Chapter 6

PRICING PRODUCTS

“The real issue is value, not price” Robert T. Lindgren

Kotler on Marketing “Sell value, not price.”

6.1 Price: is the amount of money charged for a good or service. It is the sum of all values that
consumers exchange for the benefits of having or using the product or service. Pricing is the only
marketing mix element that produces revenue. All other marketing mixes represent cost. Pricing
is the least understood of the marketing variables. The most common mistakes in pricing include
pricing that is too-cost –oriented, prices that are not revised to show market changes, pricing that
does not take the rest of the marketing mix in to account, and prices that are not varied enough
for different product items and market segments.

Fig: Price Should Align with Value

6.2 Factors Affecting Pricing Decision

Internal factors and External company factors affect a company’s pricing decisions.

6.2.1. Internal factors

1. Marketing objective: The firm’s objective determines the pricing strategy.

 Survival- companies troubled by too much capacity, heavy competition, or changing

consumer wants set survival as their objective. A manufacturing firm can reduce
production to match demand and a hotel can cut rates to create the best cash flow.
 Current profit maximization- many companies want to set a price that will maximize
current profits, cash flow or return on investment, seeking financial outcomes rather than
long-run performance.
  Market- share leadership-when companies believe that a company with the largest
market share will eventually enjoy low costs and high long-run profits; they will set low
opening rates and strive to be the market-share reader.
 Quality leadership- provides superior quality for a high price to capture the luxury
market. E.g. Ritz-Carlton has: high capital investment per room ($500,000).; high labor
cost per room( to maintain well qualified staff).;high employee guest ratio to provide
luxury service; charge high price for their luxury service
 Other objectives: A company might also use price to attain other, more specific
objectives. Set low price to prevent competition from entering the market or set same
price to stabilize the market. A fast-food restaurant may reduce prices temporarily to
create excitement for a new product or draw more customers into a restaurant. Opposite
pricing strategy can be set for another restaurant which works so well.

Price - Quality Strategies price

Premium Value High Value Super Value

Overcharging Medium Value Good-Value

Product Quality Rip-Off False Economy Economy
2. Marketing mix strategy:
price must be coordinated with product design, distribution and promotion decisions to form a
consistent and effective marketing program.

3. Costs: Costs set the floor for the price a company can charge for its product. A company
wants to charge a price that covers its costs for producing, distributing, and promoting the
product. Beyond covering these costs, the price has to be high enough to deliver a fair rate of
return to investors.

Types of Costs: Costs take two forms: fixed and variable. Fixed costs (overheads) - are those that
do not vary with production or sales level. Example- rent, interest, salary etc. Variable costs-
vary directly with the level of production. Example- cost for inputs\raw materials.

The Three C’s Model for Price Setting

Low Price Costs Competitors’ prices Customers’ High Price

and prices of assessment of unique
substitutes product features
No possible profit at this price No possible demand at this price

4. Organizational considerations: management should decide, who within the organization, set
prices. In small companies, it is decided by top management, and in large companies, it will be
decided by corporate management.
7.2.2. External Factors Affecting Pricing Decisions

External factors affecting pricing decisions include: the nature of market and demand,
competition, and other environmental elements.

1. Nature of Market and Demand: Although costs set the lower limits of the prices, the market
and demand set the upper limit. Management considered a price increase as way to push revenue
above the break-even point.

 Cross selling- Cross selling opportunities abound in the hospitality industry.A hotel can
cross sell F&B, exercise room service, and executive support services such as a fax, and
can even sell retail products.

 Up selling: This occurs through training of sales and reservation employees to

continuously offer a higher- priced product, rather than setting for lower prices. Example-
offering after dinner coffee can be turned into up selling opportunity

2. Pricing in different markets: There are 4 types of markets and the sellers’ pricing freedom
varies with different types of markets.

 Pure competition- consists of many buyers and sellers trading in a uniform commodity.
 Pure monopoly –consists of one seller and many buyers.
 Monopolistic competition consists of many buyers and sellers who trade over a range of
prices rather than at a single market price by selling differentiated products.
 Oligopolistic competition- consists of few sellers who are highly sensitive to each other’s
pricing and marketing strategies.

3. Consumers’ perception of price and value: In the end it is the consumer who decides
whether a product’s price is right. When setting prices, management must consider how
consumers perceive price and the ways that these perceptions affect consumer’s buying
decisions. “We can’t see the value of the price. We can only set the price”, explains Carlos
Talosa VP of Embassy suites. The market value is set by our customers and our ability to sell to
it.

4. Price –Demand Relationships: Each price a company can charge will lead to a different level
of demand. The relationship between price charged and demand - inversely related, i.e. the
higher the price the lower the demand.

Price –Demand Relationships

Shape of demand curve; price range/ceiling; Q=4000-40P

5. Price elasticity of demand: if demand hardly varies with a small change in price, we say that
the demand is price-inelastic. If demand changes greatly, we say that the demand is elastic.
Buyers are usually less price-sensitive when products are unique, high in quality, has no
substitutes, etc.

6. Competitors’ Prices and Offers: Competitors’ prices and their possible reaction to a
company’s own pricing moves are other external factors affecting pricing decisions

7. Other external elements: When setting prices the company must also consider other factors
in the external environment. Economic factors such as inflation, boom, and recession, and
interest rates affect pricing decisions. For example:-in recession, most sellers couldn’t offer the
same product at a lower price and survive.

6.3 General Pricing Approaches

The price that 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. Product costs set a floor for the price;
consumers’ perceptions of the product’s value set the ceiling. The company must consider
competitor's prices, and other external and internal factors to find the best price between these
two extremes. Companies set the prices by selecting a general pricing approach that includes one
or more of these sets of factors

1. Cost- Based Pricing: It is the simplest pricing method (adding standard markup to the cost of
the product). F&B managers often use cost-plus pricing method. Cost as a percentage of selling
pricing is another commonly used pricing technique in the restaurant industry.
2. Break-even Analysis and Target profit pricing: Another cost oriented pricing method
approach is break-even pricing, in which the firm tries to determine the price at which it will
break even. At Break-even, total revenue matches with total cost (zero profit).

Break-Even Chart for Determining Target-Return Price and Break-Even Volume

Some firms use a variation of break-even pricing, called target profit pricing which targets a
certain return on investment.

Setting the Price

3. Value-Based Pricing: Value-based pricing uses the buyer's perception of value, not the
seller’s cost, as the key to pricing. The marketer can not design a product and marketing program
and then set the price. Price is considered along with other marketing-mix variables before the
marketing program is set. The company uses non-price variables in the marketing mix to build
perceived in the buyer’s minds, setting price to match the perceived value. Any company using
perceived-value pricing must learn the value in the buyer’s minds for different competitive
offers. The best way to hold your customers is to constantly figure out how to give them more for
less.
More and more marketers have adopted value-pricing strategies. They strive to offer just the
right combination of quality and good service at fair price. This can result in redesigning existing
brands to provide more quality or offer the same amount of quality for lower price.

4. Competition-Based pricing: A strategy of going-rate pricing is the establishment of price

based largely on those of competitors, with less attention paid to costs or demand. The firm
might charge the same, more, or less than its major competitors. Firms feel that holding the price
will avoid harmful price wars.

6.4 Pricing Strategies

6.4.1. New product pricing Strategies

New product pricing strategies pricing strategies usually change as a product passes through its
life cycle. Several options exist for pricing new product: Prestige pricing, market skimming
pricing, and market penetration pricing.

1. Prestige pricing: Hotels and restaurants seeking to position themselves as luxurious and
elegant will enter the market with a high price that will support this position.

2. Market Skimming Pricing: Price skimming is setting high price when the market is price
insensitive. It makes sense when lowering the price will create less revenue. It can be an
effective short-term pricing policy.

3. Market penetration pricing: Rather than setting a high initial price to skim off small but
profitable market segment, other companies set a low initial price to penetrate the market quickly
and deeply, attracting many buyers and winning a large market share.

7.4.2. Existing-product pricing Strategies

The following strategies can be used for existing products.

1. Product bundle pricing- is combing several of their products and offer the bundle at a
reduced price. Example- hotels sell specially priced weekend packages that include room, meals,
and entertainment and other services.

2. Price Adjustment Strategies: Companies usually adjust their basic prices to account for
various customer differences and changing situations: discount pricing and allowances,
discriminatory pricing, and yield management.

A. Volume Discount: Most hotels have Special Rates to attract customers who are likely to
purchase a large quantity of hotel room, either for single period or through out the year.
B. Discount based on time of Purchase: A seasonal discount is a price reduction to buyers to
purchase services out of season, when the demand is lower. Seasonal discounts allow the hotel to
keep the demand steady during the year.

C. Discriminatory Pricing: Discriminatory pricing refers to segmentation of the market and

pricing differences based on price elasticity characteristics of these segments.

D. Yield management: One application of the discriminatory pricing is yield management. A

yield management is system is used to maximize a hotel’s yield or contribution 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.

3. Last-Minute Pricing: although last-minute pricing provides an out-let for unsold inventory, it
is not a substitute for effective marketing and a well-devised pricing strategy

4. Psychological Pricing: Psychological aspects such as prestige reference prices, round figures,
and ignoring end figures are used in pricing. Consider the psychology of prices, not simply the
economics.

-$99.99 to $100; -was $500, now $315.50; Most Attractive; Better Value?

 Psychological reason to price this way?

5. Promotional Pricing: They temporarily price their products below its price and sometimes
even below cost, for special occasions such as introduction of the product or festivals.
Promotional pricing gives guests a reason to come and promotes a positive image for the
company.
 CHAPTER 7

DISTRIBUTION CHANNELS

7.1 Nature and importance of Distribution systems

Distribution system can be viewed as the company’s circulatory system. Distribution systems
provide a steady flow of customers. A well- managed distribution system can make the
difference between a market share leader and a company struggling for survival. Many
hospitality companies are making greater use of the marketing channels available to them.
Example- Ritz Carlton receives a greater share of business from travel agents because of
aggressive development of this channel.

Nature of distribution channels

A distribution channel is a set of independent organizations involved in the process of making a
product available to the consumer or business user. Development of distribution channel starts
with selection of channel members. Once members have been selected, the focus shifts to
managing the channel. Distribution networks in the hospitality industry consist of contractual
agreements and loosely organized alliances between independent organizations. Marketing,
distribution channel systems are traditionally used to move goods (tangible products) from the
manufacturer to the consumer. In the hospitality and travel industries, distribution systems are
used to move the consumers to the product: the hotel, restaurant, cruise ship, or airplane. The
products used by hospitality and travel companies come through distribution channels:

7.2 Why are marketing intermediaries used?

Factors that focus increasing attention on developing distribution channels are:

 The growing size of businesses (greater production capacity has to be matched with more
points of sale to generate the required volume of bookings/sales.
 The greater distances that customers are willing to travel, especially international tourism
 The importance of reaching and drawing in more first-time visitors in o4rder to make a
business grow
 The even greater need to provide the most convenient forms of access fo repeat or ‘loyal’
customers
 The cost of maintaining
 The company does not have to store and maintain several display rooms and a large sales
force in every major city.
 Some times it is impossible to reach all customers with out the help of marketing
intermediaries.
 It reduces cost of transportation.
 7.3 Number of channel levels
Distribution channel can be described by the number of channel levels. Each layer that performs
some work in bringing the product and its ownership closer to the final buyer is a channel level.

Consumer marketing channels

0-level 1-level 2-level 3-level
Manufacturer Manufacturer
Manufacturer Manufacturer

Retailer Wholesaler Wholesaler

Retailer
Jobber

Retailer

Consumer Consumer Consumer

Consumer

7.4 Distribution channel functions

Distribution channel moves goods from producers to consumers. It overcomes the major time,
place, and possession gaps that separate goods and services from those who would use them.

• Members of the marketing channel perform many key functions.

1. . Information- gathering and distributing marketing research and intelligence information

about the marketing environment.
2. Promotion- developing and spreading persuasive communications about an offer.
3. Contact- finding and communicating with prospective buyers.
4. Matching-shaping and fitting the offer to the buyer’s needs, including such activities as
manufacturing, grading, assembling, and packaging.
5. Negotiation- agreeing on price and other terms of the offer so that ownership or
possession can be transferred.
6. Physical distribution- transporting and storing goods.
7. Financing- acquiring and using funds to cover the cost of channel work.
8. Risk taking- assuming financial risks such as inability to sell inventory at full margin.
9. Arranging transfer of title to product through ticketing and documentation
10. Receiving and transmitting sales revenue to principals.
7.5 Marketing Intermediaries in the Tourism Industry
Many specialized channels are available to hospitality and travel organizations. In hospitality and
travel distribution system include travel agents, tour wholesalers, specialists, hotel
representatives, national, state and local tourist agencies, reservation system, internet and so on.

1. Travel Agents: One way of reaching a geographically diverse market place through travel
agents. The number of travel agents decreases these days. This is due to the airlines driving their
customers to the internet and the decrease in commission paid to travel agents by airlines.

2. Tour wholesalers: Tour wholesalers assemble travel packages usually targeted to at the
leisure market. These generally include transportation and accommodations, but may include
meals, ground transportation, and entertainment. In developing a package, a tour wholesaler
contacts with airlines and hotels for a specified number of seats and rooms and rooms, receiving
a quantity discount. The wholesaler arranges transportation between the hotel and the airport.

3. Specialists: Tour brokers Motivation house and Junket Reps

Tour brokers sell motor coach tours, which are attractive to a variety of markets. Some motor
coach tours are seasonal, some are based on one event, and others are year round.

Motivational houses provide incentive travel offered to employees or distributors as a reward

for their efforts. Companies often use incentive travel as a prize for employees who achieve sales
goals or for the sales teams achieving the highest sales. The incentive trip is usually to a resort
area and includes first-class luxury properties.

Junket reps serve the casino industry as intermediaries for premium players. Junket reps
maintain lists of gamblers who like to visit certain gambling areas such as Las Vegas and
Atlantic Cities. They are paid a commission on the amount the casino earns from the players or
in some cases on a per player basis.

4. Hotel representatives: Hotel representatives sell a hotel rooms and hotel services in a
given market area. It is often more effective for hotels to hire a hotel representative than to use
their own salesperson.

5. National, State, and Local tourist Agencies

National, State, and Local tourist Agencies are excellent way to get information to the market
and gain room bookings. National associations promote tourism within their country. State
agencies promote state resources and attractions overseas. Regional associations can also help
the independent and chain operators.
 Chapter 8

Promotion: Promoting product

“I don’t know who you are. I don’t know your company. I don’t know your company’s product. I
don’t know what your company stands for. I don’t know your company’s customers. I don’t know
your company’s record. I don’t know your company’s reputation. Now- what was it you wanted to
sell me?”

8.1. The Communication Process

Today, there is a new view of communications as an interactive dialogue between the company
and its customers that takes place during the pre-selling, selling, consuming, and post consuming
stages.. Through the technological breakthroughs, people can now communicate and interact
through traditional media (newspapers, radio, telephone, television), as well as through new
media forms (computers, fax machines, cellular phones). By decreasing communication costs,
the new technologies have encouraged more companies to move from mass communications to
more targeted communication and one-to-one dialogue.

There are six steps in developing effective communications. The marketing communicator must:

1. Identify the target audience

2. Determine the communication objectives/responses sought: there are 6 buyer readiness
states-awareness, knowledge, liking, preference, conviction, purchase.
3. Design the message: AIDA model-the message should get Attention, hold Interest, arouse
Desire and obtain Action. Three problems that the marketing communicator should solve
are
a. Message contents(what to say)
 Rational appeals-relate to audience self interest. They show that the product will produce
desired benefits.
 Emotional appeals-attempt to provoke emotions that motivate purchase. E.g. fear,
shame..
 Moral appeals-directed to the audience’s sense of what is right and proper. E.g. support
for clean environment, race relations, equal rights, etc.
b. Message structures(how to say it logically)
 Whether to draw a conclusion or leave it the audience
 Whether tom present a one or two-sided argument
 Whether to bring the strongest arguments first or at last
c. Message format(how to say it symbolically)
 Visual advertising-using novelty & contrast, eye-catching pictures, colour, shape and
movement
 Audio ads-using words, sounds, and voices
  Message source-using attractive sources to achieve higher attention and recall, such as
using celebrities
4. Select the communication channels: choose the media through which to send the message.
I. Personal communication channel: in which two or more people communicate with each
other directly/face to face, telephones, direct mail, etc/where feedback is possible. It is
used for products which are risky, expensive and complex.
II. Non-personal communication channels: are Medias that carry messages without personal
contact/feedback. It includes media (print, broadcast and display media), atmosphere and
events.
5. Measure the communication’s results: evaluate the effects on the targeted audience.

8.2. Promotion Mix

The promotional mix as the company’s total marketing communications program consists of a
specific blend of advertising, sales promotion, public relations and personal selling to achieve
advertising and marketing objectives. The four major promotional tools are defined as
advertising, public relations, sales promotion and personal selling.

8.2.1 Advertising
Advertising: any paid form of non-personal presentation and promotion of ideas, goods or
services by an identified sponsor. Advertising’s public nature suggests that the advertised
product is standard and legitimate. It also allows the seller to repeat a message many times. It can
be used to build a long-term image for product and also stimulate quick sales. Advertising can
reach masses of geographically dispersed buyers at a low cost per exposure. Advertising has also
shortcomings. It is impersonal and cannot be persuasive as a company salesperson. It is able to
carry on only a one way communication with the audience, and the audience does not feel that it
has to pay attention or respond. It can also be very costly.

Major Decisions in Advertising Message decisions

Message generation

Message evaluation

and selection
Objective setting Budget decisions Campaign evaluation
Message execution
Communication Affordable approach Communication impact
objectives Media decisions
Percent of sales Sales impact
Sales objectives Reach, frequency, impact
Budget allocation
Major media types

Specific media vehicles

Media timing
Marketing management must make 5 important decisions in developing an advertising program.

1. Setting advertising objectives: the first step in designing and advertising program is to set
advertising objectives. Objectives must be based on information about the target market,
positioning and marketing mix.

Advertising objective is a specific communication task to be accomplished with a specific target

audience during a specific period of time. Advertising objectives can be classified by their aim:
to inform, persuade or remind.

I. Informative advertising – is used heavily when introducing a new product category and
when the objective is to build primary demand. When an airline opens a new route, its
management often runs full-page advertisements informing the market about the new
service.
II. Persuasive advertising – becomes more important as competition increases and a
company’s objective becomes building selective demand. Some persuasive advertising
has become comparison advertising, which compares one brand directly or indirectly
with one or more other brands.
III. Reminder advertising – is important for mature products, because it keeps consumers
thinking about the product. Expensive Hilton or Best Western Hotels or even
McDonald’s ads on television, are designed to remind people about the company, not to
inform or persuade them.
2. Setting the advertising budget: after determining the ad objectives, a company can establish
ad budget for each product. The role of ad is to affect demand for a product. The company
wants to spend the amount needed to achieve the sales. The advertising budget has some
specific factors that should be considered when setting a budget.
A. Stage in the product lifecycle: new products typically need large advertising budgets to build
awareness and gain consumer trial. Mature brands usually require lower budgets as a ratio to
sales.
B. Competition and clutter: in a market with many competitors and heavy ad support, a brand
must be advertised more frequently to be heard above the noise of the market.
C. Market share: high market share brands usually require greater advertising expenditures as a
percentage of sales than do low share brands. Building a market or taking share from
competitors requires larger ad budgets than maintaining current share.
D. Advertising frequency: larger advertising budgets are essential when many repetitions are
needed to present the brand’s image.
E. Product differentiation: a brand that closely resembles others in its product class requires
heavy advertising to set it apart. When a product differs greatly from other competitors, ad
can be used to communicate differences to consumers.
3. Message decision: a large ad budget does not guarantee a successful advertising campaign.
Studies have shown that creative advertising messages can be more important than the
number of dollars spent. No matter how big the budget, advertising can succeed only if it
messages get attention and communicates well. Thus, just to gain and hold attention, today’s
ad messages should be better planned and more imaginative, entertaining and rewarding to
consumers. Developing a creative strategy requires 3 message steps: generation, evaluation
and selection and execution.
 A. Message generation: the travel and tourism industry face an inherent barrier to effective
communication with its customers. This is because of the intangibility nature of the
products. A hotel’s product is experienced only at or after the time of purchase. This
characteristic of services general poses genuine challenge for message creation. Creative
people have different ways of developing ad messages. Many start by talking to consumers,
dealers, experts, and competitors. Others imagine consumers using the product and
determine the benefits that consumers seek.
B. Message evaluation and selection: the advertiser must evaluate possible appeals on the
basis of 3 characteristics.
 Messages should be meaningful-pointing out the benefits that make the product more
desirable or interesting to the consumer.
 Appeals should be distinctive-they should tell how the product is better than competing
brands.
 The message must be believable.
C. Message Execution: The impact of the message depends on what is said and how it is said-
message execution. The advertiser or sponsor has to put the message across in a way that
wins the target market’s attention and interest. The advertising agency’s creative staff must
find a style, tone, words, and format for executing the message. Any message in the
advertisement can be presented in different execution styles, such as the following:

1.) Slice of life – shows one or more people using the product in a normal setting.
2.) Lifestyle – shows how a product fits with a lifestyle. For example, an airline advertising
its business class featured a business person sitting in an upholstered chair in a living
room, having a drink and enjoying the paper. The other side of the ad featured the same
person in the same relaxed position with a drink and paper in one of the airline’s business
class-seats.
3.) Fantasy creates a wonder world around the product or its use. For instance, Conrad’s Sea
Goddess features a woman lying in a raft in the sea, with the luxury liner anchored in the
background. A cocktail server is walking through the sea carrying a drink for the woman.
4.) Mood or image – builds a mood or image around the product such as beauty, love or
serenity.
5.) Musical – shows one or more people or cartoon characters singing a song about the
product or dancing to a particular tune. Delta Airlines used music effectively in its “We
Love to Fly and and It Shows” campaign. Australians often use simple but catchy
melodies in their advertisements. Brazilians often use adaptations of samba music,
particularly music that was popular during the carnival.
6.) Personality – symbol creates a character that represents the product. The character might
be created by the company, such as McDonald’s Ronald Mc Donald or real person.
7.) Technical expertise – shows the company’s expertise with the product. Hotels often use
this style in advertisements directed toward meeting and convention planners,
emphasizing that they have the technical expertise to support the meeting planner.
American Airlines make heavy and frequent use of expertise, particularly that of its pilots
and mechanics.
8.) Scientific evidence – presents survey or scientific evidence that the brand is better or
better liked than one or more other brands.
 9.) Testimonial evidence – features a highly believable or likable source endorsing the
product. For example, entertainment or sports personalities.
4. Media decisions: the 4th step is to choose the media to carry the message. The major steps in
media selection are the following.
A. Deciding on reach, frequency and impact
Reach is a measure of the percentage of people in the target market who are exposed to the ad
campaign during a given period of time.
Frequency is a measure of how many times the average person in the target market is exposed to
the message.
Impact is the qualitative value of message exposure through a given medium. E.g. for products
that must be demonstrated, TV messages using sight and sound are more effective.
B. Choosing among major media types
The media planner has to know the reach, frequency and impact of each major media types. The
major media types include newspaper, TV, direct mail, out door, e-mail, etc.
C. Selecting specific media vehicles
Costs should be balanced against the media vehicles: audience quality, ability to gain attention,
and editorial quality.
D. Deciding on media timing
The advertiser must decide on how top schedule advertising over the year based on seasonal
fluctuation in demand, lead time in making reservations.
5. Advertising evaluation
Managers of ad programs should regularly evaluate the communication effects of advertising.

8.2.2 Public Relations

Public Relations: building good relations with the company’s various publics by obtaining
favourable publicity, developing a good corporate image and handling or heading off
unfavourable rumour, stories or events.

“Public relations, perhaps the most misunderstood part of marketing communications, can be
the most effective tool.” PR is an important marketing tool that until recently was treated as a
marketing stepchild. Advertising costs continue to rise, while audience reach continues to
decline.

PR departments perform the five activities discussed below, not all of which feed into direct
product support.

Major Activities of PR Departments

1. Press Relations: The aim of press relations is to place newsworthy information into the
news media to attract attention to a person, product or service. One reason for the growth of
press relations in the hospitality industry is its credibility. Most types of publicity are
viewed by the consumer as third-party information.
2. Product Publicity: Product publicity involves various efforts to publicize specific products.
New products; special events, such as food festivals; redesigned products, such as a newly
renovated hotel and products that is popular because of current trends.
3. Corporate Communication: Corporate Communication covers internal and external
communications and promotes understanding of the organization. One important marketing
aspect of corporate communication is communication directed toward employees, such as
company newsletters. Companies also need to manage their communication with their
stockholders to make sure the stockholders understand the company’s goals and objectives.
4. Lobbying: Lobbying involves dealing with legislators and government officials to promote
or defeat legislation and regulation. Large companies employ their own lobbyists, whereas
smaller companies lobby through their local trade associations.
5. Counselling: Counselling involves advising management about public issues and company
positions and image. Counselling is important when there maybe sensitive issues associated
with the business. For example, water is a scarce commodity in Las Vegas. Major resorts
with water displays, such as the Mirage, counsel their managers on the resort’s water
conservation efforts, such as recycling the hotel’s wastewater to be used in the hotel’s
fountains.

PUBLIC RELATIONS PROCESS

Effective public relations are the results of a process. This process must be integrated with the
firm’s marketing strategy. One common misconception about public relations and publicity is
that quantity is more important than quality. Some PR firms measure success by the number of
articles placed in media. As in other marketing efforts public relations should be meaningful to
the target market.

The PR process consists of the following steps:

1.) Researching to understand the firm’s mission, culture and target of the communication.
It should know the vehicles that will be effective in delivering messages to the target
audience. Mush of the information needed by a PR manager will be contained in a well-
written marketing plan. Ideally, the PR manager should be involved in the formation of the
marketing plan.
2.) Establishing the marketing objectives:
i. Build awareness – PR can place stories in the media to bring attention to a product,
service, person, organization or idea.
ii. Build credibility – PR can add credibility by communicating the message in an editorial
context.
iii. Stimulate the sales force and channel intermediaries – PR can help boost sales force and
franchisee enthusiasm. Positive stories about a new menu item will make an impression
on the customers, employees and franchisees of a restaurant chain.
iv. Hold down promotion costs – PR costs less than direct mail and media advertising. The
smaller the company’s promotion budget is, the stronger the case for using the PR to
gain share of mind.
3.) Defining the target audience. Effective PR practitioners carefully identify the publics that
they wish to reach. Then they study these publics and find media that can be used as vehicles to
deliver their message.

4.) Choosing the PR message and the vehicles. The PR practitioner is now ready to identify or
develop interesting stories about the product or service. If the number of stories is insufficient,
the PR practitioner should propose newsworthy events that the company can sponsor. Here the
challenge is to create news rather than find it. PR ideas include hosting major academic
conventions, inviting celebrity speakers and developing news conferences. Each event is an
opportunity to develop a multitude of stories directed at different audiences. Event creation is a
particularly important skill in publicizing fund-raising drives for non-profit organizations.

5.) Implementing the marketing PR plan. Implementing publicity requires care. Consider the
matter of placing information in media. Exciting information is easy to place. However, most
press releases are less than great and might not get the attention of busy editors. A chief asset of
publicists is their personal relationship with media editors. Public relations practitioners are often
ex-journalists who know many media editors and what they want. PR people look at media
editors as a market to satisfy, so that they will continue to use the company’s press releases.

6.) Evaluating Public Relations results.

i. Exposures – the easiest measure of PR effectiveness is the number of exposures created

in the media. Publicists supply the client with a clipping book showing all the media that
carried news about the product and a summary statement.
ii. Awareness/Comprehension/Attitude Change – A better measure is the change in the
product awareness/comprehension/attitude resulting from the campaign (after allowing
for the effect of other promotional tools). For example, how many people recall hearing
the news item? How many told others about it (a measure of word of mouth)? How many
changed their minds after hearing it?
iii. Sales and Profit Contribution – is the most satisfactory measure, if obtainable. A well-
planned public relations campaign is usually part of an integrated promotional campaign.

Major Tools in Marketing Public Relations (PR)

a.) Publications – Companies can reach and influence their target market via annual reports,
brochures, cards, articles, audio-visual materials and company newsletters and magazines.
b.) Events – Companies can draw attention to new products or other company activities by
arranging special events.
c.) News – PR professionals cultivate the press to increase better coverage to the company.
d.) Speeches - Speeches create product and company publicity. The possibility is accomplished
by printing copies of speech or excerpts for distribution to the press, stockholders,
employees and other publics.
e.) Public service activities – Companies can improve public goodwill by contributing money
and time to good causes, such as supporting community affairs.
f.) Identity media – Companies can create a visual identity that the public immediately
recognizes, such as with company’s logos, stationery, signs, business forms, business cards,
buildings, uniforms and dress code.

Public relation opportunities for the hospitality industry

 Build PR around the owner/operator

 Build PR around the location
 Build PR around the product or service-unique service or exceptionally fine service

Crisis management

1. The first step in crisis management is take all precautions to prevent negative events from
occurring.
2. When a crisis does occur:
a. Appoint a spokesperson. This ensures that the company is giving a consistent story based
on facts.
b. Contact the firm’s PR agency, if it has one.
c. The company should notify the press when a crisis does occur.

A well-managed property is the best form of crisis management.

8.2.3 Sales Promotions

Sales promotion consists of short-term incentives to encourage the purchase or sales of a

product or service. Sales promotion includes a variety of promotional tools designed to stimulate
earlier or stronger market response. It includes consumer promotion (samples, coupons, rebates,
price-off, premiums, contests, demonstrations), trade promotion-buying allowances (free goods,
cooperative advertising) and sales force promotion (bonuses and contests). Often a well-planned
sales promotion can result in publicity.
For example, one hotel in the US (Omni San Antonio Hotel) offered a Teacher’s Appreciation
Special in recognition of their contribution as educators. This sales promotion created goodwill
among the teachers and the community and generated publicity for the hotel. It also generated
room sales during a soft period.
Another example, a fast food restaurant (McDonald’s) gives a free child’s meal to students who
make an A. This rewards students who get good grades and provides the school with a no-cost
way of recognizing students who have done well. In addition to the public relations benefits, it
also brings the child’s parents and siblings to McDonald’s when the free meal is redeemed. Thus,
McDonald’s generates profitable sales from the promotion. With this, sales promotion tools are
used by most organizations.

Steps in setting sales promotion

1.) Setting sales promotion objectives. Sales promotion objectives vary widely and can
include increasing short-term sales, increasing long-term sales, getting consumers to try a new
product, luring customers away from competitors or creating loyal customers.

2.) Selecting sales promotion tools. Many tools can be used to accomplish sales promotion
objectives. The promotion planner should consider the type of market, the sales promotion
objectives, the competition and the costs and effectiveness of each tool. Common sales
promotion tools include samples, coupons, premiums, patronage rewards, point-of-purchase
(POP), contests, sweepstakes and games.

Consumer Promotion Tools

Samples – are offers of a trial amount of a product. Some samples are free. For others, the
company charges a small amount to offset its cost. Sampling is the most effective but also the
most expensive way to introduce a new product such as a restaurant offering free snack during a
particular season or period, or a hotel inviting potential customers and influential community
members to stay in the luxury hotel at no charge.

Coupons – are certificates that offer buyers’ savings when they purchase specified products. It
can be mailed, included with other products or placed in ads. Coupons are most popular in
restaurant or food business; however, hotel, rental car companies, tourist attractions and cruise
lines also use coupons.

Packages – promotions often involve packages of a number of the company’s products.

Packages are particularly popular with hotels and resorts that have a number of products to offer.
A package can also be developed associated with events.

Premiums – are goods offered either free or at low cost as an incentive to buy a product. Fore
example, fast food restaurants often offer a free promotional glass instead of their normal paper
cup. Many establishments have discovered that promotional items such as caps, T-shirts and
sweatshirts can be sold at a good profit, thus creating another profit centre for the company.
Others offer a premium-priced drink or dessert that is served with special glass or plate.

Patronage Rewards – are cash or other awards for regular use of a company’s products or
services. For example, most airlines offer frequent flyer plans that award points for miles
travelled. Most of the hotel chains have a frequent stay program and many restaurants have
frequent diner programs. These programs reward local customers, gather guest information and
ideally create a positive change in the consumer behaviour of the member. This change could be
more frequent purchases, larger purchases or spreading positive word of mouth.

Point-of-Purchase Displays – POP promotions include displays and demonstrations that take
place at the point of purchase or sale. For example, a representative of a beverage business might
offer a taste of their wines in one of their Beverage stores. The value of POP has long been
recognized by the retailing industry and is making rapid inroads in restaurants, hotels, auto rental
companies, and other hospitality industry firms. Use of display racks in the lobby to promote
other hotels in the chain and additional services, from valet parking to sleigh rides is also
common in hotels.
Contests, Sweepstakes and Games – give consumers a chance to win something, such as cash
or a trip. A contest calls for consumers to submit an entry – a jingle, guess or suggestion- to be
judged by a panel. A sweepstake calls for consumers to submit their names for a drawing. A
game presents consumers with something every time they buy a card such as bingo card or
missing letters that may or may not help them win a prize. A sales contest urges dealers or the
sales force to increase their efforts, with prizes going to the top performers.

3.) Developing the sales promotion program. The following steps are involved in
developing a sales-promotion program:
a. Decide on the size of the incentive.
b. Set the conditions for participation.
c. Decide how to promote and distribute the promotion program.
d. Set promotion dates.
e. Decide on the sales promotion budget.
4.) Pretesting and implementing the plan
5.) Evaluating the results. The company should evaluate the results against the objectives of the
program.

8.2.4 Personal Sales

Personal selling: oral presentation in a conversation with one or more prospective purchasers for
the purpose of making sales. Personal selling is the most effective tool at some stage of the
buying process, particularly in building buyer preference, conviction and purchase.

Personal selling is all about oral presentation in a conversation with one more prospective
purchaser for the purpose of making sales.
Sales personnel serve as the company’s personal link to customers. The sales representative is
the company to many customers and in turn brings back much-needed customer intelligence.
Personal selling is the most expensive contact and communication tool used by the company.
Cost estimates for making a personal sales call vary depending on the industry and the company,
but one conclusion remains constant., the cost is high. It is high in the sense that a salesperson’s
salary, cost of travel, technical support people and cost of presentations and allowances are to be
included in this tool. Add to this the fact that sales orders are seldom written on the first call and
often require five or more calls, particularly for larger orders. The cost of obtaining a new client
thus becomes enormously high. Despite the high cost, personal selling is often the most effective
tool available to a hospitality company. Sales representatives perform one or more of the
following tasks for their companies:

 Prospecting – Sales representatives find and cultivate new customers.

 Targeting – Sales representatives decide how to allocate their scarce time among
prospects and customers.
 Communicating - Sales representatives communicate information about the company’s
products and services.
 Selling – Sales representatives know the art of salesmanship: approaching, presenting,
answering objections and closing sales.
  Servicing – Sales representatives provide various services to the customers – consulting
on their problems, rendering technical assistance, arranging financing and expediting
delivery.
 Information gathering – Sales representatives conduct market research and intelligence
work and fill-in call reports.
 Allocating – Sales representatives decide which customers to allocate scarce products
during product shortages.
The sales representative’s mix of tasks varies with the state of the economy. During product
shortages, such as temporary shortage of hotel rooms during a major convention, sales
representatives find themselves with nothing to sell. Some companies jump to the conclusion that
fewer sales representatives are then needed. But this thinking overlooks the salesperson’s other
roles – allocating the product, counselling unhappy customers and selling the company’s other
products that are not in short supply. It also ignores the long-run nature of hospitality sales.

Relationship Marketing –The art of creating a closer working relationship and interdependence
between the people in two organizations.
 Strategic alliances – alliances are relationships between independent parties that agree to
cooperate but still retain separate identities.
 Reasons strategic alliances are necessary – Globalization, complicated customer needs,
large customers with multi locations, the need for technology, highly interdependent
vendor/buyer relationship, intensified competition and low profitability within the
hospitality industry.

Recruiting and Selecting Sales Representatives – the effective salesperson has two basic
qualities: empathy, the ability to feel as the customer does; ego drive, a strong personal need to
make the sales.
1.) When to recruit – there are three methods: recruit and train salespeople in batch
process; recruit only as needed for replacement and growth; and always recruit.
2.) Training – there are three types of training: product/service training; policies,
procedures and planning training; and sales techniques training.
3.) Directing sales representatives – responsibilities are developing norms for customer
calls; developing norms for prospect calls; using sales time effectively (travel, food
and break, waiting, selling, administration).
The Sales Process –prospecting and qualifying, pre-approach, approach, presentation and
demonstration, overcoming objections, closing and follow-up and maintenance.

Motivating a Professional Sales Staff

The majority of sales representatives require encouragement and special incentives to work at
their best level.

1.) Sales force compensation – there are three basic types of sales-force compensation
plans: straight salary, straight commission and combined salary and commission.

Evaluation and control of a professional sales force – Sales quotas, sales norms and time
management tools such as call schedules are common ways of controlling sales force.