljiana ELMAZI, Alexandru NEDELEA
customer satisfaction. For example, Ritz-Carlton views the Baldrige Award
as a milestone in its quality journey, not the finish line. Hampton Inns
offers a guarantee, and Southwest Airlines consistently has one of highest
on-time arrival rates in industry. These companies aim high because they
know that customer who are only satisfied will still find it easy to switch
suppliers when a better offer comes along.
Although the customer-centered firm seeks to deliver high customer sat-
isfaction relative to competitors, it does not attempt to maximize customer
satisfaction. A company can always increase customer satisfaction by low-
ering profits. In addition to customers, the company has many stakeholders,
including employees, dealers, suppliers and stockholders. Spending more to
increase customer satisfaction might divert funds from increasing the satis-
faction of these other partners. Thus the purpose of marketing is to gen-
erate customer value profitably. The company must deliver a high level of
customer satisfaction while delivering at least acceptable levels of satisfac-
tion to the firms other stakeholders. This requires a very delicate balance.
The marketer must continue to generate more customer value and sat-
isfaction but not give away the house
1
.
Todays winning companies track their customers expectations, per-
ceived company performance and customer satisfaction. However, cus-
tomer satisfaction measures are meaningful only in a competitive context.
For example a company might be pleased to find that 80% of its custom-
ers say they are satisfied with its products. However, if a competitor is
attaining 90% customers satisfaction and aiming for 100%, the company
may find that it is losing customers to the competitor.
Thus companies must monitor both their own and their competitors
customer satisfaction performance.
For customer-centered companies, customer satisfaction is both a goal
and a major factor in company success. These and other companies real-
ized that highly satisfied customers produce several benefits for the com-
pany. They are less price sensitive and they remain customers for a longer
period.
They buy additional products over time as the company introduces
related products or improvements. And they talk favorably to others about
the company and its products.
1
Thomas E. Caruso, Got a Marketing Topic? Kotler Has an Opinion, Marketing
News, June 8, 1992, p. 21.
301 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
8.2.1. Customer dissatisfaction and customer exit
Dissatisfied customers often do not complain to a hotel or restaurant,
but they do walk and they do talk. Well documented studies shows that
out of 100 dissatisfied customers, only four will complain to a business.
Of the 96 dissatisfied customers who do not complain, 91 will exit as cus-
tomers, as shown in figure 8.2.
While market position is quietly eroded by existing customers, attract-
ing new customer is made more difficult because each dissatisfied cus-
tomer will tell eight to 10 other people of his or her dissatisfaction.
The market is enormous. For example, assume that a hotel has cap-
tured 10% of a 200000 customer market, or 20000 customers. If 15 per-
cent of those 200000 customers were dissatisfied, this hotel would have
3000 dissatisfied customers. The statistics presented in figure would indi-
cate that a hotel would lose 92 percent of those dissatisfied customers
2760 customers each year. This percentage translates to a 1.4 point
reduction in market share. To hold a 10 percent share of the market (cus-
tomers), the hotel would have to attract 2760 new customers. This, of
course, is a very expensive way to hold market share.
But the situation is much worse. Many dissatisfied customers become
terrorists; they vent their dissatisfaction by telling others about it. Recall
that each dissatisfied customer tells eight to 10 other people. This means
that the 3000 dissatisfied customers will communicate their dissatisfaction
to approximately 30000 other individuals. These may not all be poten-
tial customers, but this level of negative word-of-mouth communication
makes new customer attraction much more difficult and more expensive.
This kind of market behavior has led some businesses to develop
programs to encourage dissatisfied customers to complain. For example,
Dominos Pizza instituted a program in which their strategy was simply to
encourage dissatisfied to complain rather than just leave. Figure illustrates
that their efforts succeeded in getting 20 percent of their dissatisfied cus-
tomers to complain. For those who complain, Dominos can resolve 80 per-
cent of the problems in 24 hours. When complains can be resolved quickly,
95 percent of those customers can be retained. When complaints cannot be
resolved within 24 hours, the customer retention rate falls to 46 percent.
Not surprisingly, if customers do not complain, the odds of retention
drop below 40 percent. Thus, while it may seem odd at first, one of the
jobs of market-based management is not only to track customer satisfaction
302 Liljiana ELMAZI, Alexandru NEDELEA
but also to encourage dissatisfied customers to complain. Only with the
specific details of a customer complaint and source of dissatisfaction can
a business take corrective action.
8.2.2. Customer satisfaction and proftability
Customer satisfaction is an excellent market- based performance met-
ric and barometer of future revenues and profits, as stated below.
Customer satisfaction is a forward-looking indicator of business suc-
cess that measures how well customers will respond to the company in the
future. Other measures of market performance, such as sales and market
share, are backward-looking measures of success. They tell how well the
firms has done in the past, not how well it will do in the future.
Thus, a customer satisfaction is a good leading indicator of future oper-
ating performance. A business may have produced excellent financial results
while underwhelming and disappointing a growing number of its customers.
Because customers cannot always immediately switch to alternative solutions,
customer dissatisfaction often precedes customer exit and reductions in sales
and profitability. Thus, for many businesses, quarterly measures of customer
satisfaction provide an excellent leading indicator of future performance. If
customer satisfaction is on the decline, an early warning signal is given, pro-
viding the opportunity to correct a problem before real damage is done. Of
course, if a business does not track customer satisfaction, it forgoes the oppor-
tunity to correct problems before declines in sales and profit results.
8.2.3. Proft impact of customer dissatisfaction
As demonstrated, most dissatisfied customers do not complain; they
just walk away. To hold market share in a mature market, a business must
replace those lost customers. Lets examine a hotel that is in mature market
100 dissatisfied
customers

4% complain
96% do not complain

75% retained

25% exit


3
1
5% retained
95% exit
5
91
100
Figure 8.2. Customer Dissatisfaction and customer exit
303 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism


100 dissatisfied
customers

20%
complain

80%
do not
complain

80% resolved
in 24 hours
20% not
resolved
in 24 hours
95% retained
5 % exit

39% retained

61 % exit

15
1
46% retained

54% exit

2
2
31
49
100
Figure 8.3. Efforts to encourage customer complain and
manage customer dissatisfaction

Customer
base
100%

Satisfied
customers 70%
Dissatisfied
customers 30%

Complain
10%

Retained 80%

Lost 20%

Do not
complain
90%
Retained 10%

Lost 90%
70%
retained
customers
2.4%
retained
customers
0.6%
lost
customers
2.7%
retained
customers
24.3%
lost
customers
New customers
24.9%

24.9%
Replacement
customers
75.1%
Customer
Retention
Figure 8.4. Customer Retention Tree
304 Liljiana ELMAZI, Alexandru NEDELEA
with 20000 customers and has a 75 percent rate of customer retention.
Each year this hotel loses 5000 customers and, to hold a customer base of
20000, must replace those customers with 5000 new customers. However,
before we look at the profit impact of this level of customer satisfaction
and retention, lets look at how this business got to a level of 75 per-
cent customer retention. A closer look at customer satisfaction, complaint
behavior, and customer retention enables us to build the Customer reten-
tion Tree in figure.
As shown, the hotel is operating at a 70 percent level of customer satis-
faction. Of the 30 percent who are dissatisfied, 24.9% are lost. Furthermore,
the majority of dissatisfied customers who are lost do not complain to the
business about the source of their dissatisfaction.
Lost customers are generally dissatisfied or neutral customers. Because
they are not with a business for the whole year or are in the process of
reducing their purchases from the business, the annual revenue per cus-
tomer is much lower. However, retaining dissatisfied customers is also
expensive because they require the business to expand extra resources in
an attempt to keep them. These extra efforts often mean extra work for
the sales force, price concessions, and more customer service.
8.2.4. The cost of customer dissatisfaction
The potential value of customers demonstrates that when dissatisfied
guests walk out the door, they take with them a sizable chunk of future
business. Also, the total amount of future business at risk increases in rela-
tion to the negative impressions about the business that dissatisfied cus-
tomers pass on the others. LeBouef reports that the average I out of every
5 dissatisfied customers tell 20 people.
Working these estimates, lets assume that one dissatisfied guest tell ten
people about the poor service he or she experienced at a local restaurant.
Lets also assume that only three of these ten people have the same dining
habits as the dissatisfied guest and that all four of them (the dissatisfied
guest and the three people he or she talked to) do not eat at the restaurant
for six months. The total lost revenue potential from a single dissatisfied
guest for the restaurants shown in exhibit 1 would be $324 for the fast-
food operation, $576 for the casual restaurant, and $840 For the upscale
restaurant. Lost revenue escalates further when you factor in the likelihood
that few guests dine alone. Not many restaurants have enough marketing
305 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
resources to continually drum up enough new business to offset the lost
revenue potential from dissatisfied parties of two, three, four, or more.
Research conducted by major hotel chains suggests that one out of
every seven guests at a hotel experiences a service- related problem that
is serious enough to cause that guest not to return. This is a defection rate
of 14%. A defection rate captures the percentage of guests lost to com-
petitors because of service- related problems. Based on the same research,
exhibit shows what typically happens to 100 dissatisfied guests. As you
can see, hotel employees succeed only 29% of the time in transforming a
dissatisfied guest into a satisfied guest.
Out of 100 dissatised customers:
40 never ask for help
They tell 8-10 potential
guests about their problems.
60 ask for help
7 out of ten guests will do business with
you again if you resolve the problems in
their favor.
Of the 60 guests that ask for help:
18 are never helped
They tell 8-10 potential
guests about their problems.
42 are offered assistance
95 % of complaining guests will do busi-
ness with you again if you resolve their
problems immediately.
Of 42 guests who are offered assistance:
13 remain dissatised
they tell 8-10 potential
guests about their problems.
29 become satised as their problems are
resolved they will tell 5 potential guests
about how the staff helped to resolve their
problems.
The Bottom Line
71 of 100 dissatised guests
tell 568-710 potential guests
about their problems.
29 of 100 dissatised guests tell 145
potential guests that their problems were
resolved.
Figure 8.5. Pattern of Lost Business 100 Dissatised Guests
Ghost shopping. Another useful way of assessing customer satisfac-
tion is to hire people to pose as buyers to report their experiences in buy-
ing the companys and competitors products. These ghost shoppers can
even present specific problems to test whether the companys personnel
handle difficult situations well. For example, ghost shoppers can complain
about a restaurants food to see how the restaurant handles this complaint.
306 Liljiana ELMAZI, Alexandru NEDELEA
Not only should companies hire ghost shoppers, but managers themselves
should leave their office from time to time and experience first and the
treatment they receive as customers.
Ghost customer analysis. Companies should contact customers who
have stopped buying, or those who have switched to a competitor, to learn
why this happened. Not only should the company contact such exit inter-
views, it should also monitor the customer loss rate. A rising loss rate indi-
cates that the company is failing to satisfy its customers.
Cautions in Measuring Customer Satisfaction. Customer satisfaction
ratings are sometimes difficult interpret. When customers rate their satis-
faction some elements of the companys performance say delivery, they can
vary greatly in how they define good delivery. It might mean early deliv-
ery, on-time delivery, order completeness, or something else. Yet if the
company tried to define every element in details, customers would face
a huge questionnaire. Companies also must recognize that two customers
can report being highly satisfied for different reasons. One might be eas-
ily satisfied most of the time, whereas the other might be hard to please
but was pleased on this occasion. Further, managers and salespeople can
manipulate their ratings on customer satisfaction. They can be especially
nice to customers just before the survey or try to exclude unhappy custom-
ers know that the company will go out of its way to please customers may
express high dissatisfaction in order to receive more concessions.
8.3. Customer Satisfaction Versus Customer Loyalty
Customer satisfaction measures how well a customers expectations
are met. Customers received what they expected, they are satisfied. If their
expectations were exceeded, they are extremely satisfied. Customer loy-
alty, on the other hand, measures how likely customers are to return and
their willing to perform partnership activities for the organization.
Customer satisfaction is a requisite for loyalty. However, there are
reasons why satisfied customers may not become loyal customers. Some
travelers do not return to an area on regular basis.
Thus a customer may think a hotel is great, but they never return to
the hotel because they never return to the area. Second, some customers
like to experience different hotels and restaurants when they return to an
area. These customers may be satisfied with each hotel or restaurant, but
they keep changing to gain a new experience. Third, some guests are price
307 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
sensitive and will the last hotel, they will try out another hotel because of
the deal they were offered. Finally, customers expect to be satisfied with
their purchase; if not, they would not have made the purchase.
Thus satisfaction ratings tend to be inflated. To develop loyal custom-
ers, managers must have extremely satisfied customers.
For example, two researchers found that 90% of customers who change
suppliers were satisfied with their previous supplier
2
. In addition, Heskett,
Sasser and Schlesinger, developers of the service profit chain model (a
model that investigates influence of operating strategy and service deliv-
ery system, service concept, and target market on profit), found that the
link between customer satisfaction and customer loyalty was the weak-
est relationship in their model
3
. Thus although customer satisfaction is
requisite for customer loyalty, customer satisfaction does not mean your
customers will return. Heskett, Sasser and Schlesinger found that on five-
point scale, with 4 being satisfied and 5 being very satisfied, less than 40%
of those rating the service a 4 intended to return, while 90% who rated
the service a 5 intended to return. We have found similar results in our
research with hospitality customers. Managers often state they are doing
a good job because their scores on customer satisfaction surveys are 4.2
or 4.3 out of 5.They feel if they get above a 4, things are going well. The
research indicates that a 4 on five-point scale is really a negative score.
Managers should not be satisfied with 4s; if they want to get loyal cus-
tomers, they must create 5s.
To further illustrate this point, consider the last time you went out for
a nice meal. In larger cities there are many good places to eat. If you walk
out of restaurant and say, That was a good meal, you may or may not
return, as there are a lot of other good restaurants to choose from. If you
walk out of the restaurant and say That was a great meal or That was
the best seafood I have had in a long time, you will probably return to
the excellent restaurant. Excellence is hard to achieve, but the rewards can
be great when you do achieve it. The important point to this discussion of
satisfaction versus loyalty is that loyal customers are more valuable than
satisfied customers. A satisfied customer does not return and spreads no
positive word of mouth has no net present value to the company. On the
2
Frederic F. Reichheld and Keith Aspinal, Building HighLoyalty Business Sys-
tems, Journal of Retail Banking, Winter 1993/1994, pp. 21-29.
3
James L Heskett, Earl W. Sasee, Jr., and Leonard A. Schlesinger, The service
Profit Chain, New York: Free Pres, 1997.
308 Liljiana ELMAZI, Alexandru NEDELEA
other hand, a loyal customer who covered returns and spreads positive
word of mouth has a net present value of more than $100,000 to a lux-
ury hotel. Managers must identify those patrons who are likely to become
loyal customers and create more customer delivered value than the com-
petition for these customers.
8.4. Retaining Customer
The benefits of relationship marketing come from continued patron-
age of loyal customers, reduced marketing costs, decreased price sensi-
tivity of loyal customers and partnership activities of loyal customers.
Reduced marketing cost are the result of requiring fewer marketing dollars
to maintain a customer than to create one and the creation of new custom-
ers through the positive word of mouth of loyal customers make more pur-
chases than do similar unloyal customers
4
. Partnership activities of hotel
customers include strong word of mouth, business referrals, providing ref-
erences, publicity, and serving on advisory boards. The combination of
these attributes of loyal customers means that a small increase in loyal cus-
tomers can result in major increase in profitability. Riechheld and Sasser
found that a 5% increase in customer retention resulted in a 25 to 125%
increase in profits in nine service industry groups they studied. As result
of their work, these researchers claim that building a relationship with cus-
tomers should be a strategic focus almost service firms. Many products
have reached the mature stage of the product life cycle. Competition is
strong and often there is little differentiation between products in the same
product class. For example, general managers from Sheraton Asia were
shown pictures of hotel rooms from both their own chain and those of three
competitors. Most managers could not give the brand identity one room,
even though they were given a list of eight brands from which choose.
This exercise illustrates that it is very difficult to distinguish among com-
peting hotel brands based on the physical attributes of a hotel` s product.
Increased competition with little differentiation between core products is
one of the factors that led to the development of relationship marketing in
the 1990s. Relationship marketing enables companies to build loyal with
their customers. Developing customers as partners is different traditional
marketing, which is more transaction-based.
4
Frederic F. Reichheld and W. Earl Sasser, JR, Zero Defections: Quality comes to
Services, Harvard business Review, 68 , September/ October 1990, pp. 105-111.
309 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
Beyond building a stronger relation with their partners in the supply
chain, companies today must work to develop stronger bonds and loyalty
customers for granted. Customers often did not have many alternatives
suppliers, or the other suppliers were just as poor in quality and serv-
ice, or the market was growing so fast that the company did not worry
about fully satisfying its customers. A company could lose 100 customers
a week but again another 100 customers and consider its sales to be sat-
isfactory. Such a company, operating on a leaky bucket theory of busi-
ness, believes that there will always be enough customers to replace the
defecting ones. However, this high customer churn involves higher costs
than if a company retained all 100 customers and acquired no new ones.
Another problems is that the dissatisfied customers are spreading negative
word of mouth. This makes it increasingly difficult to gain the 100 new
customers per week. In businesses that depend on local business, such as
a equal amount of replacement customers.
8.4.1. Cost of lost customers
Companies must pay close attention to their customer defection rate and
undertake steps to reduce it. First, the company must define and measure
its retention rate. Next, the company must identify the causes of customer
defection and determine which of these can be reduced or eliminated. Not
much can be done about customers who leave the region or about business
customers who go out of business. But much can be done about custom-
ers who leave because of poor to prepare a frequency distribution show-
ing the percentage of customers who defect for different reasons.
Companies can estimate how much profit they lose when custom-
ers defect unnecessarily. For an individual customer, this is the same as
the customers lifetime value. Ritz-Carlton knows that its repeat custom-
ers are worth over $100,000 over their lifetime. A restaurant customer
can be worth several thousand dollars worth of business, and a travel
agency. The lifetime value is calculated by measuring how much a mem-
ber of market segment produces per year, on average, and multiplying this
amount by the average life of a member of that segment. The average life
is determined through surveys or guest history. People move, get trans-
ferred, change companies and become dissatisfied; thus the average life
for individual business traveler might be four years. The average life of
a restaurant customer might be only three years in transient community.
310 Liljiana ELMAZI, Alexandru NEDELEA
Hotel chains with a guest history system can track the lifetime value of
guests to chain, not just an individual hotel. The lifetime varies by loca-
tion and market segment; it is unique to an individual business.
The company needs to figure out how much it would cost to reduce the
defection rate. If the cost is less than the lost profits, the company should
spend that amount to reduce customer defections. Today, outstanding com-
panies go all to retain their customers. Many markets have settled into
maturity, and there are not too many new customers entering most catego-
ries. Competition is increasing and the cost of attracting new customers are
rising. In these markets, it might cost five times as much to attract a new
customer as to keep a current customer happy. Offensive marketing typi-
cally costs more than defensive marketing, because it takes a great deal of
effort and spending to coax satisfied customer away from competitors.
Unfortunately, classic marketing theory and practice centers on the
art of attracting new customers rather than retaining existing ones. The
emphasis has been on creating new customers rather than relationships.
Discussion has focused on presales activity and sale activity rather than on
post sale activity. Today however, more companies recognize the impor-
tance of retaining current customers. According to one report, by reduc-
ing customer defections by only 5% companies can improve profits from
25 to 85%. Unfortunately, however, most company accounting system fail
to show the value of loyal customers.
Thus although much current marketing focuses on formulating market-
ing mixes that will create sales and new customers, the firms first line of
defense lies in customer retention. The best approach to customer reten-
tion is to deliver high customer satisfaction that results in strong customer
loyalty.
8.4.2. Resolving customer complaints
Resolving customer complaints is a critical component of customer
retention. One study by the Technical Research Programs Institute found
that if a customer has a major complaint, 91% will not by from you again,
but if it was resolved quickly, 82% of those customers will return. The
complaint resolution drops the customer defection from 91 out of 100 to
18 out of 100.With resolution of minor complaints the defection rate can
be reduced to less than 5 out of 100. In complaint resolution there are
two important factors: First, if you resolve a complaint, do it quickly-the
311 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
longer it takes to resolve, the higher the defection rate; and second, seek
out customer complaints.
For example, a business woman had just returned from an overseas
trip. After a good nights sleep in a New York hotel she was ready for an
American breakfast. She dialed room service and her breakfast was deliv-
ered promptly. A cheerful waiter wheeled the table into the room and posi-
tioned it so that the woman could look out the window. He opened the
heating compartment and pulled out the breakfast that the woman had
been waiting for: a full, hot American breakfast. The waiter handed the
woman the bill, and she promptly signed the bill and added a handsome
tip. Now she was ready to start her breakfast.
The waiter said, Im sorry, you will have to pay cash. She explained
that she did not have any money with her and pulled out her credit cards,
getting the American Express gold card she had used to check into the
hotel. The waiter called on the phone and after 5 minutes it was resolved
that the woman could use her credit card. The woman now upset sat down
to a cold breakfast.
A meeting planner ordered a bus to take a group of club managers
on a tour of country club. The bus was ordered for a 9:30 A.M depar-
ture on Saturday morning. The bus company usually scheduled the buses
to arrive at least 15 minutes before the departure time. The meeting plan-
ner became concerned when the bus had not arrived by 9:20. He called
the dispatcher at the bus company. The dispatcher told him in a matter-
of-fact way that the bus drivers were still sleeping and they would not be
there until 11A.M. It seems they were working with a tour that did not get
through until 2:30 A.M the previous nigh and federal regulations called for
a least eight hours off between trips. The dispatcher hung up after explain-
ing the reason for the delay. The meeting planner called a fleet of taxi
cabs to transport his group so that they would make the 10 A.M appoint-
ment. He then called back to cancel the bus. On Monday he called the
bus company to get his money back. The bus company required payment
in full when the bus was reserved. He was told he would not be entitled
to a refund, since the bus was canceled with less than 24 hours notice.
After several weeks of phone calls and a letter, the bus company agreed to
refund the money. Six months later the meeting planner received another
check for $125 and an apology from the national sales manager.
The bus company had refunded the money and paid $125 and still lost
the customer. After six months, the meeting planner had found another bus
312 Liljiana ELMAZI, Alexandru NEDELEA
company and was satisfied with their service. He was not about to change.
If the bus company had refunded the money promptly and offered $125
toward the meeting planners next trip, they might have been able to sal-
vage the customer. The waiter at the New York hotel could have told the
businesswoman he was sure her signature would be fine and left, telling
her to enjoy her meal. He then could have resolved the problem outside
her room. This would have resulted in the woman enjoying the meal she
was looking forward to. In both these cases the customer received a res-
olution to the problem, but it came too late.
Another critical area in complaint resolution is that most customers do
not complain. They do not give managers must develop ways to encour-
age customers complain. Methods to seek complaints include customer
hot lines that encourage customers to call about problems that they are
having. Customer comment cards encourage customers to discuss prob-
lems that they had with the product. Managers can train employees to look
out for guests who look dissatisfied and try to determine their problems.
A service guarantee is another way of getting customers to complain; to
invoke the guarantee, they have to complain.
When a customer does complain, management should be grateful.
Janelle Barlow and Claus Moller write in Complaint Is a Gift:
When customers feel dissatisfied with products and services, they have
two options: They can say something or they can walk away. If they walk
away, they give organizations virtually no opportunity to fix their dissat-
isfaction. Complaining customers are still talking with us, giving us the
opportunity to return to a state of satisfaction so they will be more likely
to buy from us again. So as much as we might not like to receive nega-
tive feedback, customers who complain are giving us a gift.
If we shift our perspective in this way to see complaints as gifts, we
can more readily use the information the complaints generate to grow
our own business. Customer complaints are one of the most available yet
underutilized sources of customer and market information
5
.
Complaints that come in by letter should be responded to quickly by
a letter or phone call. If you respond by letter, customize part of letter
acknowledging the customer` s specific complaint and what will be done
to prevent it from happening again. Are solution to the complaint should
be offered to guest. A more effective way of resolving the complaint can
5
Janelle Barlow and Claus Moller, A complaint is a Gift, San Francisco: Berret
Koehler, 1996.
313 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
be through the use of telephone. Today, it often costs less to make a tele-
phone call that it does to send out a letter. The telephone call allows per-
sonal contact with the guest and allows the manager to probe, finding out
exactly what happened to the guest. The worst thing a company can do is
send out a form letter that shows no empathy to the guests problem.
Bob Martin, a former professor at UNLV, was spending a summer as
an administrative assistant at a resort. One day while he was in the general
managers office, the manager began complaining about a stack if cus-
tomer complaint letters he had to answer. The manager stated further that
he hated to answer complaint letters. The manager also indicated that it
was a waste of time since he would be lucky if 5% returned to the hotel.
Bob picked up the stack of letters and said, I will take care of this. As
he left, he said I will get all of them back.
Bob Martin developed a letter that acknowledged receipt of a com-
plaint and thanked the guest for talking the time to write. He apologized
for the problem and mentioned what the resort was doing to correct the
problem. He offered the guests a complimentary room and asked them to
call the executive secretary to make their reservation. This made the guest
feel important and allowed the resort to track retuning guests. He closed
by saying that he hoped other guests would not be the only ones to ben-
efit from the corrections made as a result of the complaint letter, but that
they would return again as a valued guest. By the end of the summer, 90%
of the writers had returned or made reservations to return. The lifetime
value of these guests was over $100,000 in revenues. The complaint res-
olution also turned a lot of negative word-of-mouth advertising into posi-
tive word-of-mouth advertising. In fact, some of the returning guests had
talked another couple into coming with them. Resolving complaints is one
of the easiest ways to plug up a hole in a leaky bucket. It is an effec-
tive way of preventing customer defection. Managers should seek com-
plaints and resolve them quickly.
8.4.3. Customer proftability
Ultimately, companies must judge which segments and which specific
customers will be profitable. Marketing is the art of attracting and keeping
profitable customers. Yet companies often discover that between 20% and
40% of their customers are unprofitable. Furthermore, many companies
report that their most profitable customers are not their highest-volume
314 Liljiana ELMAZI, Alexandru NEDELEA
customers but their midsized customers. The highest-volume customers
demand greater service and receive the deepest discounts, thereby reduc-
ing the companys profit level. The smallest customers pay full price and
receive good service are the most profitable. This helps to explain why
many large firms that once targeted only large customers are now invad-
ing the middle market.
A company should not try to pursue and satisfy every customer. For
example, if business customers of Courtyard (Marriotts less expensive
motel) start asking for Marriott-level business services, Courtyard should
say no. Providing such service would only confuse the respective posi-
tioning of the Marriott and Courtyard systems.
Some organizations try to do anything and everything that customers
suggest. Yet, while customers often make goods suggestions, they also
suggest many courses of action that are unachievable or unprofitable.
Randomly following these suggestions is fundamentally different from
market focus, making a disciplined choice of which customers to serve
and which specific combination of benefits and price to deliver to them
(and which to deny them).
What makes a customer profitable? We define a profitable customer
as person household, or company whose revenues over time exceed, by
an acceptable amount, the company cost of attracting, selling and servic-
ing that customer. Note that the definition emphasizes lifetime revenues
and costs, not profit from a single transaction.
Customer satisfaction, customer loyalty, and company profitability are
liked closed to product and service quality. Higher levels of quality result
in greater customer satisfaction, while at the same time supporting higher
prices and often lower costs. Therefore, quality improvement programs
normally increase profitability. The well- known profit impact of marketing
strategies (PMS) studies shows a high correlation between relative product
quality and profitability. In the section that follows we briefly discuss the
relationship between quality, customer satisfaction, and customer loyalty.
8.5. Marketing Relationship
The marketing concept teaches firms to profit by selling what customers
really want for a value that consummators cant match. The rationale for this
approach is twofold: first, it assumes that the marketer represents a going
concern with every intention of remaining in business in the same market.
315 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
Second, it supposes a goal of satisfied customers who will be a source
of repeat purchases and positive recommendations. In spit of this underly-
ing concept, the focus of marketing education and practice has been on the
attraction of new costumers through the use of the four Ps rather than on
the retention of current customers. Until recently, then, marketing efforts
have been focused on creating exchange rather than managing long term
relationships with customers.
Maturing markets, lower population growth, and global competition
have forced managers to examine the costs of wining new customers ver-
sus retaining their old ones. We now see the focus of marketing shifting to
managing relationships with customers. The following definition of mar-
keting captures the new spirit:
Marketing is to establish, maintain, enhance relationships with cus-
tomers and other partners, at a profit, so that the objectives of the parties
involved are met. This is achieved by a mutual exchange and fulfillment
of promises.
Once a manager has identified patrons who are likely to become
customers, she must identify ways of creating a relationship with these
patrons, a relationship that leads to customer loyalty. Relationship market
a creating, maintaining, and enhancing strong relationships with customer
concept of relationship has expanded to include developing a relation-
ship all stakeholders who can help the company serve its customers. For
example, employees and marketing intermediaries would fall into this
group. Increasingly, marketing is move away from a focus on individual
transactions and toward a focus on building value-laden relationships and
marketing networks. Relationship marketing is oriented more toward the
long- term value to customers and the measure of success is long-term cus-
tomer satisfaction. Relationships at many levels: economic, social, techni-
cal and legal, resulting in high customer loyalty. We can distinguish five
different levels of relationships that can be formed with customers who
have purchased a companys product, such as a meeting or a banquet:
Basic . The company sells the product but does not follow up in
any way.
Reactive . The company sells the product and encourages the cus-
tomer to call whenever he or she has any questions or problems.
Accountable . The companys representative phones the customer a
short time after the booking to check with the customer and answer
questions. During and after the event, the salesperson solicits from
316 Liljiana ELMAZI, Alexandru NEDELEA
the customer any product improvement suggestions and any specific
disappointments. This information helps the company to improve
its offering continuously.
Proactive . The salesperson or others in the company phone the cus-
tomer from time to time with suggestions about improvements that
have been made or creative suggestions for future events.
Partnership . The company works continuously with the customer
and with other customers to discover ways to deliver better value.
What specific marketing tools can a company use to develop stronger
customer bonding and satisfaction? It can adopt any of three customer
value-binding approaches. The first relies primarily on a adding financial
benefits to the customer relationship. For example, airlines offer frequent-
flyer programs, hotels give room upgrades to their frequent guests and res-
taurants have frequent diner programs.
Although these reward programs and other financial incentives build cus-
tomer preference, they can be imitated easily by competition and thus may
fail to differentiate the companys offer permanently. The second approach
is to add social benefits as well as financial benefits. Here company person-
nel work to increase their social bonds with customers by learning individ-
ual customers needs and wants and then individualizing and personalizing
their products services. They turn their customers into clients: Customers
may be nameless to the institution; clients cannot be nameless.
Customers are served as part of the mass or as part of lager seg-
ments; clients are served on an individual basis. Customers are served
by anyone who happens to be available; clients are served by the pro-
fessional assigned to them.6 The third approach to build strong customer
relationships is to add structural ties as well as financial and social bene-
fits. For example, airlines developed reservation systems for travel agents.
Frequent guests have special phone lines that they can call. Airlines have
developed lounges for their first-class customer and some will send a lim-
ousine to deliver them to airport. Here are the steps in establishing a rela-
tionship marketing program in a company:
Identify the key customers meriting relationship management.
Choose the largest or best customers and designate them for rela-
tionship management. Other customers can be added who show
exceptional growth or who pioneer new industry developments.
6
James H. Donnelly, JR, Leonard L Berry, and Thomas W. Thompson, Marketing
Financial Service: A strategic Vision, Homewood, Ill: Dow Jones-Irwin, 1985, p. 113.
317 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
Assign a skilled relationship manager to each key customer. The
sales person currently servicing the customer should receive training
in relationship management or be replaced by someone more skilled
in relationship management. The relationship manager should have
characteristics that match those of, or appeal to, the customer.
Develop a clear job description for relationship managers. Describe
their reporting relationships objectives, responsibilities and evalua-
tion criteria. Make the relationship manager the focal point for all
dealings with and about the client. Give each relationship manager
only one or few relationships to manage.
Have each relationship manager develop annual and long range
customer
The same time, although many companies are moving strongly toward
relationship marketing, it is not effective in all situations:
When it comes to relationship marketing you dont want a relation-
ship with every customer. In fact, there are some bad customers. A com-
pany should develop customer relationships selectively: Figure out which
customers are worth cultivating because you can meet their needs more
effectively than anyone else.
Table 8.3. shows the differences between traditional marketing and
relationship marketing.
Table 8.3.
Comparison between Relationship and Traditional Marketing
RELATIONSHIP MARKETING TRADITIONAL MARKETING
Orientation to customer retention Orientation to single sales
Continuous customer contact Discontinuous customer contact
Focus on customer value Focus on product features
Long time scale Short time scale
High customer service emphasis Little emphasis on customer service
High commitment to meeting
customer expectations
Limited commitment to meeting
customer expectations
Quality is concern of all staff
Quality is the concern of the produc-
tion staff
318 Liljiana ELMAZI, Alexandru NEDELEA
8.6. Complaint Management in Tourism and Hospitality Industry
Despite our best efforts, there are always going to be situations in which
a customer becomes unhappy. What a business does when these occasions
occur, and how much the organization learns from the experience can have
a sizable effect on the organizations future health and vitality. This chap-
ter explores how a business can view complaints as opportunities, how it
can manage the complaint process, and how it can use complaint informa-
tion to target improvement efforts.
The key concept in complaint management is defensive marketing,
which involves retaining existing customers. (Its counterpart, offensive
marketing, refers to attracting new customers.) We have seen that the life-
time value of a customer is often much greater than one might anticipate
from the size of any individual transaction This means that an organiza-
tion can often benefit from making an unhappy customer happy. Although
many companies have not learned this lesson very well, many compa-
nies have become very good at complaint management. From such exam-
ples we can derive several principles to use in guiding the organizations
response to a complaint. In addition, statistics about complaints can help
us see what areas need attention in the future. This chapter provides some
simple approaches for doing this.
8.6.1. Defensive marketing and complaint management
We are accustomed to thinking of marketing as the attraction of new
customers. Tools such as advertising, pricing, sates promotion, and per-
sonal selling affect brand choice, and thus market share. This is the tra-
ditional way of thinking about marketing, and the four Ps paradigm,
viewing marketing as making decisions about promotion, price, place, and
product, assumes the offensive marketing perspective.
Defensive marketing, on the other hand, focuses on retaining existing
customers. The business world has become much more aware of defensive
marketing in recent years; topics such as customer satisfaction, complaint
management, and customer retention have received greater attention.
Because defensive marketing increases customer retention, it has a pos-
itive impact on market share. Retaining existing customers also reduces
the necessity of attracting new ones (replacements) and can sometimes
even reduce offensive marketing cost.
319 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
There are other benefits in addition to customer retention. Customers
come back only if they are sufficiently happy, which means that a side
effect of defensive marketing is positive word-of-mouth, which tends to
attract new customers. Also, long-term customers may tend to do more
business with the firm (think of older bank customers, for example). Long-
term customers are accustomed to how a firm conducts business and so
ask fewer questions and cause fewer problems. This reduces the costs of
serving them. All of these positive effects of defensive marketing enhance
the lifetime value of the customer.
Defensive marketing is not always important. If long-term customer
relation ships are not possible, it doesnt make any difference if a cus-
tomer is retained. For example, people only use a national immigration
service once, so there is no incentive to improve this service. Monopolists
also have less incentive to work hard to retain customers, because the cus-
tomers have nowhere else to go. For example, the U.S. Postal Service, a
government-mandated monopoly, used to be well-known for its inflexi-
ble bureaucracy and long service lines. However, when competitors such
as Federal Express and UPS sprang up offering services that were close
enough to regular mail service to lure away Postal Service customers,
the Postal Service then adopted a much more customer-oriented attitude
because customers could now be lost.
Understanding a customers value in this light could affect how the
customer is treated. If the customer feels mistreated, which is often the
case in new car purchases, repurchase from that dealer becomes unlikely.
The sales staff clearly must he motivated to enhance satisfaction as well
as immediate sales. One way to do this is to compensate the sales force
based 130th on sales figures and satisfaction with the sales transaction.
A complaint can be a second chance for the company to keep a customer
from leaving dissatisfied. If a customer is unhappy but doesnt complain,
then the company risks losing that customer, along with the customers
future profit stream. Research indicates that approximately one unhappy
customer in twenty actually complains, which means that a complaining
customer is just the tip of the iceberg. Companies should welcome com-
plaints, and view them as a second chance to satisfy a customer.
The urgency with which an organization views a complaint is related
to the future value of the customer. Recovery of a dissatisfied customer is
possible, and research to date indicates that the benefits of turning around
a complaining customer are dramatic. In some circumstances, 95% of
320 Liljiana ELMAZI, Alexandru NEDELEA
complainers will return if the complaint is handled satisfactorily and an
unhappy customer who is listened to, regardless of the final Outcome, is
twice as likely to return.
These numbers tell only part of the story about the importance of com-
plaint management and the value of a customer. We must also consider
word of mouth. Happy customers may tell others that they are happy and
unhappy customers may tell others that the company is no good. According
to one industry report, a dissatisfied customer tells an average of 910
people about the bad experience, and 13% will tell 20 or more.
The (Unfortunate) State Of Complaint Management
Unfortunately a great many companies and managers do not realize
how valuable a customer is, and there are many examples of poor com-
plaint management. Looking at some of these examples can give us an
idea of what not to do, and, by contrast, get us started in thinking about
what we actually should do.
Unfortunate Practice #1Ignore It
Let us start with the example of an airline phone ticketing service.
A professor needed to fly to his grandfathers funeral, and requested a
special bereavement fare. The agent agreed, but required considerable
detailed information about the funeral arrangements, which the professor
found insensitive and inappropriate. The professor called the airlines main
office to complain, and suggested ways in which the situation could be
handled with greater consideration. After spending a considerable amount
of time elaborating on the complaint and suggested remedies, the follow-
ing exchange took place:
Professor: What do you do now? How do you intend to respond to
my com plaint and suggestions?
Agent: Well, quite honestly I cant really do very much. I guess I
might bring it up in a meeting or something.
Professor: But to me, 3011 are ABC Airlines. Are you telling me that
you screen your complaints and suggestions, only passing along those you
agree with?
Agent: You have to realize, Fm low person on the totem pole here. To
really do anything youd have to talk to someone higher up, maybe the
customer ser vice manager.
At this point the professor asked to talk to the agents supervisor, who
seemed most eager to (1) be agreeable, (2) not actually promise to do any-
thing (3) get the professor off the line as soon as possible.
321 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
The companies have been pre with a crystal-clear case of complaint man-
agement. Offensive marketing has attracted a customer, and now defensive
marketing must keep the customer. Given the very high lifetime value of a car
customer, one would expect all of the companies to respond immediately.
Unfortunate Practice #2Make Them Pay to Complain
If one starts with the unfortunate assumption that complaints are bad,
then it is reasonable to want to reduce their number. Improving quality
may be an obvious, but difficult, way to reduce complaints. An alternative
is to simply make it harder to complain. The ultimate in making it hard to
complain is to actually make people pay for complaining!
Unfortunate Practice #3Buy Them Off
Most relatively enlightened companies realize that nothing is gained
by ignoring complaints, not responding to complaints, or making com-
plaining more difficult. They realize that retaining the customer is very
important because of the lifetime value of the customer, and they try to
think of ways to make the customer happy. Usually this is done by mak-
ing it up to the customer in some way. Unfortunately, this practice may
not have the desired effect on retention.
But, what will happen when the customer decides to repurchase? Maybe
the customer will remember what nice folks the people at Company X
were, and will reward them with business. On the other hand, there is a
real danger that this will not take place. The customer was left satisfied
not because the company did a good job, but because the company bribed
the customer. If the customer thinks about the quality of the job that com-
pany did, the perception of the company is still likely to be low. Retention
becomes questionable because the problem was not solved. When given
a choice, the customer may try his luck with another company next time,
despite the T-shirt or bottle of wine. Thus it is far better to solve the root
problem than it is to compensate for failure.
8.6.2. Principles of complaint management
How does one go about solving the root of the problem? Managerial
experience suggests several principles of successful complaint manage-
ment. These are:
1. Communication links from the front line to the information system
2. Immediate advocacy
3. Authority to settle complaints
322 Liljiana ELMAZI, Alexandru NEDELEA
4. Responsiveness
5. Not further inconveniencing the customer
We will investigate each of these in turn.
Communications links are invaluable in resolving complaints. For exam-
ple, through a travel agent one of the authors had arranged for a rental car
at a good rate ($25 per day). When he arrived at his destination, he went
to the rental counter and asked for his car. The attendant said, Fine that
will be $35 per day. The author pointed out that he had agreed to $25 per
day. At this point the attendant resorted to her secret weapon, the commu-
nication links to the customer database. She was able to show the author
that the travel agent had made an error, and exactly how and when the error
occurred. This got the rental car company completely off the hook. The
problem was between the author and his travel agent. (Interestingly, the
author decided not to ask for the difference from the travel agent, because,
perceiving himself as the travel agents customer, he wished to maintain a
good relationship rather than creating a problem).
Pizza Hut delivery provides another example of using communication
links. Whenever a customer places a telephone order, Pizza Hut calls up a
computer data base, sorted by phone number. The data base includes such
information as address, directions, and even previous orders. After hearing
about Pizza Huts system, one executive from another industry said, If
Pizza Hut can do it at a $10 price point, everybody has to do it. Database
access, giving all relevant information about a customer, is fast becoming
a requirement rather than a competitive advantage.
Immediate advocacy is another important principle. This means that
someone from the company is immediately on the customers side, work-
ing to bring about a successful resolution to the complaint. This is not the
same as immediate resolution of the problem. Some problems take a long
time to solve. However, someone in the company should always represent
the complaining customers interests.
We do not refer to the traditional Customer Service department.
Usually a small counter staffed by one or two poorly paid and uninformed
people, the message is that the rest of the company is not customer serv-
ice. To see this, try complaining some time about what foods are available
at your grocery. If you say this to anyone other than Customer Service, you
will be immediately directed to Customer Service. Then Customer Service
will smile, thank you for our suggestion, and promise to bring it up with
management. Whether they ever do or not is unknown to the customer.
323 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
Another key principle is the authority to settle complaints. The more
service- oriented the advanced economies become, the more decentralized
complaint resolution becomes. For this reason, and because speed of res-
olution is important, authority to settle complaints is usually best handled
at the front line. For example, American Airlines gives its ticket agents
and gate agents broad authority to do just about anything (within reason)
to solve a customers problems. Taking a problem up through channels
would simply be too slow. A key to successful delegation of author it is
employee empowerment,. Related to this principle is responsiveness,
which means that the complaint will he resolved quickly. If the complaint
cant be resolved quickly, the company must at least communicate this fact
to the customer quickly, and indicate exactly what is being done to address
the problem. Several of the principles we have discussed so far go hand
in hand with responsiveness. For example, the better the communication
links and databases the faster the response in many instances. Likewise,
an empowered front line tends to have the authority to resolve problems
quickly. In general, two things must be done to ensure that the customer
considers the company to be responsive, regardless of whether the prob-
lem can he solved immediately or not. The company must (1) respond
immediately to all communications by the customer, preferably by phone,
and (2) inform the customer of what is being done to solve the problem
and how long it is likely to take.
The final principle of successful complaint management is dont fur-
ther inconvenience the customer. Whenever the organization has made a
mistake, it is the organizations sole responsibility to make things right.
When this principle is violated, the results can sometimes be comical.
8.6.3. Learning from complaints
In a large organization there are many complaints over time. These may
be sorted, counted, and catalogued to suggest the areas in which the great-
est improvement is needed. We can derive some valuable insights using
some very simple data analysis and some simple quadrant analysis.
The first step is to obtain a sorted list of all the complaints, grouping
similar complaints together. Each type of complaint will now have a count
associated with it, reflecting the number of times that complaint occurred.
Here is where many managers go wrong. It is tempting to conclude that
the most frequent complaint is the most important complaint, and the one
324 Liljiana ELMAZI, Alexandru NEDELEA
that should be addressed first. But some complaints are more serious than
others. For example, if an airline passenger complained that there was a
gremlin on the wing tearing the engines apart (as was actually depicted on
one Twilight Zone TV episode) that would presumably be more impor-
tant than chewing gum wrappers on the floor, even if 1000 people com-
plained about chewing-gum wrappers and only one person complained
about the wing- walking gremlin.
Therefore a second step is required. Customers need to be asked which
possible complaints have the biggest impact. Each complaint could be
rated as to impact on a five-point rating scale, for example, from very
low impact to very high impact, or some similar variant, Also, inter-
nal records need to be collected as to the effectiveness of resolving com-
plaints. This can be done by contacting again complainers after the fact,
and asking whether their complaint was resolved to their satisfaction.
Given the information obtained in the second step, we can now ana-
lyze which complaints are most important, and how complaint resolution
resources should be allocated. Figure shows a quadrant analysis for deter-
mining the importance of complaints. First, the complaints are divided into
low and high impact and low and high frequency. (A more accurate way
to do this would be to plot specific com plaints as points determined by
average impact and frequency.) The upper-right quadrant reflects frequent
problems of high impact. These are the most important problems to solve
immediately. The upper-left quadrant, high frequency and low impact, may
be important. The many small problems may add up to a big problem. The
lower-right quadrant, low frequency and high impact, also may be important.
These problems are very important to some people. The lower-left quadrant
may be ignored, because the problems are unimportant and infrequent.
Given the analysis from Figure 8.6., we may then construct Figure 8.7.
to address the issue of resource allocation. Dividing the complaints into
high and low importance and poor and good resolution (again we could
simply plot the points if we chose), the upper-right quadrant of Figure 6
represents important complaints that we do a good job of resolving. That
is appropriate. Likewise the lower-left quadrant represents problems of
low importance that we are not so good at resolving. The problems are rel-
atively unimportant, so effectiveness is not critical. No change is required.
On the other hand, the lower-right quadrant represents unimportant prob-
lems that we are good at resolving. We may be able to dc-emphasize these,
if we are spending more than we have to. The upper-left quadrant is where
325 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
the freed-up money should go. These are problems of high importance that
are not being dealt with very well. Our strongest initiatives should be to
strengthen this area.
8.6.4. Problem impact tree analysis
So far we have discussed why complaint management is important,
how to respond to a complaint and bow to determine which complaints are
most important. Now we present an approach for evaluating the complaint
Frequency

High
High






Importance of complaints





Solve Now



Ignore



Low
Low
Impact
Consider
improvements:
Very important to some
Consider
improvements:
Small effects may add up
Figure 8.6. Importance of complaints
Figure 8.7. Complaint Resource Allocation
Importance

High
Low







Invest more

Maintain
emphasis


Ignore


Disinvest
Poor Good

Effectiveness of resolution
326 Liljiana ELMAZI, Alexandru NEDELEA
resolution process itself and for determining which elements demand the
most emphasis. The framework we use is an impact tree, an approach that
has been successfully applied at a number of companies.
Figure 8.8 shows the branches of the problem impact tree. Each branch
represents the possible outcomes of a customer contact. Either the cus-
tomer experiences no problem (good), or experiences a problem (bad). If
the customer does experience a problem, then the customer either com-
plains (good) or doesnt complain (bad). If the customer doesnt complain,
then there is no opportunity to resolve the problem.
All guests
No problem

Have problem

Dont report
Report problem
Not resolved
Problem resolved
Figure 8.8. The Problem Impact Tree
If the customer complains, then the problem is either resolved success-
fully by the company (good) or not (bad).
A problem impact tree analysis is conducted quarterly for all Promus
Company (Hampton Inns, Embassy Suites, and Homewood Suites) hotels.
The Promus Companies routinely collect data that may he used to deter-
mine how many people fall into each category. Their technique involves
sending out mail questionnaires to a large sample of customers shortly after
these customers have checked out of the hotel. Promus asks, as part of a
general customer survey, whether the customer had experienced a problem
or not, and, if so, whether or not it was reported, and whether or not it was
satisfactorily resolved. Example percentages are given in Figure 8.9. (These
numbers are disguised, to protect proprietary interests, but the general pat-
tern of results is preserved.) We see that in this instance 75% of all guests
had no problem. Of the 25% who did, only half complained, and 70% of
com plaints were successfully resolved. From these numbers we can make
several useful observations. First, a very high percentage of people with
327 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
problems do not com plain, which removes any possibility of resolving
the problem. Also only 70% of complaints result in successful resolution,
which may indicate that problem resolution is not particularly successful.
A further indication of the importance of problem resolution is the
large differences in summary measures, such as satisfaction and repur-
chases intention. Figure 8.10 shows the percentage of people respond-
ing in the top two boxes of a five-point customer satisfaction scale, and
Figure 8.10 shows the percentage who say they intend to repurchase. We
see that if there is no problem, then 95% ate satisfied and 95c intend to
return. This is very good. On the other hand, among customers who expe-
rience a problem but dont report it, only 75% are satisfied and only 80%
intend to return.
No problem
75%
Have problem
25%

Dont report
50%
Report problem
50%
Problem resolved
70%
Not resolved
30%
All guests
No problem
(95% A+B)
Have problem

Dont report
(75% A+B)
Report problem
Problem resolved
(90% A+B)
Not resolved
(50% A+B)
All guests
Figure 8. 9. Complaint management resolution performance
Figure 8.10. Complaint management and customer satisfaction
What happens if the customer complains? If the customer complains,
and the complaint is resolved, then 90% are satisfied and 90% intend
to return. This is almost as good as not having a problem in the first
place! On the other hand if a complaint is not resolved, then satisfaction
328 Liljiana ELMAZI, Alexandru NEDELEA
and repurchase plummet. Only 50% are satisfied, and only 60% intend to
repurchase. The conclusion is that if a complaint is made, it is very impor-
tant to resolve it successfully.
No problem
(95%
)
repurchase
intention
Have problem


Dont report
(
)
80% repurchase
intention
Report problem
Problem resolved
(90%
)
repurchase
intention
Not resolved
(60%
)
repurchase
intention
All guests
Figure 8.11. Complaint management and Repurchase intentions
We can use the problem impact tree to analyze the value of complaint
resolution outcomes, by incorporating the lifetime value of the customer.
Let us suppose that the lifetime value of a returning customer in terms of
the net present value of future profits, and ignoring word-of-mouth effects
(to make things simple), is $200, and suppose that the numbers in Figures
8.10 and 8.11 apply. What is the value of avoiding a problem in the first
place? The leftmost branch (No Problem) has a 95% repurchase rate.
Multiplying this by $200 gives an expected value of $190 for a customer
in this branch. Now we need to find the repurchase rate for the other side
of the tree. This is obtained as a weighted average of the three possible
outcomes. The calculation is:
Average retention rate (0.50.70.9) + (0.50.30.6) + (0.50.8) = 80.5%
Then the expected value of the right side of the tree is 80.5% $200 =
=$161. This is $29 less than the expected value if there is no problem. Thus
it is worth $29 per customer for the company to avoid a problem in the first
place. This is quite a lot. Consider for example that the company could jus-
tify more than three hours of a $9-per-hour employee to avoid a problem!
We might also consider the value of resolving a problem, given that a
com plaint has been made. The expected value of the Problem Resolved
branch is 90% $200 = $180, and the expected value of the Not Resolved
branch is 60% $200 = $120. Notice that it is worth $180 $120 = $60 to
resolve a problem. Notice also that this is more than six hours of a $9-per-
329 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
hour employee, just to resolve one customers complaint! The company
can profit by pampering a complaining customer quite a hit, based solely
on the value of future repurchases. Of course, if we factor in the word-of-
mouth effect, the numbers get even more impressive.
Another issue is how much we gain from having a customer report a
problem. From Figure 8.11 it is easy to calculate the expected value of a
customer who has an unreported problem. The value is 80% $200 = $160.
Calculating the expected value of a customer who has a problem and reports
it involves a weighted average across the Problem Resolved and Not
Resolved branches, using the numbers in Figure 8.10 and Figure 8.11. The
value is 70% 90% $200 plus 30% 60% $200, which equals $162.
This is not much more than the value of a no reporting customer, mostly
because 30% of complaints are not successfully resolved. From these num-
bers it appears that the immediate concern of the company is to resolve a
higher percentage of complaints rather than encouraging more complaints.
As the percentage of resolved complaints increases, it will then become
more important to encourage more complaints.
8.7. Analyzing Customer Satisfaction Surveys
The primary purposes of analyzing customer satisfaction surveys are not
only to give management a clearer idea of how satisfied customers are, but
also to pinpoint areas in which customer satisfaction improvement is likely
to generate desirable customer behaviors, such as higher customer retention.
For example, suppose an air line finds out that satisfaction with in-flight
meals is low. That information alone is not enough to justify action, because
satisfaction with meals may have very little affected on customer retention.
We have seen in the previous chapter how grouping questions by
business process (e.g., in-flight meals) can result in managerially relevant
information. Using statistical methods, it is possible to determine which
processes have the greatest impact. It is also possible to assess statistically
the most important process dimensions (e.g., perhaps main course, bever-
ages, or service, within the process of in-flight meals). Further, statistical
methods can he employed to find out whether solving problems (moving
customers from dissatisfaction to satisfaction) or adding extras (moving
customers from satisfaction to delight) has the larger affect. This chapter
also shows some specific techniques for turning questionnaire results into
actionable information that can improve customer retention.
330 Liljiana ELMAZI, Alexandru NEDELEA
8.7.1. Predicting repurchase intention
Repurchase intention usually has a very direct link to customer reten-
tion. If the information is collected as a percentage and if we accept those
percentages at face value, we may see an immediate link to market share
and profitability. But usually these numbers are not exactly right. For
example, fewer than 100% of those saying they have a 100% likelihood
of returning will actually return. But historical data can be used to validate
these categories. So, for example, we might be able to say that 93.4% of
the 100% category do repurchase. This information allows us to make
a clear link to market share and profitability.
How do overall satisfaction and overall delight relate to repurchase
intention? This relationship is easily determined by examining the average
repurchase intention of the Dissatisfied, Satisfied, and Delighted
categories. Figure 12. shows sample data. We see that Delighted are likely
to return 95.2% of the time, Satisfied are likely to return 84.7% of the time,
and Dissatisfied are likely to return only 31.3% of the time, Simple subtrac-
tion allows us to see the incremental effects of moving a customer from sat-
isfied to delighted, or from dissatisfied to delighted: an added 10.5% from
delighting a customer, and an added 53.4% from satisfying a customer.
EFFECT OF OVERALL SATISFACTION AND DELIGHT
Repurchase Intention
Delighted 95.2%
Merely satised 84.7%
Dissatised 31.3%
Effect of delight = 0.952 0.847 = 0.105
Effect of satisfaction = 0.847 0.313 = 0.534
Figure 8.12. Effect of overall satisfaction and delight
8.7.2. Predicting overall satisfaction
It is nice to know that overall satisfaction has a big effect, but that
information is meaningless unless we can figure out what produces over-
all satisfaction. The technique involves analyzing satisfaction data from
the business processes.
331 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
Separating the effects of satisfaction and delight means that we have
to create two new variables, a satisfaction variable and a delight variable,
from every three- point scale response. Figure 13 shows how to build the
new variables. The new variables are constructed as dummy variables,
indicating that their value is either 0 for no or 1 for yes.
If the response was 1 Dissatisfied, then the customer was neither sat-
isfied nor delighted. In this case, both the satisfaction and delight variables
are coded 0. If the response was 2 Satisfied, then the customer was sat-
isfied but not delight ed. Thus we set the satisfaction variable to 1 and the
delight variable to 0. If the response was 3 = Delighted, then the cus-
tomer was both satisfied and delight ed. Both variables are thus coded as
1. These operations are easily accomplished using the recode options
of any standard statistical package.
A data set prepared for analysis will have the general form of table
where the respondents (customers) are rows, and the satisfaction and
delight variables are columns. We can see that the columns should include
the overall satisfaction score, the process satisfaction scores, and the proc-
ess dimension satisfaction scores. They should also include overall delight,
the process delights, and the process dimension delights. The columns do
not have to be in the order, but they must be present somewhere.
Because every respondent will have answered every question, there
will be missing data that must be represented in some way. Typically it is
appropriate to choose one particular way in which a missing observation
will be denoted, the researcher may designate a symbol, or the statistical
package may indicate which symbol to use.
CONVERTING THE RAW SATISFACTION SCORES
TO DUMMY VARIABLES
Raw Score Satisfaction Dummy Delight Dummy
1 (Dissatised) 0 0
2 (Satised) 1 0
3 (Delighted) 1 1
Figure 8.13. Converting The Raw Satisfaction Scores To Dummy Variables
Given that missing data exist in the data set, which they generally do,
some sort of strategy must be devised for dealing with them in the analy-
sis. There are several missing data options typically available in statistical
packages. Often the default option, the option which happens automatically
332 Liljiana ELMAZI, Alexandru NEDELEA
unless you override it, is the list wise deletion option. That is, any row
(respondent) that contains a missing variable is thrown out of the analysis.
This is the appropriate missing data option for bivariate analyses. However,
for multivariate analyses, this option is often a very bad one, because most
of the data set will end up getting thrown out. Another option, often used
by customer satisfaction researchers for multivariate analyses, is mean sub-
stitution, in which a missing value is replaced by the mean for that variable.
This option preserves the size of the data set, but at the expense of includ-
ing some data that do not actually exist. Other, more elaborate methods
include data imputation, which uses the other variables to predict what the
missing value would be. This sophisticated approach is not available on all
statistical packages (We recommend mean substitution unless a data impu-
tation option is available.)
8.7.3. Measuring customer satisfaction
If a complete data set has been constructed, there are both simple
(bivariate) and more complex (multivariate) ways to relate the process
satisfactions to the overall satisfaction. The simplest technique is to run
regression analyses, one predictor at a time, relating each process satis-
faction to the overall satisfaction. An example is shown in Figure 8.14.
We would pay particular attention to three statistics in the printout. The
R tells us the proportion of the variance of the dependent variable that is
explained statistically by the independent variable. In this case we see that
BILLING explains 25% of the variance of OVSAT. We would also take
a close look at the sign of the t statistic. In this case it is positive, which
indicates that an increase in billing satisfaction (BILLING) should have a
positive impact on overall satisfaction (OVSAT). Finally we would look
at the p-value, which reports the result of a hypothesis test on the regres-
sion coefficient. Given a typical alpha value used to test hypotheses,.05
for example, the p-value can be compared to this number. In this case.00
is less than .05, which means that the independent variable is significantly
related to the dependent variable, at the .05 level.
If the correlations between the independent variables are roughly the
same, then the above bivariate approach will do a pretty good job of
obtaining the relative importance of the predictor variables. An alterna-
tive approach explicitly takes the multicollinearity of the predictors into
account. This multivariate approach uses the equity estimator to obtain
333 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
regression coefficients that control for multicollinearity. The appealing
alternative, multiple regression analysis, is not a good idea under condi-
tions of severe multicollinearity, because the regression coefficients are
too unstable. Severe multicollinearity is a common feature of customer
satisfaction data, due to halo effects. A detailed treatment of the equity
estimator is beyond the scope of this book.
Figure 8.15 shows an example of output from the equity estimator.
Notice that all predictors are included at once, rather than running one
regression per predictor. The interpretation of the standardized equity esti-
mator coefficients is essentially equivalent to that of beta coefficients in
multiple regression analysis, but not all of the statistical hypothesis tests
are available. We can see at a glance, though, that SALES and BILLING
have the biggest effects, based on the size of the coefficients. Also, the
signs are all positive, indicating that all predictors have a positive rela-
tionship with overall satisfaction.
PREDICTING OVERALL DELIGHT:
EXAMPLE WITH BIVARIATE RESULTS
Dependent variable = OVDEL
Independent variable Beta coefcient Standard error t p
BILLDEL 0.15 0.12 1.20 2.0
R2 = 0.02
Figure 8.14. Predicting Overall Delight: Example With Bivariate Results
8.7.4. Predicting overall delight
The approach here is similar to predicting overall satisfaction, with
one key exception. Remember that our psychological framework dictates
that it is possible to delight only a customer who is already satisfied, This
means that dissatisfied customers are not really prospects for delight, and
thus they should be deleted from the analysis. (They should not be per-
manently removed from the data set--only excluded from this analysis!.
We can see that any respondent who has a 0 for the overall satisfac-
tion dummy variable is by definition dissatisfied and not a candidate for
delight. Deleting these respondents is easy to do in any standard statis-
tical package. Figure 14 shows an example bivariate regression analysis
relating billing delight (BILLDEL) and overall delight (OVDEL). In this
334 Liljiana ELMAZI, Alexandru NEDELEA
case the R is very low (.02) and the p-value indicates that the predictor
variable is not significantly related to the dependent variable. Figure 8.15
shows the multivariate version of the analysis, using the equity estimator.
We can see that repair delight (REPDEL) and sales delight (SALEDEL)
are the most significant predictors.
8.7.5. Predicting process satisfaction
The analyses showed how the process satisfaction scores could he
related to the overall satisfaction score. Ultimately, though, we will need
to know what drives the overall process satisfaction. Thus we relate the
process dimensions to the overall process satisfaction. Again, we may do
this simply using bivariate regression or in a more sophisticated way using
equity estimator regression.
Figure 8.16 shows the results of a bivariate regression analysis relat-
ing billing accuracy (ACCURATE) to billing satisfaction (BILLING).
The significant p-value indicates that there is a significant relationship,
and the sign on the beta coefficient indicates that the variables are posi-
tively related. The corresponding multivariate analysis is shown in Figure
8.17. Here we only have collected data on two process dimensions, billing
accuracy (ACCURATE) and whether the bill is easy to understand (EZ).
Billing accuracy appears to be somewhat more important, based on the
relative sizes of the coefficients, but both have a positive effect on billing
satisfaction, as we would expect.
PREDICTING OVERALL SATISFACTION:
EXAMPLE WITH MULTIVARIATE RESULTS
Dependent variable = OVSAT
Independent variable Standardized equity estimator coefcient
Billing
Sales
Product
Repairs
0.45
0.50
0.25
0.19
Figure 8.15. Predicting overall satisfaction
335 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
8.7.6. Predicting process delight
Again, we must weed out the respondents who are not prospects for
delight. Figure 8.11 shows a schematic of the data set, illustrating that all
individuals who are dissatisfied with the process overall should be elim-
inated from this stage of the analysis. As before, we may use bivariate
regressions to get a rough idea of the relative impact of the predictors.
Figure 8.18 shows an example. In this case it is clear that accuracy delight
(ACCDEL) does not have much impact on billing delight (BILLDEL).
The p-value is insignificant and the R is very low. The multi-variant anal-
ysis, shown in Figure 8.17, also shows little impact based on either predic-
tor. In fact, one of the predictors actually has a slight negative relation-
ship, which is probably equal to zero, within sampling error.
8.8. Estimating Relative Importance
So far we have seen how to quantify relative impact, hut this is not the
same as determining managerial importance. A simple example will explain
why. Suppose, for example, that complaint recovery is one of the processes
we are analyzing, and that we wish to determine its importance.
PREDICTING PROCESS DELIGHT:
EXAMPLE WITH BIVARIATE RESULTS
Dependent variable = BILLDEL
Independent variable Beta coefcient Standard error t p
ACCDEL 0.1 0.13 0.8 0.4
R= 0.0
Figure 8.16. Predicting Process Delight: Example With Bivariate Results
PREDICTING PROCESS DELIGHT:
EXAMPLE WITH MULTIVARIATE RESULTS
Dependent variable = BILLDEL
Independent variable
ACCDEL
EZZDEL
Standardized Equity Estimator Coefcient
0.1
-0.2
Figure 8.17. Predicting Process Delight: Example With Multivariate Results
336 Liljiana ELMAZI, Alexandru NEDELEA
Further, suppose that regression analysis shows that moving custom-
ers from dissatisfied to satisfied in complaint recovery has a large impact
on customer retention. By itself, this information would seem to suggest
investing in complaint recovery systems. However, suppose we also knew
that only one tenth of one percent of our customers ever had a com-
plaint. Then we would realize that any improvements in complaint recov-
ery would affect very few customers. Our measure of importance must
reflect not only the size of the statistical link, but also how many custom-
ers will be affected.
With the results of the bivariate or multivariate regression analyses,
calculating relative importance is fairly easy. Figure 8.18 shows a sim-
ple calculation that may be used in the bivariate case, assuming the list
wise deletion option was used for missing data. An importance score (0
to 100) is calculated by multiplying the bivariate R by the percentage of
cases present. In the figure we see chat the R was.40, and 10% of the
cases were missing. This finding yields an importance score of 36. This
approach works because R is the percentage of variance of the no missing
cases that is explained. Cases are presumably missing because that aspect
was not relevant to the respondent. Thus the variance explained for all of
the cases would be the R times the percentage of cases present.
As we have seen, if the pattern of multicollineariry is complex, then
the multi-variate analysis using the equity estimator is more appropriate.
In this case, assuming that the mean substitution option has been used for
missing data, the square of the standardized coefficient, multiplied by 100,
gives an importance weight on a 0 to 100 scale. An example is shown
in Figure 8.19. The resulting importance weights give a good sense of
which buttons to push to get the most impact.
CALCULATING RELATIVE IMPORTANCE:
SIMPLE BIVARIATE METHOD
Bivariate R2
*
% cases present =
importance (0-100)
0.40
*
90%
36
Figure 8.18. Calculating relative importance: simple bivariate method
337 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
CALCULATING RELATIVE IMPORTANCE:
SIMPLE MULTIVARIATE METHOD
Standardized equity estimator coefcient squared
*
100
importance (0-100)
0.25
*
100
25
Figure 8.19. Calculating relative importance: simple multivariate method
8.9. Importance-Performance Mapping
The importance-performance map is another data presentation device
that many managers find appealing. The idea is derived from standard
quadrant analysis, which has been used for many years in business strat-
egy. In general, this approach argues, we should be most concerned about
those issues for which the importance is high, and our performance (typ-
ically measured by average satisfaction) is poor. These issues yield the
greatest potential for gain.
We make one key change to this widely used approach, however.
Because converting satisfied to delighted typically requires different pro-
grams from converting dissatisfied to satisfied, we analyze them sepa-
rately. So, we measure performance as either percent satisfied, or percent
of satisfied who are delighted. To implement this approach, we start with
importance and performance data such as those shown in Figure 8.20. This
addresses the issue of converting dissatisfied to satisfied.
IMPORTANCE-PERFORMANCE IN DRIVING SATISFACTION:
OVERALL PROCESS DATA
process importance % delighted
Billing
Sales
Product
Repairs
45
50
25
6
40
70
80
50
Figure 8.20. Importance- Performance In Driving Satisfaction
The upper-left quadrant is where we are doing well, but the importance
is low, and thus maintaining the status quo is suggested. In some cases,
there may be opportunities for transferring resources from the processes
in this quadrant. The upper-right quadrant is where we are doing well,
338 Liljiana ELMAZI, Alexandru NEDELEA
and importance is high. This area represents our competitive strengths.
We should trumpet this competency in advertising and personal selling.
The lower-left quadrant is an area in which we are not doing particularly
well, hut it doesnt matter. It is better to ignore these areas. The lower-
right quadrant represents our area of greatest opportunity. It is important,
and we are not doing well. Resources should be added to this area.
IMPORTANCE PERFORMANCE IN DRIVING DELIGHT:
OVERALL PROCESS DATA
process importance % of satised who are delighted
Billing
Sales
Product
Repairs
18
30
10
14
5
30
40
50
Figure 8.21. Importance Performance In Driving Delight: Overall Process Data
One caveat should be mentioned with regard to quadrant maps.
Remember that the quadrants are defined in a somewhat arbitrary man-
ner. Therefore, processes that are near a borderline should be examined
carefully. For example, Product is close to the upper-right quadrant. There
may be some leverage opportunities. Also, if there is not much variance on
a dimension (e.g., all of our processes have very high and roughly equal
performance), then dividing that dimension may he questionable.
(Ignore)
(Add resources)
(Leverage)
(Statusquo)
Performance
(% of satisfaction)

80
40
60







Product


Sales


Repair


Billing

Figure 8.22. Importance Performance in driving satisfaction: Quadrant Map
339 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
Figures 8.22 and 8.23 show the data for deriving a quadrant map for
driving delight, and the map. Comparison with Figure 21 shows that the
satisfaction quadrant map may be very different from the delight quad-
rant map. For example, Repairs changes position on the map. Apparently
we are doing something right to delight repair customers, even though we
have some trouble getting our customers satisfied in the first place.
The quadrant analysis can also be employed at the process level. The
figures show the importance-performance maps of satisfaction and delight
about whether the bills are accurate and easy to understand. The maps
show pretty clearly that making the bills more accurate should be a high
priority in improving satisfaction with billing; however, neither of these
dimensions seems to have much ability to delight the customer.
We have seen that it is possible to derive some very valuable insights
from customer satisfaction survey data, hut these results are possible only
when the questionnaire is organized around business processes. We can also
benefit by differentiating between the conversion of customers from dissat-
isfied to satisfied and the conversion of satisfied customers to delighted.
Analyses may he conducted in either a simple or sophisticated man-
ner, although greater accuracy is associated with the more sophisticated
approach. In either case, importance scores show the impact of each var-
iable in driving satisfaction (or delight). The importance scores may be
mapped in an importance-performance quadrant chart, which yields man-
agerial recommendations about which variables to emphasize.
(Ignore)
(Add resources)
(Leverage)
(Statusquo)
Performance
(%
)
of satisfied
who are delighted)
Importance

50
40
10
10 20 30 40 50
30
20







Product




Repairs


Billing
Sales
Figure 8.23. Importance Performance in driving delight: Quadrant Map
340 Liljiana ELMAZI, Alexandru NEDELEA
Conclusion:
The strength of a business that operates in tourism and hospitality
industry is directly related to its ability to develop market- based strategies
that deliver high levels of customer satisfaction. However, there is consid-
erable evidence that businesses that operate with higher levels of customer
satisfaction are more profitable. They are more profitable because they are
able to retain a high percentage of customers, and have to spend less time
and money attracting new customers to replace lost customers. They are
able to deliver higher levels of both customer satisfaction and profitability.
By delivering higher levels of customer satisfaction and value, these busi-
nesses are able to retain a higher proportion of their customers. Having
higher customer satisfaction and retention lowers the cost of serving cus-
tomers and acquiring new ones.
Defensive marketing, the retention of existing customers rather than
the attraction of new customers, is increasingly important as the advanced
economies become more service-oriented. Defensive marketing activities
are justified by the lifetime value of a customer, which is often much
larger than one might suspect. Lifetime value arises from future purchases,
referrals, and avoiding negative word of mouth.
Complaint management is one of the most direct methods of practic-
ing defensive marketing, because a complaint is a crisis that can result in
a large swing in satisfaction and repurchase intention. Unfortunately, there
are many companies that still do not understand the value of intelligent
complaint management, and many bad business practices exist. Progressive
companies manage complaints according to several useful managerial prin-
ciples, including communication links between the customer database and
frontline employees, immediate customer advocacy, authority to settle com-
plaints, responsiveness, and not further inconveniencing the customer.
Smart companies also analyze both complaint data and complaint resolu-
tion data. Analyzing complaint data can suggest which are the most important
com plaints, and to which complaints the most resources should be allocated.
Analyzing complaint resolution data is easily managed using the problem
impact tree, which yields such insights as the value of problem avoidance,
the value of problem resolution, and the value of problem reporting.
Questions for Discussion:
1. Think of a time when you purchased a hospitality or travel product
such as an airline flight, hotel room, or meal and had a problem. How
341 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism
did the company resolve the problem (if they did? Was the complain
resolution satisfactory? Why or why not?
2. Describe a situation in which your become a lost customer. Did you
leave because of poor product quality, poor service quality, or both?
3. Does McDonalds have a high-quality product? Explain your
answer and include the criteria you used to evaluate quality.
4. Choose a hospitality or travel product you are familiar with and
explain which components of the product would comprise techni-
cal quality, functional quality, and societal quality.
5. Write a complain letter to a firm about one of their products or serv-
ices. Did you receive a refund or replacement product, a response
letter, or no reply at all? How does the type of response affect your
attitude toward the company?
6. To increase capacity and travel companies involve the customer in
the delivery of the service. Give some examples of this from your
own experiences. Did this involvement increase or decrease your
satisfaction with the product being purchased?
7. How does good quality increase employee satisfaction?
8. You found out that accuracy in billing was an area in which you
had a high importance score and many dissatisfied customers, what
would you do next?
9. You are VP of marketing at a major hotel chain; your customer satis-
faction researcher brings you the results of his/her customer satisfac-
tion survey analysis. It includes a multiple regression of the process
satisfaction scores (on a I-to-S scale) versus overall satisfaction (also
on a 1-to-S scale). What questions or comments do you have?
10. Think of the last time you experienced a problem with a product
or service. Did you complain? If not, why not? What would have
persuaded you to complain?
11. Think of the last time you complained about a product or service.
Was the problem resolved to your satisfaction?
12. When was the last time you were really impressed with a compa-
nys response to your complaint? What did they do right?
342 Liljiana ELMAZI, Alexandru NEDELEA
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79. Powers, T., Introduction to the Hospitality Industry, Wiley, New York,
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80. Py, P., Le tourisme, un phnomne conomique, La Documentation
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81. Rakadjiiska, Sv., Marinov, St., Marketing in Tourism, Nauka i Ikonomika
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82. Rayan, Chr., Recreational Tourism, Open Society Publisher, S, 1996.
83. Rayan, Chr., Researching Tourist Satisfaction: Issues, Concepts,
Problems, London, 1995.
84. Sinclair, T., Stabler, M., The Economics of Tourism, Routledge, London,
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85. Syrattt, G., Manual of Travel Agency Practice, Butterworth-Heinemann,
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346 Liljiana ELMAZI, Alexandru NEDELEA
86. Subhash, C. Jain, International Marketing Management, Ohio, 1996.
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88. Tinard, Y., Le tourisme, Economie et Management, Ediscience International,
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89. Tocquer, G., Zins, M., Marketing du tourisme, Gaetan Morin, Canada,
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90. Tocquer, G., Zins, M. Marketing de Tourisme, Quebec, 1987
91. Tracey Firth, Marketing for Sustainable Tourism, University of Western
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Journals:
Annals of Tourism Research
Capital Newspaper
International Journal of Tourism Research
Journal of Travel and Tourism Marketing
Web Sites:
www.world-tourism.org
Disney: http://www.disney.go.com/
Emirates: http://www.emirates.com/
Four Seasons Hotels and Resorts: http://www.fourseasons.com/
Hampton Inn: http://www.hamptoninn.com/
Lufthansa: http://www.lufthansa-usa.com/
National Institute for Quality Standards: http://www.quality.nist.gov/
The Ritz-Carlton Hotel Company: http://www.ritzcarlton.com
San Francisco Convention and Visitors Bureau: http://www.sfvisitor.org/
ScotRail Railways Limited: http://www.scotrail.co.uk/
Singapore Airlines: http://www.singaporeair.com/
Southwest Airlines: http://www.southwest.com/
347 Customer Satisfaction, Loyalty, and Value and Profitability in Tourism

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