Marketing For Hotel and Tourism

Chapter One
Introduction to Marketing for Tourism and Hospitality

1.1 Core Concepts of Marketing
Before we define what marketing is, first let us see some important concepts of marketing.
These core concepts of marketing are discussed below:
Needs, wants and

demands
Markets Products and services
Core concepts
Of marketing
Exchange, transaction Value, satisfaction and

and relationships quality
Figure1.1: Core concepts of marketing
1.1.1. Needs, Wants and Demands

Needs: the most basic concept underlying marketing is that of human needs. A human need
is a state of felt deprivation. Included are the physical needs for food, clothing, warmth, and
safety as well as social needs and belonging and fame, and individual needs for knowledge
and self-expression. These needs were not invented by marketers but are part of the human
makeup.
Wants: human wants are the form human needs take as they are shaped by culture and
individual personality. Wants are how humans communicate their needs. Wants are
described in terms of objects that will satisfy needs.
Needs are the basic human requirements. People need air, food, water, clothing, and shelter
to survive. People also have strong needs for recreation, education, and entertainment.
These needs become wants when they are directed to specific objects that might satisfy the
need. A consumer in the United States needs food but may want a hamburger, French fries,
and a soft drink. A person in Ethiopia needs food but may want ‘Injera’. Wants are shaped
by our society.
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‘If you don’t have a competitive advantage, don’t compete’.
Demand: people have almost unlimited wants, but limited resources. When backed by
buying power, wants become demands. Demands are wants for specific products backed by
an ability to pay. Many people want a Mercedes; only a few are willing and able to buy one.
Companies must measure not only how many people want their product, but also how
many would actually be willing and able to buy it.
These distinctions shed light on the frequent criticism that "marketers create needs" or
"marketers get people to buy things they don't want." Marketers do not create needs:
Needs pre-exist marketers. Marketers, along with other societal factors, influence wants.
Marketers might promote the idea that a Mercedes would satisfy a person's need for social
status. They do not, however, create the need for social status.
1.1.2. Products
A product is anything that can be offered to satisfy a need or want. The concept of products
is not limited to physical products only. Anything capable of satisfying a need can be called
a product. More broadly defined, products also include such other entities as experiences,
persons, places, organizations, information and ideas.
1.1.3. Value, Satisfaction and Quality

Customer Value: is the difference between the benefits that the customer gains from owning
and/or using a product and the costs of obtaining the product. Costs can be both monetary
and non monetary. One of the biggest non monetary costs for tourism and hospitality
customers is time.
Customer Satisfaction: depends on a products’ perceived performance in delivering value

relative to the buyer’s expectation. If the product’s performance falls short of the customer’s
expectations, the customer is dissatisfied. If the performance matches expectations, the
buyer is satisfied. If performance exceeds expectations, the buyer is delighted.
Customer expectations are based on past buying experiences, the opinions of friends, and
marketer and competitor information and premises. Marketers must be careful to set the
right level of expectations. If they set expectations too low, they may satisfy those who buy,
but fail to attract new customers. If they set expectations too high, customers will be
disappointed. Highly satisfied customers make repeat purchases, are less price sensitive,
remain customers longer, and talk favorably to others about the company and its products.
Quality: has a direct impact on product or service performance. Thus, it is closely linked to
customer value and satisfaction. It can be defined as ‘freedom from defect’. American
society… defines quality as the totality feature and characteristics of a product /service that
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bear on its ability to satisfy customer needs. Customer focused definitions suggest that
quality begins with customer needs and ends with customer satisfaction.
1.1.4. Exchange, Transaction and Relationships

Exchange: is the act of obtaining a desired object from someone by offering something in
return. Exchange marketing occurs when people want to satisfy needs and wants through
exchange. It is one of several ways people can get a desired object. Voluntary exchange
underlies all marketing theories of the conduct of businesses.
Whereas exchange is the core concept of marketing, transaction is marketing’s unit of

measurement. A transaction consists of a trade of values between two parties. A transaction
involves at least two things of value, conditions that are agreed to, a time of agreement and
place of agreement. We must be able to say A gives X to B and gets Y in return at a certain
time and place within certain understood conditions.
Relationship Marketing: involves creating, maintaining and enhancing strong
relationships with customers and other stakeholders- distributers, dealers, suppliers, etc.
Relationship marketing is most appropriate with customers who can most affect the
company’s future.
1.1.5. Market
The concept of transaction leads to the concept of market. A market is a set of actual and
potential buyers who may transact with a seller. Sellers constitute the industry and buyers
constitute the market.
1.2. The Concept of Marketing and Marketing Management

The term marketing has been defined by experts differently and here are some of the
definitions:
(1) “Marketing is a social and managerial process by which individuals and groups obtain
what they need and want through creating, offering and exchanging the products of value
with others”.(Philip Kotler,1994).
(2) “Marketing is essentially concerned with prediction of people’s future behavior and an
attempt to influence their behavior in some particular way.” (Colin McIver)
(3) “Marketing is a business process by which the existing and potential demand for goods
and services is determined, cultivated and supplied by the seller. The process includes the
efforts of all functional areas of the seller working in a concert to produce at the right price,
time and place the service or product that meets the market’s demand and the marketer’s
profit goal.”(Dr. William Kaven)
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(4) It is working with markets to bring about exchanges for satisfying human needs and
wants. It is a human activity directed at satisfying needs and wants through exchange
process. Exchange processes involve work. Sellers have to search for buyers, identify their
needs, design attractive products, set prices, promote them, and deliver them.
The British Chartered Institute of Marketing defines marketing as: ‘The management
process responsible for identifying, anticipating and satisfying customer requirements
profitably, to meet organizational objectives.’
Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering and exchanging offerings that have value for customers, clients, partners and
society at large. (American Marketing Association, 2007)
At its simplest, marketing can be explained as the process of achieving voluntary exchanges
between two parties:
_ Customers who choose to buy or use products.
_ Producer organizations, which design, supply and sell the products.
In terms of customers, marketing is concerned with:

 Understanding the needs and desires of existing and prospective/potential buyers
(why they buy).
 Which products they choose, when, how much, at what price and how often.
 How they get information about product offers.
 Where they buy products from (direct or through a retail intermediary).
 How they feel after their purchase and consumption of products.
In terms of producers, marketing focuses on:

 Which products to produce and why, especially new products
 How many products to produce (volume of supply)
 At what price.
 How to communicate their offers, by which media.
 When and where to make them available for to buyers.
Assuming that customers have choices between different products, which is nearly always
the case in travel and tourism, it is easy to see that producers have the strongest possible
motivation to know their customers and prospective customers and to influence them to
choose their products rather than those of a competitor.
Marketing is about identifying and meeting human and social needs. One of the shortest
good definitions of marketing is "meeting needs profitably."
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Marketing management is the analysis, planning, implementation, and control of programs
designed to create, build and maintain beneficial exchanges with target buyers for the
purpose of achieving organizational objectives. Marketing management is demand
management.
The marketing of tourism is simply applying the appropriate marketing concepts to

planning a strategy to attract visitors to a destination, whether resort, city, region, or
country. While there are many definitions of marketing, the definition used by the
American Marketing Association perhaps defines marketing best: “the process of planning
and executing the conception, pricing, promotion, and distribution of ideas, goods, and
services to create exchanges that satisfy individual and organizational goals.”
Marketing management takes place when at least one party to a potential exchange thinks
about the means of achieving desired responses from other parties. Thus we see marketing
management as the art and science of choosing target markets and getting, keeping, and
growing customers through creating, delivering, and communicating superior customer
value.
1.3. Importance of marketing

The hospitality industry is one of the world’s major industries. Nowadays, there is a
transformation of the hospitality from individually owned to an industry dominated by
chains. These chains operate in a highly competitive environment where aggressive
marketing skills are needed to win customers. Today’s general manager believes that
training in marketing is one of the primary functions for success.
1.4. Marketing Management Philosophies

There are 5 concepts under which organizations conduct their marketing activity. They are
discussed below:
1.4.1. Manufacturing (Production) Concept: It is one of the oldest philosophies guiding

sellers. This concept holds that consumers will favor products that are available and highly
affordable, and therefore management should focus on production and distribution efficiency.
In the short run, where demand is buoyant and growing, an emphasis on production
processes and financial controls appears both logical and sensible. The problem with this
concept is that management may become so focused on manufacturing systems that they
forget the customers.
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Consider the example of a town with two hotels and one car rental agent. If the town’s
business community is prosperous and growing, it is likely that the hotels and car rental
agent will be profitable businesses and they are very likely to be production oriented.
1.4.2. Product Concept

Like the manufacturing concept, it has an inward focus. The product concept holds that
consumers prefer existing products and product forms, and the job of management is to
develop good versions of these products. This misses the point that consumers are trying to
satisfy needs and might turn to entirely different products to better satisfy those needs,
such as motels instead of hotels.
1.4.3. Selling Concept

The selling concept holds that consumers will not buy enough of the organization’s products
unless the organization undertakes a large selling and promotion effort. The aim of a selling
focus is to get every possible sale, not to worry about satisfaction after the sale or revenue
contribution of the sale. The selling concept does not establish a long term relationship
with customers, because the focus is on getting rid of what one has rather than creating a
product to meet the needs of customers.
The term is often used to summarize the attitudes and responses of businesses whose
products are no longer enjoying growth in demand, or for which demand may be declining
to levels that reduce profitability. Production is not now the main problem; surplus
capacity is. The obvious management reaction in these conditions is to shift the focus of
attention to securing sales. Increased expenditure on advertising, distribution channels and
on sales promotion or price discounts is a logical response in an attempt to secure a higher
level of demand for available production capacity.
1.4.4. Marketing Concept

It is a more recent business philosophy and one that is being rapidly adopted in the
hospitality industry. This concept holds that achieving organizational goals depends on
determining the needs and wants of target markets, and delivering the desired satisfaction
more effectively and efficiently than competitors. Unlike the selling concept, it takes an
outside in perspective. In the marketing concept, the company coordinates all the activities
that will affect customer satisfaction and makes its profits by creating and maintaining
customer satisfaction.
The marketing concept suggests that the overriding inclination of the organization will be
to serve the final customer needs and wants as the main priority. The organization will
seek constantly to find out what the customer want both today and in the future and work
tirelessly to produce the products and services that are requested. This may mean that the
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organization has to make major shifts in their product and service ranges, and may even
involve the organization moving into new markets and changing fixed asset bases.
Starting Point Focus Means Ends
The Selling Concept factory/industry existing selling and profits through

Products promoting sales volume
The Marketing Concept market customer integrated profits through

Figure: Selling and Marketing ConceptsNeeds
Contrastedmarketing customer satisfaction
Fig. Selling & Marketing concepts contrasted
1.4.5. Societal Marketing Concept
It is the newest marketing concept. The societal marketing concept holds that the
organization should determine the needs, wants and interests of target markets and deliver
the desired satisfactions more efficiently and effectively than competitors in a way that
maintains or improves the consumers’ and societies’ wellbeing. The societal marketing
concept questions whether the marketing concept is adequate in an age of environmental
problems, resource shortages, rapid population growth, worldwide inflation, and neglected
social services. It asks if the firm that senses, serves and satisfies individual wants is always
doing what is best for consumers and societies in the long run. The pure marketing concept
ignores possible conflicts between short run consumer wants and long run societal needs.
The societal marketing concept calls upon marketers to build social and ethical
considerations into their marketing practices. They must balance and juggle the often
conflicting criteria of company profits, consumer want satisfaction, and public interest.
The Future of Marketing

Most organizations are directed by a business approach we call ‘1960s marketing’. ‘1960s’
marketing involves organizations hiring bright, creative-possibly kookie-individuals to sit
in conference rooms, or go on management retreats, and dream up goods and services for
our customers. 1960s marketing is based on the assumption that we can hire people who
just ‘know’ what customers really want.
1960s marketing really died in the mid 1970s when customer focused organizations began
to realize that the way to learn about customers’ needs and expectations was to ask
customers themselves. And so customer focused organizations went out and mingled with
their customers. This mingling started with their management groups. The management of
world class customer satisfaction organizations realized in the 1970s that they no longer
had to hire creative people who instinctively understood their customers. Management
could cut out the middleman and go directly to the customer, speak to them first hand, learn
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their needs and expectations, and then actually develop the goods and services these
customers were talking about.
Top management recognizes that past marketing has been highly wasteful and demands
more accountability. "Marketing Memo: Major Marketing Weaknesses" summarizes
companies' major deficiencies in marketing, and how to find and correct them. Going
forward, marketing must be "holistic" and less departmental. Marketers must achieve
larger influence in the company if they are to be the main architects of business strategy.
They must continuously create new ideas if the company is to prosper in a
hypercompetitive economy. They must strive for customer insight and treat customers
differently but appropriately. Marketers must build their brands through performance,
more than through promotion. Marketers must go electronic and win through building
superior information and communication systems.
In these ways, modern marketing will continue to evolve and confront new challenges and
opportunities. As a result, the coming years will see:
• The demise/termination of the marketing department and the rise of holistic
marketing
• The demise of free-spending marketing and the rise of ROI marketing
• The demise of marketing intuition and the rise of marketing science
• The demise of manual marketing and the rise of automated marketing
• The demise of mass marketing and the rise of precision marketing
Service Characteristics of Tourism and Hospitality Marketing
“Managers do not control the quality of the product when the product is a service… the
quality of the service is a precarious state-it is in the hand of the service workers who produce
and deliver it.” Karl Albrecht
The service culture
One of the most important tasks of a hospitality business is to develop the service side of
the business, specifically, a strong service culture. Service culture is a system of values and
beliefs in an organization that reinforces the idea that providing the customer with quality
service is the principal concern of the business. The service culture focuses on serving and
satisfying the customer. It has to start with top management and flow down.
A service culture empowers employees to solve customer problems. It is supported by a

reward system based on customer satisfaction.
Characteristics of services
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There are four basic characteristics of services: intangibility, inseparability, variability, and
perishability.
Intangibility: Unlike physical products, services cannot exactly be seen, tasted, felt, heard
or smelled before they are purchased.
E.g. an airline ticket… promises of safe delivery to their destination.
Hotel room… the right to use a room for a specific period of time.
“Customers who purchase a service may go away empty-handed but they do not go away
empty-headed… they have memories that can be shared with others”-Robert Lewis.
To reduce uncertainty caused by service intangibility, buyers look tangible evidences that
will provide information and confidence about the service, for example in the decor and
surroundings of the beauty salon, or from the qualifications and professional standing of
the employees. Tangibilizing the product- promotional materials, employee appearance,
and service firms physical environment all keep tangbilizing the service.
Inseparability
In most hospitality services, both the service provider and the customer must be present
for the transaction to occur. Customer-contact employees are part of the product.
Inseparability also implies that customers are also part of the product.
Services are produced and consumed at the same time, unlike goods which may be
manufactured, then stored for later distribution. This means that the service provider
becomes an integral part of the service itself. The waitress in the restaurant is an
inseparable part of the service offering. Taxi operator drives taxi, and the passenger uses it.
The presence of taxi driver is essential to provide the service. The services cannot be
produced now for consumption at a later stage / time. The client also participates to some
extent in the service, and can affect the outcome of the service. People can be part of the
service itself, and this can be an advantage for services marketers.
In tourism, the customer participates in the production of the service. Organized

sightseeing offers a good example. Provision of guide services and consumption of the
sightseeing occurs simultaneously. The greater the interaction between the tour guide and
the visitor, the more pleasurable the service will be.
Variability
Services are highly variable. Their quality depends on who provides them and when and
where they are provided.
There are several causes for service variability:
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a) Services are produced and consumed simultaneously, which limits quality control.
b) Fluctuating demand makes it difficult to deliver consistent products during periods
of peak demand.
c) It depends on the service provider’s skill/experience.
d) Time/length of service/tiredness.
e) Lack of communication and heterogeneity of guest expectation.
Because a service is produced and consumed simultaneously, and because individual people
make up part of the service offering, it can be argued that a service is always unique; it only
exists once, and is never exactly repeated. This can give rise to concern about service quality
and uniformity issues. Personnel training and careful monitoring of customer satisfaction
and feedback can help to maintain high standards.
The individuality of both the customer and the front line member of staff and the way they
interact with another is one of the most important aspects when managing the service
delivery process.
Some organizations standardize the service delivery to control heterogeneity of the

workforce; this production-line approach serves as a guideline so that they neither do nor
say anything that has not already been rehearsed. Unfortunately this strategy removes any
initiative that the member of staff had, which could be detrimental to the organization (for
example, they cannot build up a relationship with or acknowledge frequent customers
because they are not able to deviate from the script) but it does inform them of the
appropriate level of service that they should be delivering.
Not all variations in service delivery are necessarily negative. Modern service businesses
are recognizing the value of customizing at least some aspects of the service offering to the
needs and expectations of individual customers.
The presence of personnel and other customers in the operational system makes it difficult
to standardize and control variability in both service inputs and outputs. Manufactured
goods can be produced under controlled conditions, designed to optimize both productivity
and quality, and then checked for conformance with quality standards long before they
reach the customer. (Of course, their subsequent use by customers will vary widely,
reflecting customer needs and skills, as well as the nature of the usage occasion.) However,
when services are consumed as they are produced, final "assembly" must take place under
real-time conditions, which may vary from customer to customer and even from one time
of the day to another. As a result, mistakes and shortcomings are both more likely and
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harder to conceal. These factors make it difficult for service organizations to improve
productivity, control quality, and offer a consistent product.
Perishability
The inability to store, resell, return, save or transport a service is one of the main
differences between goods and services. This means that services cannot be stored (e.g.
hotel room can only be sold for a specific date, or revenue is lost). Hotels use yield
management techniques to try to minimize the effect of service perishability; they sell
rooms at below the normal rate when they know they are not going to be a full occupancy,
so at 8 or 9 o’clock in the evening unsold rooms for that night can be very cheap.
Service cannot be stored. If service providers are to maximize the revenue, they must manage
capacity and demand because they can’t carry forward unsold inventory. Therefore, an
airplane that leaves the airport with empty seats will never be able to sell those specific
seats on that specific flight, and that income is lost forever.
Perishability does not pose too much of a problem when demand for a service is steady, but in
times of unusually high or low demand service organizations can have severe difficulties.
The inability of the service sector to regulate supply with the change in demand poses
many quality management problems. Hence, service quality level deteriorates during peak
hours in restaurants, banks, transportation etc. This is a challenge for a service marketer.
Therefore, a marketer should effectively utilize the capacity without deteriorating the quality
to meet the demand.
The above characteristics are generally referred to in many texts as being what makes
services marketing so different. The special characteristics of service operations mean that
their management should be treated differently from that of other production systems.
Table 1.1: Generic characteristics distinguishing services from goods
Goods Services
1. Are manufactured. 1. Are performed
2. Made in premises not normally open to 2. Performed on the producers’ premises,
customers (separable) often with full customer participation
(inseparable).
3. Goods are delivered to places where 3. Customers travel to places where the
customers live. services are delivered.
4. Purchase conveys ownership and right 4. Purchase confers temporary right of
to use at own convenience. access at a prearranged place and time.
5. Goods possess tangible form at the point 5. Services are intangible at the point of
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of sale and can be inspected prior to sale. sale; often can’t be inspected (other
than ‘virtually’).
6. Stocks of product can be created and 6. Perishable; stocks of product cannot be
held for future sale. held.
Note: these characteristics are those that apply generally to most services and most goods. In
practice, most physical goods are marketed with a strong service element attached.
Particular characteristics of Travel and Tourism Services

Associated with the basic or generic characteristics common to all services, there are at
least three further features that are particularly relevant to marketing travel and tourism
services. These are:
 Seasonality and other variations in demand
 The high fixed costs of operations, allied to fixed capacity at any point in time
 The interdependence of tourism products
Seasonality: peaks and troughs in demand

It is a characteristic of most leisure tourism markets that demand fluctuates greatly
between seasons of the year. For example, in Ethiopia, tourist flow is high from September
to January and declines during summer.
High fixed costs of service operations

When the profit and loss accounts of service businesses in the travel and tourism industry
are analyzed, it is generally the case that they reveal relatively high fixed costs of operating
the available (fixed) level of capacity, and relatively low variable costs. This can easily be
understood in the case of a visitor attraction which must fund the following main costs to
be open to receive visitors:
 Premises (capital costs and annual maintenance costs)
 Equipment (including repairs, renewals and servicing)
 Heating, lighting and other energy costs
 Wages and salaries and social provision for full time employees
 Management overheads and administrative costs
 The bulk of marketing costs
Interdependence of tourism products

Most visitors expect to combine several products in their purchases, not just one. A
vacationer chooses attractions at a destination together with the products of
accommodation, transport and other facilities such as recreational activity and catering.
Tourist accommodation suppliers at a destination are therefore partly influenced by the
marketing decisions of tour operators and travel agents, attractions, transport interests
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and tourist boards which together or separately promote the destination and its activities
and facilities.
Management Strategies for Service Business
The above characteristics are generally referred to in many texts as being what makes
services marketing so different. The special characteristics of service operations mean that
their management should be treated differently from that of other production systems.
Good service firms use marketing to position themselves strongly in chosen targets.
 Services managers can do several things to increase service effectiveness in the face
of intrinsic service characteristics.
 Successful service companies focus their attention on both their employees and
customers.
 They understand the service profit chain, which links service firm profits with
employees and customer satisfaction.
The chain consists five links:

1. Healthy service profits and growth- superior service firm performance.
2. Satisfied and loyal customers- satisfied customers who remain loyal, repeat purchase,
and refer other customer.
3. Greater Service Value- more effective and efficient customer value creation and service
delivery.
4. Satisfied and productive service employees- more satisfied, loyal and hard working
employees.
5. Internal service quality- superior employee selection and training, high quality work
environment and strong support for those dealing with customers.
Therefore, reaching service profits and growth goals begins with taking those who take
care of customers: EMPLOYEES. The concept of service profit chain is well illustrated by a
story about how Bill Marriot Jr., chairman of Marriot Hotels, interview prospective
managers:
Bill Marriot tells job candidates that the hotel chain wants to satisfy three groups:
customers, employees and stockholders. Although all the groups are important, he asks in
which order the groups should be satisfied. Most candidates say satisfy the customer first.
Marriot, however, reasons differently. First, employees must be satisfied. If employees love
their jobs and feel a sense of pride in the hotel, they will serve customers well. Satisfied
customers will return frequently to the Marriot. Moreover, dealing with happy customers
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will make employees even more satisfied, resulting in better service and still greater repeat
business, all of which will yield a level of profits that will satisfy Marriot stockholders.
All this suggests that service marketing requires more than just traditional marketing using
4Ps. It requires internal and interactive marketing.
 Internal marketing- the service firm must effectively train and motivate its
customer-contact employees and all the supporting service people to work as a
team to provide customer satisfaction. For the firm to consistently deliver high
service quality, everyone must practice customer orientation. It is not enough to
have a marketing department doing traditional marketing while the rest of the
company goes its own way. Marketers also must get everyone else in the
organization to practice in the organization. In fact, internal marketing must
precede external marketing.
 Interactive marketing- perceived service quality depends heavily on the quality of

buyer- seller interaction during the service encounter. Service quality depends on
both the service provider and the service delivery. The customer judges service
quality not just on technical quality (the quality of the food) but also on its
functional quality (the service provided in the restaurant).
Company
Internal marketing External marketing
Employees Customers
Interactive marketing
Fig: three types of marketing
Today as competition and costs increase, and productivity and quality decrease, more
marketing sophistication is needed. Service companies face the task of increasing three
major marketing areas: their competitive differentiation, service quality and productivity.
Managing Differentiation: because of price competition, service firms need to develop

differentiated offer, delivery and image to outsmart rival firms. To the extent that customers
view the services of different providers as similar, they care less about the provider than
the price.
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The offer can include innovative features that set one company’s offer apart from its
competitors. For example, airlines have introduced such innovations as in-flight movies,
advance seating, air-to-ground telephone service and frequent flyer program (FFP). Service
companies can differentiate their service delivery in three ways: through people, physical
environment and process. The company can distinguish itself by having more able and
reliable customer contact people than its competitors, or it can a superior physical
environment in which the service product is delivered. Finally, it can design a superior
delivery process. E.g. computerized check-in. Finally, service companies can also
differentiate their images through symbols and branding.
Managing service quality: one of the major ways that a service firm can differentiate itself
is by delivering consistently higher quality than its competitors. The key is to succeed the
customers’ service quality expectations. Promise what you can deliver and deliver more
than your promise. If perceived service of a given firm exceeds expected service, customers
are apt to use the provider again. Customer retention is perhaps the best measure of
quality.
Managing productivity: with their costs rising rapidly, service firms are under great
pressure to increase service productivity. They can do so in several ways:
 Training current employees better, or hiring new employees who will work harder
or more skillfully for the same pay.
 Increasing the quantity of service by giving up some quality.
 Designing more effective services-like customers getting their own drinks. For
example, people are served draft with big jumbo and fetch for themselves.
Management strategies for service businesses- include the following:
1. Tangiblizing the service product- promotional material, employees’ appearance, and

the service firm’s physical environment can help tangibilize the service.
a. Trade dress-Is the distinctive nature of a hospitality industry’s total visual image
and overall appearance. The owner must design an effective trade dress while
taking care not to imitate too closely that of a competitor. For example, the décor,
menu, layout and style of service delivery in a restaurant.
b. Employee uniform and costumes- these have a legitimate and useful role in
differentiating one hospitality firm from another and for instilling pride in the
employees.
c. Physical surroundings- Physical surroundings should be designed to reinforce the
product’s position in the customer’s mind. Examples of poorly designed physical
evidence that send negative messages for customers include signs that advertise a
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holiday special two weeks after the holiday has passed, signs with missing letters or
burned-out lights, parking lots that are full of trash and employees in dirty uniforms.
d. “Greening” of the hospitality industry- the use of outside natural landscaping and
inside use of light and plants has become a popular method of creating
differentiation and tangiblizing the product.
2. Managing employees- in the hospitality industry, employees are a critical part of the
product and marketing mix. The human resource and marketing departments should work
together. There is a need to hire friendly and capable employees and formulate policies that
support positive relations between employees and guests.
a. Internal marketing-see above

3. Managing perceived risk- the high risk that people perceive when purchasing
hospitality products increases loyalty to companies that have provided them with a
consistent product in the past. A salesperson must reduce client fear and gain the clients’
confidence. The salesperson claims to professionalism can be affirmed through letters of
praise from former clients and a tour of the business’s facilities. Hotels, resorts and airlines
provide familiarization (fam) trips to meeting planners, travel agents and tour operators in
order to reduce perceived risk.
4. Managing capacity and demand- because services are perishable, managing capacity
and demand is a key function of tourism and hospitality marketing. First, services must
adjust their operating systems to enable the business to operate at maximum capacity.
Second, they must remember that their goal is to create satisfied customers. Research has
shown that customer complaints increase when service firms operate above 80% of their
capacity.
Some techniques include: having buffet in a restaurant when there are large number of
customers, reducing employees during periods of low demand, increasing demand during low
season by reducing price, making high promotion and using other techniques.
5. Managing consistency- consistency means that customers will receive the expected
product without unwanted surprises. In the hospitality industry, this means that a wakeup
call requested for 7AM will occur as planned, coffee ordered for 3PM meeting break will be
ready and waiting, the food will taste the same way it tasted two weeks ago and towels will
always be available in the bathrooms. However, company policies and procedures often
unintentionally create service inconsistency. A change in manager or other things may
affect consistency. In addition, fluctuating demand also affects consistency.
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CHAPTER-TWO
CONSUMER MARKETS AND CONSUMER BUYING BEHAVIOR
“To be a bullfighter, you must first learn to be a bull.” Anonymous
Analyzing Consumer Markets and Buying Behavior
“The most important ingredient in the success of an organization is a satisfied customer”. Buying
behavior is never simple. It is affected by many different factors; yet understanding it is the
essential task of marketing management. The most important thing is to forecast where
customers are moving, and to be in front of them.
Consumer Behavior (Engel, Kollat, & Blackwell): Those acts of individuals directly involved in
obtaining and using goods and services, including the decision processes that precede and
determine these acts. Consumer buying behavior refers to the buying behavior of final markets-
individuals and households who buy goods and services for personal consumption. The
consumer market consists of all these individuals and households.
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How do consumers make buying decisions? Understanding consumers’ behavior and “knowing
customers” is never simple. Customers may say one thing and do another. They may not be in
touch with their deeper motivations.
2.1 Consumer Behavior Models
 Consumer Processing Models (CPM): Consumer behavior is rational, highly cognitive,
systematic, and reasoned.
 Hedonic, Experiential Models (HEM): consumer behavior is driven by fun, fantasies, and
feelings.
Simple Response Model
Stimulus Organism Response
Model of Buyer Behavior
Marketing stimuli Other stimuli Buyer’s black box Buyer’s responses
Product economic Buyer Buyer decision Product choice

characteristics process
Price political Brand choice
-Cultural -Problem recognition
Promotion technological Dealer choice
-Social - Information search
Place cultural Purchase timing
-Personal - Evaluation
-Psychological - Decision
Figure: Model of Buyer Behavior
- Post purchase behavior
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As shown above, the marketing stimuli consist of the 4p’s: product, price, promotion and place.
Other stimuli include major forces and events in the buyer’s environment: economic,
technological, political and cultural. All these stimuli enter the buyer’s black box, where they are
turned in to a set of observable buyer responses: product choice, brand choice, dealer choice,
purchase timing and purchase amount.
2.2 Factors Influencing Consumer Behavior

Consumer purchases are strongly influenced by cultural, social, personal and psychological
characteristics. For the most part, they can’t be controlled by the marketer, but they must be
taken in to account.
2.2.1 Cultural factors

Cultural factors exert the broadest and deepest influence on consumers’ behavior. We will
examine the role played by the buyer’s culture and social class.
A. Culture
Culture is the most basic determinant of a person’s want and behavior. It comprises the basic
values, perceptions, wants, and behaviors that a person learns consistently in a society. Culture is
an integral part of the hospitality and travel business. It determines what we eat, how we travel,
where we travel, and where we stay. Culture is dynamic, adapting to environment.
B. Social class
Social classes are relatively permanent and ordered divisions in a society whose members share
similar values, interests, and behaviors. Social scientists have identified the seven American
social classes: upper uppers (1%), lower upper (2%), upper middle (12%), middle (32%),
working (38%), upper lowers ((%), lower lower (7%).
Such social class is indicated by income, education, occupation, wealth and other variables. In
many older nations, social class is something into which one is born/bloodlines.
Marketers are interested in social classes because people within a given class tend to exhibit
similar behavior, including buying behavior.
Characteristics of Major U.S. Social Classes
Upper Uppers The social elite who live on inherited wealth. They give large sums to charity, run the
(Less than 1%) debutante balls, maintain more than one home, and send their children to the finest schools.
They are a market for jewelry, antiques, homes, and vacations. They often buy and dress
conservatively. Although small as a group, they serve as a reference group to the extent that
their consumption decisions are imitated by the other social classes.
Lower Uppers Persons, usually from the middle class, who have earned high income or wealth through
exceptional ability in the professions or business. They tend to be active in social and civic
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(About 2%) affairs and to buy the symbols of status for themselves and their children. They include the
nouveau riche, whose pattern of conspicuous consumption is designed to impress those
below them.
2.2.2 Social Factors

Consumer behavior is also influenced by social factors, including the consumer groups, family,
social roles and status. Because social factors can strongly affect consumer responses,
companies must take them in to account when designing marketing strategies.
A. Groups- an individual’s attitudes and behavior are influenced by many small groups.
 Reference Groups- serve as direct (face-to-face) or indirect points of comparison or

reference in the forming of a person’s attitudes and behavior.
 Membership groups- are those to which the person belongs that have a direct influence.
They include primary groups, such as family, friends, neighbors, and coworkers-
specifically those with whom there is regular but informal interaction.
Opinion leaders are people within a reference group, who, because of special skills, knowledge,
personality, or other characteristics, exert influences over others.
As well as these immediate reference groups, we are also influenced by the behavior and
opinions of those we admire and aspire to emulate. These ‘aspirational reference groups’ may
include not only our superiors at work but also celebrities and others we see in the media.
Marketers use celebrity endorsement of products to appeal to the aspirations of their target
market.
 Aspirational groups- groups to which we don’t belong but would like to.
Reference groups influence consumers in at least 3 ways:

a) They expose the person to new behaviors and lifestyles.
b) They influence the person’s attitude and self-concept.
c) They create pressure to conform that may affect the person’s product, brand and vendor
choices.
B. Family: Family- has a strong influence on buyer behavior.
C. Roles & Status: a person belongs to many groups: family, clubs, and organizations. An
individual’s position in each group can be defined in terms of role and status. A role consists of
the activities that a person is expected to perform according to the persons around him/her. Each
role carries a status reflecting the general esteem given to it by society. People often choose
products which show their status in society.
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2.2.3 Personal factors
A buyer’s decision are also influenced by personal characteristics such as age and lifecycle stage,
occupation, economic situation, lifestyle, and Personality Self-Concept
Age and life cycle stage - the type of goods and services people buy change during their
lifetime. As people grow older and mature, the products they desire change. Preference for
leisure activities, travel destinations, food and entertainment are often age related. The make up
of the family also affects purchasing behavior.
Stages in the Family Life Cycle
1. Bachelor stage: Few financial burdens. Fashion opinion leaders. Recreation

Young, single, not living at home oriented. Buy: basic home equipment, furniture, cars, equipment
for the mating game; vacations.
2. Newly married couples: Highest purchase rate and highest average purchase of durables:
Young, no children cars, appliances, furniture, vacations.
3. Full nest I: Home purchasing at peak. Liquid assets low. Interested in new
Youngest child under six products, advertised products. Buy: washers, dryers, TV, baby
food, chest rubs and cough medicines, vitamins, dolls, wagons,
sleds, skates.
4. Full nest II: Financial position better. Less influenced by advertising. Buy
Youngest child six or over larger-size packages, multiple-unit deals. Buy: many foods,
cleaning materials, bicycles, music lessons, pianos.
Occupation – a person’s occupation affects the goods and services bought.
Economic situations – a person’s economic situation greatly affects product choice and decision
to purchase a particular product. Consumers cut back entertainment and vacations during
recessions.
Life style- is a person’s pattern of living as expressed in his or her activities, interests, and
opinions. People coming from the same subculture, social class and occupation may have quite
different lifestyles.
Personality and self-concept- each person’s personality influences his/her buying behavior. By
personality, we mean distinguishing psychological characteristics that lead to relatively
consistent and enduring responses to the environment. Which of these motivations is dominant
will depend very much on the psychographic profile or personality traits of the individual.
Psychologists and marketing researchers measure individual’s psychographic attributes, using
dimensions such as confident or diffident, gregarious or loner, conscientious or happy-go-lucky,
assertive or submissive, neurotic or well-balanced, tense or relaxed, adventurous or
unadventurous, risk taker or risk avoider. These dimensions are widely used in product
formulation and in promotional messages. A much-quoted example is Plog’s (1972, 2001)
personality scale that places tourists between the extremes of Venturers (outer directed, curious
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and confident travelers constantly seeking new experiences) and Dependables (inward-looking,
cautious people who prefer familiar places and faces). Venturers are the first to visit a new
destination, which is then taken up by others until eventually it becomes a safe choice for the
Dependables.
A person’s self-concept (self-image) is a mental self-picture. Our behavior tends to be consistent

with that behavior.
2.2.4 Psychological Factors (Motivation, Beliefs & Attitudes, Perception, Learning)

Motivation (Freud; Dichter; Maslow; Herzberg; Petty and Cacioppo’s ELM)
Motive: a need that is sufficiently pressing to drive a person to act.a need becomes a motive
when it is aroused to a sufficient level of intensity
Maslow’s Hierarchy of Needs Self-
- actualization
Self-esteem
Social needs
Safety needs
Physiological needs
 Herzberg’s Two-Factor Theory
 . Dissatisfies-factors causing dissatisfaction, and Satisfiers- factors causing satisfaction.
So sellers should do their best to avoid dissatisfies (e.g. poor service policy) and identify the
major satisfiers or motivators of purchase in the market.
Perception: A motivated person is ready to act. How that person acts is influenced by his or her
perception. Perception is the process by which an individual selects, organizes and interprets
information to create a meaningful picture of the world. Why do people have different perception
of the same situation? This is because of three perceptual processes.
a. Selective Attention: people are exposed to a tremendous amount of stimuli- but most stimuli
will be screened out- a process called selective attention. Selective attention means that
marketers have to work hard to attract customers’ notice. Which stimuli will people notice?
 People are more likely notice stimuli that relate current need.
 People are more likely to notice stimuli that they anticipate.
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 People are more likely to notice stimuli whose deviations are large in relation to the normal
size of the stimuli.
b. Selective Distortion: Even noticed stimuli do not always come across in the way the sender
intended. Selective distortion is the tendency to twist information in a way that will fit our
preconceptions.
c. Selective Retention: People will forget much that they learn but will tend to retain
information that supports their attitudes and beliefs. Because of this we are likely to remember
good points mentioned about competing products. Selective retention explains why marketers
use drama and repetition in sending messages to their target markets.
Learning: Change in individual’s behavior arising from experience. Most human behavior is
learned. When consumers experience a product, they learn about it.
Beliefs and Attitudes: Through acting and learning, people acquire beliefs and attitudes, which
in turn influence their buying behavior. A belief is a descriptive thought that a person holds
about something. An attitude describes a person’s relatively consistent evaluations, feelings, and
tendencies toward an object or an idea. Attitude put people in a frame of mind for liking or
disliking things and moving toward or away from them.
2.3 Types of Buying Behavior: there are four types of buying behavior.
a) Complex buying behavior-high involvement and significant differences between brands.
b) Variety-seeking buying behavior- low involvement and significant difference between
brands.
c) Dissonance-reducing buying behavior- high involvement and few differences between
brands.
d) Habitual buying behavior-low involvement and few differences between brands.
Researchers Nunes and Cespedes argue that, in many markets, buyers fall into one of four
categories.
1 Habitual shoppers purchase from the same places in the same manner over time.
2 High-value deal seekers know their needs and "channel surf" a great deal before buying
at the lowest possible price.
3 Variety-loving shoppers gather information in many channels, take advantage of high
touch services, and then buy in their favorite channel, regardless of price.
4.ı High-involvement shoppers gather information in all channels, make their purchase in a low-
cost channel, but take advantage of customer support from a high-touch channel.
2.4 Consumer Buying Process

Consumer buying process passes through 5 stages:
Need/problem Information search Evaluation of Purchase decision Post purchase

recognition alternatives behavior
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The model appears to imply that consumers pass through all 5 stages with every purchase they
make. But in more routine purchases, consumers skip or reverse some of these stages. A
customer in a bar purchasing a glass of beer may go directly to the purchase decision, skipping
information search and evaluation of alternatives. This is referred to as automatic response loop.
The dream of every marketer is to have customers develop an automatic response to purchase
their products.
Influencing Buyer Behavior

Need recognition: the buying process starts when the buyer recognizes a need or problem.
The buyer senses a difference between his/her actual state and a desired state. The need can be
triggered by internal stimuli or external stimuli- such as the smell of food. At this stage,
marketers must determine the factors and situations that stimulate consumer need recognition.
They can also show how their product is a solution to a problem.
Information search: an aroused consumer may or may not search for more information. If
the consumer’s drive is strong and a satisfying product is near at hand, the consumer is likely to
buy it at that moment. If not, the consumer may simply store the need in memory and search for
relevant information. How much searching a consumer does depend on the strength of the drive,
the amount of initial information, the value placed on additional information, and the satisfaction
one gets from searching.
By gathering information, consumers increase their awareness and knowledge of available
choices and product features. A company must design its marketing mix to make prospects
aware of and knowledgeable about the features and benefits of its products or brands.
Evaluation of alternatives: the consumer uses information to arrive at a set of final brand
choices. To evaluate products, consumers look at product features, such as quality, price,
location, etc. the consumer attaches different degrees of importance to each attribute.
Steps between Evaluation of alternatives and Purchase decision
Evaluation of alternatives Attitude of others

Purchase decision
Purchase intention Unexpected situational

factors
Purchase decision: in the evaluation stage, the consumer ranks the brads in the choice set and
forms purchase intentions. Generally, the consumer will by the most preferred brand, but two
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factors can come between the purchase intention and the purchase decision: Attitude of others and
Unexpected situational factors.
While the customer is in the purchase act, employees must do everything possible to ensure they
will have a good experience and the post purchase evaluation will be favorable.
Post purchase behavior: the marketing’s job does not end when the customer buys the product.
Following a purchase, the consumer will be satisfied or dissatisfied, depending on the
relationship between consumer expectation and perceived product performance.
Sellers must faithfully represent the product’s performance so that buyers are satisfied. Almost
all major purchases result in cognitive dissonance-a discomfort caused by post purchase conflict.
CHAPTER THREE
MARKET SEGMENTATION, TARGETING AND POSITIONING
3.1 Identifying Market Segments and Selecting Target Markets
Market: the term market has acquired many meanings over the years.
 In its original meaning, a market is a physical place where buyers and sellers gathered to
exchange goods and services.
 To Economists- a market is all buyers and sellers who transact for a good or service.
 To a Marketer- a market is set of all actual and potential buyers of a product.
3.2 Market Segments and Market Segmentation

Market segment: a group of customers who share a similar set of wants.
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Market segmentation: the act of dividing a market into distinct groups of customers who might
require separate products and/or marketing mixes. This approach should be contrasted to mass
marketing in which the same marketing mix is used for all segments. Mass marketing is losing
popularity.
Segmentation is the process of classifying customers into groups which share some common
characteristic. Targeting involves the process of evaluating each segment’s attractiveness and
selecting one or more segments to enter.
Segmentation may now be defined as the process of dividing a total market such as all visitors,
or a market sector such as holiday travel, into subgroups or segments for marketing management
purposes. Its purpose is to facilitate more cost-effective marketing through the formulation,
promotion and delivery of purpose-designed products that satisfy the identified needs of target
groups. In other words, segmentation is justified on the grounds of achieving greater efficiency
in the supply of products to meet identified demand, and increased cost-effectiveness in the
marketing process. In most cases travel and tourism businesses will deal with multiple segments
and multiple products over a twelve-month period but not necessarily simultaneously.
Market segmentation is the segmentation of markets into homogenous groups of customers, each
of them reacting differently to promotion, communication, pricing and other variables of the
marketing mix. Market segments should be formed in that way that differences between buyers
within each segment are as small as possible. Thus, every segment can be addressed with an
individually targeted marketing mix.
Market segmentation recognizes that people differ in their tastes, needs, attitudes, lifestyles,
family size and composition, etc. . . . It is a deliberate policy of maximizing market demand by
directing marketing efforts at significant sub-groups of customers or consumers. ‘The more an
organization knows about its customers and prospective customers – their needs and desires,
their attitudes and behavior – the better it will be able to design and implement the marketing
efforts required to stimulate their purchasing decisions.’
Because it is increasingly impossible to deal with all customers on a mass consumption or ‘one
size fits all basis,’ market segmentation is the practical expression in business of the theory of
consumer orientation. It is arguably the most important of all the practical marketing techniques
available to marketing managers in travel and tourism. It is normally the logical first step in the
marketing process involved in developing products to meet customers’ needs. Segmentation is
also the necessary first stage in the process of setting precise marketing objectives and targets
and the basis for effective planning, budgeting and control of marketing activities. It is the basis
for positioning, branding and communicating relevant images to targeted users.
A tourism market consists of all those people with sufficient motivation, ability and opportunity
to visit a destination or attraction. Market segmentation is a consumer-led technique that
involves dividing the market into groups of like-minded people with similar needs, and
behavioral characteristics and who therefore require similar tourism marketing mixes.
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The more finely segmented the market, the greater the likelihood that the destination or
attraction will be able to implement targeted marketing campaigns to usable, distinct groups of
visitors rather than randomly marketing to the market generally. Market segmentation, therefore,
has significant implications for the determination of tourism marketing strategy.
Why market segmentation (reasons for market segmentation)?
The main reason for market segmentation is that buyers are too numerous, widely scattered, and
varied in their needs and buying practices.
The purpose of market segmentation is to leverage scarce resources; in other words, to ensure
that the elements of the marketing mix (price, distribution, products and promotion) are designed
to meet particular needs of different customer groups. Since companies have finite resources, it is
not possible to produce all possible products for all the people, all of the time. The best that can
be aimed for is to provide selected offerings for selected groups of people, most of the time. This
process allows organizations to focus on specific customers’ needs, in the most efficient and
effective way.
Benefits of market segmentation
1. Better serving customers needs and wants

2. Higher Profits: It is often difficult to increase prices for the whole market. Nevertheless,
it is possible to develop premium segments in which customers accept a higher price
level. Such segments could be distinguished from the mass market by features like
additional services, exclusive points of sale, product variations and the like.
3. Targeted communication: It is necessary to communicate in a segment specific way
even if product features and brand identity are identical in all market segments. Such a
targeted communication allows stressing those criteria that are most relevant for each
particular segment (e.g. price vs. reliability vs. prestige).
4. Stimulating Innovation: An undifferentiated marketing strategy that targets at all

customers in the total market necessarily reduces customers’ preferences to the smallest
common basis. Segmentations provide information about smaller units in the total market
that share particular needs. Only the identification of these needs enables a planned
development of new or improved products that better meet the wishes of these customer
groups. If a product meets and exceeds a customer’s expectations by adding superior
value, the customers normally is willing to pay a higher price for that product. Thus,
profit margins and profitability of the innovating organizations increase.
5. Higher Market Shares: In contrast to an undifferentiated marketing strategy,

segmentation supports the development of niche strategies. Thus marketing activities can
be targeted at highly attractive market segments in the beginning. Market leadership in
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selected segments improves the competitive position of the whole organization in its
relationship with suppliers, channel partners and customers. It strengthens the brand and
ensures profitability. On that basis, organizations have better chances to increase their
market shares in the overall market.
Generally, market segmentation is the basis for customer orientation and differentiation.
Segmentation passes through the following three stages.
1. Mass Marketing: Seller mass produces, mass distributes, and mass promotes. The argument
for mass market is that it will lead to the lowest cost and prices and create the largest potential
market.
2. Product- Variety Market: The seller produces two or more products that have different
features, styles, quality, sizes, and so on. The product line is designed to offer variety to buyers
rather than to appeal to different market segments. The argument for product-variety marketing
is that consumers have different tastes that vary over time. Consumers seek variety and change.
3. Target marketing: The seller identifies market segments, selects one or more, and develops
products and marketing mixes tailored to each selected segment.
Today, many companies are moving away from mass marketing and product- variety marketing
toward target marketing. Target marketing helps sellers to find better marketing opportunities
and allows companies to develop the right product for each target market.
NB. Micro-marketing is a form of target marketing in which companies tailor their marketing
programs to the needs and wants of narrowly defined geographic, demographic, psychographic
or behavior segments. Micromarketing: the customizing of products and communications to
smaller markets.
The figure below shows the three major steps in target marketing. The first is market
segmentation-dividing a market in to distinct groups of buyers who might require separate
products and /or marketing mixes. The second step is market targeting- evaluating each market’s
attractiveness and selecting one or more of the market segments. The 3 rd step is market
positioning-developing a competitive positioning for the product and appropriate marketing mix.
Market Segmentation Market Targeting Market Positioning

1. Identify segmentation 3. Evaluate 5. Identify possible positioning
variables and segment the attractiveness of each Concepts for each target
market segment segment
2. Develop profiles of resulting 4. Select the target 6. Select, develop, and
segments segment(s) communicate the chosen
position 28
Positioning concept
Fig: Steps in Segmentation, Targeting and Positioning
3.3 Bases for Segmenting Consumer Markets

There is no recipe for choosing segmentation variables and no single way to segment a market. A
marketer has to try different segmentation variables, alone and in combination, hoping to find the
best way to view the market structure. The identification of segmentation variables is among the
most creative parts of the segmentation process, because it involves conceiving dimensions along
which products and buyers differ, that carry important structural or value chain implications.
Below are 4 bases or variables for segmentation.
A. Geographic Segmentation: calls for dividing the market in to different geographic units, such
as Nation or country, State or region, City or metro size, Density, Climate, etc.
It leads to significant stereotyping that usually covers up or masks important variations in tourist
behavior. It does not consider the wide variation in tourists’ needs and wants even in small
geographic areas or demographic groupings. Put simply, even within a very narrowly defined
neighborhood there are likely to be very different types of people with, by definition, very
different leisure and tourism preferences and interests living side by side.
In order to produce a more detailed profile of potential markets, it is clear that the real benefit of
adopting a geographic and demographic segmentation approach is as a foundation for other more
tourist-focused methods.
B. Demographic Segmentation: calls for dividing the market in to groups based on demographic
variables such as age, race, gender, income, education, family size, family life cycle, occupation,
religion, nationality. Demographic factors are the most popular bases for segmenting customer
groups. The reasons are:
 Consumer needs, wants and use-rates often vary closely with demographic variables.
 Demographic variables are easier to measure than most other types of variables.
Geodemographic systems do provide considerably greater tourism segmentation benefits but,
used on their own even these do not equate to an effective segmentation strategy. This is largely
because they ignore key factors and determinants which influence tourist behavior, such as
personal tastes and preferences, values, previous touristic experiences, leisure time availability
and propensity to travel.
C. Psychographic segmentation: dividing buyers in to different groups based on social class,

lifestyle (activities, interests, opinions), and personality characteristics/core values/.
Predicting tourists’ behavior using a psychographic approach has evolved in response to the
weaknesses and limitations of the segmentation methods outlined above in helping marketing
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decision-makers to ‘get inside the mind’ of their tourist consumers and to understand more
clearly the factors that drive their behavior.
D. Behavioral Segmentation: dividing buyers in to groups based on their knowledge, attitude,

use or response to a product.
 Occasions- regular, special occasion

 Benefits- quality, economy, speed. Focusing on promoting the benefits sought is a logical
objective for brochures and other marketing communications.
 User status- non-user, potential user, first-time-user, regular user.
 Usage rate- light user, medium user, heavy user.
 Buyer-readiness- informed, non-informed, knowledgeable,
 Loyalty status- Hard-core loyals, Split loyals, Shifting loyals, Switchers
 Attitude- enthusiastic, positive, indifferent, negative, hostile.
This form of segmentation has several dimensions but, in general, it aims to group consumers in
terms of their relationship with the destination product, for example, whether they are first-time
or regular visitors, the purpose of their visit, loyalty and their attitudes to the destination before
segmenting on the basis of behavior or benefits sought.
E. Multi attribute/Multi variable segmentation- Having briefly considered the four classic
segmentation bases, it is clear that in practice, most successful destinations and tourism
organizations have started to adopt a multivariable segmentation approach. As with all
segmentation approaches, a multivariable segmentation strategy requires that tourist consumers
are clustered according to their background, needs and wants.
Major Segmentation Variables for Consumer Markets (below)
Geographic
Region Pacific, Mountain, West North Central, West South Central, East North Central, East
South Central, South Atlantic, Middle Atlantic, New England
City or metro size Under 5,000; 5,000-20,000; 20,000-50,000; 50,000-100,000; 100,000-250,000;

250,000-500,000; 500,000-1,000,000; 1,000,000-4,000,000; 4,000,000 or over
Density Urban, suburban, rural
Climate Northern southern
Demographic
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Age Under 6, 6-11, 12-19, 20-34, 35-49, 50-64, 65+
Family size 1-2, 3-4, 5+
3.4 Requirements for Effective Segmentation

Although there are many ways to segment a market, all are not equally effective. To be useful,
market segments must have the following characteristics.
a. Measurability: the degree to which the segment’s size, purchasing power, profiles of
segments can be measured.
b. Substantiality: the degree to which segments are large or profitable enough to serve as
markets. A segment should be the largest possible homogenous group economically
feasible to support a tailored marketing program.
c. .Accessibility: the degree to which segments can be effectively reached and served. The
destination or tourism organization must be able to reach the segment with specifically
formulated and cost-effective marketing programme.
d. Actionablity: the degree to which effective programs can be designed for attracting and
serving markets. The organization must have the resources to exploit identified
marketing opportunities that emerge from the segmentation process
3.5 Market Targeting: Evaluating and Selecting Segments
Market segmentation reveals the firm’s market opportunities. The firm now has to evaluate the
various segments and decide how many and which one to target.
3.5.1 Evaluating Market Segments
When evaluating different market segments, a firm must look at three factors.
 Segment size and growth- favor right size and growth.

 Segment structural attractiveness. A company must examine major structural factors
which affect long-run segment attractiveness (such as competitors, high bargaining power
of buyers with respect to sellers, etc.)
 Company objectives and resources: the company must consider its own resources and
objectives in relation to a market segment.
3.5.2 Selecting Market Segments
After evaluating each segment, the company decides which and how many segments to serve and
selects the most attractive segment/segments to serve as targets for marketing strategies to
achieve desired objectives.
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A. Market-Coverage Alternatives
 Undifferentiated Marketing: firm ignores market segmentation differences and goes

after the entire market with one market offer. It focuses on what is common in the needs
of the consumer rather than on differences. One marketing mix all markets
 Differentiated Marketing: The firm targets several market segments and design separate
offers for each.
Marketing mix A segment A
Marketing mix B segment B
 Concentrated Marketing: is especially appealing to companies with limited resources
Instead of going for a small share of a large market, the firm pursues a large share of
small markets.
Segment A
One marketing mix Segment B
Segment C
B. Choosing a Market-Coverage Strategy
Companies need to consider several factors in choosing a market coverage strategy.
I) Company resources-when the company’s resources are limited, concentrated marketing

makes the most sense.
II) Degree of product homogeneity: undifferentiated marketing is more suited for
homogenous products. Products that vary in design, such as restaurants and hotels, are
more suited to differentiated or concentrated marketing.
III) Market homogeneity: if buyers have the same tastes, buy products in the same amount,
and react the same way to marketing efforts, undifferentiated marketing is appropriate.
IV) Competitors’ strategy: when competitors use segmentation, undifferentiated marketing
can be suicidal/ dangerous. Conversely, when competitors use undifferentiated
marketing, a firm can get advantage by using differentiated/concentrated marketing.
3.6 Market Positioning
A product’s position is the way the product is defined by consumers on important attributes-the
place the product occupies in the consumer’s mind relative to competing products.
NB: positioning is not what you do to a product. Positioning is what you do to the mind of
the prospect. That is, you position the product in the mind of the prospect.
Positioning a product to create the difference is aimed at developing strategic, sustainable

competitive advantage. It is concerned with managing perceptions. Brand image and reputation
are the result of the positioning process.
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Positioning was a new perspective on the new marketplace. There were too many products, and
too many messages. Marketers had to deal with this new reality. Though the mind of the
consumer was overloaded with messages... in most product categories; there were very simple
hierarchies...
The objective of positioning is to create a distinctive place in the minds of potentials customers.
A position that evokes images of a destination in the customers mind; images that differentiate
the destination from the competition and also as a place that can satisfy their needs and wants.
Since market segmentation is based on the notion that different tourism destinations appeal to
different types of potential customers, an effective positioning strategy provides a competitive
edge to a destination that is trying to convey its attractiveness to the target market(s).
Thus, true positioning differentiates (as we called differentiation policy) a destination from its
competitors on attributes that are meaningful to customers and gives it a competitive edge.
Positioning should be a SINGLE-minded concept, an umbrella from which everything spreads

like in the organization flows, from top to bottom. Properly targeted, single-minded positioning
affects everything a destination does or stands for, not only advertising, but also all of its
promotions. Positioning also affects policies and procedures, employee attitudes, customer
relations, complaint handling, and the countless of other details that combine to make the tourism
experience. Tourism services compete on more than just image, differentiation, and benefits
offered. Of course there are other aspects like tourism resources, ability and etc. There must be a
consistency among the various offerings and it is the positioning statement that guides this
consistency (well defined positioning will do that). There are two tests of effective positioning.
First, the position must be believable in the tourist’s mind.

Second, the destination must deliver that promise on a consistent basis.
The reality of the matter is that if the target market doesn’t perceive the image, the image does
not exist. If the target does not believe that what the destination has to offer is benefit, it isn’t a
benefit. If the target market doesn’t believe that the benefit can be delivered, promises are
meaningless! If the benefit isn’t important to the target market, it isn’t important. If the benefit is
not perceived as being different from that of the competition, then differentiation has not
33
succeeded. In short, images, benefits, and differentiation are solely the perception of the tourist,
not to the perceptions of tourism officials or tourism marketers.
Market positioning research also requires an evaluation of the image that customers have of a
tourism destination. This can be used to identify the vital elements, which comprise the benefits.
The beauty of a destination, nature, the architecture of the place, and the historic artefacts in a
museum, culture, local people and lifestyle are can be the attributes which also can be benefits of
certain destination depending on the variety and specification of the destinations. The benefit
itself is what the attributes do for the visitor, for example, a sensation of grandeur, an aura.
USP (Unique Selling Proposition): It means the one aspect of your product that makes you
different from all other products. USP can be something real, which one product has over all
others, such as the strong taste of Minto mints.
A. Positioning Strategies
1. specific product attributes: price and product features, location, needs products fill or benefits
products offer, certain classes of users, etc can be used to position a product.
2. against an existing competitor: a product can be positioned against an existing competitor.

E.g. say no to plastic bags, good bye telephone, hello internet,
There are four basic types of positions…
 The Best Position: In most categories, there is#1 in the consumer’s mind. The “Best”
Position leverages this.
 The Against Position: The “Against” Position defines itself vs. #1. It’s an aggressive
and competitive position. Example: Avis “We’re only #2. We try harder.”, 7Up “The
UnCola”, Take The Pepsi Challenge
 The Niche Position The “Niche” Position promotes the product along one dimension of
superiority Example: All-Temperature Cheer

 The New Category the New Category is just that it defines a category that didn’t exist
before and then positions the (new) product as the best in that new category. Competition
follows.
B. Choosing and Implementing Positioning Strategy
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The positioning task consists of 3 steps:
a. Identifying a set of possible competitive advantages up on which to build a position.

b. Selecting the right competitive advantage/s.
c. Effectively communicating and delivering the chosen position to a carefully selected
target market
Three positioning errors
1. Under positioning- failing ever to position a company at all.

2. Over positioning- giving buyers a too-narrow picture of the company.
3. Confused positioning-leaving buyers with confused image of a company.
Selecting the Right Competitive Advantages
Companies can position themselves on one or more differentiating factor. But not all differences
are meaningful/ worthwhile. A difference is worth establishing to the extent that it satisfies the
following criteria.
 Important: the difference delivers a highly valued benefit to target buyers.

 Distinctive: competitors don’t offer the difference, or the company can offer it in a more
distinctive way.
 Superior: the difference is superior to other ways that customers might obtain the same
benefit.
 Communicable: the difference is communicable and visible to buyers.
 Preemptive: competitors cannot easily copy the difference.
 Affordable: buyers can afford to pay for the difference.
 Profitable: the company can introduce the difference profitably.
Checklist for Evaluating Positioning Strategy
 Does it say who you are and what you stand for? Does it create a mental picture?
 Does it set you apart and show how you are different?
 Does it preempt a benefit niche and capitalize on an advantage?
 Does it have benefits for the target market you are trying to reach?
 Does it provide tangible evidence or clues?
 Does it feature the one or two things that your target market wants most?
 Is it consistent with strategy—for instance, does it expand or exchange usage patterns?
Create new awareness? Project the right image?
 Does it have credibility?
 Does it make a promise you can keep?
Destination positioning strategies
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1. Positioning by attribute, feature or customer benefit: emphasis is placed on the benefits
of the particular features or attributes of the destination.
 E.g. Thailand promotes the friendliness of its people with the statement “the world meets
in the land of smiles”.
2. Positioning by price value-international destinations are not usually positioned on the

basis of price because lower prices are perceived as connoting lower value.
However, value offered to visitors can be effectively utilized as exemplified by Malaysia which
claims “Malaysia gives more natural value”. With this proposition, Malaysia is appealing not
only to the sense of value (more for the money), but also to its natural attractions.
3. Positioning with respect to use or application-here, a destination is positioned based on

the reasons for visiting it. Bermuda positions itself to the America meetings market with
“sometimes you have to leave the country to get any work done” which promises
productive meetings in a relaxed environment. Cancun, Mexico, is positioned as “the
meeting place for sun worshipers”.
4. Positioning according to the users or class of users-in this case, positioning features the
people who should visit the destination. Honk Kong appeals to the incentive travel
market with the statement “when they have reached the top, send them to the peak”,
referring to Victoria Peak, a major tourist site in Hong Kong. Fisher Island, a luxury
residential development in Florida, positions itself as the place “where the people who
run things can stop running”.
5. Positioning with respect to a product class-this technique is often used to associate a
destination with experiences that are extraordinary and/or unique. For example, the
principality of Monaco is positioned as “the fairy tale that does not end at midnight”. Or
holding a convention in Thailand is “smooth as silk where the sky is the limit”. Or “if you
are looking for an ideal meeting place, here is one that is close to heaven” for Israel.
6. Positioning vis-à-vis the competition-is used when it is necessary to meet the
competition head-on-to bring out differences between destinations. This approach is not
used frequently in international tourism destination marketing since it may involve
negative statements about another country or region.
Malaysia: Truly Asia

Additional material
Positioning a Destination: Problems and Challenges

Positioning a destination presents a number of challenges, two of which are inherent in
marketing a service ‘product’, namely intangibility and inseparability. Intangibility leads to
customer uncertainty. Unlike a good which Lovelock describes as an ‘object, a device, a thing’,
the service product can be more aptly described as a ‘deed, a performance, an effort’. When
36
considering destination marketing, the word ‘experience’ could be added, as the destination
marketer is effectively selling tourist experiences.
Despite the higher level of consumer participation in the tourism purchase, the holiday-maker
will still perceive an element of risk during the initial buying process. In her study of the
consumer evaluation process, Zeithaml hypothesized that consumers perceive greater risks when
buying services than when buying goods (Zeithaml, 1990). It needs to be added, however, that
the degree of perceived risk is dependent on the price of the purchase, the benefits which the
consumer expects to derive from a purchase, and whether or not the consumer has purchased the
same or a similar service in the past. According to marketing theory derived from the 1960s, if
the price of the service is low then the perceived risk of financial loss is low. It is arguable,
however, in the case of tourism that the cost of the purchase cannot be measured in financial
terms alone. Even a short break holiday requires the expenditure of valuable leisure time, at a
time when there are ever-increasing demands on disposable leisure time. Therefore, although this
short break may involve relatively little financial outlay, the level of expectation may be quite
high. Zeithaml supports her study of risk with two additional hypotheses: consumers adopt
innovations in services more slowly than they adopt innovations in goods; and consumers seek
and rely more on information from personal sources than from non-personal sources when
evaluating services prior to purchase. Consumers are naturally more cautious when purchasing
something which they cannot touch, experience, test or experiment with and which is unlikely to
come with a guarantee or warranty.
Because of the intangible nature of a destination, an explicit positioning strategy is valuable in

helping prospective visitors to get a ‘mental fix’ on a destination that may otherwise be
amorphous. The challenge posed by intangibility is compounded by the lack of consistency in
buyer behavior within market segments. Visitor expectations can vary radically. For example,
two families on an identical short break package may record very different levels of satisfaction
with the holiday because they had different expectations and were looking for different benefits
from the package. This is in contrast to most consumer goods where the product has a given set
of attributes and customers’ expectations can be more readily identified. The second challenge
relates to the inseparability of the service production and consumption processes. This can result
in inconsistencies in the quality of the product and its delivery. The supplier of manufactured
goods can put the product through a rigorous test period before distribution and consumption.
This helps to avoid costly mistakes arising from customer dissatisfaction with the product. The
tourism supplier does not have this opportunity as the production and consumption of the product
takes place simultaneously. This potential for inconsistency in delivering the destination product
is compounded by the high level of human involvement in the production process. The challenge
posed by inseparability is arguably stronger for the destination marketer than for the service
product marketer, due to the lack of control which is exercised over the many suppliers of the
tourism product. The multitude and diversity of tourism suppliers in the destination makes
quality control and cohesion a difficult task.
Positioning in Other Tourism Sectors

Key players from the hospitality and tour operating sectors have pursued major repositioning and
product development strategies. Both the processes and the results of these strategies provide
37
potential insights for the regional tourist boards (RTBs). The development of ‘Courtyard’ by the
Marriott hotel group pioneered the use of new research and product development techniques. The
development process involved the following stages: selection of a product development team;
environment and competitor analysis; customer analysis; idea generation; product refinement;
product positioning; and monitoring of results. The environment and competitor analysis
identified a gap in the market. The remaining stages were underpinned by extensive consumer
research, based around defining preferred product attributes and benefits. Seven sets of attributes
were identified: external factors; rooms; food-related services; lounge facilities; services; leisure
facilities; and security factors. A range of individual product attributes were developed within
each of these sets. A range of multivarious and inferential statistical analyses were used by
Marriott, including conjoint, cluster analysis, multidimensional scaling and multiple discriminant
analysis. The exercise has proved a success for Marriott with the Courtyard brand expanding
from three test hotels in 1983 to more than 200 in 1994.
Forte Hotels also harnessed internal and external expertise to research the market and identify
key benefit-seeking market segments as part of their restructuring process in 1991. This form of
benefit-related segmentation has been studied in depth by Vavrik and Mazanec (1990) who also
refer to it as a posteriori segmentation. Using multivariate statistical techniques, individuals
are aggregated into groups which seek similar benefits. This kind of analysis is useful, as the
tourism manager is likely to be interested in determining which group or segments would support
a given product category; how the segments differ in their responsiveness to a range of product
offerings (brands, destinations, etc.) within that category; and how they differ in their
expectations (Calantone and Mazanec, 1991).
Several distinct brands were created under the Forte umbrella. One of the overall aims of the
Forte re-branding exercise was to provide reassurance to customers when choosing hotels in
different destinations (Connell, 1994). In other words, the rebranding of hotels attempted to
reduce consumers’ perceived risk when purchasing a Forte product. Two further objectives of the
Forte re-branding exercise were, firstly, to offer a clear position in an expanding international
market and, secondly, to help employees identify themselves better with the company and to
make them understand their contribution towards the corporate effort. This second objective
recognizes the inseparability of the production and the consumption processes and the integral
part which hotel staff represent in the delivery of the overall product. Connell observes that as a
result of the re-branding Forte is now able to communicate the differences between brands to
make it easier for customers to choose the hotel they need. Any repositioning process will
require change, particularly in the culture of the organization and management attitudes. It is to
some extent a ‘chicken and egg’ situation as many companies cite organizational factors when
talking of the benefits of repositioning. Clear product positioning must be an integral part of any
destination marketing strategy, due to the inherent characteristics of the destination product and
the increasingly complex needs of the tourist.
Dimensions of Market Strategies

Market strategies deal with the perspectives of markets to be served. These perspectives can be
determined in different ways and the various aspects of marketing strategy are listed below:
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Market scope. For example, a tourism company may serve an entire market or dissect it into key
segments on which to
concentrate its major effort.
The geographical dimensions of a market. A company may focus on a local, regional, national or
international market.
Time of entry into a market. A tourism company may be the first among the first
few, or among the last to enter a market.
Commitment to a market. This commitment can be to achieve market dominance, to become a

major player in
the market, or merely to play a minor role in it.
Dilution of a part of the market.
In summary form, the following 16 strategies constitute the major market strategies that a
company may pursue. The presentation structure of these strategies follows the same framework
of analysis: definition, objective, requirements and expected results.
1. Single-minded strategy
Definition: Concentration of efforts in a single segment.
Objective: To find a segment currently being ignored or observed inadequately and meet its
needs.
Requirements: (i) Serve the market wholeheartedly despite initial difficulties;
(ii) avoid competition with established firms.
Expected results: (i) Low costs; (ii) higher profits.
2. Multimarket strategy
Definition: Serving several distinct markets.
Objective: To diversify the risk of serving
only one market.
Requirements: (i) Careful selection of segments to serve; (ii) avoid confrontation with companies
serving the entire market.
Expected results: (i) Higher sales; (ii) higher market share.
3. Total-market strategy
Objective: To compete across the board in the entire market.
Definition: Serving the entire spectrum of the market by selling differentiated products to
different segments in the market.
Requirements: (i) Employ different combinations of price, product, promotion, and distribution
strategies in different segments; (ii) top management commitment to embrace entire market;
(iii) strong financial position.
Expected results: (i) Increased growth;
(ii) higher market share.
4. Local-market strategy
Definition: Concentration of efforts in the immediate vicinity.
Objective: To maintain control of the business.
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Requirements: (i) Good reputation in the geographical area; (ii) good hold on requirements of the
market.
Expected results: Short-term success; ultimately must expand to other areas.
5. Regional-market strategy
Definition: Operating in two or three states or over a region of the country
(e.g. New England).
Objectives: (i) To diversify risk of dependence on one part of a region; (ii)
to keep control centralized.
Requirements: (i) Management commitment to expansion; (ii) adequate resources; (iii) logistical
ability to serve a regional area.
Expected results: (i) Increased growth;
(ii) increased market share; (iii) increased profitability.
6. National-market strategy
Definition: Operating nationally.
Objective: To seek growth.
Requirements: (i) Top management commitment; (ii) capital resources; (iii) willingness to take
risks.
Expected results: (i) increased growth; (ii) increased market share; (iii) increased profitability.
7. International-market strategy
Definition: Operating outside national boundaries.
Objective: To seek opportunities beyond domestic business.
Requirements: (i) Top management commitment; (ii) capital resources; (iii) understanding of
international markets.
Expected results: (i) increased growth; (ii) increased market share; (iii) increased profits.
8. First-in strategy
Definition: Entering the market before all others.
Objective: To create a lead over competition that will be difficult for them to match.
Requirements: (i) Willingness and ability to take risks; (ii) technological competence; (iii) strive
to stay ahead;
(iv) heavy promotion; (v) create primary demand; (vi) carefully evaluate strengths.
Expected results: (i) Reduced costs via experience; (ii) increased growth; (iii) increased market
share; (iv) increased
profits.
9. Early-entry strategy
Definition: Entering the market in quick succession after the leader.
Objective: To prevent the first entrant from creating a stronghold in the market.
Requirements: (i) Superior marketing strategy; (ii) ample resources; (iii) strong commitment to
challenge the market leader.
Expected results: (i) Increased profits;
(ii) increased growth; (iii) increased market share.
10. Laggard-entry strategy
Definition: Entering the market towards the tail end of growth phase of during maturity phase.
Two modes of entry are feasible: (i) Imitator-entering market with me-too product; (ii) initiator
entering market with unconventional marketing strategies.
Objective: Imitator: To capture that part of the market that is not brand loyal.
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Initiator: To serve the needs of the market better than present firms.
Requirements: Imitator: Market research ability. Initiator: (i) Market research ability; (ii) ability
to generate creative marketing strategies Expected results: Imitator: Increased short-term profits.
Initiator: (i) Put market
on a new growth path; (ii) increased
profits; (iii) some growth opportunities.
11. Strong-commitment strategy
Definition: Fighting off challenges aggressively by employing different forms of product, price,
promotion and distribution strategies.
Objective: To defend position at all costs.
Requirements: (i) Operate optimally by realizing economies of scale in promotion, distribution,
manufacturing, etc. (ii) Refuse to be content with present situation or position; (iii) ample
resources; (iv) willingness and ability to take risks.
Expected results: (i) Increased growth; (ii) increased profits; (iii) increased market.
12. Average-commitment strategy
Definition: Maintaining stable interest
in the market.
Objective: To maintain the status quo.
Requirement: Keep customers satisfied
and happy.
Expected result: Acceptable profitability.
13. Light-commitment strategy
Definition: Having only a passing interest in the market.
Objective: To operate in the black.
Requirement: Avoid investing for any long-run benefit.
Expected result: Maintenance of status quo (no increase in growth, profits or market share).
14. Pruning-of-marginal-markets strategy
Definition: Weeding out markets that do not provide acceptable rates of return.
Objective: To divert investments in growth markets.
Requirements: (i) Gain good knowledge of the chosen markets; (ii) concentrate all energies on
these markets; (iii) develop unique strategies to serve the chosen markets.
Expected results: (i) Long-term growth; (ii) improved return on investment; (iii) decrease in
market share.
15. Key-markets strategy
Definition: Focusing efforts on selected markets.
Objective: To serve the selected markets extremely well.
Requirements: (i) Gain good knowledge of the chosen markets; (ii) concentrate all energies on
these markets; (iii) develop unique strategies to serve the chosen markets.
Expected results: (i) Increased profits; (ii) increased market share in the selected markets.
16. Harvesting strategy
Definition: Deliberate effort to let market share slide.
Objective: (i) To generate additional cash flow; (ii) to increase short-term earnings; (iii) to avoid
antitrust action.
Requirement: High-market share.
Expected result: Sales decline but useful revenues still come in.
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CHAPTER FOUR
DESIGNING AND MANAGING PRODUCTS
“Profit is Payment you get when you take advantage of change.”Joseph Schumpeter
“The best way to hold customers is to constantly figure out how to give them more for less.”
Philip Kotler
As far as the tourist is concerned, the product covers the complete experience from the time he
leaves home to the time he returns to it. To a great extent, decisions on the design of products
also determine what prices can be charged, what forms of communication with the customer are
needed and often what distribution channels are available. For all these reasons, customer related
product decisions are ‘the basis of marketing strategy and tactics’.
4.1 Setting the Product Strategy

What is product? Product is a need-satisfying offering of a firm. It is anything that can be
offered to a market for attention, acquisition, use or consumption that may satisfy a need or want.
Product policy: The management of products from the time they are introduced until they are
removed from the marketplace.
Product Levels: Hospitality managers do think about the product on four levels: the core
product, the facilitating product, the supporting product, and the augmented product. Each level
adds more customer value and constitutes customer value hierarchy.
1. Core product: The most basic level is the core product. Core products provide a focus for the
business; it is the reason for being. It Answers the question “what is the buyer really buying?”A
hotel guest is buying “rest and sleep”. The purchaser of a drill is buying “holes”.
2. Facilitating products: Are those services or goods that must be present for the guest to use
the core product. A 1st class corporate hotel must have: check-in and checkout services,
telephones, restaurant and valet services
3. Supporting Products: Core products require facilitating products but do not require
supporting products. Supporting products are extra products offered to add value to the core
product and help to differentiate it from the competition. It helps to position a product. Hyatt
offers a broad line of bathroom amenities including shampoo, conditioners, and several choice of
soap.
4. Augmented product: Includes accessibility, atmosphere, customer interaction with the
service organization, customer participation, customers’ interaction to each other.
A. Accessibility: Refers to how accessible the product is in terms of location and hours of operation.
B. Atmosphere: the physical environment: Atmosphere is a critical element in services. It can be
the customer’s reason for choosing to do business with an establishment. The most sensory
channels for atmosphere are: visual, aural, olfactory, and tactile.
42
 The main visual dimensions of atmosphere are color, brightness, size, and shape
 The main aural dimensions of atmosphere are volume and pith
 The main olfactory dimensions of atmosphere are scent and freshness
 The main tactile dimensions of atmosphere are softness, smoothness and temperature.
C. Customers’ interaction with the service delivery system: The customer participates in the
delivery of most hospitality and travel products. There are three phases to this involvement.
1. Joining- the customer makes the initial inquiry contact. The information must be
delivered in a professional way.
2. Consumption phase- takes place when the service is consumed (in restaurant occurs
when the customer is dinning).
3. Detachment phase- is when the customer is through using the product and departs. For
instance, in a hotel guests may need a bell-person to help with the bags. They will need to
settle their accounts and require a transport to the airport.
D. Customer interaction with other customers: An area that drawing the interest of the
hospitality researcher is the interaction of customers with each other. Hospitality organizations
must manage the interaction of customers to ensure that some customers do not negatively affect
the experience of others.
E. Customers co-production: Involving guests in service delivery can increase capacity,
improve customer satisfaction, reduce costs.
4.2 Brand Decisions

A brand is a name, term, sign, symbol, design, or a combination of these elements that is
intended to identify the goods or services of a seller and differentiate them from those of
competitors. A brand name is the part of the brand that can be vocalized. E.g. Hilton. A brand
mark is the part of a brand that can be recognized but is not utterable, such as a symbol, a design,
or a distinctive coloring or lettering. E.g. Hilton’s H. A trade mark is a brand or part of a brand
that is given legal protection. It protects the seller’s exclusive rights to use the brand name or
brand mark.
It is what the brand stands for in the mind of the consumer that is important to the company.
Brands are among a company’s most valuable assets and smart companies today realize that
capitalizing on their brands is important. These companies know that brands are more than just
products and services. They know that brands are what the company does, and more importantly,
what the company is. A brand is critical component of what a company stands for. It implies
trust, consistency, and a defined set of expectations. The strongest brands in the world own a
place in the customers’ mind, and when they are mentioned, almost everyone thinks of the same
thing. Here are the values of brands as a percentage of market capitalization. Disney $32.6%
billion, McDonald's $25.3 billion, Starbucks $41.8 billion, and Burger king $2.4billion.
43
The concept of branding is really about communicating values, mission, vision of the company
to employees and customers. If we a good job at branding, all employees know what the values
of the company are, and both employees and customers also know who we are and what we
stand for.
A brand enables tourism producers to charge more money for their products and services, while
it also gives them the responsibility of maintaining and enhancing the brand reputation.
Branding in Tourism
Branding is one of the decisions involved in
developing a tourism marketing strategy. It
is an important part of product planning. A
brand is a name, design or symbol (or combination
of these) which is used to identify a
service provided by an institution or organization.
The branding process in tourism
involves researching, developing and
implementing an organization’s brand decisions.
Branding decisions involve the
determination of a word or letter/number to
identify the tourism service (brand name), a
symbol, design or distractive colouring or
lettering, and personified brand mark (trade
character). When a brand name, brand mark
or trade character is given legal protection, it
is referred to as a trademark. Unless brand
names, brand mark and trade characters are
registered as trademarks, competitors can
use them. There are numerous examples of
branding in the tourism and hospitality
industry (e.g. hotel chains, rental car companies,
cruise lines, tour companies and
airlines).
The significance of banding in tourism
can be explained by five factors:
1. As firms in the hospitality industry
jockey for global market share, it is critical
to carry over the positive images of
established names from country to
country. For instance, US hotel chains
such as Marriott, Days Inns and
Embassy Suites are aggressively seeking
foreign markets and hope to capitalize
on established reputations.
2. Repeat business represents an important
source of the tourism industry
income, and repeat business depends
on satisfied customers and recognizable
brand name. In other words, product
acceptance is improved when brand
names are popularized.
3. Considering the vast majority of new
brand introduction (from cruise lines,
to car rental companies, to tour package
companies, to hotels), the consumer can
only be bemused and confused. The
rapid rate of new brand introduction
complicates the tasks of travel agents
44
144 L. Moutinho and highlights the importance of
obtaining customer brand recognition.
4. The choice of a brand has implications
for the firm’s marketing mix consisting
of product strategies, promotional strategies,
pricing strategies and
distribution strategies.
5. Customer loyalty in tourism is difficult
to establish, but critical. A number of
studies have shown that even when customers
are reasonably satisfied with a
travel experience, curiosity would
attract them to try other alternatives.
Vacationers and tourists continuously
seek out new experiences, new locations,
new airlines and new hotels. The
more diverse the customers and tourism
adventures, the richer their experience.
For all these reasons, brand loyalty is
difficult to obtain and hence branding is
very important.
Branding in tourism is a decision that is
integrated with other marketing mix decisions.
The examples (from the lodging
industry) discussed below show how firms
are progressively developing unique brand
names to serve different makets.
Branding is critical to creating unique
images to different niche markets. That is, it
enhances market segmentation efforts. The
branding decision in tourism is very important
for a variety of reasons:
1. Brand names enable customers to identify
the product or service. A customer
can then request the service by name;
for example, a West German tourist may
prefer the airline Lufthansa. Recognizability
is important for patronage,
implying that the name should be fairly
simple and distinctive. From this premise,
Western International Hotels
changed its name to Westin Hotels.
2. Brand name assures the customer of a
certain product quality. Related to the
issue of quality is image: brand name
suggests a product image. The Waldorf-
Astoria in New York suggests high
quality, while Comfort Inns suggests
reasonable cost and economy. The
Queen Elizabeth 2 (QE2) cruise liner
suggests a more exclusive image than
Carnival Cruise Lines.
3. The brand name does not just create an
image for the product or service, it also
suggests one for the firm. The producers
of unbranded items cannot be identified,
therefore customers do not have
the opportunity to form an image of the
firm.
4. Brand names enable customers to make
fewer price comparisons. If a brand is
45
unique, the customer will associate a set
of marketing attributes to it. Thus it is
easier for the customer to make decisions
among brands that are closely
related and not compare those that are
not related. This is especially true when
special characteristics are attributed to
different brands. For the firm in the
travel industry, the brand name enables
it to advertise its sources and associate a
brand and its characteristics in the
minds of the customers. For instance,
Carnival Cruise Lines associates the
characteristic of ‘fun ships’ with its
brand name, while the QE2 associates
‘unique experience’ with its promotional
theme: ‘For once in your life,
live’.
5. Simply having a brand name increases
social visibility and product prestige. It
shows the firm is willing to stand
behind its service.
6. Consumers experience less risk when
purchasing a brand that is familiar and
towards which they have a favourable
attitude.
7. Branding is a critical element of the
firm’s marketing plan since it helps segment
markets. By using multiple
brands, different market segments can
be attracted. The Hilton Hotels group
uses the Waldorf-Astoria brand name to
attract the elite and politically influential,
while the Hilton brand name is
used to attract business executives and
frequent lodgers.
8. A well-known brand name helps
increase television channel cooperation.
A strong brand increases control of
the distribution channel, a particularly
important factor in very competitive markets. The tourism and travel industry
is a highly competitive industry,
extremely dependent on travel agents
and tour companies. A strong brand
name is easily remembered by the customer
and travel agent; travel agents are
quick to recommend strong brand
names to their clients.
9. Brands can be used to sell an entire line
of products. The Holiday Corporation
uses the brand names Holiday Inn
Hotels, Residence Inn, HI Crowne
Plaza, Hampton Inn, Embassy Suites
Hotel and Granada Royale to market its
line of lodging services.
10. Branding can be used to enter new markets
and to serve new customer
groups.
Branding decisions need to start with an
understanding of market segments to be targeted.
In fact, target markets need to be
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considered when making other branding
decisions. Typically, implementation of
branding decisions involves five steps: the
choice of corporate symbols, creation of a
branding philosophy, selection of a brand
name and deciding to seek legal protection.
Corporate symbols are a firm name, logo
and trade character. Although corporate
symbols are designed or chosen to have elements
of permanency, changes frequently
have to be made. The firm operates in a
dynamic environment, therefore no corporate
symbol can serve all purposes at all
times. Situations that call for a change, redesign
and/or change of name are expansion of
product lines to currently unrelated fields;
going into new geographical markets; realization
that the current name is indistinct,
unwieldly or confusing; or starting a completely
new line. Corporate symbols have an
impact on a firm’s marketing strategy and
consequently should not be developed without
considering elements of the marketing
mix. Embassy Suites Hotel has successfully
used Garfield the cat as its corporate symbol.
Confidence and reliability are of significant
concern to travellers. Even when price
competition is a significant form of competition,
the product is not emphasized
exclusively. Brand extension, which is used
in the lodging industry, involves attaching a
name extension to what would be a family
name. For instance, Marriott uses the extensions
Hotels, Resorts, Courtyard, Marquis
and Suites.
A good brand name should increase the
changes of consumer preference. ‘Brandname
hype’ only cannnot lead to sales unless
backed by other substantive actions. While
measuring sales is easy, the extent to which
increased sales can be attributed to a good
brand name is difficult. The effectiveness of
branding decisions can ultimately be measured
on insistence on (or aversion to) the
product. Brand loyalty, however, depends on
satisfaction with product performance.
Branding is a very important decision for
firms in the tourism industry. The development
of brand name over time can offer the
firm a competitive edge, but the firm needs
to plan and effectively execute a branding
decision to ensure this benefit. Integration of
the branding decisions into the marketing
mix programme can result in considerable
synergistic effects. A brand cannot be treated
as simply a name, rather it is an integral
part of the firm’s efforts to establish a unique
image that is saleable to customers. Image
building in service industries is significant
because word of mouth advertising is a
major form of promotion. A firm operating
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in the tourism industry should pay special
attention to its branding decisions. Brand
loyalty and patronage may very well depend
on a familiar brand name or symbol.
Conditions That Support Branding
 The product is easy to identify by brand or trade mark.

 The product is perceived as the best value for the price. Minimizes purchase risk by
communicating benefits
 Quality and standards are easy to maintain.
 Encourages repeat purchases through building brand loyalty
 The demand for the general product is large enough to support a regional, national, or
international chain. it reduces risk for the consumer at the point of purchase by signaling
the expected quality and performance of an intangible product. It offers either an implicit
or explicit guarantee to the consumer;
 There are economies of scale.
Among the desirable characteristics of a brand name are the following:
a.It should suggest something about the product’s benefits and qualities.
b.It should be easy to pronounce, remember and recognize.
c.It should be distinctive.
d.For large firms seeking at future expansion in to foreign markets, the name should translate
easily in to foreign languages.
e. It should be capable of registration and legal protection.
Brand Equity and Brand Concept Management
 Brand equity: The goodwill (equity) that an established brand has built up over its
existence. DREK” -- differentiation, relevance (strength), esteem and knowledge (stature)
 Brand concept: specific meaning that brand managers create and communicate to the
target market.
 Brand concept management: the analysis, planning, implementation, and control of a
brand concept throughout the life of the brand.
4.3 New Product Development
A company can obtain new products in two ways. One is buying a whole company, a patent or a
license to produce someone else’s products. The second is new product development, by setting
up its own research and development department.
A company has to be good at developing new products. It is also has to be good at managing
them in the phase of changing tastes, technologies, and competition. Every product seems to go
through a life cycle: it is born, passes through several phases, and eventually dies as younger
products come along that better serve consumer needs. All hospitality companies must
continuously be alert to trends and ready to try new products. Every company needs a new
product development program.
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4.3.1 Major Stages in New Product Development
There are eight steps in new product development process.
1. Idea Generation
New product development starts with idea generation, the systematic search for new ideas. A
company typically has to generate many ideas to find a few good ones. The company should
carefully define the new product development strategy. The strategy should state what products
and markets to emphasize; what the company wants from its new product-whether it is high cash
flow, market share, or some other objectives.
Sources of new ideas
 Internal sources- employees, management, R&D. (brainstorming)
 Customers
 Competitors
 Distributors and suppliers
 Other sources-such as trade magazines, seminars, university and commercial laboratories.
2. Idea screening
The purpose of idea generation is to create a large number of ideas. The purpose of the
succeeding stages is to reduce the number of ideas. The first such stage is idea screening. The
purpose of screening is to spot good ideas and drop poor once as quickly as possible. The
product should be the one which should fulfill our mission, meet our corporate and property
objectives, better utilize existing resources, etc.
3. Concept Development and Testing
Surviving ideas must now be developed in to product concepts. A product idea envisions a
possible product that company managers might offer to the market. A product concept is a
detailed version of the idea stated in meaningful consumer terms. A product image is the way
that consumers picture and an actual or potential product.
Concept development: The marketer’s task is to develop the idea into alternative product
concepts, determine how attractive each is to customers, and choose the best one.
Concept Testing: Occurs within a group of target customers. New product concept may be
presented through word or picture description.
4. Marketing strategy
It is about designing an initial marketing strategy for introducing the product into the market.
The marketing strategy statement consists of three parts. The first part describes the planned
product positioning, and the sales, market share, and profit goals for the first few years. The
second part outlines the product’s planned price, distribution, and marketing budget for the first.
The third part describes the planned long-run sale, profit goals, marketing-mix strategy over
time.
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5. Business Analysis
It is about evaluating the business attractiveness of the proposal. It involves a review of the sales,
costs, and profit projections to determine whether they satisfy the company’s objectives.
6. Product Development
If the product concept passes the business test, it moves into product development. Here the
product concept develops into a prototype of the product. Until now, it existed as a word
description, a drawing, or a mock-up. It will show whether the product idea can be turned into a
workable product.
7. Market Testing
If the product passes the business test, the next step is market testing. Market testing allows the
marketer to gain experience in marketing the product, to find potential problems, and to learn
where more information is needed before the company goes to the great expense of full
introduction. Market testing evaluates the product and the entire marketing program in real
marketing situations. The product, its positioning strategy, advertising, distribution, pricing,
branding, packaging and budget levels are evaluated during market testing
8. Commercialization
Market testing gives management the information it needs to make a final decision about
whether to launch the new product. If the company goes ahead with commercialization, it will
face high costs.
4.3.2 Product Life-Cycle Marketing Strategies

After launching a new product, management wants the product to enjoy a long and lucrative life.
Although the product is not expected to sell forever; managers want enough profits to
compensate for the effort and risk. Strategy changes are often the result of changing market and
environmental conditions as the product passes through the product lifecycle.
The product lifecycle is marked by 5 distinct stages:
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FIG. PRODUCT LIFECYCLE
1. Product development stage: It begins when a company finds and develops a new product
idea. Sales are zero and company’s investment costs add up.
2. Introduction: It starts when the new product is first made available for purchase. It is a period
of slow sales growth as the product is being introduced into the market. Profits are non-existence
because of heavy expenses of product introduction. Promotion spending is high to inform
customers of the new product and encourage them to try it. In the introductory stage, there are
only a few competitors who produce basic versions of the product, because the market is not
ready for product refinements. Prices tend to be on the high side because of low output,
production problems, and high promotion and other expenses.
3. Growth stage: Is a period of rapid market acceptance and increasing profits. Sales will start
climbing quickly. Competitors will enter the market attracted by the opportunities for profits.
They will introduce new product features, which will expand the market. Prices remain where
they are or fall only slightly. Companies keep their promotions spending the same or at a slightly
higher level to meet competition and continue educating the market. Profits increase as
promotion costs are spread over a large volume, more efficient systems are developed, and
corporate management costs are spread over a large number of units.
In the growth stage, the firm faces a trade-off between high market share and high current profit.
By investing heavily in product improvement, promotion and distribution, it can capture a
dominant position. But, it sacrifices maximum current profit in the hope of making this up in the
next stage.
4. Maturity stage: is a period of slow down in product sales growth because the product has
achieved acceptance by most of the potential buyers. Profits level off or decline because of
increased marketing outlays to defend the product against competition. The stage normally lasts
longer than the preceding two stages and poses the strong challenges to marketing managers.
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The slowdown in sales growth causes supply to exceed demand. The overcapacity leads to strong
competition. Companies begin lowering prices and they increase their advertising and sales
promotions. The only way to increase sales is to steal customers from competitors. Thus price
battles and heavy advertising are often means to do this, both of which result in a drop in profits.
Weaker competitors start dropping out. The industry eventually contains well-established
competitors in the main market segments.
A good offense is the best defense. The product manager should not simply defend the product
but should consider modifying target markets, the product and the marketing mix.
5. Decline stage: Sales of most product forms and brands eventually decline. Sales decline for
much reasons-including technological advancement, shifts in consumer tastes, and increased
competition. As sales and profits decline, some firms withdraw from the market. Those
remaining may reduce the number of their product offerings. They may drop smaller market
segments and marginal trade channels, cut promotion budgets, and reduce their prices further.
Keeping weak products delays the search for replacements, creates lopsided product mix, hurts
current profits and weakens the company’s foothold. For each declining product, management
should decide whether to maintain, harvest (reducing various costs), or drop it.
Chapter FIVE
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BUILDING CUSTOMER LOYALTY THROUGH QUALITY
To win in today’s marketplace, companies must be customer-centered; they must deliver
superior value to their target customers. They must become skillful in building customers, not
just building products; and skilful in market engineering, not just product engineering.
5.1 Defining Customer Value and Satisfaction
Consumers buy from the firm that they believe offers the highest customer delivered value.
Customer delivered value is the difference between the total customer value and total customer
cost.
Total customer value is the total of all the product, services, personnel, and image values that a
buyer receives from a marketing offer. Total customer cost is the total of all the monetary, time,
energy and psychic costs associated with a marketing offer.
Customer satisfaction with purchase depends on the product’s performance relative to a buyer’s
expectation. Customer loyalty measures how likely a customer is to return, and their willingness
to perform partnershipping activities for the organization. Customer satisfaction is a requisite for
loyalty. The customer’s expectations must be met or exceeded in order to build loyalty. Loyal
customers are more valuable than satisfied customers. A satisfied customer who does not return
and does not spread positive word of mouth has no value to the company.
5.2 Relationship Marketing
It involves creating, maintaining and enhancing strong relationships with customers. We can
distinguish 5 different levels of relationships with customers who have purchased a company’s
products.
 Basic-the company sells the product but does not follow up in any way.
 Reactive-the company sells the product and encourages the customer to call whenever
s/he has any questions or problems.
 Accountable-the company’s representative phones a customer a short time after the
booking to check with the customer and answer questions. During and after the event, the
sales person solicits from the customer any product improvement suggestions and any
specific disappointments.
 Proactive-the sales person or others in the company phone the customer from time to
time with suggestions about improvements that have been made or creative suggestions
for future improvements.
 Partnership-the company works continuously with the customer and with other
customers to discover ways to deliver better value.
5.3 Retaining Customers
The benefits of relationship marketing come from continued patronage of loyal customers,
reduced marketing cost, decreased price sensitivity of loyal customers, and partnership activities
of loyal customers.
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The cost of lost customers: companies should know how much it costs when a customer defects.
The cost of a lost customer is the same as the customer’s life-time value. Much can be done to
customers who leave because of poor service, poor quality, or too high prices.
Resolving customer complaints: is critical component of customer retention. Guests are less
forgiving. Most customers don’t complain. They just leave and never come back. What is worse
is they will tell others not to purchase from that company, letting the company to lose other
potential customers.
The pursuit of high quality is the never-ending journey that hospitality organizations must take in
order to achieve a link between the product and their customers.
5.4 What is quality?

There are several views of product quality. One is based on product features, another is based on
freedom form deficiencies, and the third is based on categories.
1. Product features: some view product features that enhance customer satisfaction as a way
of measuring quality. It relates to guest expectations and adds to the cost of the product.
According to this view, a luxury hotel has a higher level of quality than that of a limited
service hotel.
2. Freedom from deficiencies: is another way of viewing quality. According to this view, a
limited service hotel and a luxury hotel could both be quality products if the product they
offer was free from deficiencies. Freedom from deficiencies is a type of service quality that
focuses on conformance to specifications.
3. Three categories of service quality: a third view divides quality in to three categories:
a. Technical quality: refers to what the customer is left with after the customer-employee
interactions have been completed. It is the quality of the core product that a guest
receives in transaction. It is the quality of the guest room in a hotel, the meal in a
restaurant, and the car from a rental agency.
b. Functional quality: is the quality of the process of delivering a service. While the service
is being delivered, customers go through many interactions with the firm’s employees.
c. Societal/ethical/ quality: is a credence quality; it can’t be evaluated by the consumer
before purchase and is often impossible to evaluate after purchase. Firms must consider
ethical responsibilities when developing products and services, avoiding product features
that can cause harm and adding those that eliminate potential safety hazards.
5.5 Benefits of Service Quality
Earlier, we discussed some of the benefits of customer loyalty. Now, we expand these benefits
by showing the benefits that come from customer loyalty created by quality.
1. Customer retention-high quality builds loyal customers and creates positive word of
mouth. It is an important factor in the purchase decision. It determines customer
satisfaction, which affect repeat purchase and word of mouth.
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2. Avoidance of price competition-high quality can help to avoid price competition and help
to maximize potential revenue.
3. Retention of good employees-employees appreciate working in operations that are well-
run and produce high quality products. When an operation has good quality, it can retain
good employees. Recruiting is easier and training costs are reduced.
4. Reductions of costs:
a. Internal costs-are those associated with correcting problems discovered by the firm
before the product reaches the customer. E.g. cost of maintaining a broken air
conditioner.
b. External costs-are associated with errors that the customers experience. E.g. free
wines for a client complaining about slow service.
c. Quality system costs-are costs viewed as investment in the future to ensure that
customers return. E.g. training employees.
5.6 Developing a Service Quality Program
A service quality program involves a cooperative effort between marketing and operations.
Below are 10 principles of quality service which offers a framework for quality service program.
1. Supply strong leadership-the CEO of the organization must have a clear vision of the
organization, but it is not enough to just to have a vision. The CEO must also communicate
that vision and convince employees to believe in it and follow it.
2. Integrate marketing throughout the company-the marketing concept states that marketing
should be integrated throughout the company.
3. Understand the customer-companies with high quality products know what the market
wants.
4. Understand the business-delivering high quality service takes teamwork. Employees must
realize how their jobs affect the rest of the team.
5. Apply operational fundamentals-the organization has to be well-planned and managed.
6. Leverage the freedom factor-employees must have the freedom to shape the delivery of the
service to fit the needs of their guests.
7. Use appropriate technology-technology should be used to monitor the environment, help
operational systems, develop customer databases, and provide methods for communications
with customers.
8. Practice good human resources management-employees must be capable of delivering the
services promised to the customer.
9. Set standards, measure performance and establish incentives-the most important way to
improve service quality is to set service standards and goals and then teach them to
employees and management. Employees who deliver good service should be rewarded.
10. Feedback the results to employees-the results of measurement should be communicated to
all employees.
5.8 Managing Capacity
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Corporate management is responsible for matching capacity with demand on a long-term basis,
whereas unit managers are responsible for matching capacity with fluctuations in short-term
demand.
1. Involve the customer in the service delivery system-getting the customer involved in
service operations expands the number of people that one employee can serve, thus
expanding the capacity of the operation.
2. Cross-train employees-cross-training employees give the operation flexibility, allowing
the business to increase capacity by shifting employees, and can help prevent the
organization from reducing capacity when an employee falls sick.
3. Use part-time employees-managers can use part-time employees to expand capacity
during an unusually busy day or meal period or during the busy months of the year for
seasonally businesses.
4. Rent or share extra facilities and equipment-businesses don’t have to be constrained by
space or equipment limitations
5. Schedule down time during periods of low capacity- one way to decrease capacity is to
schedule repair and maintenance during the low season
6. Extend service hours- businesses can increase capacity by extending their hours of
operations.
7. Use technology-technology can be used t increase capacity of systems. E.g. automatic
call-up call in hotels, which can make hundreds of wake-up calls in an hour.
8. Use price-price can be used to adjust capacity in companies using mobile products such
as rental companies.
5.9 Managing Demand
1. Use price to create or reduce demand-price and demand are inversely related.
Getting immediately down to basics, it is easy to appreciate that the volume of products sold
× average price paid = sales revenue. It is also easy to see that the potential influence on
profit of relatively small changes in price may be massive. For example, if a hotel of 150
bedrooms operates at 70 per cent room occupancy, with an average price across its segments
and products of $250 per room night (average room rate achieved), annual room sales
revenue = $9 581 250 (150 rooms × 365 nights × 70 percent × $250). If, by more effective
use of marketing techniques within the same marketing budget, the hotel could increase its
room rate by an average of 5 per cent to $262.50 without loss of volume, the annual sales
revenue would increase to $10 060 313 (150 × 365 × 70 percent × $262.50. The difference is
$479 063 which, if fixed and variable costs were held constant, would certainly represent a
significant percentage of gross operating profit earned by this hotel.
Alternatively, if the price were reduced by 5 per cent to $237.50 per room night and the average
occupancy rose to 75 per cent, sales revenue now = $9 752 343 (150 × 365 × 75 × $237.50).
Thus, in this illustration, reducing the price increases occupancy and overall room sales revenue.
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Depending on the effect on variable costs of additional occupancy, greater gross profit may lie in
price reduction.
2. Use reservations
3. Overbooking
4. Create promotional events-during low season
Chapter Six
PRICING PRODUCTS
“The real issue is value, not price” Robert T. Lindgren
“Sell value, not price.” Kotler
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 prices that an organization charges for its
products must strike a balance between gaining acceptance with the target market and making
profit for the organizations. 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 into account, and prices that are not varied enough for different product
items and market segments.
Fig: Price Should Align with Value
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6.2 Factors Affecting Pricing Decision
Setting prices is one of the most important decisions that managers in any business have to make
since it is the main decision that influences the revenue side of the business. Internal and
External 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- market share is the percentage relationship of an
organization’s sales to total industry sales. 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- provide 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
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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.
In order for a business to survive over the long run, the average prices charged must be high
enough to generate sufficient revenue to cover all fixed and variable costs and provide an
acceptable return on the assets employed. Operating costs, expressed as average costs per unit of
production, are therefore a primary input to all pricing decisions and they provide at least a
nominal target floor for prices, below which they should not fall.
Many catering establishments, hotel restaurants and bars still fix prices in traditional ways by
adding a mark-up percentage to the basic cost of production per unit sold. The basic idea is to
cover return on investment and generate a profit. Unfortunately for most tourism businesses, the
so-called ‘cost plus’ methods are no longer useful in practice. This is partly because most
tourism markets are highly competitive and price-sensitive, so that operators are often forced for
tactical reasons to accept prevailing market prices regardless of costs and mark-up.
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
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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.
6.2.2. 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.
 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.
 Upselling: 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 upselling 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
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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.
The following factors affect price sensitivity:
a. Unique value effect- creating the perception that your offering is different from those of
your competitors avoids price competition.
b. Substitute awareness effect- lack of awareness of the existence of alternatives reduces price
sensitivity.
c. Business expenditure effect-when someone else pays the bill, the customer is less price
sensitive.
d. End benefit effect- consumers are more price sensitive when the price of the product
accounts for a large share of the total cost of the end benefit.
e. Total expenditure effect- the more someone spends on a product, the more sensitive s/he is
to the product’s price.
f. Shared cost effect- purchasers are less price sensitive when they are sharing the cost of the
purchase with someone else.
5. Competitors’ Prices and Offers: Competitors’ prices and their possible reaction to a
company’s own pricing moves are other external factors affecting pricing decisions. Consumers
will check the price and value of competitive companies and products. So, the company should
learn the price, quality and features of each competitor’s offer. Once a company is aware of its
competitors’ prices and offers, it can use this information as a starting point for deciding its own
pricing.
6. Legal and regulatory constraints: While most pricing is a decision based on commercial
calculations, some travel and tourism prices are also subject to government regulation. For
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various reasons of public health and safety, environmental protection, to ensure competition
between suppliers and achieve consumer protection, governments in all countries frequently
intervene in, or seek to influence pricing decisions. For example, even under the new
liberalization of transport regimes, fares for many international scheduled air routes are still
influenced by official agreements between governments and may be subject to investigation to
prevent predatory pricing. In some countries, in which accommodation is officially registered
and classified, price categories may be fixed annually and can be varied by individual businesses
only within given limits. Pricing or new tax regulations designed to protect the environment are
still infrequent at the start of the twenty-first century but are expected to grow.
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. We will discuss the following pricing approaches: cost based
approach (cost plus pricing, break even analysis pricing and target profit pricing), the value
based approach (perceived value pricing) and competition based approach (going rate).
1. Cost- Based Pricing
A. cost plus 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. For example, a bottle of wine that
costs Br 40 may sell for Br 80, a 100% mark up on cost. The gross profit is Br 40.
This is the simplest and most widely used internally-orientated approach to pricing. It involves
establishing the cost of producing a product or service and then adding on an amount to get the
selling price. The amount added, often called the mark-up, will vary according to how much of
the overall costs have been included. This can be expressed mathematically as follows:
P = C + ƒ(C), where P = price, C = costs and ƒ = the % mark-up required.

So, for example, if C = Br 3.40 and the mark-up required was 30%, the price would be Br 5.59,
as P = Br 3.40 + (30% x Br 3.40) = Br 5.59.
The size of the mark-up will depend on the amount of costs included. Where a full cost approach
to pricing is operated (all costs are included), the mark-up need only cover the required net
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profit, whereas with marginal or gross-margin pricing (where variable costs only are included),
the markup needs to be large enough to cover overheads as well as net profit. The approach
adopted will be dependent on the cost structure of the business and the quality of the
management information systems to track costs accurately.
Cost as a percentage of selling pricing is another commonly used pricing technique in the
restaurant industry. Some restaurant managers target a certain food cost and then price their
menu items accordingly. For example, a manager wanting a 40% food cost will price the items
two and a half times greater than their cost. The multiplicand is found by dividing the desired
food cost percentage into 100. A manager desiring a 30% food cost would multiply the cost by
3.33.
Does using standard markup to set prices make logical sense? Generally, no. Any pricing
method that ignores current demand and competition is not likely to lead to the best price. Some
restauranteurs use the same markup percentage despite the cost of them. For example, using a
100% mark up, a bottle of wine that costs $6 would sell for $12, and a bottle that costs $15
would sell for $30. The costs of serving each bottle are identical, except for the carrying costs. It
would be smart to reduce the markup on the higher-priced bottles if doing so would sell more
wine. Here, it would make more sense to price the wine based on demand and optimum
profitability instead of using a straight mark up. If there is a demand for 5 bottles per night at
$24, selling the wine at $24 that costs $15 will create more profit than 2 bottles at $30.
Still, markup pricing remains popular. First, sellers can determine costs much more easily than
they can estimate demand. By tying the price to cost, sellers simplify the pricing ask. Second,
where all firms in the industry use this pricing method, prices tend to be similar and price
competition is minimized. Third, many people feel that cost-plus pricing is fairer to both buyers
and sellers. Sellers do not take advantage of buyers when the latter's demand becomes acute, and
sellers earn a fair return on investment.
B. Break-even (CVP) 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). Where
capacity is fixed breakeven pricing is useful, because a company will calculate the price that
must be charged to break even, given a fixed sales-volume forecast. It is then clear that any
market-based price assessment must exceed this breakeven price to ensure profit is generated.
This analysis is based on the ability to isolate fixed and variable costs and enables managers to
evaluate pricing strategies and identify the breakeven point of a business or product or service
within the business.
Break-Even Chart for Determining Target-Return Price and Break-Even Volume
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Cost volume profit (CVP) analysis, sometimes called breakeven analysis, is a simple formulaic
approach, which enables managers to understand the impact of a variety of options and
decisions. For example, how many sales are required to cover costs and break even? Will it be
worthwhile increasing advertising and increasing the price? What will be the effect on profit if
prices are reduced to increase sales volume? These are questions that all tourism businesses
should consider.
The breakeven point is the point at which a business ‘breaks even’; it makes neither a profit nor a
loss and, in other words, this is the point at which total costs equal total revenue. This can be
demonstrated using the following example.
Ice-cream vendor
The fixed costs per week are $560 and variable costs per ice-cream are $1.20. If the selling price
for the ice-cream is $2.60, how many ice-creams need to be sold to cover our costs? To answer
this question it is important to understand the concept of contribution.
Contribution
In the example above, every time an ice-cream is sold the customer pays $2.60 and the vendor
incurs an expense of $1.20, so with the sale of each ice-cream the vendor earns $1.40. This is
called contribution because, for each ice-cream sold, a small contribution is generated to help
pay for the fixed costs of running the business. It is like an interim profit, but is called
contribution because initially it will help to cover the fixed costs; after sufficient ice-creams have
been sold and all fixed costs have been covered, it will generate profit. There is a simple formula
for contribution:
C = SP – VC where C represents contribution per unit; SP represents selling price and VC
represents variable costs per unit.
If every ice-cream sold makes a contribution of $1.40, the vendor will have to sell 400 ice-
creams to make enough contribution to cover the fixed costs and hence break even. This is
calculated by dividing the total fixed costs by the contribution per ice cream as follows: total
fixed costs per week $560, divided by contribution per ice-cream (unit) = $1.40.
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$560.00 ÷ 1.40 = 400 ice-creams (units) must be sold
The formula to calculate this is:
FC ÷ C = B/E where FC represents total fixed costs; C represents contribution per unit and B/E
represents breakeven point in units.
Knowing the breakeven point of a business helps the manager not only to evaluate profit
potential but also business risk. One of the risks a business faces is the chance that sales will
drop to a point where the business is no longer profitable. The margin of safety measures the gap
between the breakeven sales point and the normal operating (or budgeted) sales level to give an
indication of how risky a business is. If a business is operating at its maximum capacity and yet
is very close to the breakeven point, only a small change in volume or selling price could move
the business into a loss-making situation. So the margin of safety is a useful tool for evaluating
and comparing risk of different options.
Break even volume= Total fixed costs

Price-variable cost per unit
Break even analysis is also known as cost, volume, profit (CVP). The relationship between cost,
volume and profit can be presented in a formula, which is:
P = SP – (VC + FC) where P represents profit; SP = selling price per unit; VC represents variable
costs per unit and FC represents fixed cost per unit. Fixed cost per unit is what we have
mentioned above as contribution ($560/400= $1.40).
This formula can be used to answer a range of questions with the application of simple algebraic
rules; it can be manipulated to provide the answers to questions such as:
■ How many sales are required to cover costs and break even?
■ Will it be worthwhile increasing advertising and increasing the price?
■ What will be the effect on profit if the price is reduced to increase sales volume?
Through applying CVP principles, it is possible to make decisions about the best options in
business, but this technique is for short-term decisions only.
Case: Costs at a theme park
A company is considering operating a concession in a popular theme park. They have developed
two concepts, which have different menus, service formats and pricing structure. The forecasted
costs and revenues for both options are shown below:
Option one Option two

Investment costs Br 220,000 Br 340,000
Estimated monthly sales 16,000 36,000
Estimated average spend per unit Br 4.40 Br 3.05
Variable costs 30% 40%
Monthly fixed costs Br 27,000 Br 24,000
Questions:
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1. Calculate the breakeven point.
2. Make recommendations as to which option would be best, justifying your decisions.
C. Target profit (return on investment-ROI) pricing: Some firms use a variation of break-even
pricing, called target profit pricing which targets a certain return on investment.
Profit-orientated/Rate-of-return pricing takes account of the profit required by the business

overall and in particular identifies an appropriate amount of profit in relation to the capital
invested. This approach is applied in the Hubbard Formula, a long established approach to room
pricing in hotels. This approach recognizes the capital investment and the required return and
sets an average room rate to generate sufficient revenue.
Assume a hotel has employed Br 4,850,000 capital for rooms and assume the total cost for rooms
per year is Br 1,173,217. Assume also that the hotel targets 10% return on capital employed. The
hotel has 150 rooms and the average expected room occupancy is 65%. Calculate the average
daily room rate for the hotel. This is calculated as follows (by modifying Hubbard Formula):
Total amount to be realized from room sales to cover costs and the required return on capital
employed= 1,173,217 + 485,000= Br 1,658,217.
Calculation to establish average daily room rate:

 Amount to be realized from room sales (A)= Br 1,658,217
 Rooms available for sales= 150
 No. of rooms available annually (150× 365)= 54,750
 Average expected room occupancy (65%)
 No. of room-nights to be occupied (B) = (54,750 x65) ÷100= 35,588
 Average room rate (A ÷ B)= 1,658,217÷ 35,588= Br 46.60
The target return (profit) price is given by the following formula:
Target profit price= unit cost+ desired return x invested capital

Unit sales
Where, unit cost= total cost/total sales and unit sales is total units sold.
2. 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 cannot 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
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offers. Sometimes, researchers ask consumers how much they would pay for each benefit added
to the offer. One method of identifying how much customers are willing to pay involves using a
technique called trade-off analysis. Researchers ask buyers how much they would pay for a hotel
room with and without certain amenities. 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-based pricing strategies. They strive to offer just
the right combination of quality and good service at fair price. A successful guest price mix
depends on careful study of the behavior profiles of major guest segments. For most hospitality
companies, this begins with a separation of guests into leisure and business segments.
Undoubtedly, the most important distinguishing profile characteristic of these two major
segments is their relative degree of price elasticity. In general, business travelers exhibit inelastic
price behavior and leisure travelers an elastic price response.
3. 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.
This method offers the advantage of giving the organization the opportunity to increase sales or
market share, but it is a dangerous approach, as it does not focus on either costs or the
consumer. The arguments in its favor are that the industry will have developed prices that are
acceptable to the marketplace, and that there is little to be gained by offering different prices (so-
called ‘industry wisdom’). The counter-argument is that there may be the opportunity to offer
different prices (and therefore possibly to achieve better profits) that the majority of the industry
has ignored.
6.4 Pricing Strategies

6.4.1. New product pricing Strategies
Pricing strategies usually change as a product passes through its life cycle. Several options exist
for pricing new products: 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. For example, the
owner of the only hotel in a small town can set high prices if there is more demand than rooms. It
can be an effective short-term pricing policy. However, one danger is that competition will
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notice the high prices that consumers are willing to pay and enter the market, creating more
supply and eventually reducing prices. It is seldom possible for an extended period of time in the
hospitality industry due to the relative ease of entry by competitors.
A price - skimming strategy sets the price as high as possible. No attempt is made to appeal to
the entire market. The price is set to appeal only to the top of the market; consequently, this
approach is frequently called ‘skimming the cream’. The strategy is to sell the product to as
many consumers as possible at this price level; then, as either buyer resistance or direct
competition develops, the seller will lower prices step by step. This approach typically results in
higher profits and more rapid repayment of development and promotion costs. It also tends to
invite competition. Skimming is appropriate when the product or service has the following
characteristics: (1) price inelasticity, (2) no close substitutes, (3) high promotion elasticity, and
(4) distinct market segments based on price.
Market skimming takes advantage of the fact that most products are in high demand in the early
stage of the life cycle, when they are novel or unique or when supplies are limited. Demand can
be managed by setting very high prices initially to attract those prepared to meet them, and
gradually reducing the price to meet different market segments’ price elasticity.
If the product anticipates a very short life cycle – as in the case of major events such as the
World Cup football tournament – and organizing and marketing costs must be recovered quickly,
market skimming is a sensible policy to pursue.
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.
The opposite approach to price skimming is market penetration, in which the seller attempts to
establish the price of the product as low as possible to penetrate the market as completely as
possible. A low price makes the product available to as many income levels as possible, and the
sellers are likely to establish a large market share quickly. When penetration pricing is used, this
introductory price tends to become the permanent price of the product. It results in a slower
recovery of fixed costs and requires a greater volume to break even. The factors that would
recommend a penetration - pricing approach would be: (1) high price elasticity of customers, (2)
large savings from high - volume production (economies of scale), and (3) the low price must
keep out the competition.
6.4.2. Existing-product pricing Strategies
The above pricing strategies are used primarily when introducing a new product. However, they
can also be useful with existing products. The strategies below 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. Price bundling can promote the sales of products consumers
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might not otherwise buy, but the combined price must be low enough to convince them to buy
the bundle. One of the benefits of price bundling is that the price of the core product is hidden to
avoid price wars or the perception of having a low quality product. It can also help, as customers
have different maximum prices or reservation prices they will pay for a product, to transfer the
surplus reservation price on one component to another component of the package.
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 throughout 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 a 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. It discriminates in
favor of the price sensitive customer. For example, hotels who cater to the business travelers
suffer from low occupancy on weekends. Many of these hotels have developed lower price
weekend packages to entice the leisure traveler. Another example, in Ethiopia, is because there
are low tourists during the work days and high at the weekend, recreation sites such as Wondo
Genet and Langano discount prices during the work days.
Low variable costs combined with fluctuations in demand make price discrimination a useful
tool for smoothing demand and bringing additional revenue and profits to most businesses. This
form of pricing uses lower prices to attract additional customers without lowering the price for
everyone.
To price discriminate successfully, the following criteria must be met:
1. Different groups of customers 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 worthwhile.
5. The cost of running the price discrimination strategy should not exceed the incremental
revenues obtained.
6. The customers should not become confused the use of different prices.
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7. Competitors must not be able to undersell the firm in the higher-price segment.
8. The particular form of price discrimination must not be illegal.
Some forms of price discrimination (in which sellers offer different price terms to different
people within the same trade group) are illegal. However, price discrimination is legal if the
seller can prove that its costs are different when selling different volumes or different qualities of
the same product to different retailers. Predatory pricing-selling below cost with the intention of
destroying competition-is unlawful. Even if legal, some differentiated pricing may meet with a
hostile reaction. Coca-Cola considered using wireless technology to raise its vending machine
soda prices on hot days and lower them on cold days. Customers so disliked the idea that Coke
abandoned it.
D. Yield management: One application of the discriminatory pricing is yield management. A

yield management is system used to maximize a business’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.
The airline and hospitality industries use yield management systems and yield pricing, by which
they offer discounted but limited early purchases, higher-priced late purchases, and the lowest
rates on unsold inventory just before it expires. Airlines charge different fares to passengers on
the same flight, depending on the seating class; the time of day (morning or night coach); the day
of the week (workday or weekend); the season; the person's employer, past business, or status
(youth, military, senior citizen); and so on.
Yield management technique relies on the ability of organizations to accurately forecast likely
demand levels from across their range of customer groupings and to implement variable pricing
strategies that will maximize both the income from bookings as well as the actual number of
bookings. Yield management can therefore be defined as ‘a revenue maximization technique
which aims to increase net yield through the predicted allocation of available . . . capacity to
predetermined market segments at optimal price’.
3. Last-Minute Pricing: The ongoing fear of product spoilage from unsold inventory creates a
market for last minute inventory selling. 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.
Private companies known as consolidators or travel consolidators acquire excess inventory from
diverse members of the hospitality industry, create consumer packages, and sell them at
discounts to the public.
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?
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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. Rather than just discount prices, well managed hotels create special events: a
valentine’s weekend special including a room, dinner for two, tickets to play, breakfast for two,
etc.
Chapter Seven
DISTRIBUTION CHANNELS
7.1 Nature and importance of Distribution systems
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If we see properties as the heart of a company, distribution systems 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. Competition, a global
market place, electronic distribution techniques and perishable product have increased the
importance of distribution.
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?
 The company does not have to store and maintain several display rooms and a large sales
force in every major city.
 Sometimes it is impossible to reach all customers without 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
Producer Producer
Producer Producer
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Retailer Wholesaler Wholesaler
Retailer
Jobber
Retailer
Consumer Consumer Consumer

Consumer
Distribution channels 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. Because the producer and the final consumer perform some work, they are part of
every channel. We use the number of intermediary levels to show the length of a channel.
Channel 1, called a direct marketing channel, has no intermediary level. It consists of a

manufacturer selling directly to consumers. Channel 2 contains one level. In consumer markets,
this level is typically a retailer. Channel 3 contains two levels. In consumer markets, these are
usually a wholesaler and a retailer. Channel 4 contains 3 levels. The jobber buys from
wholesalers and sells to smaller firms that are not served by large wholesalers. From the
producer’s point of view, a greater number of intermediaries means less control and more
complexity.
NB: Jobber is someone who buys large quantities of goods and resells to merchants/retailers
rather than to the ultimate customers.
All the institutions in the channel are connected by several types of flows. These include the
physical flow of products, the flow of ownership, payment flow, information flow, and
promotion flow. These flows can make channels with one or a few channels very complex.
7.4 Distribution channels 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.
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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.
The first five functions help to complete transactions. The last three help to fulfill the completed
transactions.
All these functions have three things in common: they use scarce resources; they can often be
performed better through specialization; and they can be shifted among channel members. To
keep costs low, functions should be assigned to channel members who can perform them most
efficiently. For example, many airlines encourage passengers to use travel agents. The travel
agents answer the passengers’ questions, issue the ticket, collect the payment, and when
passengers’ plans change, they reissue the ticket. Travel agents are also conveniently located,
and many will deliver the ticket to their clients the same day it is booked. It would not be
economically feasible for an airline to set up a similar distribution system.
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 is 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, receiving a quantity discount.
The wholesaler arranges transportation between the hotel and the airport.
3. Specialists: Tour brokers, Motivational house and Junket Reps

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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 (gambling
center of the world) and Atlantic City (a city on the Atlantic shore in southeastern New Jersey).
They are paid a commission on the amount the casino earns from the players or in some cases on
a per player basis.
NB: casino was, originally, a public room used for social meetings, especially music and
dancing. But, nowadays it is usually a purpose-built structure for gambling, a major attraction for
tourists in centers such as Las Vegas and Monte Carlo (a popular town in Monaco, French).
4. Hotel representatives: Hotel representatives sell 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. This is true when a market is distant and when cultural differences make it hard
for an outsider to penetrate the market. Hotel representatives should represent noncompeting
hotels. They receive a straight commission, a commission plus a salary or a combination of both.
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 countries. State
agencies promote state resources and attractions overseas. Regional associations can also help
the independent and chain operators.
6. Consortia: consortium is a voluntary group of independent businesses or other organizations

joined together for a common purpose. This may range from joint ownership of an enterprise to
cooperative associations in a particular trade or industry involved in a joint approach to
marketing, purchasing and provision of operational and technical advice and services to
members. It can be in tour operation, travel agency or the hospitality industry. For example, Utell
is the largest representation company with regional centers throughout the world. It represents
more than 6,400 hotels, answers more than 22,000 reservation enquiries each day, and booked
9.6 million room nights in 2000.
Regions are also developing consortia to promote their area as a tourist attraction. Travel agents
have formed consortia to negotiate lower rates for hotel rooms, airlines and other tourism
products.
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7. Global distribution systems (GDSs): are computerized reservation systems that serve as a
product catalog for travel agents and other distributors of hospitality products. These reservation
systems were originally developed by the airlines to promote sales, but have grown to be the
major electronic distribution systems for the entire tourism industry. The major GDSs are
Amadeus/SystemOne, Galileo/Apollo, Sabre and Worldspan.
Amadeus: One of two main European computer reservation systems (CRS), established in 1987
by a consortium led by Air France, Iberia, Lufthansa and SAS (Scandinavian Airlines System),
and including several smaller airlines, with US System One supplying the software. Now owned
in equal shares by Air France Group, Iberia, Lufthansa and Sabena.
Amadeus is the market leader in Western Europe and Latin America. There are over 155,000
travel agency terminals connected to Amadeus.
Galileo: One of two main European computer reservation systems (CRS) established in 1987 by
a consortium led by Alitalia, British Airways, KLM and Swissair and including also Aer Lingus,
Austrian Airlines, Olympic Airways, SABENA and TAP, with US Covia Corporation supplying
initial software and United Airlines being a partner in the system. In 1992 Galileo and Apollo
merged to form Galileo International as a global distribution system.
Galileo connects travel agents to 500 airlines, 40 car rental companies, 47,000 hotels, 370 tour
operators and all the major cruise lines.
Worldspan: US computer reservation system (CRS) formed as a joint venture between DATAS
II and PARS systems, which it replaced in 1990. Delta Airlines, Northwest Airlines and Trans
World Airlines (TWA) are principal shareholders, with a small stake by Abacus.
8. Internet: the internet is quickly becoming an effective distribution channel. Tour operating
companies, airlines and hotels open websites as it helps to distribute products through customer
reservation. Today, over a billion dollars in travel products are booked on the Web and major
chain hotels such as Hilton and Marriot book millions of dollars worth of rooms over the Web.
Total hotel sales over the internet are now over $5 billion. Marriot’s internet reservation system
takes in over 10,000 reservations in one day. Southwest Airlines receives over a billion dollars in
tickets sales over its site.
Some of the advantages of the internet are that it never closes, it is open 24 hours a day, seven
days a week, has worldwide coverage, and can transmit color pictures. The capability of
transmitting color photographs to millions of people across the globe makes the internet an
exciting distribution channel. It allows companies to make their products tangible through the
use of color photographs and videos.
Visitors to an internet site have the ability to print hardcopies of information provided on the
site’s page.
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Another major advantage of the internet is it saves labor. The internet is an excellent example of
how service companies can get the customer to be their employee. When making reservations or
purchasing products online, the customer is acting as a reservation agent. It would take a
reservation center with over 100 full time employees, a building to house them, and equipment to
serve them to take in an equivalent number of reservations that Marriot takes in on internet site.
9. Concierges: concierges, bell boy and front desk employees can be good sources of business
for local hospitality products and travel, such as restaurants, tours, souvenirs, etc.
Channel Behavior
A distribution system consists of dissimilar firms that have banded together for their common
good. Each channel member is dependent on the others, playing a role in the channel and
specializing in performing one or more functions. Ideally, because the success of individual
channel members depends on general channel success, all channel firms should work together.
They should understand and accept their roles, coordinate their goals and activities, and
cooperate to attain overall channel goals. However, each channel member frequently disagree on
the roles each should play or who should do what and for which rewards. Such disagreements
over goals and roles generate channel conflict.
We can identify two types of channel conflict: horizontal and vertical conflicts. Horizontal
channel conflict is conflict between firms at the same level of the channel. Vertical conflict,
which is more common, refers to conflicts between different levels of the same channel.
Channel Management Decisions
A. Selecting channel members: when selecting channel members, the company’s management
will want to evaluate each potential channel member’s growth and profit record, profitability,
cooperativeness and reputation.
B. Motivating channel members: a company must motivate its channel members continuously.
C. Evaluating channel members: a company must regularly evaluate the performance of its
intermediaries and counsel underperforming intermediaries. They may need more training and
motivation.
D. Responsibilities of channel members and suppliers: the company and its intermediaries must
agree on the terms and responsibilities of each channel member. According to the services and
clientele at hand, the responsibilities are formulated after careful consideration. For example,
hotels make it clear for travel agents which rates are commissionable and the amount of
commission to be paid, and they often guarantee to pay the commission with certain number of
days. The agents may, in return, cooperate with new promotional programs, provide requested
information, etc.
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Chapter Eight
Promoting Products
 “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?” McGraw-Hill publication.
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 People can’t believe you if they don’t know what you are saying, and they can’t know
what you are saying if they don’t listen to you, and they won’t listen to you if you’re not
interesting. (Bill Bernbach of Doyle Dane Bernbach)
Introduction
Modern marketing calls for more than developing a good product, pricing it attractively, and
make it available to target customers. Companies must also communicate continuously with their
present and potential customers. What is communicated must not be left for chance. To
communicate effectively companies often hire advertising agencies to develop effective ads,
sales promotion specialists to design sales-incentives programs, and public relations firms to
develop corporate images. Sales people are trained to be friendly, helpful, and persuasive. For
any company, the question is not whether to communicate, but how much to spend and in what
ways.
8.2 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. Companies must ask not only “how can we reach our customer?” but also “how can our
customers reach us?”
Because of technological breakthroughs, people can now communicate through traditional media
(newspapers, radio, telephone, television) and through newer media forms (computers, fax
machines, cellular phones and pagers). By reducing 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 process. The marketing
communicator must (1) Identify the target audience; (2) Determine the communication
objectives; (3) Design the message; (4) Select the communication channels; (5) Select the
message source; and (6) Measure the communication’s results.
1. Identifying the target audience

A marketing communicator starts with a clear target audience in mind. The audience may be
potential buyers or current users, those who make the buying decision or those who influence it.
The target audience will heavily affect the communicator’s decision on what will be said, how it
will be said, when it will be said, where it will be said, and who will say it. To create effective
communication, a marketer must understand the target audience by creating a message that will
be meaningful to them in a media they will understand. For example, a study of bed and
breakfast owners found that other than word of mouth, they felt the two most important
communication channels were brochures and guide books. When guests of bed and breakfasts
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were asked the channels they used most often, the two highest-other than word of mouth-were
magazines and news papers (one category) and signs.
2. Determining the communication objective

Once a target audience has been defined, the marketing communicator must decide what
response is sought. Of course, in most cases, the final response is purchase. But purchase is the
result of a long process of consumer decision making. The marketing communicator needs to
know where the target audience stands in relation to the product and to what state it needs to be
moved. The target audience may be in any of six buyer readiness states: awareness, knowledge,
liking, preference, conviction or purchase.
Awarenes Knowledge Liking Preferenc Convictio Purchase

s e n
Fig 8.1 Buyer readiness states
Awareness: first, the communicator must be able to gauge the target audiences’ awareness of the
product or organization. The audience may be totally unaware of it, know only its name, or know
one or a few things about it. Awareness communication is a never-ending responsibility. A
product must have a top-of-mind awareness.
Knowledge: the target audience might be aware of the company or product but know little else.
So, the customers should have knowledge about the location of the company and its products.
Liking: if target audience members know about the product, how do they feel about it? We can
develop a range of degrees of liking such as Likert scale covering dislike very much, dislike
somewhat, indifferent, like somewhat and like very much. If the market is unfavorable toward
the product, the communicator must learn why and then develop a communication campaign to
create favorable feelings.
Preference: a target audience might like a product but not prefer it to others. In this case, the
communicator must build consumer preference. The communicator must promote the product’s
quality, value, performance and other features. The communicator can check on the campaign’s
success by measuring audience preferences after the campaign. It is important and develop
unique selling proposition.
Conviction: a target audience might prefer the product but not develop a conviction about buying
the product. Marketers have a responsibility to turn favorable attitudes in to conviction, because
conviction is closely linked with purchase.
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Purchase: finally, some members of the target audience might have conviction but not quite get
around to making the purchase. They may wait for more information or plan to act later. The
communicator must lead these consumers to take the final step. Actions might include offering a
product at low price, offering a premium, or letting consumers try it on a limited basis.
3. Designing the message

Having designed the desired audience response, the communicator turns into developing an
effective message. Ideally, the message should get attention, hold interest, arouse desire and
obtain action (a framework known as the AIDA model).
In putting the message together, the marketing communicator must solve three problems: what to
say (message content), how to say it logically (message structure), and how to say it
symbolically (message format).
A. Message content: the communicator has to figure out an appeal or theme that will produce
the desired response. There are three types of appeals: rational, emotional and moral.
Rational appeals refer to audience self-interest. They show that the product will produce
desired benefits. Occasionally, rational appeals are overlooked. This is the traditional problem
of missing the forest because of the trees.
Emotional appeals attempt to provoke emotions that motivate purchase. These include fear,
guilt and shame appeals that entice people to do things that they should (brush their teeth, buy
new tires) or stop doing things they shouldn’t (smoke, drink too much, over eat).
Emotional appeals are widely used by resorts and hotels to stimulate cross purchases. For
example, commercials on in-room televisions, posters, etc promote the health center and the need
to reduce stress and work off “pounds gained from eating in the hotel”.
Moral appeals are directed towards the audiences’ sense of what is right and proper. They are
often used to urge people to support such social causes as a cleaner environment, better race
relations, equal rights and aid to the needy.
B. Message structure: the communicator must also decide how to handle three message
structures. The first is whether to draw a conclusion or leave it to the audience. The second
message structure issue is whether to present a one- or two-sided argument. The third
message structure issue is whether to present the strongest arguments first or last.
Presenting them first creates strong attention but may lead to an anticlimactic ending.
C. Message format: the communicator also needs a strong message format. Ina print ad, the
communicator has to decide on the headline, copy, illustration and color. To attract
attention, advertisers can use novelty and contrast, eye-catching pictures and headlines,
distinctive formats, message size, position, color, shape, and movement. If the message is
to be carried over radio, the communicator has to choose words, sounds and voices. If the
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message is to be carried on television or in person, these elements plus body language
must be planned.
4. Selecting the communication channels

The communicator must now select channels of communication. There are two broad types of
communication channels: personal and non-personal.
Personal communication channels
In personal communication channels, two or more people communicate directly with each other.
They might communicate face to face, person to audience, over the telephone, or even through
the mail. Personal communication channels are effective because they allow personal addressing
and feedback. Word of mouth communication is part of this channel.
Non personal communication channels
These are media that carry messages without personal contact or feedback. They include media,
atmospheres and events. Major media consists of print media (newspapers, magazines, direct
mail), broadcast media (radio and television), and display media (billboards, signs and posters).
Atmospheres are designed environments that create or reinforce the buyer’s learnings toward
purchasing a product. The lobby of a five star hotel contains a floral display, original works of
art, and luxurious furnishings to reinforce the buyer’s perceptions that the hotel is five star hotel.
Events are occurrences staged to communicate messages to target audiences. Public relations
department arranges press conferences, grand openings, public tours, and other events to
communicate with specific audiences.
5. Message source
The message’s impact on the audience is also affected by how the audience views the sender.
Messages delivered by highly credible sources are persuasive. What factors make a source
credible? The three factors most often found are expertise, trustworthiness and likability.
Expertise is the degree to which the communicator appears to have the authority needed to back
the claim. Doctors, scientists and professors rank high in expertise in their fields.
Trustworthiness is related to how objective and honest the source appears to be. Friends, for
example, are trusted more than salespeople. Likeability is how attractive the source is to the
audience. People like sources who are open, humorous and natural. Not surprisingly, the most
highly credible source is a person who scores high on all three factors: expertise, trustworthiness
and likability.
Messages delivered by attractive sources achieve higher attention and recall. Advertisers often
use celebrities as salespeople. Celebrities are likely to be effective when they personify a key
product attribute. But what is equally important is that the spokesperson has credibility.
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However, the use of living personalities to serve as spokespeople for a company or product
carries inherent problems:
 Celebrities are often difficult to work with and may refuse to participate in important
media events or to pose under certain conditions.
 Living personalities are sometimes publicly embarrassed.
Animals and cartoon characteristics are dependable and unlikely to create negative publicity.
6. Measuring the communications’ results

After sending the message, the communicator must evaluate its effect on the target audience.
This involves asking the target audience whether they remember the message, how many times
they saw it, what points they recall, how they feel about the message and their past and present
attitudes toward the product and the company.
8.2 Elements of the Tourism Promotional Mix
A company’s total marketing communications program, called its promotional mix, 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 next:
1. Sales promotion refers to short-term incentives to encourage the purchase or sales of a

product or services. It is an extension of the advertising effort. Ads are limited by space in
the amount of information they can convey, so they must be supplemented by more detailed
sources of information. Sales support materials such as brochures, booklets, slide, films,
guides and maps provide this additional information. While advertising creates the initial
demand for a product/service, sales support can help turn this demand into bookings. Sales
promotional activities are on-time event used to stimulate consumer interest. They may be
targeted at prospective clients (to encourage them to buy the product promoted) or at travel
agents and tour operators (to motivate them to sell the product). Sales promotion includes a
variety of promotional tools designed to stimulate earlier or stronger market response. It
includes samples, coupons, rebates, price-off, premiums, contests, patronage rewards
bonuses and contests). Often a well-planned sales promotion can result in effective
promotion.
2. Public relations: building good relations with the company’s various publics by obtaining
favorable publicity, developing a good corporate image, and handling or heading off
unfavorable rumors, stories, and events.
Major Tools in Marketing Public Relations (PR)
♦ Publications – Companies can reach and influence their target market via annual reports,
cards, articles, audio-visual materials and company newsletters and magazines.
♦ Events – Companies can draw attention to new products or other company activities by
arranging special events.
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♦ News – PR professionals cultivate the press to increase better coverage to the company.
♦ 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.
♦ Public service activities – Companies can improve public goodwill by contributing
money and time to good causes, such as supporting community affairs.
♦ 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.
3. Personal selling describes oral presentation in a conversation with one more prospective
buyers for the purpose of making sales.
 More specific communication aimed on more persons
 Effective at building buyer preferences, convictions/actions
 Cost per person is high
 Greater impact on consumers
 Provide immediate feedback
 Allows marketers to adjust message quickly
 Buyers feel a great need to listen/respond
 Long term commitment needed to develop a sales force
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.
4. Advertising: Advertising is any paid form of non-personal presentation and promotion of
ideas, goods or services by an identified sponsor. The hospitality and travel industry spend
billions of dollars on advertising. Advertising is a good way to inform and persuade, whether
the purpose is to sell the product.
It is important to set advertising objectives in designing advertising program. 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.
 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
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management often runs full-page advertisements informing the market about the new
service.
 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.
 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.
8.3 Managing and Coordinating Integrated Marketing Communications
The company must divide the total promotional budget among the major promotional tools:
advertising, public relations, sales promotion and personal selling. It must carefully blend the
promotion tools into a coordinated promotion mix that will achieve marketing objectives.
Companies within the same industry differ greatly in how they design their promotion mixes.
Thus, a company can achieve a given sales level with varied mixes of advertising, personal
selling, sales promotion and public relations.
Companies are always looking for ways to improve promotion by replacing one promotion tool
with another that will do the same job at less expense. For example, some companies increase
their sales promotion spending in relation to advertising to gain quicker sales. Designing the
promotion mix is even more complex when one tool must be used to promote another. For
example, when McDonald’s decides to run a million-dollar sweepstakes in its fast food outlets (a
sales promotion), it has to run ads to inform the public. Many factors influence the marketer’s
choice of promotional tools.
Nature of each Promotional Tool
Each promotional tool has unique characteristics and costs. As a result, marketers must
understand these characteristics to select their tools effectively.
Advertising
Because of the many forms and uses of advertising, generalizing about its unique qualities as part
of the promotion mix is difficult. Yet several qualities can be noted. Advertising’s public nature
suggests that the advertised product is standard and legitimate. Because many people see ads for
the product, buyers know purchasing the product will be publically accepted and understood.
Advertising also allows the seller to repeat a message many times.
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Advertising can be used to build long term image for a product and also stimulate quick sales. It
can reach masses of geographically dispersed buyers at a low cost per buyer.
Advertising also has shortcomings. Although it reaches many people quickly, advertising is
impersonal and can’t be as persuasive as company salesperson. Advertising is able to carry on
only a one-way communication with audience, and the audience does not feel that it has to pay
attention or respond. In addition, advertising can be very costly.
Personal selling
Personal selling is the most effective tool at certain stages of the buying process, particularly in
building buyer preference, conviction and purchase. Compared with advertising, personal selling
has several unique qualities. It involves personal interaction between two or more people,
allowing each to observe the other’s needs and characteristics and make quick adjustments.
Personal selling also lets all kinds of relationships spring up, ranging from a matter-of-fact
selling relationship to a deep personal friendship. The effective salesperson keeps the
customer’s interest at heart to build a long term relationship. Finally, with personal selling, the
buyer usually feels a greater need to listen and respond, even if the response is a polite “no thank
you”.
These unique qualities come at a cost. A sales force requires a long term company commitment
than advertising; advertising can be turned on and off, but sales force size is harder to vary.
Personal selling is a company’s most expensive promotion tool.
Sales promotion
It includes an assortment of tools, coupons, contests, cents-off deals, premiums, and others, and
these tools have many unique qualities. They attract customer attention and provide information
that may lead the consumer to buy the product. Sales promotions provide strong incentives to
purchase by providing inducements or contributions that give additional value to consumers, and
they invite and reward quick response. Advertising says “buy our product”; sales promotion says
“buy it now”.
Companies use sales promotion tools to create a stronger and quicker response. Sales promotion
can be used to dramatize product offers and to boost sagging sales. Its effects are usually short-
lived, however, and are not effective in building long-run brand preference.
Public relations
Public relation offers several advantages. One is believability. News stories and events seem
more real and believable to readers than do ads. Public relations can reach many prospects who
avoid salespeople and advertisements. The message gets to the buyer as news rather than as a
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sales-directed communication. Like advertising, public relations can dramatize a company or
product.
A relatively new addition to the promotion mix is the infomercial. This is a hybrid between
advertising and public relations. Companies provide interesting stories on videotape for use on
television during periods of light viewing, such as early morning.
Tourism and hospitality marketers tend to underuse public relations or use it only as an
afterthought. Yet, a well-thought-out public relations campaign used with other promotional mix
elements can be very effective and economical.
Factors in setting the promotion mix
Companies consider many factors when developing their promotion mix, including the
following: types of product and market, push versus pull strategy, buyer readiness state and
product lifecycle stage.
Types of product and market: The importance of different promotional tools varies among
consumers and commercial markets. When companies market to consumer markets, they spend
more on advertising and sales promotion and often very little on personal selling. When they
target commercial organizations, they spend more on personal selling. In general, personal
selling is used more heavily with expensive and risky goods and in markets with fewer and larger
sellers.
Push versus pull strategy: the promotional mix is heavily affected by whether a company
chooses a pull or push strategy. A push strategy involves ‘pushing’ the product through
distribution channels to final consumers. The company directs its marketing activities (primarily
personal selling and sales promotion) at channel members to induce them to order and carry the
product and to promote it to final consumers. For example, Sabean hotel may develop a
promotion that will give travel agents an extra Br 50 in addition to their normal commission for
bookings. A push strategy provides an incentive for channel members to promote the product to
their customers or push the product through the distribution channels.
Using a pull strategy, a company directs its marketing activities (primarily advertising and sales
promotion) toward final consumers to induce them to buy the product. For example, Ethiopian
Airlines promotes various flights to foreign countries for passengers and tells interested
passengers to contact their travel agents for reservations. If the strategy is effective, consumers
will purchase the product from the channel members, who will, in turn, order it from producers.
Producer Producer marketing activities reseller marketing activities

A. (Trade promotion, Wholesalers & (personal selling, ad, Consumers
Retailers
Personal selling, other) sales promotion, other)
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Producer
Wholesalers & Consumers
B. Demand Retailers Demand
Producer marketing activities

(Consumer advertising, sales promotion, other)
The figure above contrasts push and pull promotion strategies. ‘A’ is push strategy and ‘B’ is
pull strategy.
Buyer readiness state: promotional tools vary in their effects at different stages of buyer
readiness. Advertising, along with public relations, plays a major role in the awareness and
knowledge stages. Customer liking, preference and conviction are more affected by personal
selling, which is closely followed by advertising. Finally, closing the sale is accomplished
primarily by sales calls and sales promotion. Only personal selling, given its high costs, should
focus on the later stages of the customer buying process.
Product life cycle stage: the effects of different promotion tools also vary with stages of the
product life cycle. In the introduction stage, advertising and public relations are good for
producing high awareness, and sales promotion is useful in product early trial. Personal selling
must be used to get the trade to carry the product in the growth stage; advertising and public
relations continue to be powerful, while sales promotion can be reduced because few incentives
are needed. In the mature stage, sales promotion again becomes important relative to advertising.
Buyers know the brands and advertising is needed only to remind of the product. In the decline
stage, advertising is kept at a reminder level, public relations is dropped, and salespeople give the
product only little attention. Sales promotion, however, may continue to be strong.
CHAPTER NINE
Destination Marketing
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“Virginia Is for Lovers” is a destination branding tagline that has proven to be very successful,
demonstrating the value of sticking with a successful theme over the long term. Photo: courtesy
of Washington, D.C., and the Capital Region, USA.
Introduction
Destination as an amalgam of tourism services and experiences

Destinations are amalgams of tourism products, offering an integrated experience to consumers.
Traditionally, destinations are regarded as well-defined geographical areas, such as a country, an
island or a town. However, it is increasingly recognized that a destination can also be a
perceptual concept, which can be interpreted subjectively by consumers, depending on their
travel itinerary, cultural background, purpose of visit, educational level and past experience. For
example, Addis Ababa can be a destination for a German business traveler, whilst Europe may
be the destination for a leisure Japanese tourist who packs six European countries in a two week
tour. Some travelers will consider a cruise ship to be their destination, while others on the same
cruise may perceive the ports visited during the trip as their destination.
Destinations offer an amalgam of tourism products and services, which are consumed under the
brand name of the destination. Leiper (1995, p.87) explains that destinations are places towards
which people travel and where they choose to stay for a while in order to experience certain
features or characteristics-a perceived attraction of some sort. Cooper et al (1998) define
destinations as the focus of facilities and services designed to meet the needs of the tourists.
Most destinations comprise a core of the following components, which can be characterized as
the six ‘A’s framework. Therefore, a destination can be regarded as a combination (or even as a
brand) of all products, services and ultimately experiences provided locally.
Six ‘A’s Framework for the analysis of tourism destinations

 Attractions (natural, man-made, artificial, purpose built, heritage, special events)
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 Accessibility (entire transportation system comprising of routes, terminals and vehicles)
 Amenities (accommodation and catering facilities, retailing, other tourist services)
 Available packages (pre-arranged packages by intermediaries and principals)
 Activities (all activities available at the destination and what consumers will do during
their visit)
 Ancillary services (services used by tourists such as banks, telecommunications, post,
newsagents, hospitals, etc).
9.1 The Globalization of the Tourism Industry
The world has become a global economy opening places unimaginable earlier: the wonders of
Antarctica, the secrets of the Himalayas, the rain forests of the Amazon, the beauty of Tahiti, the
Great Wall of China, the dramatic Vitoria Falls, the Origin of the Nile, and the Wilds of Scottish
Islands. Travel has become a global business whose expanding business now leaves no place
untouched. According to UNWTO, more than 625 million tourists travelled internationally in
1998, spending over 444 billion (excluding transportation). Tourism accounts for 8% of total
world exports, more than 31% of international trade in services. It employs more people than any
single industry sector.
Boosted by improved confidence and economic conditions worldwide, international tourism has
recovered faster than expected from the impacts of the global financial crisis and economic
recession of the late 2008 and 2009. Worldwide, the number of international tourist arrivals is
estimated to have reached 935 million, up 58 million (+6.7%) compared with 2009 (877 million)
and 22 million (+2.4%) more than during the pre-crisis peak year 2008 (913 million). In 2009,
international tourism receipts are estimated to have reached US$ 919 billion worldwide (693
billion Euros), up from US$ 851 billion (610 billion Euros) in 2009.
Travel now affects any continent, country and city. The economy is influenced either by people
travelling elsewhere or travel service exports. Visitor destinations must decide how much travel
service business they want to capture, because tourism is today’s fastest growing business. Yet,
as an industry, tourism is subject to cycles, fashions and intense competition. The challenge for
countries developing tourism is to maintain the culture and natural beauty of the country, while
providing the infrastructure for tourism.
9.2 Importance of Tourism to a Destination’s Economy
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The tourism destination: tourists travel to destinations. Destinations are places with some form of
actual or perceived boundary-such as physical boundary of an island or political boundary-; or
even market created boundaries.
Benefits of Tourism
 Tourism’s most visible benefit is direct employment in hotels, restaurants and

transportations, etc.
 Support industries and professions-such as university tourism professionals
 Multiplier effects-as tourist expenditures are recycled through the local economy.
 State and local revenues derived from taxes on tourism
 It stimulates exports of place-made products-such as souvenirs, clothing, etc.
Some people and businesses benefit from tourism; others may not. Even though a destination’s
economy may be better off from tourism, residents sometimes feel that losses in quality of life,
convenience, and cultural and social values are not worth the economic benefits.
Management of the Tourist Destination
Destinations are some of the most difficult entities to manage and market, due to the complexity
of the relationships of local stakeholders. Managing and marketing destinations is also
challenging because of the variety of stakeholders involved in the development and production
of tourism products. The destination experience is essentially comprised of regions, resources
and amalgams of tourism facilities and services, which often do not belong to individuals.
Instead they represent a collection of both professional and personal interests of all the people
who live and work in the area. Managing often conflicting stakeholders’ interests makes
controlling and marketing destinations as a whole extremely challenging. Hence, strategies and
actions should take into account the wishes of all stakeholders, namely indigenous people,
businesses and investors, tourists, tour operators and intermediaries, and interest groups. Perhaps
the most difficult problem is ensuring the rational use of zero-priced public goods, such as
landscapes, mountains, and the sea for the benefit of all stakeholders and at the same time
preserving the resources for future generations. Conflicts can easily develop, especially when
some (perhaps greedy) stakeholders exploit resources for short-term benefits. A compromise
encompassing all these interests is extremely difficult if not impossible, but is the key to long
term success.
Destinations that fail to maintain the necessary infrastructure or build inappropriate infrastructure
run significant risks. A destination’s attractiveness can be diminished by violence, political
instability, natural catastrophe, adverse climatic and environmental factors and overcrowding.
Destination marketing is an integral part of developing and retaining a particular location’s
popularity. Too often, however, tourism planners focus only on destination development without
paying attention to retaining and maintaining the attributes that attracted the travelers to the
destination in the first place.
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In some cases sustaining tourism in the mature stage may mean limiting the amount of tourists to
a number that the infrastructure can handle. Tourist development must balance the temptation to
maximize tourist dollars with preservation of the natural tourist attractions and the quality of life
for local residents.
9.3 Tourism Strategies and Investment
Tourism competition is strong, because:
 New and upgraded destinations are constantly appearing

 Destinations are rediscovering their past, capitalizing on the birth place of a famous
person, an event, a battle, or other ‘hidden gems’-looking for a tourism hook
 Stay close to home-local tourism and convention bureaus are trying to get the locals to
visit their own region.
Places rely on various monikers for identification: Sheboygan, Wisconsin, as the city of Cheese,
Choirs, Children and Churches; Crystal City, Texas, as the Spinach capital of the world;
Lexington, Kentucky, as the Athens of the West; Lalibela, Ethiopia, as Africa’s Petra; Gondar,
Ethiopia, as Africa’s Camelot.
Investment in Tourist Attractions
To attract tourists, destinations must respond to the travel basics of cost, convenience and
timeliness. Like other consumers, tourists weigh costs against the benefits of specific
destinations, and investment of time, effort, and resources against a return in education,
experience, fun, relaxation and memories. Convenience takes on various meanings in travel
decisions; language barriers, cleanliness and sanitary conditions, access to interests (sites), and
special needs/elderly, child, dietary, disabled. Timeliness embraces factors that introduce risk to
travel such as civil disturbance, political instability, currency fluctuations, safety, etc.
Places are increasingly developing events as vital component in attracting tourists. Small or rural
places typically initiate an event such as a festival to establish their identity.
Urban renewal is being designed with the tourist in mind. A combination of public and private
investment is being used to develop major tourist developments. Destinations must make more
than financial or hospitality investments to attract tourists. Places find that they must expand
public services specifically public safety, traffic and crowd control, emergency health, sanitation
and street training. They must also promote tourism internally to their own citizens and business
retailers, travel agents, restaurants, financial institutions, lodging, police and public servants.
They must invest in recruiting, training, licensing and monitoring tourist-related business and
employs.
9.4 Segmenting and Monitoring the Tourist Market

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The decision to spend one’s disposable income on travel versus new furniture, a car, and other
purchase alternatives involves important psychological determinants. Some of the major
psychological determinants of demand for tourism include prestige, escape, education, social
interaction, family bonding, relaxation and self-discovery. These determinants can be used as
segmentation variables. Demographic and lifestyles are also important segmentation variables.
Tourism planners must consider how many tourists are desired, which segments to attract, and
how to balance tourism with other industries. Choices will be constrained by destination’s
climate, natural topography, resources, history, culture, and facilities. Like other enterprises,
tourist marketers must know the actual and potential customers and their needs and wants,
determine which market segments to serve, and decide on appropriate products and services.
Not every tourist is interested in a particular destination. A destination would waste its money
trying to attract everyone who travels. Instead of a shotgun approach, destinations must take a
riffle approach and sharply define its target markets.
A. Identifying Target Markets
Marketing research is used extensively by destination marketers to identify the types of

customers that can be attracted (active demand), as well as the prospective visitors (suppressed
demand) who do not visit for a variety of reasons. Approaching the right target market and
providing the most appropriate combination of local tourism products and services is the secret
for successful destinations. Product design and formulation should therefore be based on
research.
A destination can identify its natural target markets in two ways:
1. Collecting information about current visitors:
 Where do they come from?

 Why do they come?
 What are their demographic characteristics?
 How satisfied are they?
 How many are repeat visitors?
 How much do they spend?
By examining these and other questions, planners should determine which visitors should be
targeted.
2. The second approach is to audit the destination’s attractions and select segments that might
logically have an interest in them. We can’t assume that current visitors reflect all the
potentially interested groups. For example, if Ethiopia promoted only safaris, it would miss
groups interested in native culture, flora or bird species.
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Tourist segments are attracted by different features. The local tourist board or council could
benefit by asking questions keyed to segmentation variables. These variables, including
attractions sought, market areas or locations, customer characters and/or benefits sought, can
help to define the best segments to target.
After a place identifies its target markets, tourism planners must conduct research to determine
where these tourists are found. Which countries have a largest number of citizens who have the
means and motivation to enjoy the particular place? This analysis can uncover many or a few
natural target markets. If many are identified, the relative potential profit from each should be
evaluated. The potential profit of a target tourist segment is the difference between the amount
that the tourist segment is likely to spend and the cost of attracting and serving this segment. The
promotional cost depends on the budget. The serving cost depends on the infrastructure costs
required. Ultimately, potential tourist segments should be ranked and selected in order of their
profitability.
If the analysis identifies too low natural tourist segments, investments may be needed in
infrastructure and visitor attractions. Visitor industry investments consist of infrastructure
improvements/hotels, transportation, etc/ and attractions that can potentially attract new types of
tourists. The pay off from the investments may come only some years later, but this lag is often
necessary if the destination is to become an active participant in an increasingly competitive
market place.
Classification of visitor segments
Several classifications have been used to describe different visitor destination segments. The
most commonly used classifications are based on whether the tourist travels with a group or
independently. The common terms are group inclusive tours (GIT) and independent traveler (IT).
Here are some classifications describing tourists by their degree of institutionalization and their
impact on the destination.
 Organized mass tourists: this corresponds to the GIT. These people have little or no
influence over their travel experience other than to purchase one package or another.
They commonly travel in group; view the destination through the windows of a tour bus,
and remain in preselected hotels. Shopping in the local market provides their only contact
with the native population.
 Individual mass tourists: these people are similar to the previous category but have
somewhat more control over their itinerary. For example, they may rent a car to visit the
attractions.
 Explorers: these groups fall in the IT classification. They plan their own itinerary and
make their own reservations, although they may use a travel agent. They tend to be very
sociable people, who like interacting with people at the destination.
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 Drifters: these people, the back packer group, will seldom, if ever, are found in a
traditional hotel. They may stay at youth hostels with friends or camp out. They tend to
mix with lower socio-economic native groups and are commonly found riding third-class
rail or bus. Most tend to be young.
Another well-known tourist classification system is Plog’s categorization. These designations are
similar to the groups mentioned previously, but range from psychocentric to allocentric. Plog
observed that destinations are first discovered by allocentric/backpackers or explorers. As the
natives discover the economic benefits of tourism, services and infrastructures are developed.
When this occurs, allocentrics are turned off and find another unspoiled destination. The nature
of visitor now changes, with each new group somewhat less adventurous than the preceding
groups, perhaps older, and certainly more demanding of creature comforts and services. Finally,
a destination becomes so familiar that the least adventurous groups of psychocentrics find it
acceptable.
Monitoring the Tourist Markets
Tourist markets are dynamic, and a marketing information system is part of any well-known
tourist organization. Destinations need to closely monitor the relative popularity of their various
attractions by determining the number and type of tourists attracted to each. Information should
be collected on the changes in the wants of existing markets, emerging markets, and potential
target markets. One job of a tourist organization is to increase the accessibility of a destination.
Tourist organizations need information to stay competitive. Tourist products must change to
meet the needs of the changing market. Emerging markets must be identified and served. New
markets that can be served by the existing tourist product must be identified. Tourist
organizations trying to accomplish these tasks without good information are at a disadvantage.
9.5. Communicating with the Tourist Market
Competition for visitors involves image making. For both leisure and business markets, perhaps
the most important criterion for selecting to visit or not to visit a destination is its image. Image
is the set of expectations and perceptions a prospective traveler has of a destination. Past
experience of the destination or the companies involved (i.e. airlines, hotels, tour operators);
descriptions by friends and relatives; general information; and marketing campaigns develop
these expectations and perception which may be true or imaginary representations.
Place images are heavily influenced pictorial creations of the destination in movies or television,
by music and in some cases by popular entertainers and celebrities. For example Wales used
Richard Burton (Welsh film actor who often co-starred with Elizabeth Taylor (1925-1984)), and
Chicago advertizes by Michael Jordan. State media investment on attracting tourists has grown
rapidly in recent years. Nations and states invade and advertise in each other’s markets.
Destinations have formed partnerships with travel, recreational and communication businesses
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on joint marketing efforts. They advertise in national magazines and travel publications and they
target travel agencies.
Promoting the destination

Promoting destinations essentially implies the development of communicating channels with
clientele and other stakeholders to increase awareness and persuade to purchase products.
Destination promotion requires a coordinated campaign and message for all local principals and
suppliers. Designing a cost-effective promotional mix is difficult because of the diversity of
tourism suppliers at destinations and the spread of consumers throughout the world. Achieving a
consensus on the marketing campaign as well as raising adequate funds to develop and
implement it is one of the most challenging tasks for destination marketing. Traditionally,
NTOs/DMOs (national tourism organization and destination marketing organizations,
respectively) lead promotional campaigns, whilst suppliers participate and contribute. A wide
range of techniques are used, both above and below the line.
Above the line promotional activity includes advertising on television, radio, and press (print
media) as well as using poster campaigns. Targeting the right market with the right message at
the right time is always difficult, especially for destinations, which attract consumers from
several geographical regions as well as cultural and linguistic backgrounds. Although very
expensive, above the line advertisement can assist the development of the destination brand as
well as influence a large number to visitors to travel to the destination or to extend their.
Advertisements use slogans, which change frequently in order to follow tourism demand trends
and to update the image of destinations. For example, Spain recently changed its slogan from
“everything under the sun” to “passion for life”.
In addition, DMOs often use below the line promotional techniques. They participate in major
annual tourism and travel fairs in Berlin, London, Milan, Madrid, Paris and elsewhere. There
they have the opportunity to meet intermediaries and members of the public to promote their
offerings. They produce brochures, which they distribute to all their partners in the industry and
to prospective consumers who require information on the destination. Brochures normally show
local attractions and activities, whilst they also feature a number of local suppliers such as hotels,
entertainment and catering establishments. In addition, travel trade manuals offer information
about the destination to the travel trade and provide a reference guide.
Finally, public relations are extensively used for most tourism destinations. Destination
representatives at national level establish tourism offices in their major markets to distribute
promotional material and information as well as through their embassies. In addition, public
relations are used to generate news stories, articles and publicity in order to develop the
awareness of consumers and persuade them to purchase the products. Often hosting a journalist
or a celebrity in the destination can generate more interest than any other forms of promotion
because consumers are more passive receivers than with advertising. Public relations are also
critical for the development and updating of the right image.
Finally, effective destination imaging requires congruence between advertising and the place.
Glossy photographs of beaches, sunsets, buildings, and events need to have some relationship to
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what tourists actually experience: otherwise destinations run the risk of losing tourist goodwill
and generating bad word of mouth. Travel agents are extremely responsive to feedback from
customers.
Developing packages of Attractions and Amenities: An effective way of communicating with

potential travelers is by offering packages. Tourist organizations, cities and states must develop a
package of attractions and amenities in the hope of becoming a chosen destination. Travelers
make comparisons about the relative advantages and disadvantages of competing destinations.
Destinations must provide easy access to attractions by bus, boat, rail and plane.
A destination may promote one, a few or many of its attractions. Attractions alone don’t attract
visitors. Competition among destinations extends to restaurants, facilities, sports, cultural
amenities and entertainment. Which place has the most four-star hotels, best culinary fare, most
museums and theatres, best wine and drink, best chef, or best native cultural or ethnic flair?
Despite the best offers of a destination to portray positive image through public relations and
advertising, image building is affected by reports of disturbing societal problems, including
human rights abuse. Charges of human rights abuse from western governments directly affect
tourism development and growth.
9.6 Organizing and Managing Tourism Marketing
Making a destination tourist friendly is the task of a central tourist agency, which may be public,
quasi-public, non-profit, or private. These agencies are referred to national tourist organizations
(NTOs). An NTO has two marketing tasks: 1) it can formulate and develop the tourism product
or products of the destination; 2) it can also promote them in appropriate markets. In other
words, NTO is responsible for flow of tourism research data, representation in markets,
organization of workshops and trade shows, conducting fam trips, participation in joint
marketing schemes, support for new or small businesses, consumer assistance and protection and
general education.
Event marketing: events that attract a desired market and harmoniously fit with a community’s
culture can provide beneficial results, particularly if the event regularly reoccurs over a period of
years. Destinations must choose their events to fit the needs of the locality, since each event
draws its own type of crowd. Below is event planning framework.
A decision framework: event planning
1. What strategic factors relate to this event? To answer this question, one should take in
to account the following:
 Mission, goals and objectives of the event-tourism program
 Environmental scanning(noting similar events elsewhere)
 Appraisal of internal organization in terms of strengths and weaknesses
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 Time frame for attaining the targets
2. What is the profile of visitors? The profile should include the following factors:
 Who the visitors are
 Where they come from
 The benefits they seek in attending the event
3. What is the expenditure profile?
 Expenditure per day
 Item purchase
 Foreign exchange earnings
 Regional foreign exchange distribution
 Expenditures by local visitors
 Total expenditures from all sources
4. What are the economic and social benefits and costs of the event? This question
addresses financial, social and physical factors, including:
 Revenues estimate
 Operating expenditure estimate
 Cash flow analysis
 Employment estimates
 Social cost estimates
 Infrastructure cost estimates
5. What is the event’s profile? The profile comprises the following issues:
 Event history
 Event proposal
 Event sponsor
 Event rights holder
 Nature of event support required
 Media coverage
Influencing site selection
Successful destinations realize that tourism and commercial marketing are integral factors in
destination marketing. Destination marketers who are able to influence site selection of groups
such as associations can expect inevitable visitor’s income for the community. State tourist
organizations should work with national organizations and local organizations. Hotels and
airlines help with fam trips sponsored by tourist organizations. Promoting a destination is a team
effort.
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CHAPTER TEN
MARKETING PLAN
 A marketing plan is a written plan that is used to guide an organization’s marketing

activities for a period of one year or less.
 It is quite detailed and specific, and it helps an organization coordinate the activities and
people that play a role in marketing.
Success in the market place is not granted by understanding marketing concepts and strategies.
Successful marketing requires planning and careful execution.
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10.1 Purpose of a Marketing Plan
A marketing plan serves several purposes within any tourism and hospitality company:
 Provides a road map for all marketing activities of the firm for next year.
 Ensures that marketing activities are in agreement with the corporate strategic plan.
 Forces marketing managers to view and think through objectively all steps in the
marketing process.
 Assists in the budgeting process to match resources with marketing objectives.
 Creates a process to monitor actual against expected results.
To be effective, a new marketing plan must be written each year. Marketing plans written for
periods longer than one year are generally not effective. At the same time, the annual marketing
plan must be based on a longer-term strategic marketing plan that states what the company hopes
to achieve, say 3 to 5 years down the road.
Many managers believe that the process of writing a marketing plan is invaluable because it
forces those writing it to question, think and strategize. A plan should be developed with the
input and assistance of key members of the marketing department.
A marketing plan should contain the following sections:
1. Executive summary
2. Corporate connection
3. Environmental analysis and forecasting
4. Segmentation and targeting
5. Next year’s objectives and quotas
6. Action plans: strategies and tactics
7. Resources needed to support strategies and meet objectives
8. Marketing control
9. Presenting and selling the plan
10. Preparing for the future
Section 1: Executive Summary
The executive summary and a few charts and graphs from the body of the plan may be the only
parts ever read by top management. Consequently, it is of great importance to write this section
carefully, with top management in mind.
A few tips may assist in writing the executive summary:
 Write it for top executives

 Limit the number of pages to between 2 and 4
 Use short sentences and short paragraphs. Avoid using words that are unlikely to be
understood.
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 Organize the summary as follows: describe next year’s objectives in quantitative terms;
briefly describe marketing strategies to meet goals and objectives, including a description
of target markets; describe expected results by quarter, identify the dollar costs necessary,
as well as key resources needed.
 READ & READ the executive summary several times. Never write it once and place it in the
plan. Modify and change the summary until it flows well, is easily read, and conveys the
central message of the marketing plan.
Section 2: Corporate Actions
A. Relationships to Other Plans: a marketing plan is not a stand-alone tool. Instead, it must
support other plans such as the firm’s strategic plan. A marketing plan supports the firm’s
strategic plan in several ways. Next year’s marketing strategies and tactics must support strategic
decisions such as the following:
 Corporate goals with respect to profits, growth and so on.

 Positioning of the company or its product lines.
 Vertical or horizontal integration
 Strategic alliances
 Product line breadth and depth
B. Marketing-Related Plans: marketing related areas in which plans may be written
independently of marketing include the following:
 Sales
 Advertizing and promotion
 Public relations and publicity
 Marketing research
 Pricing
 Customer service
If these plans are developed independently of the marketing plan with no consideration as to how
they tie together, the result is often chaotic, counterproductive and a source for continuous
infighting among marketing related areas. When the organizational design of a company fails to
place major marketing activities under the marketing umbrella, the task of writing and
implementing a marketing plan is made more complex. Under these conditions, it is necessary
the marketing manager to invite the managers of other marketing related areas to participate in
the marketing plan development process. This action then should be reciprocated.
The activities of marketing and many other departments within a company are closely
intertwined. Operations and finance are two areas that affect and in turn are affected by
marketing. If guest experiences are diminished because of problem in areas of operations,
marketing will be adversely affected. Similarly, if financial projections are unrealistic for certain
months or for various product lines, marketing will be called to ask.
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C. Corporate Direction: a good marketing plan begins with the fact that the only purpose of
marketing is to support the enterprise. It is good politics and good sense to begin next year’s plan
by recognizing and restating these corporate elements. Let top management know that these
helped to guide the development of next year’s plan:
 Mission statement
 Corporate philosophy
 Corporate goals
Example of a mission statement: “Two key principles of our hotel are to offer superior facilities
and a level of service that is second to none. Our biggest asset is our positive, friendly and
enthusiastic team. Always on hand to offer support and advice, customers are made to feel at
ease from the moment they enter our hotel.
Marketing’s responsibilities in relation to the corporate vision are usually outlined in one or more
separate marketing-specific documents. Whereas the vision describes where the organization
wants to be in some future time, the mission is a broader statement about an organization’s
business and scope, goods or services, markets served and overall philosophy.
Example 2 for mission statement that focuses on service: ‘Our priority is to satisfy every
customer, every time, through outstanding, personalized service! We are dedicated to the
customer experience and are constantly evaluating how we can improve this experience.’
Section 3: Environmental Analysis and Forecasting
A. Analysis of Major Environmental Factors
 Social: consider the possible impact of major social factors, such as crime, AIDS, and
changing demographics.
 Political: legislation affecting taxation, pension benefits, and casino gambling are few
examples of political decisions likely to affect marketing plans.
 Economic; changes in economic variables such as employment, income, saving, and
interest rates should be recognized.
B. competitive analysis
 List the major existing competitors confronting your firm next year
 List new competitors
 Describe the major competitive strengths and weaknesses of each competitor
C. Market trends: these are a reflection of environmental and competitive variables. You have to
monitor visitor trends, competitive trends, related industry trends. Common sources of market
trends include chambers of commerce, visitor bureaus, universities, government agencies, etc.
Useful market trend information for writing tourism and hospitality marketing plan includes the
following:
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 Visitor trends: origin areas, stopover sites, visitor demographics, spending habits, length of
stay, etc.
 Competitive trends: numbers, location, type of products offered, occupancy levels, average
rates, etc.
 Related industry trends: interdependence of members of the tourism/hospitality industry up
on airline flights, convention center bookings, new airport construction, and new highways.
NB: select only those trends that are useful in developing the plan. It is of no value to fill a plan
with pages of information that have little or no direct relevancy.
D. Market Potential
 Market potential should be viewed as the total available demand for a firm’s product
within a particular geographic market at a given price. It is important not to mix different
products in to an estimate of market potential.
 Market potential estimates are often expressed in ‘guess-estimates’, such as the market
seems to be growing or declining by about 5% a year.
E. Marketing research
Much of the information acquired by marketing research in a current calendar or fiscal year will
serve as the basis for developing next year’s marketing plan. Marketing research needs can
usually be divided in to macro-market and micro-market information.
 Macro-market information: includes industry trends, social-economic-political trends,

competitive information, and industry-wide customer data.
 Micro-market information: guest information, product/service information, new product
analysis and testing, intermediary buyer data, pricing studies, key account information,
and advertising/promotion effectiveness.
Marketing, advertising and sales managers need a continuous flow of reliable information. This
occurs when planned. A description of marketing research that is essential for next year must
be part of the marketing plan. So, the desired actions are:
 List and describe the type of macro-marketing and micro-marketing information needed
on a continuing basis.
 List and describe types of marketing research needed on one time basis next year.
Section 4: Segmentation and Targeting
Segmentation analysis: the heart of any marketing plan is careful analysis of available market
segments and the selection of appropriate target markets. Not all markets segments are
appropriate for a given company. The selection of a segment is the result of:
 Understanding what the company is and what it wishes to be
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 Studying available segments and determining if they fit the capabilities and desires of the
company to obtain and secure them.
In the case of a hotel, a marketing plan tells you who is using your hotel, who might be using
your hotel and where you can look to expand your business. When developing a marketing plan,
marketers must look to both internal and external data sources for information concerning market
segments. Internal data sources include guest registrations, credit card receipts, customer
surveys; external sources include published industry information, marketing research, etc.
Targeting: no area of the marketing plan surpasses the selection of target markets in importance.
If inappropriate segments are selected, marketing resources will be wasted. A high level of
expenditures for advertising or sales promotion can’t compensate for misdirected marketing
effort.
Target markets are selected from the list of available segments. These include segments currently
served by the company and newly recognized markets. Far too many marketing managers in the
hospitality industry simply select last year’s markets. Although it is normally true that the
majority of target markets will remain the same, new ones appear and the order of importance
can change between years.
The concept of target markets is one of the most basic, yet most important aspects of marketing.
There is no such thing as the “general public.” It is unrealistic to think that you can attract
everyone. Defining your target market helps you decide where to commit resources and what
kinds of promotional methods and messages to use. Define your target market(s) specifically in
terms of:
 Demographics: age, income, marital status, employment status.

 Psychographics: reads magazines, attends sporting or cultural events, dines out once a
month.
 Residence: where does your market live?
 Social group: affluent couples without children, affluent families with one or more kids,
young families with one or more children, singles.
 activities: what do they want to do, includes vacation versus business travelers, visiting
friends and family versus strictly vacation travel, as well as specific activities such as
visiting cultural sites, resort visits, etc.
Section 5: Next Year’s Objectives and Quotas
Objectives: the establishment of objectives provides direction for the rest of the marketing plan.
The purpose of marketing strategies and tactics is to support objectives. Occasionally, there is
confusion as to what constitutes an objective. Statements such as “to be the best in our industry”,
“to provide excellent guest service” are accepted as objectives. This is always an error because
these types of statements are slogans or mottos. Objectives should be:
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 Measurable in quantitative terms-expressed in visitor numbers, monetary terms such as
dollars or birr, or unit measurements such as room-nights, number of cars to rent,
occupancy, increasing length of stay to certain days/nights, etc.
 Time specific-one year, 6 months
 Profit/margin specific-such as an average margin of 20%
An example of a measurable marketing objective might be “to enter the market with product Y
and capture 10% of the market within one year”.
Objectives should be established after carefully considering the areas already discussed:
corporate goals and resources, environmental factors, competition, market trends and potential,
available market segments and possible target markets.
To give another example, consider the case of a medium-sized tour operator with a capacity of
say 500 000 packages sold to European destinations in the previous year and a 5-year strategy to
grow through a combination of market penetration and product development. Assuming that
favorable market circumstances are revealed by market research, and starting from a good
competitive position, the operator might look for a 15% increase in volume in the following year,
e.g. to achieve sales of 575 000 tours over the next 12 months.
Quotas: No word creates more fear within the sales/marketing department than quotas. Yet,
without quotas, the probability of accomplishing objectives is slim at best. To be effective,
quotas must be:
 Based on next year’s objectives

 Realistic and obtainable
 Individualized
 Broken down to smaller units, such as each salesperson’s quota per week.
 Understandable and measurable: E.g. quota Br 10,000 sales for product line x in week 5.
Communicating the plan: A sophisticated and brilliantly developed plan is of no use if it is not
understood, believed or used. The plan should serve as a method for communicating marketing
strategy to those people whose duty is to implement or authorize the company’s marketing
strategies. Several groups may serve as an audience for a marketing plan:
 Top management
 Board of directors/group of investors
 Subordinates
 Vendors
 Other departments
Section 6: Action Plans: Strategies and Tactics
The strategy is derived from a firm’s
goals and is a loose framework or set of
guidelines that a tourism firm will follow in
order to attain their goals. A tactic, mean-while, consists of specific details as to how
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to execute the strategy. For example, a tourism
firm’s goals may be to increase market
share in Region A by 5% over the next
3 years. The resulting strategy may be to
develop a new tourism product line that will
allow the company to achieve a dominant
share of a certain target market. The tactic
may be to develop a specific, targeted product,
sell it through a specific type of tourism
retail outlet, price it at a specific level and
position it in a certain way to the consumer
through the use of a TV advertising campaign.
Marketing strategies are designed as the vehicle to achieve marketing objectives. In turn,
marketing tactics are tools that support strategies. Marketing strategies and tactics mainly
employ the four Ps (sales and distribution, advertising and promotion, pricing and product).
A. Sales strategies:
 Prevent erosion of key accounts

 Grow key accounts
 Grow selected marginal accounts
 Eliminate selected marginal accounts
 Retain selected marginal accounts, but provide lower-cost sales support
 Obtain new business from selected prospects
The general strategy is supported by specific sales tactics, such as the following:
 Telephone, direct mail and personal sales calls to selected decision makers and decision
influencers
 Luncheon for key customers, prospects or decision influencers
 Sales calls and working with travel intermediaries
 Trade booths at selected travel shows
 Training of sales staff
 Motivational and control programs
The selection of appropriate channels of distribution is basic to the development of successful
sales strategies.
B. Advertising and Promotion Strategies
It is very important to develop advertising and promotion strategies with supporting groups such
as an advertising agency, sales promotion firms and consultants. Those responsible for
advertising/promotion strategies have the following responsibilities:
 Select a blend or mix of media

 Select and approve the message: which includes graphics, color, size, copy and other
format decisions.
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 Design a media schedule, showing when each medium will be used
 Design a schedule of events, such as public relations events
 Carefully transmit this message to management
 Supervise the development and implementation of advertising/promotion programs, with
particular care given to time tables and budget constraints
 Assume responsibility for the outcome.
C. pricing strategy
 Carefully review pricing objectives with departments responsible for pricing, planning
and implementation
 Refine pricing objectives to reflect sales and revenue forecasts
 Describe pricing strategies to be used throughout the year
 Make certain that price, sales and promotion/advertising objectives are synchronized and
working in support of corporate objectives
D. product strategies
 Describe the involvement of the marketing department in major strategic product

development
 Describe the role of marketing in new product acquisition or product development
 Describe on-going or planned product development program for which marketing has
responsibility.
Section 7: Resources needed to support strategies and meet objectives
Marketing plans must be written with available resources, or those likely to become available, in
mind. A common error in writing a marketing plan is to develop strategies that are probably
highly workable but for which there is insufficient support.
 Study and then list the need for new marketing/sales personnel, including temporary help
for the next year.
 Study and list the type and amount of equipment and space that will be needed to support
sales/marketing.
 Study and list the amount of monetary support needed next year. (This excludes
accounted salary and benefits, and may include travel expenses, motivational costs, etc.)
 Study and list the amount of outside research, consulting and training assistance needed.
 Prepare a marketing budget for approval by top management
Section 8: Marketing Control
Sales objectives: Forecast next year’s sales based on current sales levels. Management may
amend sales force forecasts for the following reasons:
 Sales force members often wish to protect themselves and give lower-sales estimates than
are actually possible.
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 The company has certain sales objectives it expects based on the needs of the company.
 Management may have access to marketing research information not viewed by the sales
force.
 Management may have a history of dealing with the sales force and realizes that forecasts
are generally too high or too low by x%.
 Management may be willing to provide the marketing/sales department with additional
resources.
 Sales objectives must be established for each sales area, division, region, salesperson
and time period.
Sales forecast and quotas: annual sales quotas should be broken down into monthly and
quarterly sales. Many sales managers and experienced sales people break monthly quotas into
weekly figures.
Periodic evaluation of marketing objectives: managers responsible for functions such as

advertising, promotions and marketing research have a responsibility to ensure that all tasks are
performed on time.
Marketing activity timetable: one method commonly used by marketing/sales managers to

ensure that tasks are completed on time is the use of marketing activity timetable. This simple
device lists major activities, the dates they must be completed, the person responsible, and a
space for checking whether the task has been accomplished.
Readjustments to marketing plan: human beings are incapable of devising a perfect marketing
plan. Market conditions change, disasters occur, and many other reasons create a need to refine
marketing plans. Make readjustments of the marketing plan in the areas of tactics, budgets and
timing of events rather than in major objectives and strategies. Changes in tactics don’t normally
require top management approval and are viewed as the normal responsibility of marketing/sales
managers.
Section 9: Presenting and Selling the Plan
Never assume that a marketing plan is so logical that it will sell itself. Present and sell the plan to:
 Members of the marketing/sales department

 Vendor/ad agencies and others
 Top management: top management must approve the annual marketing plan.
Marketing/sales managers must sell the plan to members of management through
meetings such as friendly luncheon and formalized presentations.
Section 10: Preparing for the Future
The process of marketing planning is a continuum. The task is never ending. Marketing/sales
managers must always be planning. In reality, the development of next year’s marketing plan
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begins the day this year’s plan is approved. Good marketing planning will enable people to
prosper and grow in several ways:
 The participatory planning process allows people to understand the management process.
 People learn to become team players during the process.
 People learn to establish objectives and set timetables to ensure that they are met.
 People learn the process of establishing realistic strategies and tactics to meet objectives.
 People who approach the planning process with a receptive mind and employ the
marketing plan will usually find that it enhances their professional career.
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CHAPTER ELEVEN
DEALING WITH COMPETITIONS
Building strong brands requires a keen understanding of competitors, and competition grows
more intense every year. New competition is coming from all directions- from global
competitors eager to grow sales in new markets; from online competitors seeking cost-efficient
ways to expand distribution; from private-label brands designed to provide low-price
alternatives; and from brand extensions from strong megabrands leveraging their strengths to
move into new categories. One good way to start to deal with competition is through creatively
designed and well executed marketing programs.
To effectively devise and implement the best possible brand-positioning strategies, companies
must pay keen attention to their competitors. Markets have become too competitive to focus on
the consumer alone. This chapter examines the role competition plays and how marketers can
best manage their brands depending on their market position.
11.1 Competitive Forces

Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a
market or market segment: industry competitors, potential entrants, substitutes, buyers and
suppliers. The threats these forces pose are as follows:
1. Threat of intense segment rivalry--A segment is unattractive if it already contains numerous,

strong, or aggressive competitors. It's even more unattractive if it's stable or declining, if
plant capacity must be added in large increments, if fixed costs or exit barriers are high, or if
competitors have high stakes in staying in the segment. These conditions will lead to frequent
price wars, advertising battles, and new-product introductions and will make it expensive to
compete. The cellular phone market has seen fierce competition due to segment rivalry.
2. Threat of new entrants-The most attractive segment is one in which entry barriers are high
and exit barriers are low. Few new firms can enter the industry, and poorly performing firms
can easily exit. When both entry and exit barriers are high, profit potential is high, but firms
face more risk because poorer-performing firms stay in and fight it out. When both entry and
exit barriers are low, firms easily enter and leave the industry, and the returns are stable and
low. The worst case is when entry barriers are low and exit barriers are high: Here firms enter
during good times but find it hard to leave during bad times. The result is chronic
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overcapacity and depressed earnings for all. The airline industry has low entry barriers but
high exit barriers, leaving all carriers struggling during economic downturns.
3. Threat of substitute products-A segment is unattractive when there are actual or potential
substitutes for the product. Substitutes place a limit on prices and on profits. If technology
advances or competition increases in these substitute industries, prices and profits are likely
to fall. Amtrak has seen profitability threatened by the rise of air travel. The introduction of
railway will threaten transportation by car/plane.
4. Threat of buyers' growing bargaining power-A segment is unattractive if buyers possess

strong or growing bargaining power. The rise of retail giants such as Wal-Mart has led some
analysts to conclude that the potential profitability of packaged-goods companies will
become curtailed. Buyers' bargaining power grows when they become more concentrated or
organized, when the product represents a significant fraction of the buyers' costs, when the
product is undifferentiated, when buyers' switching costs are low, when buyers are price
sensitive because of low profits. To protect themselves, sellers might select buyers who have
the least power to negotiate or switch suppliers. A better defense consists of developing
superior offers that strong buyers cannot refuse.
5. Threat of suppliers’ growing bargaining power-A segment is unattractive if the company's

suppliers are able to raise prices or reduce quantity supplied. Suppliers tend to be powerful
when they are concentrated or organized, when there are few substitutes, when the supplied
product is an important input, when the costs of switching suppliers are high, and when the
suppliers can integrate downstream. The best defenses are to build win-win relationships
with suppliers or use multiple supply sources.
11.2 Identifying Competitors

It would seem a simple task for a company to identify its competitors. However, the range of a
company's actual and potential competitors can be much broader than the obvious. And a
company is more likely to be hurt by emerging competitors or new technologies than by current
competitors.
In recent years, for instance, a number of new "emerging giants" have arisen from developing
countries, and these nimble competitors are not only competing with multinationals their home
turf but also becoming global forces in their own right. They have gained competitive advantage
by exploiting their knowledge about local factors of production- capital and talent- and supply
chains in order to build world-class businesses.
We can examine competition from both an industry and a market point of view. An industry is a
group of firms that offer a product or class of products that are close substitutes for one another.
Marketers classify industries according to number of sellers; degree of product differentiation;
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presence or absence of entry, mobility, and exit barriers; degree of vertical integration; and
degree of globalization.
Using the market approach, we define competitors as companies that satisfy the same customer
need. For example, a customer who buys a word-processing package really wants "writing
ability"-a need that can also be satisfied by pencils, pens, or typewriters.
Marketers must overcome "marketing myopia" and stop defining competition in traditional
category and industry terms. Coca-Cola, focused on its soft-drink business, missed seeing the
market for coffee bars and fresh-fruit-juice bars that eventually impinged on its soft-drink
business.
The market concept of competition reveals a broader set of actual and potential competitors than
competition defined in just product category terms. Rayport and Jaworski suggest profiling a
company's direct and indirect competitors by mapping the buyer's steps in obtaining and using
the product. This type of analysis highlights both the opportunities and the challenges a company
faces.
11.3 Analyzing Competitors

Once a company identifies its primary competitors, it must ascertain their strategies, objectives,
strengths, and weaknesses.
A. Strategies
A group of firms following the same strategy in a given target market is a strategic group. "Red-
ocean thinking"- seeking bloody, head-to-head battles with competitors based largely on
incremental improvements in cost, quality, or both. "Blue-ocean thinking" is creating products
and services for which there are no direct competitors.
Kim and Mauborgne propose four crucial questions for marketers to ask themselves in guiding
blue-ocean thinking and creating value innovation:
1. Which of the factors that our industry takes for granted should we eliminate?
2. Which factors should we reduce well below the industry's standard?
3. Which factors should we raise well above the industry's standard?
4. Which factors should we create that the industry has never offered?
They maintain that the most successful blue-ocean thinkers took advantage of all three platforms
on which value innovation can take place: physical product; service including maintenance,
customer service, warranties and training for distributors and retailers; and delivery.
B. Objectives
Once a company has identified its main competitors and their strategies, it must ask: What is
each competitor seeking in the marketplace? What drives each competitor's behavior? Many
factors shape a competitor's objectives, including size, history, current management, and
financial situation. If the competitor is a division of a larger company, it's important to know
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whether the parent company is running it for growth, profits, or milking (exploiting as much as
possible) it.
It's useful to assume that competitors strive to maximize profits. However, companies differ in
the relative emphasis they put on short-term and long-term profits. So another reliable
assumption is that each competitor pursues some mix of objectives: current profitability, market
share growth, cash flow, technological leadership, and service leadership. Finally, a company
must monitor competitors' expansion plans.
C. Strengths and Weaknesses

A company needs to gather information about each competitor's strengths and weaknesses. In
general, a company should monitor three variables when analyzing competitors:
1. Share of market-The competitor's share of the target market
2. Share of mind-The percentage of customers who named the competitor in responding to
the statement, "Name the first company that comes to mind in this industry."
3. Share of heart-The percentage of customers who named the competitor in responding to
the statement, "Name the company from which you would prefer to buy the product."
There's an interesting relationship among these three measures. We could generalize as follows:
Companies that make steady gains in mind share and heart share will inevitably make gains in
market share and profitability.
To improve market share, many companies benchmark their most successful competitors, as well
as other world-class performers.
Benchmarking to improve competitive performance

Benchmarking is the art of learning from companies that perform certain tasks better than
other companies. There can be as much as a tenfold difference between the quality, speed, and
cost performance of a world-class company and that of an average company. The aim of
benchmarking is to 'copy or improve on "best practices," either within an industry or across
industries. Benchmarking has the following steps:
1. Decide what to benchmark.
2. Understand internal processes.
3. Decide on best in class.
4. Collect data.
5. Analyze results.
6. Implement actions.
How can companies identify best-practice companies? A good starting point is consulting
customers, suppliers, distributors, financial analysts, trade associations, and magazines to see
whom they rate as doing the best job. Even the best companies can benchmark to improve
their performance.
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Selecting Competitors
After the company has conducted customer value analysis and examined its competitors
carefully, it can focus its attack on one of the following classes of competitors: strong versus
weak, close versus distant, and "good" versus "bad."
A. Strong versus Weak. Most companies aim their shots at weak competitors, because this
requires fewer resources per share point gained. Yet, the firm should also compete with
strong competitors to keep up with the best. Even strong competitors have some
weaknesses.
B. Close versus Distant. Most companies compete with the competitors that resemble them
the most. Chevrolet competes with Ford, not with Ferrari. Yet companies should also
identify distant competitors. Coca-Cola recognizes that its number-one competitor is tap
water, not Pepsi. Museums now worry about theme parks and malls.
C. "Good" versus "Bad." Every industry contains "good" and "bad" competitors. Good
competitors play by the industry's rules; they set prices in reasonable relationship to
costs; and they favor a healthy industry. Bad competitors take large risks; they invest in
overcapacity; and they upset industrial equilibrium. A company may find it necessary to
attack its bad competitors to reduce or end their dysfunctional practices.
Selecting Customers
As part of the competitive analysis, firms must evaluate its customer base and think about which
customers it's willing to lose and which it wants to retain. One way to divide up the customer
base is in terms of whether a customer is valuable and vulnerable, creating a grid of four
segments as a result. Each segment suggests different competitive activities.
1. Valuable and vulnerable: These customers are profitable but not completely happy with
the company. Find out and address their sources of vulnerability to retain them.
2. Valuable and not vulnerable: These customers are loyal and profitable. Don't take them
for granted but maintain margins and reap/harvest the benefits of their satisfaction.
3. Not valuable and vulnerable: These customers are likely to defect. Let them go or even
encourage their departure.
4. Not valuable and not vulnerable: These unprofitable customers are happy. Try to make
them valuable or vulnerable.
11.4 The competitive intelligence system

We can gain further insight by classifying firms by the roles they play in the target market:
leader, challenger, follower, or nicher. In a hypothetical market structure, 40% of the market is
in the hands of a market leader; another 30% is in the hands of a market challenger; another 20%
is in the hands of a market follower, a firm that is willing to maintain its market share and not
rock the boat. The remaining 10% is in the hands of market nichers, firms that serve small
market segments not being served by larger firms.
A. Competitive Strategies for Market Leaders

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Many industries contain one firm that is the acknowledged market leader. This firm has the
largest market share in the relevant product market and usually leads the other firms in price
changes, new-product introductions, distribution coverage, and promotional intensity. Some
historical market leaders are Microsoft (computer software), Gatorade (sports drinks),
McDonald's (fast food) and Visa (credit cards).
Although marketers assume well-known brands are distinctive in consumers' minds, unless a
dominant firm enjoys a legal monopoly, it must maintain constant vigilance. A product
innovation may come along and hurt the leader; a competitor might unexpectedly find a fresh
new marketing angle or commit to a major marketing investment; or the leader might find its
cost structure spiraling upward.
In many industries, a discount competitor has entered and undercut the leader's prices.
Companies offering the powerful combination of low prices and high quality are capturing the
hearts and wallets of consumers all over the world.
To compete with value-based rivals, mainstream companies must reconsider the perennial routes
to business success: keeping costs in line, finding sources of differentiation, and managing prices
effectively. To succeed in value-based markets, companies need to infuse these timeless
strategies with greater intensity and focus, and then execute them flawlessly.
Staying as the number-one firm calls for action on three fronts. First, the firm must find ways to
expand total market demand. Second, the firm must protect its current market share through good
defensive and offensive actions. Third, the firm can try to increase its market share, even if
market size remains constant. Let's look at each strategy:
1. Expanding the Total Market: When the total market expands, the dominant firm usually
gains the most. In general, the market leader should look for new customers or more usage from
existing customers.
New Customers: Every product class has the potential to attract buyers who are unaware of the
product or who are resisting it because of price or lack of certain features. A company can search
for new users among three groups: those who might use it but do not (market-penetration
strategy), those who have never used it (new-market segment strategy), or those who live
elsewhere (geographical-expansion strategy).
Starbucks Coffee is one of the best-known brands in the world. Starbucks is able to sell a cup of
coffee for $3 while the store next door can only get $1. Starbucks has more than 7,200 locations
throughout North America, the Pacific Rim, Europe, and the Middle East, and its annual revenue
for 2002 topped $3.3 billion.
More Usage: Marketers can try to increase the amount, level, or frequency of consumption. The
amount of consumption can sometimes be increased through packaging or product redesign. The
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usage of impulse consumption products such as soft drinks and snacks increases when the
product is made more available.
Increasing frequency of consumption, on the other hand, requires either (1) identifying additional
opportunities to use the brand in the same basic way or (2) identifying completely new and
different ways to use the brand. Consumers may see the product as useful only in certain places
and at certain times, especially if it has strong associations to particular usage situations or user
types.
To generate additional opportunities to use the brand in the same basic way, a marketing
program can communicate the appropriateness and advantages of using the brand more
frequently in new or existing situations or remind consumers to actually use the brand as close as
possible to those situations. Clorox has run ads stressing the many benefits of its bleach, such as
how it eliminates kitchen odors.
2. Defending Market Share: While trying to expand total market size, the dominant firm must
continuously and actively defend its current business: Boeing against Airbus; McDonald’s
against Burger King; and Google against Yahoo! The success of online social network sites
MySpace and Facebook has brought challenges from upstarts such as LinkedIn personal business
network.
What can the market leader do to defend its terrain? The most constructive response is
continuous innovation. The leader should lead the industry in developing new products and
customer services, distribution effectiveness, and cost cutting. It keeps increasing its competitive
strength and value to customers by providing comprehensive solutions.
In satisfying customer needs, we can draw a distinction between responsive marketing,

anticipative marketing, and creative marketing. A responsive marketer finds a stated need and
fills it. An anticipative marketer looks ahead into what needs customers may have in the near
future. A creative marketer discovers and produces solutions customers did not ask for but to
which they enthusiastically respond. Creative marketers are market-driving firms, not just market
driven. Market-driving firms become market leaders through superior value delivery of unmet
and maybe even unknown-consumer needs.
Even when it does not launch offensives, the market leader must not leave any major flanks
exposed. It must consider carefully which terrains are important to defend, even at a loss, and
which can be surrendered. The aim of defensive strategy is to reduce the probability of attack,
divert attacks to less-threatening areas, and lessen their intensity. The defender's speed of
response can make an important difference in the profit consequences.
Position Defense: Position defense means occupying the most desirable market space in
consumers' minds, making the brand almost impregnable, as Procter & Gamble has done with
Tide detergent for cleaning, Crest toothpaste for cavity prevention, and Pampers diapers for
dryness.
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Flank Defense: Although position defense is important, the market leader should also erect
outposts to protect a weak front or possibly serve as an invasion base for counterattack.
Preemptive Defense: A more aggressive maneuver/tactic is to attack before the enemy starts its
offense. A company can launch a preemptive defense in several ways. It can wage guerrilla
action across the market-hitting one competitor here, another there-and keep everyone off
balance; or it can try to achieve grand market envelopment. Bank of America's 17,000 ATMs
and 5,700 retail branches nationwide provide steep competition to local and regional banks. In
this way the firm can send out market signals to dissuade/deter competitors from attacking.
Marketers can introduce a stream of new products, making sure to precede them with
preannouncements-deliberate communications regarding future actions. Preannouncements can
signal to competitors that they will need to fight to gain market share. If Microsoft announces
plans for a new-product development, smaller firms may choose to concentrate their
development efforts in other directions to avoid head-to-head competition.
Counter Offensive Defense: When attacked, most market leaders will respond with a
counterattack. In a counteroffensive, the leader can meet the attacker frontally or hit its flank or
launch a pincer movement. An effective counterattack is to invade the attacker's main territory so
that it will pull back to defend it.
Another common form of counteroffensive is the exercise of economic or political clout. The
leader may try to crush a competitor by subsidizing lower prices for the vulnerable product with
revenue from its more profitable products, or the leader may prematurely announce that a
product upgrade will be available, to prevent customers from buying the competitor's product.
Or the leader may lobby legislators to take political action to inhibit the competition.
Mobile defense: In mobile defense, the leader stretches its domain over new territories that can
serve as future centers for defense and offense through market broadening and market
diversification. Market broadening shifts focus from the current product to the underlying
generic need. The company gets involved in R&D across the whole range of technology
associated with that need. Market diversification shifts into unrelated industries.
Contraction Defense: Large companies sometimes must recognize that they can no longer
defend all their territory. The best course of action then appears to be planned contraction (also
called strategic withdrawal): giving up weaker territories and reassigning resources to stronger
territories.
3. Expanding Market Share

In many markets, one share point is worth tens of millions of dollars. No wonder competition has
turned fierce in so many markets. Gaining increased share in the served market, however, does
not automatically produce higher profits-especially for labor-intensive service companies that
may not experience many economies of scale. Much depends on the company’s strategy.
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Because the cost of buying higher market share may far exceed its revenue value, a company
should consider four factors before pursuing increased share:
 The possibility of provoking antitrust action: Jealous competitors are likely to cry
"monopoly" if a dominant firm makes further inroads. This rise in risk would diminish the
attractiveness of pushing market share gains too far.
 Economic cost: Profitability might fall with further market share gains after some level.
Beyond a firm's optimal market share, the cost of gaining further market share might
exceed the value. The "holdout" customers may dislike the company, be loyal to
competitive suppliers, have unique needs, or prefer dealing with smaller suppliers. And the
costs of legal work, public relations, and lobbying rise with market share. Pushing for
higher share is less justified when there are few scale or experience economies, unattractive
market segments exist, buyers want multiple sources of supply, and exit barriers are high.
Some market leaders have even increased profitability by selectively decreasing market
share in weaker areas.
 Pursuing the wrong marketing activities: Companies successfully gaining share typically
outperform competitors in three areas: new-product activity, relative product quality, and
marketing expenditures. On the other hand, companies that attempt to increase market
share by cutting prices more deeply than competitors typically don't achieve significant
gains, because enough rivals meet the price cuts and others offer other values so buyers
don't switch. Competitive rivalry and price cutting have been shown to be most intense in
industries with high fixed costs, high inventory costs, and stagnant primary demand.
 The effect of increased market share on actual and perceived quality: Too many customers
can put a strain on the firm's resources, hurting product value and service delivery.
Consumers may also infer that "bigger is not better" and assume that growth will lead to a
deterioration of quality. If "exclusivity" is a key brand benefit, existing customers may
resent additional new customers.
Other Competitive Strategies

Firms that occupy second, third, and lower ranks in an industry are often called runner-up or
trailing firms. Some, such as PepsiCo, Ford, Avis, and Texas Instruments, are quite large in their
own right. These firms can adopt one of two postures. They can attack the leader and other
competitors in an aggressive bid for further market share as market challengers, or they can play
ball and not "rock the boat" as market followers.
B. Market-Challenger Strategies
Many market challengers have gained ground or even overtaken the leader. Toyota today
produces more cars than General Motors. Challengers set high aspirations, leveraging their
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resources while the market leader often runs the business as usual. Now let's examine the
competitive attack strategies available to market challengers.
Defining strategic objectives and opponents: A market challenger must first define its strategic
objectives. Most aim to increase market share. The challenger must decide whom to attack:
It can attack the market leader. This is a high-risk but potentially high-payoff strategy and makes
good sense if the leader is not serving the market well. It often has the added benefit of
distancing the firm from other challengers. An alternative strategy is to out-innovate the leader
across the whole segment.
It can attack firms of its own size that are not doing the job and are underfinanced. These firms
have aging products, are charging excessive prices, or are not satisfying customers in other ways.
It can attack small local and regional firms. Several major banks grew to their present size by
gobbling up smaller regional banks, or guppies.
Choosing a general attacking strategy: Given clear opponents and objectives, what attacking
options are available? We can distinguish among five attack strategies: frontal, flank,
encirclement, bypass, and guerilla attacks.
Frontal Attack: In a pure frontal attack, the attacker matches its opponent's product, advertising,
price, and distribution. The principle of force says that the side with the greater resources will
win. A modified frontal attack, such as cutting price, can work if the market leader doesn't
retaliate/react, and if the competitor convinces the market that its product is equal to the leader's.
FIank Attack: An enemy's weak spots are natural targets. A flank attack can be directed along
two strategic dimensions-geographic and segmental. In a geographic attack, the challenger spots
areas where the opponent is underperforming. The other flanking strategy is to serve uncovered
market needs.
A flanking strategy is another name for identifying shifts in market segments that are causing
gaps to develop, then rushing in to fill the gaps and develop them into strong segments. Flanking
is in the best tradition of modern marketing, which holds that the purpose of marketing is to
discover needs and satisfy them. It's particularly attractive to a challenger with fewer resources
than its opponent and much more likely to be successful than frontal attacks.
Encirclement Attack: The encirclement maneuver is an attempt to capture a wide slice of the
enemy's territory through a blitz/attack. It means launching a grand offensive on several fronts.
Encirclement makes sense when the challenger commands superior resources and believes a
swift encirclement will break the opponent's will.
Bypass Attack: The most indirect assault strategy is bypassing the enemy altogether and
attacking easier markets to broaden the firm's resource base. This strategy offers three lines of
approach: diversifying into unrelated products, diversifying into new geographical markets, and
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leapfrogging into new technologies to supplant existing products. In the past decade, Pepsi has
used a bypass strategy against Coke.
Technological leapfrogging is a bypass strategy practiced in high-tech industries. The challenger

patiently researches and develops the next technology and launches an attack, shifting the
battleground to its own territory where it has an advantage. Challenger Google used
technological leapfrogging to overtake Yahoo! and become the market leader in search.
Guerrilla Warfare: Guerrilla warfare consists of waging small, intermittent attacks to harass and
demoralize the opponent and eventually secure permanent footholds. The guerrilla challenger
uses both conventional and unconventional/exceptional means of attack. These include selective
price cuts, intense promotional blitzes, and occasional legal action.
A guerrilla campaign can be expensive, although less so than a frontal, encirclement, or flank
attack. Guerrilla warfare is more a preparation for war than a war itself. Ultimately, it must be
backed by a stronger attack if the challenger hopes to beat the opponent. Guerrilla marketing
must, however, not cross lines of legality or morality.
Choosing specific attacking strategy: The challenger must go beyond the five broad strategies
and develop more specific strategies. Any aspect of the marketing program can serve as the basis
for attack, such as lower-priced or discounted products, new or improved products and services,
a wider variety of offerings, and innovative distribution strategies. A challenger's success
depends on combining several strategies to improve its position over time.
C. Market-Follower Strategies
Some years ago, Theodore Levitt wrote an article entitled "Innovative Imitation," in which he
argued that a strategy of product imitation might be as profitable as a strategy of product
innovation. The innovator bears the expense of developing the new product, getting it into
distribution, and informing and educating the market. The reward for all this work and risk is
normally market leadership. However, another firm can come along and copy or improve on the
new product. Although it probably will not overtake the leader, the follower can achieve high
profits because it did not bear any of the innovation expense.
Many companies prefer to follow rather than challenge the market leader. Most firms decide
against stealing one another's customers. Instead, they present similar offers to buyers, usually by
copying the leader. Market shares show high stability.
That's not to say that market followers lack strategies. A market follower must know how to hold
current customers and win a fair share of new ones. Each follower tries to bring distinctive
advantages to its target market-location, services, financing. Because the follower is often a
major target of attack by challengers, it must keep its production costs low and its product
quality and services high. It must also enter new markets as they open up. The follower must
define a growth path, but one that doesn't invite competitive retaliation. We distinguish four
broad strategies:
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l. Counterfeiter-The counterfeiter duplicates the leader's product and packages and sells it on the
black market or through disreputable dealers. Music firms, Apple, and Rolex have been plagued
by the counterfeiter problem, especially in Asia.
2. Cloner-The cloner emulates the leader's products, name, and packaging, with slight variations.
Then, the company sells products making slight discount from the leading company’s price.
3. Imitator-The imitator copies some things from the leader but maintains differentiation in terms
of packaging, advertising, pricing, or location. The leader doesn't mind the imitator as long as the
imitator doesn't attack the leader aggressively. Fernandez Pujals grew up in Fort Lauderdale,
Florida, and took Domino's home delivery idea to Spain, where he borrowed $80,000 to open his
first store in Madrid. His TelePizza chain now operates almost 1,000 stores in Europe and Latin
America.
4. Adapter-The adapter takes the leader's products and adapts or improves them. The adapter may
choose to sell to different markets, but often it grows into the future challenger, as many
Japanese firms have done after improving products developed elsewhere.
What does a follower earn? Normally, less than the leader. For example, a study of food
processing companies showed the largest firm averaging a 16% return on investment; the
number-two firm, 6%; the number-three firm, -1%, and the number-four firm, -6%. In this case,
only the top two firms have profits. Followership is often not a rewarding path.
D. Market-Nicher Strategies
An alternative to being a follower in a large market is to be a leader in a small market, or niche.
Smaller firms normally avoid competing with larger firms by targeting small markets of little or
no interest to the larger firms. But even large, profitable firms may choose to use niching
strategies for some of their business units or companies.
Firms with low shares of the total market can become highly profitable through smart niching.
Such companies tend to offer high value, charge a premium price, achieve lower production
costs, and shape a strong corporate culture and vision.
In a study of hundreds of business units, the Strategic Planning Institute found that the return on
investment averaged 27% in smaller markets, but only 11 % in larger markets! Why is niching so
profitable? The main reason is that the market nicher ends up knowing the target customers so
well, it meets their needs better than other firms selling to this niche casually. As a result, the
nicher can charge a substantial price over costs. The nicher achieve high margin, whereas the
mass marketer achieves high volume.
Nichers have three tasks: creating niches, expanding niches, and protecting niches Niching
carries a major risk in that the market niche might dry up or be attacked. The company is then
stuck with highly specialized resources that may not have high-value alternative uses.
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Because niches can weaken, the firm must continually create new ones. The firm should "stick to
its niching" but not necessarily to its niche. That is why multiple niching is preferable to single
niching. By developing strength in two or more niches, the company increases its chances for
survival. Firms entering a market should initially aim at a niche rather than the whole market.
11.5 Balancing Customer and Competitor Orientations

We've stressed the importance of a company's positioning itself competitively as a market leader,
challenger, follower, or nicher. Yet a company must not spend all its time focusing on
competitors.
Competitor-Centered Companies
This kind of planning has some pluses and minuses. On the positive side, the company develops
a fighter orientation. It trains its marketers to be on constant alert, to watch for weaknesses in its
competitors' and its own position. On the negative side, the company is too reactive. Rather than
formulating and executing a consistent, customer-oriented strategy, it determines its moves
based on its competitors' moves. It does not move toward its own goals. It does not know where
it will end up, because so much depends on what its competitors do.
Customer-Centered Companies
A customer-centered company focuses more on customer developments in formulating its
strategies. Clearly, the customer-centered company is in a better position to identify new
opportunities and set a course that promises to deliver long-run profits. By monitoring customer
needs, it can decide which customer groups and emerging needs are the most important to serve,
given its resources and objectives. Jeff Bezos, founder of Amazon.com, strongly favors a
customer-centered orientation: "Amazon.com's mantra has been that we were going to obsess
over our customers and not our competitors. We watch our competitors, learn from them, see the
things that they [were doing for customers] and copy those things as much as we can. But we
were never going to obsess over them.
Chapter Summary
1. To prepare an effective marketing strategy, a company must study competitors as well as
actual and potential customers. Marketers need to identify competitors' strategies,
objectives, strengths, and weaknesses.
2. A company's closest competitors are those seeking to satisfy the same customers and needs
and making similar offers. A company should also pay attention to latent competitors, who
may offer new or other ways to satisfy the same needs. A company should identify
competitors by using both industry-and market-based analyses.
3. A market leader has the largest market share in the relevant product market. To remain
dominant, the leader looks for ways to expand total market demand, attempts to protect its
current market share, and perhaps tries to increase its market share.
4. A market challenger attacks the market leader and other competitors in an aggressive bid
for more market share. Challengers can choose from five types of general attack;
challengers must also choose specific attack strategies.
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5. A market follower is a runner-up firm willing to maintain its market share and not rock the
boat. A follower can play the role of counterfeiter, c1oner, imitator, or adapter.
6. A market nicher serves small market segments not being served by larger firms. The key to
nichemanship is specialization. Nichers develop offerings to fully meet a certain group of
customers' needs, commanding a premium price in the process.
7. As important as a competitive orientation is in today's global markets, companies should
not overdo the emphasis on competitors. They should maintain a good balance of consumer
and competitor monitoring.
CHAPTER 12
Electronic Marketing
Electronic marketing is rapidly transforming the way hospitality and travel organizations are
conducting business. It includes internet marketing, database marketing and direct marketing.
There are three basic principles of electronic marketing:
1. Build and actively manage customer database: in this era of scarce customers, companies
need to capture names and other useful information from customers.
2. Develop a clear concept on how the company should take advantage of the internet.
3. Be easily accessible and quick in responding to customers calls.
10.1 Internet Marketing
Underlying electronic marketing are two phenomena: digitalization and connectivity.
Digitalization consists of converting text, data, sound and image in to a stream of bits that can be
dispatched at incredible speeds from one location to another. Connectivity involves building
networks and expresses the fact that much of the world’s business is carried over networks
connecting people and companies. These networks are called intranets, when they connect
people within a company; extranets when they connect a company with its suppliers and
customers; and the internet when it connects users to an amazingly large ‘information
superhighway’.
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The internet represents an untapped opportunity for companies. It is not only useful as a sales
outlet, but it also provides a medium for communication between a company and its customers.
Why do people purchase on-line? According to research, on-line purchases are made for the
following reasons:
1. Convenience: on-line purchases can be made from any place at any time.
2. Information: customers can gain information about travel and travel destinations.
3. Price: consumers feel they get a better price. This is reinforced by airline phone
reservation services that refer the customer to the internet for lower prices. Price
comparison is also easy.
Some of the uses of a website include product sales, provide public relations support, assist the
product’s or brand’s overall promotional campaign, allow customers to contact the company,
capture information from potential customers visiting the site, and provide information that will
enable customers to enhance their use of the product. These activities are categorized in to
selling, communication and providing content.
Sales: one of the advantages of the internet as a sales channel is the customer does the work.
Communication: websites have the chance to communicate information to number opf different
segments.
Providing content: it is important to give customers a reason to come back to your site by
providing useful content, such as free gifts, photo galleries, etc.
Website Development
Website is a site created on the internet by a business to provide motivating information and
possibly e-commerce facilities for customers. A website serves as a distribution channel. A
company’s website must project its brand image. People coming to the company’s site may not
know anything about the company. Thus, the site should convey what the company is and what
the company has to offer. Make sure you have ‘a contact-us’ address on your website.
Business to Business E-Commerce
E-commerce is electronic trading and retailing on the internet, buying and selling on-line using
credit cards and enabling customers to search for best prices and other options and then make
pay for and confirm bookings.
B2B e-commerce accounts for the majority of internet commerce. In the hospitality industry, the
internet is being used to create market places where companies wanting supplies can be matched
up with sellers of those supplies. For example, food supply companies use the internet to receive
orders from customers.
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10.2 Database Marketing
Developing a Database Marketing System
A marketing database is an organized collection of data about individual customers, prospects, or

suspects that is accessible and actionable for such marketing purposes as lead generation, lead
qualification, sale of a product or service, or maintenance of customer relationships. Building a
database takes time, but when it turns properly, the selling company achieves substantially
higher marketing productivity. Mangers need to make sure the data in the databases are clean.
This means that there are no errors in the data. Errors are usually as result of data entry. For
example a guest whose name is misspelled will not feel good.
Using a database to create a competitive advantage
Most marketers use their database tactically. For example, one of the most frequent uses of
database marketing is to use it with direct marketing. Direct marketing campaigns often target
recent customers, inviting them to return or offering incentives, as well as encouraging loyal
customers to come during soft periods.
10.3 Direct Marketing

Direct marketing is an interactive system of marketing that uses one or more advertising media
to affect a measurable response and/or transaction at any location. Direct marketing links
producers with their customers in a two-way communication using individual addressable media
such as mail, telephone, e-commerce. Interaction is organized through a database recording
unique details of actual and prospective customers, including their geo-demographic profile,
product purchasing behavior and their responses to different communications media.
The term direct marketing has taken on new meanings over the years. Today, many users of
direct marketing visualize it as playing a broader role, which can be called direct-relationship
marketing. These direct marketers use direct response advertising media to make sale and learn
about a customer whose name and profile are entered in a customer database, which is used to
build a continuing and enriching relationship. Airlines, hotels and others are building strong
customer relationships through award programs and are using their customer databases to match
their offers more carefully to individual customers. They are approaching a stage where offers
are sent only to those customers and prospects most able, willing and ready to buy the product.
Direct Marketing or Direct Selling?
In their traditional form, simple direct communication links between business and prospective
customers are known under the generic term ‘direct selling’. Direct selling means ‘the selling of
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goods and services, which involves direct communication between the producer and the
customer, without the use of retail outlets, distributors, wholesalers, or any other type of middle
men.’ Names and addresses of prospective buyers were obtained by advertising with coupons to
complete or telephone numbers to ring, and were added to lists of previous customers. List
brokers could be used to purchase new addresses. This from of selling-direct selling- is the
forerunner of modern methods (direct marketing).
Modern, customer-focused approaches to direct marketing are founded on the databases and
iterative learning procedures incorporating detailed information, building two-way relationships
between customers and businesses and continuously adapting products around the identified
needs of targeted segments.
The primary objective of direct marketing is to achieve more cost-effective use of marketing
budgets based on a deep and evolving knowledge of customers and their behavior, and direct
communication with them. It is this objective which distinguishes direct marketing form
traditional direct selling.
Reasons for Growth of Direct Marketing
There are several reasons for the growth of direct marketing;
 Direct marketing allows precision targeting.

 Personalization-by personalizing the offer to fit the needs of the target market.
 Privacy-because the direct marketing’s offer and strategy are not visible to competitors.
 Immediate results- in periods of low demand, for example, companies can target known
customers to produce quick results.
 Measurability is another benefit of direct marketing. A manger can track the response to
particular direct marketing campaign and usually determine the revenue that it produced.
 Detailed knowledge of customers, not only name and address, but also neighborhood and
purchasing behavior. Telephone, e-commerce and coupon response mechanisms provide
other valuable streams of market research information, such as identifying new or repeat
customers, frequent users and how they heard of the product.
These groups of direct marketing benefits are fundamental in their implications for achieving
more cost-effective marketing.
Telemarketing: one form of direct marketing that combines aspects of advertising, marketing
research and personal sales is telemarketing. Telemarketing employs the use of telephone to
reach customers or prospective customers. Skilled telemarketers employ careful time scheduling
and tracking systems for calls that require call backs. Experienced telemarketers carefully study
times that are best to call. They study response rates. It is suggested that the optimum times for
conducting business-to-business telemarketing are after 10:00AM and between 2:00 and 5;00
PM except for Monday mornings and Friday afternoons, which are undesirable calling times.
126
E-Mails: two electronic forms of direct marketing media are e-mail and CDs. E-mail marketing
can be both low cost and effective. Below are checklists to ensure that e-mails are effective:
 The greeting should be personalized and other persons being sent the same message
should not be listed.
 The name of the company sending the message should be identified.
 The subject needs to be relevant to the reader.
 E-mails need to be short.
 Text message is the preferred format.
CDs: CDs are replacing color brochures as marketing communications. One of the advantages of
using CDs is that it is small, making it inexpensive to mail and easy to take it from a trade show.
Another advantage is the CD can have links to the company’s website, directing prospective
customers to parts of the site that will be useful for them. Music can also be incorporated in to
the promotional piece.
Direct Marketing Builds Relationships
Direct marketing can be used to develop a relationship with customers it costs 4-7 times as much
to create a customer as it does to maintain a customer. Direct marketing is an important tool in
customer relationship management (CRM) programs. CRM is a name commonly given to loyalty
programs or relationship-marketing programs that make use of technology. Today, airlines,
hotels, travel agents, restaurants, and rental car companies operate in very competitive markets.
The major way to grow market share is to steal it from the competition. Direct marketing allows
companies to develop a strong relationship with customers, which helps prevent them from
switching to competitors. Hotels’ frequent-stay programs, airlines’ frequent-flier programs, etc
help this.
Development of Integrated Direct Marketing

Most direct marketers rely on a single advertising vehicle and a one-shot effort to reach and sell
a prospect. A one-time mailing offering a weekend package at a hotel is an example of a single-
vehicle, single stage campaign. A single-vehicle, multiple stage campaign would involve
successive mailings to a prospect to trigger purchases. For example, restaurants may send 4
notices to a household to entice the household to try the restaurant.
A more powerful approach is to execute a multiple-0vehicle, multiple-stage campaign. This

technique is known as integrated direct marketing (IDM). Consider the following sequence:
Paid ad with a response channel direct mail mechanism outbound telemarketing face-to-face sales call
The paid ad creates product awareness and stimulates inquiries. The company then sends direct
mail to those who inquire. Within 48-72 following mail receipt, the company phones, seeking an
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order. Some prospects place an order; others might request a face-to-face sales call. Even if the
prospect is not ready to buy, there is on-going communication. This use of response
compression, whereby multiple media are deployed within a tightly defined timeframe, increases
impact and awareness of the message. The underlying idea is to deploy selected media with
precise timing to generate greater incremental sales while offsetting incremental costs.
Loyalty ladder model

Partner (often in B2B)
Supporter
Client (buys more than once)
Customers (bought once)
Prospects
Suspects
Analysis and Forecasting
This is one of the sections of a marketing plan.
The next stage of the marketing plan is defining the current situation. It is essential that each
component of the business be reviewed in order to ensure that resources can be allocated efficiently.
Several models exist for reviewing effectiveness and identifying opportunities but
those proven by time and practical application across a range of industries include portfolio
analysis, competitor analysis, segmentation analysis, SWOT (strengths, weaknesses, opportunities
and threats) analysis, and forecasting.
Portfolio Analysis
Portfolio analysis first became popular in the 1960s, when many organizations
sought to improve their profitability by diversifying their activities so as not to keep
all their eggs in one basket. The Boston Consulting Group (BCG) model was one of
the most popular approaches to evaluating a very diverse group of goods and services,
based on long-term planning and economic forecasts. The model adopts the
view that every product of an organization can be plotted on a two-by-two matrix to
identify those offering high potential and those that are drains on the organization’s
resources.
BOSTON CONSULTING GROUP (BCG) MODEL

a technique designed to show the performance of an individual product in relation to its major competitors and the
rate of growth in its market.
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In Figure 3.2, the horizontal axis represents market share, and the vertical axis represents
anticipated market growth. High market share means that a business is a leader in that good
or service; low market share indicates that either the marketplace is heavily competitive or a
good or service has not had widespread market acceptance. A good or service can then take
up one of four theoretical positions within the model. A cash cow is a product that generates
cash and turnover, but has limited long-term prospects. The company in Figure 3.2 operates
two cash-cow businesses. A dog provides neither cash flow nor long-term opportunities and
does not hold great promise for improved performance. In the illustration, the company has
three dogs.
MARKET SHARE
the percentage relationship of an organization's sales to total industry sales
CASH COW
a product that generates a high volume of income in relation to the cost of maintaining its
market share
DOG
a product that provides neither cash flow nor long-term opportunities and does not hold
great promise for improved performance
Stars are products that have a dominant share of a fast-growing market. Although they
may not generate a large amount of cash at present, they have potential for high
returns in the future. Question marks are fairly speculative products that have highrisk
potential. They may be profitable, but because they hold a small market share,
they may be vulnerable to competition. Goods or services go through the product life
cycle, which can affect where they are positioned within the BCG model. A new product
may be in the ‘question mark’ cell; as it becomes successful it moves into the ‘star’
category, and then moves on to become a ‘cash cow’ before starting to decline and
becoming a ‘dog’.
STARS
products that have a dominant share of a fast-growing market
QUESTION MARKS
fairly speculative products that have high-risk potential. They may be profitable, but
because they hold a small market share, they may be vulnerable to competition
A good example of a tourism product that has taken up all four positions in the BCG model is
the Concorde jet airplane (see the Opening Vignette in Chapter 5). Beginning as a question mark,
the delta-winged marvel, a product of 1960s technology and optimism, quickly became a star as
business executives and famous stars asserted their status by happily spending thousands of dollars
to save a few hours’ travelling time. The product soon became a cash cow, and more than 2.5 million
passengers flew on British Airways’ Concordes after they entered service in 1976. However,
filling the 100 seats on a Concorde became increasingly difficult, and between 2000 and 2003,
Concorde could be classified as a dog. In April 2003 it was announced that the supersonic airline
run by British Airways and Air France would be retired that year because of slumping ticket sales.
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Chapter One

Introduction to Marketing for Tourism and Hospitality

Needs, wants and

Markets Products and services

Exchange, transaction Value, satisfaction and

Figure1.1: Core concepts of marketing

1.1.1. Needs, Wants and Demands

1.1.3. Value, Satisfaction and Quality

Customer Satisfaction: depends on a products’ perceived performance in delivering value

1.1.4. Exchange, Transaction and Relationships

Whereas exchange is the core concept of marketing, transaction is marketing’s unit of

1.2. The Concept of Marketing and Marketing Management

In terms of customers, marketing is concerned with:

In terms of producers, marketing focuses on:

The marketing of tourism is simply applying the appropriate marketing concepts to

1.3. Importance of marketing

1.4. Marketing Management Philosophies

1.4.1. Manufacturing (Production) Concept: It is one of the oldest philosophies guiding

1.4.2. Product Concept

1.4.3. Selling Concept

1.4.4. Marketing Concept

Starting Point Focus Means Ends

The Selling Concept factory/industry existing selling and profits through

The Marketing Concept market customer integrated profits through

Fig. Selling & Marketing concepts contrasted

1.4.5. Societal Marketing Concept

The Future of Marketing

Service Characteristics of Tourism and Hospitality Marketing

The service culture

A service culture empowers employees to solve customer problems. It is supported by a

In tourism, the customer participates in the production of the service. Organized

Some organizations standardize the service delivery to control heterogeneity of the

Table 1.1: Generic characteristics distinguishing services from goods

Particular characteristics of Travel and Tourism Services

Seasonality: peaks and troughs in demand

High fixed costs of service operations

Interdependence of tourism products

Management Strategies for Service Business

The chain consists five links:

 Interactive marketing- perceived service quality depends heavily on the quality of

Internal marketing External marketing

Fig: three types of marketing

Managing Differentiation: because of price competition, service firms need to develop

1. Tangiblizing the service product- promotional material, employees’ appearance, and

a. Internal marketing-see above

Model of Buyer Behavior

Marketing stimuli Other stimuli Buyer’s black box Buyer’s responses

Product economic Buyer Buyer decision Product choice

2.2 Factors Influencing Consumer Behavior

2.2.1 Cultural factors

2.2.2 Social Factors

 Reference Groups- serve as direct (face-to-face) or indirect points of comparison or

Reference groups influence consumers in at least 3 ways:

1. Bachelor stage: Few financial burdens. Fashion opinion leaders. Recreation

A person’s self-concept (self-image) is a mental self-picture. Our behavior tends to be consistent

2.2.4 Psychological Factors (Motivation, Beliefs & Attitudes, Perception, Learning)

 . Dissatisfies-factors causing dissatisfaction, and Satisfiers- factors causing satisfaction.

 People are more likely to notice stimuli that they anticipate.

2.4 Consumer Buying Process

Need/problem Information search Evaluation of Purchase decision Post purchase

Influencing Buyer Behavior

Steps between Evaluation of alternatives and Purchase decision