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1
INTRODUCTION TO HOSPITALITY MARKETING
CourtesyofSanAntonioConventionandVisitorsBureau.
Chapter Objectives
Afterstudyingthischapter,youshouldbeableto:
1.Explaintheimportanceofmarketingtothesuccessofahospitalityoperation,includingthe
definitionofthetermmarketingandthemarketingprocess.
2.Understandthehospitalitymarketingmixandthedifferencesbetweenthetraditional
marketingmixandthehospitalitymarketingmix.
3.Explainhowmarketingintangibleservicesisdifferentfrommarketingtangiblegoods.
4.Identifytheroleofadestinationmarketingorganization.
5.Explaintheservicetrendsthatareaffectingthehospitalityandtourismindustry.
1.1 INTRODUCTION
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Inrecentyears,mostofthegrowthinthehospitalityindustryhasoccurredinchainoperationsor
intheindustry'scorporatesegment.Thehospitalityindustryleaders,suchasMarriott
International,Hyatt,Hilton,McDonald's,Subway,ChoiceInternational,andStarwoodLodging,
continuetoincreasetheirshareofthemarketattheexpenseofsmallerchainsandindependent
operators.Whileindependentoperatorshavecontinuedtoprosper,especiallyinthefood
servicesector,themarketplaceismuchmorecompetitive.Anincreasedlevelofcompetitionhas
meantgreateremphasisonmarketing.Nolongerisitpossibleforanindividualtoopenand
operateafoodservicefacilitysuccessfullyongoodfoodalone.Toensureasteadyflowof
customers,ahospitalitymanagermustpossessathoroughunderstandingofmarketing.Without
themarketingmanagementskillsthehospitalityindustrydemands,ahospitalitymanagerisless
likelytoachievesuccesstoday.Withthiscontinualchangeandincreasedcompetition,whatare
themarketingfunctionsthatasuccessfulhospitalitymanagermustfulfill?Thischapter
introducesbasicmarketingdefinitionsandconcepts,includingthemarketingmix,themarketing
environment,themarketingmanagementcycle,andtheroleofmarketingwithintheoperationof
ahospitalityandtourismorganization.
1.1.1 Marketing Dened

Thetermmarketingencompassesmanydifferentactivities,soitisnecessarytodiscusssome
ofthetermsusedinthedefinitionofmarketing,andthroughoutthetext.First,thetermproduct
referstoallthegoodsandservicesthatarebundledtogetherandofferedtoconsumers.For
example,computersandautomobilesaresoldastangiblegoods,buttheyincludewarranties
andservicecontractsaspartoftheoverallproduct.Therefore,thetermproductreferstoboth
goodsandservices,butitisoftenthoughtofasagoodorcommodity.Nearlyeveryproductsold
includesbothtangibleandintangibleelements.Anothertermthatisusedtorefertotheproduct
asabundleofgoodsandservices,andeliminatetheconfusion,istheproductservicemix.
Marketing
Theprocessofcreating,pricing,promoting,anddistributingproductsandservicesto
consumersinamutualexchangeofvalue.
Product
Agood,idea,information,orservicecreatedtosatisfyaconsumerswantorneed.
Productservicemix
Thestrategicblendofafirmstangibleandintangibleattributes.
Aserviceisdefinedasanintangibleproductthatissoldorpurchasedinthemarketplace.A
mealpurchasedatafastfoodrestaurantoranoccupiedroominahotelisconsideredapartof
theservicesegment.Why?Simplystated,afterthemealisconsumedandpaidfororafterthe
individualchecksoutofthehotel,theindividualleavesthefacilityanddoesnothaveatangible
productinexchangeforthemoneyspent.Thisindividualhasconsumedaservicethatisapart
ofthehospitalityandtravelindustry,oneofthelargestserviceindustries.
Service
Anintangibleproductthatissoldorpurchasedinthemarketplace.
Eachyear,millionsofindividualsspendbillionsofdollarsvacationingandtravelingforbusiness
andpleasurewhenthetripisover,nothingtangibleremains.Tomoreclearlyreflecttheroleof
serviceindustries,suchasthehospitalityandtourismindustry,thedefinitionofmarketingcanbe
expandedtoincludereferencestoservices.Thiswilleliminatetheconfusioncausedbythe
semanticdifferencesbetweenproducts,goods,andservices,discussedearlier.Accordingtothe
AmericanMarketingAssociation,Marketingistheactivity,setofinstitutions,andprocessesfor
creating,communicating,delivering,andexchangingofferingsthathavevaluetocustomers,
clients,partners,andsocietyatlarge.1
Thevastmajorityofhospitalityestablishments,however,areoperatedtogenerateasatisfactory
returnoninvestmentintheformofprofitsorexcessrevenue.Theseprofitsareusedtopay
dividendstostockholdersandarereinvestedbytheorganizationtopromoteexpansionand
furtherdevelopment.Evennonprofithospitalityoperations,suchasselectedhospitals,nursing
homes,collegeoruniversityhospitalityoperations,andgovernmentrunhospitalityoperations,
mustbeconcernedwithmarketing.Managersofnonprofitoperationsmuststillunderstandthe
wantsandneedsoftheirconsumersandprovidegoodsandservicesatasatisfactoryleveltoas
manyindividualsaspossible.Auniversalconcernofallhospitalitymanagersisthefinancial
conditionoftheorganization.Whetheramanageristryingtoachievea20percentannualreturn
oninvestment(ROI)orisinsteadaimingtobreakevenonaverylimitedbudget,theoverriding
concernisstillfinancial.
Anotherfactorthatanydefinitionofmarketingmustincludeisafocusontheexchangethat
takesplacebetweenaproducerandaconsumer.Inorderforanexchangetotakeplace,both
parties
mustreceivesomethingtheyaresatisfiedwith.Inmostcases,consumersgiveproducers
moneyinexchangeforproductsandservicesthatmeettheconsumers'wantsandneeds.
However,theexchangecanincludeanythingofvaluetotheparties.Beforetherewasa
monetarysystem,peoplewouldbarter,orexchangegoodsandservicesratherthanmoney.
Therearestillcompaniesthatengageinbarteringtoday.Forexample,PepsiCochoseto
exchangeitssoftdrinkproductwithacompanyinMexicoforwineandotherproductstoavoid
incurringtheforeignexchangeriskassociatedwiththepeso,whichwasdevaluedatthetime.
Barter
Aprocessofexchanginggoodsandservicesratherthanmoney.
1.1.2 The Marketing Process

Theprocessofmarketingcanbebestunderstoodbyexaminingthediagrampresentedin
Figure1.1.Asyoucansee,thetargetmarket,orthosegroupsofconsumersthatthefirm
choosestotargetwithitsmarketingefforts,isatthecenteroftheprocess.Themarketing
conceptisbasedonthepremisethatfirmsdeterminecustomerwantsandneedsandthen
designproductsandservicesthatmeetthosewantsandneedswhileatthesametimemeeting
thegoalsofthefirm.Thisconceptisanextensionofearlierconceptsthatfocusedonthe
productionprocessasameanstodesignproductsandservices,orthesellingofalready
producedproductsandservices.Today,mostfirmsrealizethevalueofcustomerinputinthe
newproductdesignprocess.Theissuesuniquetomarketingservicesarediscussedlaterinthis
chapter,Chapter3focusesonthebehaviorofhospitalityconsumers,andChapter4discusses
theprocessofmarketsegmentationandpositioningproductsinthemarket.
Marketingconcept
Themarketingconceptisbasedonthepremisethatfirmsdeterminecustomerwantsand
needs,andthendesignproductsandservicesthatmeetthosewantsandneeds,whilealso
meetingthegoalsofthefirm.
FIGURE1.1Themarketingmixandexternalenvironment.
InFigure1.1,thefirstlayeraroundthetargetmarket,orconsumers,isreferredtoasthe
marketingmix.Themarketingmixhasfourcomponents:price,product,place,andpromotion.
TheseareoftenreferredtoasthefourP'sofmarketing,andtheyarethevariablesthat
managerscancontrol.Firmswillmanipulatethemarketingmixvariablestoformulatestrategies
thatarecombinedinamarketingprogramforaproductorservice.Thisprogramisthebasis
onwhichthefirm'sproductsandservicescompetewiththeofferingsofotherfirmsinthe
competitiveenvironment.Themarketingmixwillbediscussedinmoredetaillaterinthis
chapter.TheproductcomponentiscoveredinChapters7and8,thepricecomponentis
discussedinChapter9,theplace(distributionanddelivery)componentispresentedinChapters
10and11,andthepromotioncomponentisaddressedinChapters12through15.
Marketingmix
Thefourcomponents(price,product,place,andpromotion)thatarecontrolledby
organizationsandusedtoinfluenceconsumerstopurchasegoodsandservices.
Marketingprogram
Thesetofstrategiesbasedonthemanipulationofthemarketingmixtomeettargetmarket
preferences.
TheoutsidelayerofthediagramofFigure1.1representstheexternalenvironmentthat
influencesthemarketingprocess.Thestateoftheeconomy,trendsinsociety,competitive
pressures,politicalandlegaldevelopments,andadvancesintechnologyallaffectthe
performanceofaproductorservice.Firmscannotcontroltheseenvironments,buttheymust
monitorthechangesandtrendsintherespectiveenvironmentsandlookforopportunitiesand
threats.Thecomponentsoftheexternalenvironmentandsomeofthecurrenttrendsthataffect
hospitalityandtravelfirmswillbeexaminedinmoredetailinChapter2.
Externalenvironment
Theoutsideinfluencesonthemarketingprocessthatarenotunderthecontrolofthe
organization.
Firmsmustcontinuallymonitorenvironmentsandmakechangesintheirmarketingprograms.
Themarketingmanagementcycleinvolvesmarketingplanning,marketingexecution,and
marketingevaluation.Thiscycleisdiscussedbrieflyinthischapter,andChapter5coversthe
marketingplanningprocessindepth.Tobesuccessfulinmarketingplanning,firmsneedto
conductresearchandcollectinformationthatcanbeusedtoevaluatetheirprograms.Chapter6
discussesthemarketingresearchprocessusedtogatherinformationtobestoredinmarketing
informationsystemsandusedtomakemarketingdecisions.
Marketingmanagementcycle
Thedynamicprocessinvolvingmarketingplanning,execution,andevaluation.
1.1.3 The Emergence of the Marketing Concept

Ifahospitalityorganizationistomarketitsproductservicemixsuccessfully,itisessentialthat
themarketingconceptbethoroughlyunderstoodandfullyimplemented.Understandingthe
marketingconceptisnotdifficult,butimplementingitmayprovetobeverychallengingfor
management.Simplystated,themarketingconceptisaconsumerorientedphilosophythat
focusesallavailableresourcesonsatisfyingtheneedsandwantsoftheconsumer,thereby
resultinginprofits.Asanoldrhymestates,TosellJaneSmithwhatJaneSmithbuys,you've
gottoseethingsthroughJaneSmith'seyes.Clearly,itisdifficulttosellsomethingtosomeone
whohasnoneedforit.Ifthefirmadoptsaconsumerorientedmarketingphilosophy,however,
theproductservicemixwillbedesignedindirectresponsetounsatisfiedconsumerneeds.Asa
result,verylimitedactualsellingwillbenecessary.Insuchinstances,supplyanddemandarein
balance,andboththeconsumerandthehospitalityprovidersaresatisfied.
Table1.1illustratesthetwodifferentphilosophiesofthemarketingconceptthatareoften
practicedinthehospitalityandtourismindustry.Onedemonstratestheactionsofamanager
whoappliesthemarketingconcepttheotherdemonstratesactionsthatarenotconsistentwith
themarketingconcept.Thekeyquestiontoaskwhentryingtodistinguishbetweenthetwo
approachesis:Areconsumersgivenpriorityoristheoperationruntosuittheneedsofthe
employees,management,orowners?Amanagerofahospitalityoperationhasadifficultseries
ofdailychallenges.First,amanagerisexpectedtosuccessfullysatisfytheneedsofthe
hospitalityconsumers.Second,theownersexpectamanagertomaintainthelevelofexpenses
withincertainpredeterminedlimitsthatareusuallydefinedinactualdollarsorasapercentage
ofsales.Third,amanagerisexpectedtogenerateasatisfactoryreturnoninvestment(ROI)for
theowners.
TABLE1.1
MarketingConceptPhilosophies
DECISIONS WHENTHEMARKETINGCONCEPTISAPPLIED WHENTHE
MARKETINGCONCEPT
ISNOTAPPLIED
Menu Let'sconductfocusgroupinterviewsusingour Let'saddtwosteaksto
design currentandtargetmarketcustomerstodetermine themenuthat'swhatI
whichpotentialnewmenuitemsweshouldaddtoour liketoeat.
menu.
Pricing Howdoyouthinkourguestswillperceivetheprice Let'sincreasetheprice
valueofournewweekendpackageifweincreasethe by5percentthat'swhat
priceby5percent? wedidlastyear.
Guest I'mverysorrythatyouhadtowait20minutesfor I'msorryyouhadtowait,
service yourbreakfastthismorning.MayIofferyoua butwewereshorthanded
complimentarybreakfasttoday,orwouldyoulikethe today.Oneoftheservers
creditappliedtowardyourbreakfasttomorrow? calledinsick.
Guest Wedon'thaveanyroomswithakingbedavailableat Wedon'thaveanyrooms
requests thistime,butIcanhaveonereadyforyouin30 withakingbedleft.You'll
minutes.CanIhavethebellstaffcheckyourbags havetotakearoomwith
untilthen? twodoublebeds.
Reactionsto Thatisaverygoodidea.I'lltalkaboutitatourstaff Yourideaisn'tfeasible,
negative meetingtomorrowandseeifwecanuseyour andbesides,it'sagainst
guest suggestiontoimproveservice.Thanksforsuggesting ourpolicy.
comments that.
Thisreturnmightbethebreakevenpointinanonprofitoperationora10,15,or20percentrate
ofreturninacommercialoperation.Whatevertheexpectedreturn,amanagerisfacedwitha
seriesofdifficultobjectivestoachieve,andtheseobjectivesoftenconflictwithoneanother.
Eveninthemostsuccessfulcompanies,therearelimitedresourcesthatmustbeusedto
accomplishseeminglyunlimitedgoalsandobjectives.Regardlessofhowwellthecompanyhas
performedinthepast,ownersandseniormanagementwillalwaysexpectalittlemoreinthe
future.Guestsdevelopeverincreasingexpectationsforallaspectsoftheproductservicemix.
Ownerswantincreasedprofits,andtheemployeeswantalittlemoreeachyear.Themanager's
taskistobalancethethreeobjectivesmentionedintheprecedingparagraph.Managersoften
viewprofitabilityasthesinglemostimportantobjectiveofthefirm.Yet,forthelongterm
financialwellbeingofthefirm,profitsmaynotbethemostimportantobjective.Itisquite
possible,asmanyshortsightedownersandmanagershavedemonstrated,toachievehigh
levelsofshorttermprofitabilityattheexpenseoflongtermconsumersatisfactionandlongterm
profits.Afteraperiodoftime,however,consumerswillperceivethattheyarenotreceivinga
highlevelofvaluefortheirmoney,andtheoperationwilldevelopareputationforbeing
overpricedand/orofferingpoorservice.Asaresult,thenumberofpatronsislikelytodecline,
andsowillprofitability.
Bycontrast,ifmanagementestablishesaconsumerorientationandplacescustomer
satisfactionasthenumberonepriority,thefirm'sproductsandservicesaremorelikelytomeet
customers'
expectations.Asaresult,theywillreturnmorefrequentlytothehospitalityoperation,andthis
willhaveapositiveinfluenceonlongtermsalesandprofits.Inaddition,bytellingtheirfriends
andacquaintancesabouttheirpositiveexperiences,satisfiedconsumersarelikelytoinfluence
otherstopatronizetheestablishment.Thiswordofmouthpassedonbysatisfiedcustomers
canbecomeaveryimportantpartofafirm'spromotionalefforts.Itdoesn'tcostanything,yetit
canbeaverypowerfulinfluenceonsales,andassalesincrease,sodoesprofitability.
Experienceshows
thatwhenthemarketingconceptisunderstoodandappliedbyallofafirm'semployees,
substantialchangeshaveoftenbeenmadeintheestablishment'smannerofoperation,andthe
financialresultshaveoftenbeenimprovedsignificantly.
Wordofmouth
Aspokencommunicationbetweenconsumersthatinvolvestheirperceptionsabouta
productorservice.
Toremaincompetitive,hospitalityorganizationsmustkeepupwiththeeverchanging
market.
1.2 THE MARKETING MIX

Marketingmanagershaveusedthetermmarketingmixforalongtime.Theconceptofthe
marketingmixhasgaineduniversalacceptance.Itisimportantforhospitalitymarketingstudents
tounderstandthisconcept,bothconceptuallyandstrategically.Thissectionoutlinesthemajor
componentsofthetraditionalmarketingmix,andthenextsectioncoversthehospitality
marketingmixthatwasofferedasanalternativefortheindustry.Wewillexplainthesimilarities
anddifferencesbetweenthetwoapproaches.Asuccessfulhospitalityorganizationisonethat
focusesontheneedsandwantsoftheconsumersandmarketstheproductservicemixofthe
operation.Managementofthistypeofoperationinvolvesintegratingthecomponentsofthe
marketingmixintoamarketingprogramthatwillappealtopotentialconsumersandmeetthe
goalsandobjectivesofthefirm.Thefollowingsectionswillintroducethecomponentsofthe
marketingmix,whichwillbediscussedinmoredetailinChapters7through15.
1.2.1 The Traditional Marketing Mix

Themarketingmix,manybelieve,consistsoffourelements,oftencalledthefourP'sof
marketing:price,product,place,andpromotion.
1.2.1.1 PRICE.
Thepricecomponentreferstothevalueplacedbyafirmonitsproductsandservices.Someof
thedecisionsinvolvepricingtheproductline,discountingstrategies,andpositioningagainst
competitors.
Price
Pricereferstothevalueplacedbyafirmonitsproductsandservices.
1.2.1.2 PRODUCT.
Thiscomponentreferstotheuniquecombinationofgoodsandservicesofferedbyafirmto
consumers.Theproductincludesboththetangibleandintangibleelementsoftheservice
offering.Productdecisionsinvolveproductattributessuchasquality,thebreadthandmixofthe
productline(i.e.,thenumberandtypeofproductsandservicesofferedbyafirm),andservices
suchaswarrantiesandguarantees.
1.2.1.3 PLACE.
Theplacecomponentofmarketingreferstothemannerinwhichtheproductsandservicesare
beingdeliveredtoconsumers.Thiscomponentissometimesreferredtoasdistribution,andit
involvesdecisionsrelatedtothelocationoffacilitiesandtheuseofintermediaries.Inaddition,
themarketingofservicesincludesthedecisionregardingcustomerinvolvementinthe
productionprocess.
Place
Thiscomponent,sometimescalleddistribution,referstothemannerinwhichtheproducts
andservicesarebeingdeliveredtoconsumers.Itinvolvesdecisionsrelatedtothelocation
offacilitiesandtheuseofintermediaries.
1.2.1.4 PROMOTION.
Thiscomponentreferstothemethodsusedtocommunicatewithconsumermarkets.The
promotionmixincludesadvertising,personalselling,salespromotions(e.g.,coupons,rebates,
andcontests),andpublicity.Thesearethevehiclesthatcanbeusedtocommunicatethefirm's
intendedmessagestoconsumers.Thedecisionsforpromotioninvolvetheamounttobespent
oneachcomponentofthepromotionmix,thestrategiesforeachofthecomponents,andthe
overallmessagetobesent.
Promotionmix
Thebasicelements(advertising,publicrelations,salespromotions,andpersonalselling)
usedbyorganizationstocommunicatewithconsumers.
Toachievesuccessinmarketingahospitalityoperation,amanagermustcloselyexamineand
understandallthecomponentsofthemarketingmix.Tobesuccessful,thesecomponentsmust
becombinedintowellconceivedmarketingprogramsandmanagedproperly.Thereisno
magicalformulathatwillguaranteesuccess.Iftherewere,nohospitalityoperationwouldever
failorgooutofbusiness.Yeteachyear,manyhospitalityoperationsfailbecausemanagersare
unabletocombinetheelementsofthemarketingmixintoeffectivemarketingprograms,orthe
marketingmixisnotimplementedproperly.
Hospitalityfirmsusetheelementsofthemarketingmixtoestablishacompetitive
positioninthemarket.
1.2.2 The Hospitality Marketing Mix
Justasresearchershavedemonstrateddistinctdifferencesbetweengoodsandservices,some
researchersbelievethatthetraditionalfourP'sapproachtothemarketingmixdoesnotapplyto
thehospitalityindustry.Rather,amodifiedmarketingmixismoreappropriate.Thishospitality
marketingmixconsistsoffivecomponents:2
1.Productservicemix
2.Presentationmix
3.Communicationmix
4.Pricingmix
5.Distributionmix
Hospitalitymarketingmix
Hospitalitymarketingmixconsistsoffivecomponents:productservicemix,presentation
mix,communicationmix,pricingmix,anddistributionmix.
1.2.2.1 PRODUCTSERVICE MIX.

Theproductservicemixisacombinationofalltheproductsandservicesofferedbythe
hospitalityoperation,includingbothtangibleandintangibleelements.Forexample,itincludes
suchthingsasthetypeofguestroom,theamenitiesoffered,andthebroadarrayofelements
offeredtotheconsumer.Section1.3addressesfurthertheuniquenatureofservices.Keepin
mindthatonceahospitalityconsumerleavesthehotelorrestaurant,thereisnothingtangibleto
show.Becausetheconsumerhaspurchasedandconsumedtheservice,thelargestpartofthe
hospitalityindustryproductservicemixisindeedtheintangibleelementsofservice.
1.2.2.2 PRESENTATION MIX.

Thepresentationmixincludesthoseelementsthatthemarketingmanagerusestoincreasethe
tangibilityoftheproductservicemixasperceivedbytheconsumer.Thismixincludesphysical
location,atmosphere(lighting,sound,andcolor),andpersonnel.
1.2.2.3 COMMUNICATION MIX.

Thecommunicationmixinvolvesallcommunicationthattakesplacebetweenthehospitality
operationandtheconsumer.Itincludesadvertising,marketingresearch,andfeedbackabout
consumerperceptions.Thecommunicationmixshouldbeviewedasatwowaycommunication
link,ratherthanasasimpleonewaylinkwiththehospitalityoperationcommunicatingtothe
consumer.Thistwowaylinkallowsforthetraditionaladvertisingandpromotionthatflowfrom
thesellertothebuyer,butitalsoallowsformarketingresearchand
otherdatacollectionvehicles.Inthesecases,thesellerisseekinginformationanddatafromthe
consumer,therebyestablishingopencommunicationwiththevariousmarketsegments.
Therearesomesimilaritiesanddifferencesbetweenthetraditionalmarketingmixandthe
hospitalitymarketingmix.Inthehospitalityversion,theproductcomponentisexpandedto
includesomeaspectsofdistribution.Peoplearepartoftheproductionprocessinservices,and
distributionoccursinthepresenceoftheconsumer.Thecommunicationmixisalmostidentical
withthepromotioncomponentinthetraditionalmarketingmix,althoughitdoesincludesome
additionalcommunicationssuchasmarketingresearch.Finally,thepresentationmixrepresents
thelargestdeparturefromthetraditionalmarketingmix.Itincludespriceandsomeofthe
aspectsoftheplacecomponentsuchaslocation,anditaddselementssuchasatmosphereand
thepersonalcontactbetweencustomersandemployees.
1.2.2.4 PRICING MIX.

Inadditiontotheactualpriceafirmcharges,thepricingmixencompassestheconsumer's
perceptionofvalue.Thepricingmixincludessuchvariablesasvolumediscountsandbundling
multipleproductstogetherforanoveralldiscountedprice.Thisbundlingapproachisused
extensivelybyfastfoodchainsasamethodtoincreasespendingpercustomer.
1.2.2.5 DISTRIBUTION MIX.

Thedistributionmixincludesalldistributionchannelsavailablebetweenthefirmandthetarget
market.Historically,distributionoccurredatthepointofproduction,suchastherestaurant
wherethefoodwasproduced.Thishaschangedasaresultofnewerdistributionchannels,
suchastheInternetandecommercetheimportanceofthedistributionmixhasincreased.
Themarketingmix,whetherdesignedinthetraditionalormodifiedhospitalityservicesformat,is
animportantconceptformanagersofmarketingfunctions.Initially,themarketingmixisusedto
formulateamarketingstrategyandplan(seeChapter5),butitpervadesallaspectsof
marketingmanagement.Severalexternalfactorscanreducetheeffectivenessofthemanager's
effortstosuccessfullyimplementallthecomponentsofthehospitalitymarketingmix.These
factors,whichmayhaveeitherdirectorindirectinfluence,areconsumerperceptions,attitudes,
andbehaviorindustrypracticesandtrendslocalcompetitionbroadnationalandinternational
trendsandgovernmentpolicyandlegislation.
1.3 SERVICES MARKETING

Thegrowthintheservicesectoroftheworldwideeconomyhasbeenphenomenalinthelast
severaldecades.IntheUnitedStates,servicescurrentlyaccountformorethan75percentof
thegrossdomesticproduct(GDP),whichisapopularmeasureofaneconomy'sproductivity.
Similarly,onaninternationalscale,servicescontinuetoaccountforaneverincreasing
percentageofeconomicactivity.Mostnewjobsarecreatedintheservicesector,andthegrowth
inthehospitalityandtourismindustryisamajorcontributor.
Fromthe1940suntilthemid1980s,theemphasiswithinthemarketingcommunitywason
products.Today,serviceshavesurpassedproductsandhavetakenonamoreimportantrolein
marketing.Services,suchasthoseofferedbyprovidersinthehospitalityandtourismindustry,
havedevelopedmarketingstrategiesandpracticesthatareunique.Ithasbeenestablishedthat
thestrategies,tactics,andpracticesthathavebeenusedsuccessfullyforproductmarketersdo
notalwaysworksuccessfullyforthosewhomarketservices.Withthedistinctdifferences
betweenproductsandservicesinmind,thefieldofservicesmarketinghasevolved.
Servicesmarketing
Theuseofmarketingprinciplestocreateanddeliverintangibleitemstoconsumers.
1.3.1 Services Dened

Unlikeproducts,whicharetangible,servicesareintangible.Aserviceisnotaphysicalgood
rather,itistheperformanceofanactoradeedanddoesnotresultinthephysicalownershipof
anything.Thisperformanceoftenrequiresconsumerstobepresentduringtheproductionor
deliveryoftheservice.Serviceindustries,includinghospitalityandtourism,areactuallyselling
consumersanexperience.Servicesvarybasedonnumerouscriteria:thedegreeoftangibility,
thedegreeofcustomization,theskillsoftheserviceprovider,theamountofcustomercontact,
andwhethertheyareservicesforpeople(e.g.,restaurantsandhealthcare)orservices
performedforgoods(e.g.,drycleaningandequipmentrepairs).
Serviceemployeessuchasfrontdeskagents,housekeepers,hostesses,waitstaff,carrental
agents,flightattendants,andtravelagentsareresponsibleforcreatingpositiveexperiencesfor
customers.Thesefrontlineemployeesarecriticaltothesuccessofservicefirmsandplay
boundaryspanningrolesbecauseoftheirdirectcontactwithcustomers.Theserolesare
importantbecausecustomers'perceptionsofservicefirmsareformedasaresultoftheir
dealingswiththeseemployeeswhorepresentthecompanyanditsintangibleproduct.
Boundaryspanningroles
Rolesthatfrontlineemployees(e.g.,frontdeskclerks,waiters,flightattendants,travel
agents)perform.
Severalreasonsunderlietheremarkablegrowthinservices.Twoleadingservicesmarketing
experts,ChristopherLovelockandLaurenWright,citenumerousreasonsforthisgrowth.The
followingisalistofreasonsthatpertaintohospitalityandtourism:3
Changingpatternsofgovernmentregulation.Thereductioningovernmentregulationhas
pavedthewayforthegrowthofservices.Thetrendisforgovernmenttotakealessactive
roleintheregulationofbusinessactivities,suchasremovingbarrierstoentryandrelaxing
(orremoving)regulationsgoverningmarketingelementssuchasprice.Forexampletravel
firmssuchasairlinesandhotelshavebeenabletoimplementmodelsthatadjustprice
continuouslyinanattempttosellexcesscapacitythatcannotbeinventoried.Thisis
basicallyalegalformofpricediscriminationthatcannotbeusedfortangiblegoods.
Privatizationofsomepublicandnonprofitservices.Privatizationisaprocesswhereby
thegovernmentallowsanindustryorbusinesstochangefromgovernmentalorpublic
ownershiporcontroltoaprivateenterprise.Thistransformationisnecessaryinamarket
driveneconomywheremeetingconsumerneedsisamainpriorityandcostcontainmentis
necessary.Forexample,manycountrieshavereleasedthecontrolofairlinesandother
travelrelatedagenciestoprivatefirmstoimproveservicequalityandmaketheoperations
moreefficient.
Technologicalinnovation.Technologycontinuestoalterthewayfirmsdobusinessand
interactwithconsumers.Inalltypesofbusinesses,consumerstakeamoreactiveroleinthe
servicedeliveryprocess.Forexample,inanefforttoreducelaborcostsandincreasespeed
ofservicetocustomers,airlineshaveaggressivelypromotedselfcheckin,bothatticket
counterkiosksandthroughtheirwebsitespriortoarrivalattheairport.Customersmayprint
boardingpasses,receipts,andotherdocumentswithoutinterventionbyanairlineemployee.

Expresscheckoutforhotelguestshasbeeninplaceformanyyears,buthotelchains
continuetoexperimentwithwaystoenhancetheservice,therebyreducinglaborcosts
and/orincreasingthecustomers'perceivedvalue.Inothersettings,touchscreen
computerscollectfeedbackfromguests,inmuchthesamemannerthatcommentcards
havebeenusedpreviously.Theeasewithwhichacompanycanmaintainandaccessa
databasehaspermittedthedevelopmentofproficientreservationsystemsandhasledto
moreenhancedfrequenttravelerprograms.Theuseofmoresophisticatedreservationsand
propertymanagementsystemshasallowedhospitalityandtourismfirmstoimprovethelevel
ofserviceprovidedtoguests.Guesthistorydataserveasanotherexampleofhowa
hospitalityorganizationcanusetechnologytogainacompetitiveadvantage.Ifahotelguest
requestsaspecifictypeofpillow,forexample,staffcanrecordthispreferencewithinthe
individual'sguesthistoryfile.Whenthisguestchecksintoanotherhoteloperatedbythe
chain,theitemsthatwerepreviouslyrequestedcanbewaiting,withouttheguesteven
havingtorequestthem.
Growthinservicechainsandfranchisenetworks.Muchofthegrowthinservicefirms,
includingthehospitalityindustry,hasbeenthedirectresultoffranchisingeffortsbysomeof
themajorcompanies.NotablelodgingorganizationssuchasChoiceHotelsInternationaland
MarriottInternational,aswellasfoodservicefirmssuchasMcDonald's,BurgerKing,
Subway,TacoBell,andWendy's,haveallusedfranchisingasamajorvehicleforgrowth.
Thecontinuedgrowthofthehospitalityindustrybymeansoffranchisinghasputadditional
stressonindependentownersandoperators.Infact,eachyearthepercentageofhospitality
andtourismoperationsthatareindependentlyoperateddecreases.
Internationalizationandglobalization.Increasingshareholdervalueoftenremainsdirectly
associatedwithincreasingcompanysalesandprofits,andglobalizationisonemeansof
achievingthis.Asmoreandmoreoftheprimelocationsaredevelopeddomestically,
companieslookinternationallyforexpansionopportunities.Thishasbeenparticularlytruefor
fastfoodfranchisorsasignificantproportionoftheirexpansionduringthelastfewyearshas
occurredoutsideoftheirtraditionaldomesticmarkets.
Pressurestoimproveproductivity.Thereisstiffcompetitioninmanyoftheservice
industries,includinghospitality,andthepressurefrominvestorsforhigherreturnsoncapital
hasledtoanincreasedemphasisonimprovingproductivityandreducingcosts.Inmany
cases,managersseektoreducelaborcostsbyrunningleaneroperationsorusing
technologytoreplacehumansforsometasks.Anexampleofthisishowairlinesencourage
passengerstocheckinviatheInternet,therebyreducingthenumberofpassengerswho
needtocheckinattheairport.Althoughincreasingproductivityandprofitsremainsahighly
desirablegoal,itmustnotbedoneattheexpenseoflongtermcustomersatisfaction.
Withoutlongtermsatisfaction,futureprofitabilityisatrisk.
Theservicequalitymovement.Withtheadventofconsumerism,thepublic'sperceptionis
thatservicequalityhasdeclined.Inresponse,successfulfirmsareusingthecustomers'
perceptionsofqualitytosetperformancestandards,ratherthanrelyingsolelyon
operationallydefinedstandardsforservicequality.Companiesoftenconductextensive
researchtodeterminethekeyelementsthatimpactthecustomers'perceptionsofservice
quality.WhenRitzCarltonwontheMalcolmBaldrigeNationalQualityAward,thiswas
tangibleevidencethatpayingcarefulattentiontocustomers'serviceexpectationscanhavea
dramaticeffectonthefirm.
Expansionofleasingandrentalbusinesses.Theexpansionofbusinessesthatlease
equipmentandpersonneltofirmshasbeenacontributingfactorinthegrowthoftheservice
sector.Moreandmorefirmsarelookingtooutsourceelementsoftheiroperation,andthey
oftenstartwithelementsthatarenotpartofthefirm'scoreproductorbusiness.For
example,mosthotelsthathostmeetingsandconventionshaveoutsourcedtheservicingof
theaudiovisualneedsofgroupstoacompanythatspecializesinthattypeofbusiness.The
company,inturn,leasestheaudiovisualequipmenttogroupsthatareholdingmeetingsin
thehotel.Thecompanyisabletoprovidemoreuptodateandspecializedequipmentto
groupsthanthehotelmightifitprovidedtheserviceitself.Thehoteldoesnothaveto
maintainaninventoryofequipment,andthereforecapitalcostsarereduced.

Hiringandpromotionofinnovativemanagers.Inthepast,managersintheserviceindustries
oftenspenttheirentirecareerswithinasingleindustrysegment,orperhapsevenwiththesame
firm.Thissituationhaschanged,especiallyatthecorporatelevelofmanagement.Firmsoften
hireindividualsfromotherindustriestoprovideafreshperspectiveandnewideas.Manyofthe
largelodgingchainshirekeyexecutivesfromotherindustriesthatcanprovidevaluableinsight
inareaslikehumanresources,sales,marketing,andfinance.
Perceivedvalue
Theworthorutilityofaproductorserviceheldinthemindsofconsumers.
Globalization
Firmsexpandoutsideoftheirtraditionaldomesticmarkets(i.e.,expandingworldwide).
Thefrontdeskagentoftensetsthetoneforguestservice.
1.3.2 The Nature of Services: Differences between Goods and Services

Alongwiththegrowthinservices,anappreciationforthewaysinwhichservicesaredifferent
fromproductshasdeveloped.Thetraditionalwaysofmarketingtangibleproductsarenot
equallyeffectiveinservicesmarketing.Inmanyindustries,marketinginvolvestangible
manufacturedproducts,suchasautomobiles,washingmachines,andclothing,whereasservice
industriesfocusonintangibleproductssuchastravelandfoodservice.However,before
exploringhowservicesgetsuccessfullymarketed,weneedtoexaminethewaysservicesdiffer
fromproducts.LovelockandWrighthaveidentifiedninekeydifferences:4
1.Noownershipbycustomers.Acustomerdoesnottakeownershipwhenpurchasinga
service.Thereisnotransferofassets.
2.Serviceproductsasintangibleperformers.Thevalueofpurchasingservicesliesinthe
natureoftheperformance.Forexample,ifyoudecidetocelebrateabirthdayoranniversary
bydiningatanexpensiverestaurant,thevalueliesinthewayinwhichtheserviceactors
(i.e.,waitersandwaitresses)perform.Whenserverscometothetableandpresentallthe
entreessimultaneously,thechoreographedpresentationappearsinthesamemannerasa
choreographedplayorperformance.
3.Greaterinvolvementofcustomersintheproductionprocess.Becauseconsumerstend
tobepresentwhenreceivingservicewithinahospitalityoperation,theyremaininvolvedin
theserviceproduction.Inmanyinstances,theyaredirectlyinvolvedthroughtheelementof
selfservice.Examplesofthiscanbeseeninfastfoodrestaurantswhencustomerspoor
theirowndrinks,orinairportswhencustomerscheckinatkiosks.Inanycase,acustomer's
levelofsatisfactiondependsonthenatureoftheinteractionwiththeserviceprovider,the
natureofthephysicalfacilitiesinwhichtheservicegetsprovided,andthenatureofthe
interactionwithotherguestspresentinthefacilityatthetimetheserviceisprovided.
4.Peopleaspartoftheproduct.Peopleorfirmsthatpurchaseservicescomeincontactwith
otherconsumersaswellastheserviceemployees.Forexample,ahotelguestwaitsinline
atthefrontdeskortheconciergedeskwithotherguests.Inaddition,theguestsshare
facilitiessuchasthepool,therestaurant,andthefitnesscenter.Therefore,servicefirms
mustalsomanageconsumerinteractionstothebestoftheirabilitiestoensurecustomer
satisfaction.Forinstance,ahotel'ssalesofficewouldnotwanttobookanondrinking
religiousgroupatthesametimeasahighschoolseniortrip.Thetwogroupsaresignificantly
differentinbehavior,andtheexpectationisthattheywouldnotmixwellwithinthefacilitiesat
thesametime.
5.Greatervariabilityinoperationalinputsandoutputs.Inamanufacturingsetting,the
operationalproductioncanbecontrolledverycarefully.Forexample,staffaccurately
manageinventoryandpreciselycalculateproductiontimes.Services,however,aredelivered
inrealtime,withmanyvariablesnotbeingfullyunderthecontrolofmanagers.Forexample,
ifaguesthasbeenpromisedanearlycheckinbutalloftheguestsfromtheprecedingnight
arelateincheckingout,itbecomesmoredifficultforthehoteltohonorthearrivingguest's
request.Inotherwords,itismoredifficulttocontrolqualityandofferaconsistentservice
experiencethanmanufacturingaproduct.Servicefirmstrytominimizetheamountof
variabilitybetweenserviceencounters,butmuchofthefinalproductstayssituational.There
aremanyuncontrollableaspectsofthedeliveryprocesssuchasweather,thenumberof
consumerspresent,theattitudesoftheconsumers,andtheattitudesoftheemployees.
6.
Harderforconsumerstoevaluate.Consumerscanreceiveconsiderableinformation
regardingthepurchaseofproductshowever,theyoftendonotobtainitforservices.Priorto
buyingaproduct,aconsumercanresearchtheproductattributesandperformanceanduse
thisinformationwhenmakingapurchasedecision,especiallyanimportantone.Incontrast,
itisdifficulttoevaluateaserviceuntilafteritisconsumed.Forexample,travelersnormally
bookhotelroomsandcruisevacationsmonthsinadvanceandhavetowaituntilafterthetrip
toevaluatetheexperience.
7.Noinventoriesforservices.Duetotheintangiblenatureofservices,theycannotbe
inventoriedforfutureuse.Therefore,alostsalecanneverberecaptured.Whenaseat
remainsemptyonaflight,ahotelroomstaysvacant,oratablestaysunoccupiedina
restaurant,thepotentialrevenuefortheseservicesatthatpointintimebecomeslostforever.
Inotherwords,servicesareperishable,muchlikeproduceinasupermarketoritemsina
bakery.Itremainscriticalforhospitalityandtourismfirmstomanagesupplyanddemandin
anattempttominimizeunusedcapacity.Forexample,restaurantsofferearlybirdspecials
andhotelsofferdiscountedroomratesinanattempttoshiftdemandfrompeakperiodsto
nonpeakperiods,therebyincreasingrevenueandprofits.
8.Importanceoftime.Hospitalityservicesaregenerallyproducedandconsumed
simultaneously,unliketangibleproducts,whicharemanufactured,inventoried,andthensold
atalaterdate.Customersmustbepresenttoreceivetheservice.Therearedefinitelimitsto
theamountoftimethatcustomersarewillingtowaittoreceive,orconsume,aservice.
Servicefirmsstudythephenomenonofservicequeues,orthemaximumamountoftimea
customerwillwaitforaservicebeforeithasasignificant(negative)impactonhisorher
perceptionofservicequality.Thisisacommonissueattouristattractions.Forexample,
amusementparksofferprioritypassesaseitherarestrictedcomponentofthebasicticket
purchase,oratanadditionalprice,thatallowsvisitorstogothroughshorterridelines.
9.Differentdistributionchannels.Thedistributionchannelforservicesisusuallymoredirect
thanthetraditionalchannel(i.e.,manufacturerwholesalerretailerconsumer)usedbymany
productfirms.Thesimultaneousproductionandconsumptionnormallyassociatedwith
servicedeliverylimitstheuseofintermediaries.Theservicefirmusuallycomprisestheroles
ofboththemanufacturerandtheretailer,withnoneedforawholesalertoinventoryits
products.Consumersarepresenttoconsumethemealspreparedinarestaurant,totake
advantageoftheamenitiesinahotel,andtotravelbetweencitiesbyplane.
Intangibleproducts,suchasacruisevacation,arethebasisofservicesmarketing.
1.3.3 Search, Experience, and Credence Qualities
ConsumerbehavioriscoveredingreaterdepthinChapter3,butabriefintroductiontothe
subjectasitrelatestoservicesbecomesusefulatthispoint.Whenconsumersmakepurchase
decisions,theymovethroughaseriesofstepsthatexplainthethoughtprocessleadingupto
andfollowingthepurchaseofaproductorservice.Priortomakingapurchasedecision,
consumerslookforinformationabouttheproductorservice.Searchqualitiesareattributes
thattheconsumercaninvestigatepriortomakingapurchase.Whenpurchasinghospitalityand
tourismservices,consumersrelyheavilyonwordofmouthandonpromotionalelementssuch
asadvertisingandpublicity.Becauseservicesareintangible,searchqualitiescanbedifficultto
evaluate.However,advancesintechnologyandtheincreaseinconsumeradvocacygroups
haveresultedinmoreinformationbeingavailabletoconsumerspriortopurchase.
Searchqualities
Attributesthattheconsumercaninvestigatepriortomakingapurchase.
Thesecondsetofqualitiesconsumersusetoevaluateservicesareexperiencequalities.
Theserefertotheattributesthatcanbeevaluatedonlyafterthepurchaseandconsumptionofa
service.Theintangiblenatureofservicesforcesconsumerstorelyheavilyonexperience
qualitiesinthefinalevaluationofservices.Therefore,ahighriskremainsassociatedwiththe
purchaseofservices.Forexample,consumerswhowanttopurchaseanautomobilewilltest
drivethecarandreviewandconsulttheconsumerperformancedatathatareavailableonthat
model.Conversely,consumerswhorentcarscannotevaluatetheirpurchasesuntilafterthey
havecommittedtheirpayment.Fewconsumerswilltakethetimeormaketheefforttotestdrive
potentialrentalcarspriortomakingadecisionatthetimeofrental.Similarly,consumersare
takingariskwhentheychoosearestaurantbecausetheycannotsamplemealsbeforetheyare
purchased.
Experiencequalities
Attributesthatcanbeevaluatedonlyafterthepurchaseandconsumptionofaservice.
Finally,credencequalitiesarethoseattributesthataredifficulttoevaluateevenafterthe
serviceisconsumed.Eventhoughyouarrivesafelyatyourdestinationafteraflight,youcannot
evaluatethepilot'sworkinanyrealdepth.Inmanycases,youknowaservicewasnot
performedcorrectlyonlywhenanobviousmistakeexists.Forexample,bacteriaoftenappearon
foodservedinrestaurants,butthepublicbecomesawareofitonlywhenmajorramifications
suchasfoodpoisoningordeathsgetpublicized.
Credencequalities
Attributesthataredifficulttoevaluateevenaftertheserviceisconsumed.
Purchasedecisionsrelatedtoservicesaremoredifficulttomakebecauseofthelackofsearch
qualitiesandthedifficultyinevaluatingcredencequalities.Consumerstendtorelyontheirown
pastexperiencesandthoseofotherswhenmakingpurchasedecisions.Therefore,servicefirms
mustobtainasmuchfeedbackfromconsumersaspossible.Ifconsumersdonotreturn,thefirm
maynotknowwhy,andtheconsumerswillprobablytellothersabouttheirexperience.Service
firmsshouldknowifconsumersarenotsatisfiedsothatappropriateactionscanbetakento
improvethequalityofserviceandincreaserepeatbusiness.
1.4 DESTINATION MARKETING

Atourismdestinationoffersbothtangibleandintangibleproducts.Thetangibleproductsinclude
thetouristattractionsandfacilitiesforlodging,dining,shopping,andparking.Theintangible
productistheimageofthedestination.Thecomplexityofdestinationmarketingisthattourists
usuallyselectamongdestinationsbasedonthetotalsetofdestinationattributes,notan
individualfirm'smarketingeffort.Therefore,intheincreasinglycompetitivemarketplace,
marketingalliancesbetweentheprivateandthepublicsectorscancreateeconomiesofscale
forthedestination.IntheUnitedStates,tourismmarketingalliancesareoftenformedbya
combinationofagenciessuchastheconventionandvisitorbureaus,ChambersofCommerce,
localgovernments,andtourismoperators.
AccordingtotheDestinationMarketingAssociationInternational(DMAI),destination
marketingorganizations(DMOs)areprimarilyconcernedwithpromotingthelongterm
developmentandmarketingofadestination,focusingonconventionsales,tourismmarketing,
andservice.5ThetwomostcommonformsofDMOsareconventionandvisitorsbureaus
(CVBs)andtourismbureaus.Infact,DMAIchangeditsnamefromtheInternationalAssociation
ofConventionandVisitorsBureaus(IACVB)tobetterrepresentthefunction(i.e.,destination
marketing),ratherthanjustoneoftheorganizationsinvolvedinmarketingdestinations.
Destination
marketingorganizationsmarkettheirdestinationstobusinesstravelers,touroperators,meeting
andeventplanners,andindividualtourists.
DestinationMarketingOrganization(DMO)
Governmentornonprofitorganizationresponsiblefordevelopingandpromotingtourism
andvisitationtoadestination.
Tourismbureausaremainlygovernmentorganizationsthatarefundedthroughthe
government'srevenuesourcessuchasstateandfederaltaxes.(Thiscouldbereferredtoas
provincesandnational,respectively,inothercountries.)Theseorganizationsarepartofthe
governmentsystemthatincludesotherdivisionssuchaseducation,transportation,and
defense.IntheUnitedStates,conventionandvisitorsbureausaretypicallynotforprofit
organizationsthatarefundedthroughacombinationofhoteltaxesandmembershipdues.A
smallpercentage(15to20percent)ofCVBsareeitheragovernmentagencyoradivisionofthe
ChamberofCommerce.Otherfundingsourcesincludegovernmentgrants,revenuesfrom
advertisingandvisitorcenterservices,anddonatedservices.However,conventionandvisitors
bureausdonotnormallychargecustomersfortheirservices.Finally,themajorexpensefor
CVBsisadvertisingandpromotion(includingpersonalselling).
ThemembershipofaCVBconsistsoforganizationsfromthevariousstakeholders.The
stakeholdersforCVBsarethosebusinesseswhosellproductsorservicesthatareattractiveto
associationsandcorporationsthatholdmeetingsandevents,aswellastheindividualtravelers.
Forexample,obviousstakeholderswouldbehotelsandotherlodgingfacilities,convention
centers,restaurants,andtouristattractions.Other,lessobvious,stakeholderswouldbeevent
organizers,shoppingfacilities,andconventionservicessupplierssuchasdecorators,
entertainmentcompanies,destinationmanagementcompanies(DMCs),andlocaltransportation
companies.Conventionandvisitorsbureausaregovernedbyaboardofdirectorsthatfollowsa
publishedlistofbylaws.ThemajorgoalsofCVBsarethefollowing:6
Toencourageassociationsandcorporationstoholdmeetings,conventions,andtradeshows
inthearea.
Toassistassociationsandcorporationscoordinatingtheirconventions,seminars,andtrade
showsinthearea.
Toprovideservicestotourplanners,bothdomesticandinternational.
Toprovideleadershipforthevisitorindustry,buildtheimageofthearea,andencourage
marketingactivities.
Toprovideadditionalsupporttotravelwriterstohelpsellthearea.
1.5 SERVICE TRENDS AFFECTING THE HOSPITALITY AND TOURISM

INDUSTRY
Identifyingtrendswithinanybusinessisoneofthekeystosuccess.Beinginapositionto
identifywhatisoccurringandwhatislikelytooccurinthefutureremainsveryimportant.When
studyingtrendsinabroadsense,oneshouldexaminefivemajorareas:thecompetitive
environment,theeconomicenvironment,thepoliticalandlegalenvironment,thesocial
environment,andthetechnologicalenvironment.Thisisreferredtoastheexternalenvironment
andiscoveredindetailinChapter2.
Severalissuesandtrendsarecriticaltounderstandinghospitalityandtourismmarketing.They
helpputintoproperperspectivewhatoccurswithinthecompetitivemarketplace.Threetrends
thatarehavinganimpactonthehospitalityindustryandwillcontinuetodosoareshrinking
customerloyalty,increasingcustomersophistication,andincreasingemphasisontheneedsof
individualcustomers.
1.5.1 Shrinking Customer Loyalty

Advertisingandpromotionforthehospitalityandtourismindustry'sproductservicemixhave
traditionallyfocusedontheproduct,theservicesprovided,andthephysicalplantoratmosphere
inwhichthecustomerenjoystheproductservicemix.Today,manyhospitalityandtourismfirms
focustheirpromotionsonpricethatis,heavypricecompetitionexistsalongwithagooddealof
discounting.Unfortunately,pricediscountingexistsasashorttermstrategythatseldombuilds
brandloyalty.Consumersoftenshoparoundforthebestdealandareloyalonlytoorganizations
thatgivethemaconsistentlysuperiorone.Recognizingthis,companieshavesoughtwaysto
increasebrandloyalty,especiallyamongheavyusersoftheproductservicemix.Thebest
examplesofthisapproacharethefrequentflyerprogramspromotedbytheairlinesandthe
frequenttravelerprogramspromotedbythelodgingcompanies.Theseloyaltyprogramsare
commonplaceinthelodgingindustryallofthemajorchainsuseloyaltyprogramstoencourage
andrewardfrequentguests.Thestrategybehindloyaltyprogramsistohookthecustomerwith
pointsthatcanberedeemedforproductsorservices.Themorefrequentlythecustomerstays
atahoteloperatedbythecompany,themorepointsareearned.Thebasicconceptscommonto
alloftheseprogramsareasfollows:
Identifyindividualswhofrequentlypurchaseyourproductservicemix.
Recognizethecontributionthoseindividualsmaketothesuccessofyourcompany.
Rewardthoseindividualswithawardsandincentivesthatwillincreasetheirloyaltytoyour
companyanditsbrands.
Tieinswithothercompaniesprovidingtravelrelatedservicesarealsofrequentlyused.For
example,airlines,hotels,andcarrentalcompaniesfrequentlyofferbonuspointswithintheir
programsifthetravelerusestheservicesofferedbyoneofthecompaniesparticipatinginthe
tiein.Boththeairlinesandthehotelcompaniesareconstantlymakingminoralterationstotheir
programs.
1.5.2 Increasing Consumer Sophistication

Thebudgetsegmentofthelodgingindustryhasundergonesignificantgrowthinthelastseveral
years.Thisgrowthhasbeenfueledbytheconsumerdemandforaffordableaccommodations
thatprovidegoodvalue.Infact,consumersfocusmoreonvalueandlessonqualityorprice
alone.Consumershavebecomemoresophisticatedandunderstandtheconceptofvalueatany
pricelevel.Companieshaverespondedwithbrandsthatoffergoodqualityatanaffordableprice
(e.g.,HamptonInn,ComfortInn,HolidayInnExpress,andFairfieldInn).Eachofthesebrands
featuresnicelyappointedguestrooms,limitedornopublicmeetingspace,limitedornofood
serviceprovidedonthehotelsite,andacomplimentarycontinentalbreakfastforguests.These
limitedservicebrandsincurlowerdevelopmentandoperatingexpensesandtherebycan
provideguestswithalowerpriceandgoodvalue,somethingthatallconsumersareseeking.
Hotelsintheupscalesegmentarealsotryingtoincreasetheconsumer'sperceptionofvalue.
Theycontinuallyprovideabroadassortmentofamenities,suchashealthclubsontheproperty,
businesscenters,roomsthatprovidemoreworkspaceforbusinesstravelers,andpersonalized
conciergeservice.Thesepropertiesarestrivingtobecomeonestopdestinations,providinga
completeproductservicemixthatincludesmanyfoodandbeverageoutlets,inhouseoffice
services,awidevarietyofmeetingroomconfigurations,andotherservices,suchasrecreation,
thatwillappealtopotentialguests.Withinthefastfoodservicesegment,companiesoften
bundletheirproductsinanattempttoincreasesalesandprovideabettervaluefortheir
customers.Forexample,theycombineasandwich,alargeorderoffrenchfries,andalargesoft
drinkatapricelowerthanwhattheitemswouldcostifpurchasedseparately.Similarly,tour
operatorsandtravelagentsattempttoprovidecustomerswithmorevaluebybundlingthe
variouscomponentsoftravel(e.g.,airlineticket,hotelroom,carrental,andticketsfortourist
attractions)atapricelowerthanthesumoftheindividualcomponents.Thisapproachisknown
asproductbundling.
Productbundling
Anapproachwheregoodsandservicesarecombinedintooneoffering,typicallyatalower
pricethaniftheindividualgoodsandserviceswerepurchasedseparately.
1.5.3 Increased Emphasis on the Needs of Individual Customers

Themarketswithinbothhospitalityandtourismsegmentshavebeensegmentedforalongtime.
Inthepast20years,thistrendhasbecomeevenmorepronounced.Massmarketinghas
becomeathingofthepastasmorefirmsextendtheirproductlinestomeetthespecificneedsof
smallersegmentsoftravelersanddiners.Thisphenomenonhasbecomemostapparentinthe
lodgingindustry.
Duringthelastdecade,mostofthemajorlodgingchainsdevelopedseveralnewbrandsor
typesoflodgingpropertiestoappealtomarketsegmentsthattheywerenotcurrentlyserving.In
addition,manyhotelchainshavemergedwith,oracquired,otherhotelchainsthatfocuson
differentmarketsegments.Forexample,MarriottpurchasedtheRitzCarltonchaininthe1990s
tohavebetteraccesstotheluxuryhotelmarket.
Hotelsprovideamenities,suchashealthclubs,toincreasetheconsumer'sperception
ofvalue.
Improvementsintechnologyhavegivenfirmstheabilitytomaintainlargedatabasesthatdetail
consumerpurchasingbehaviorandpreferences.Thisinformationcanbeusedtodirect
marketingeffortstowardindividualcustomersormarketsegments.Insteadofrelyingonthe
massmediaforpromotions,amarketercantargetpastcustomersthroughdirectmailande
mailwithspecialpromotionsandincentivesthathaveahigherprobabilityofbeingsuccessful.
Thereismorecustomizationofproductsandpromotionsandlesswastedcoveragewithmedia
campaigns.
CHAPTER REVIEW
SUMMARY OF CHAPTER OBJECTIVES
Thischapterservedavitalfunctioninintroducingmanyconceptsthatwillbeused
throughoutthisbook.First,itprovidedanintroductiontomarketing,includingthedefinition
ofmarketing,themarketingprocess,andthedifferencebetweenmarketingandselling.For
thepurposesofthistext,marketingwasdefinedastheprocessofdeterminingconsumer
needs,creatingaproductservicemixthatsatisfiestheseneeds,andpromotingthe
productservicemixinordertoattainthegoalsandobjectivesofthefirm.
Themarketingprocessstartswithresearchtodeterminethewantsandneedsof
consumerssothatproductsandservicescanbedevelopedtofulfillthoseneeds.Then,
oncetheproductservicemixisdetermined,thefirmdevelopsamarketingprogramusing
theotherthreeelementsofthemarketingmix:price,place,andpromotion.Thestrategies
foreachofthefourP'sarecombinedintoamarketingprogramthatisusedtopositionthe
firm'sproductsandservicesinthemarketplace.
Thenextsectionintroducedthereadertotheimportantareaofhospitalityservices
marketing.Itbeganbydescribingservicesandexplainingthecharacteristicsthatseparate
tangibleproductsandservices.Servicesareintangibleandcannotbeinventoried.This
requireschangesinthedistributionprocess,anditmakesitdifficulttomaintainconsistent
quality.Italsorequiresmoreinvolvementonthepartofcustomers,whoactuallybecome
partoftheproduct.Theintangiblenatureofservicesresultsinmoreofanemphasison
experiencequalitiesthatareevaluatedafteraproductbecomesconsumed,andlesson
searchqualitiesthatcanbeevaluatedpriortopurchase.
Thechapterendedwithanoverviewofdestinationmarketingandadiscussionofthe
servicetrendsaffectingthehospitalityandtourismindustry.Destinationmarketingwas
explainedandthemostcommondestinationmarketingorganizations(tourismbureausand
conventionandvisitorsbureaus)weredescribed,includingthefundingandoperationsof
theorganizations.Finally,servicetrendssuchasshrinkingcustomerloyalty,increased
consumersophistication,andtheincreasedemphasisontheneedsoftheindividual
consumerwerepresented.
KEY TERMS AND CONCEPTS

Barter
Boundaryspanningroles
Credencequalities
Destinationmarketingorganization(DMO)
Experiencequalities
Externalenvironment
Globalization
Hospitalitymarketingmix
Marketing
Marketingconcept
Marketingmix
Marketingprogram
Perceivedvalue
Place
Price
Product
Productbundling
Productservicemix
Promotionmix
Searchqualities
Service
Servicesmarketing
Wordofmouth
QUESTIONS FOR REVIEW AND DISCUSSION

1.Whyhasmarketingassumedapositionofincreasedimportanceinthe
managementofhospitalityorganizations?
2.Whatismarketing?Whyisitimportanttothesuccessofafirm?
3.Whatisthemarketingconcept?Whatroleshouldthemarketingconceptplayin
managingahospitalityortourismfacility?
4.
Whatisthemarketingprocess?Brieflyexplaintheprocessanditselements.
5.Discussthecomponentsofthetraditionalandhospitalitymarketingmixes.What
PRINTEDBY:spammy.tu@gmail.com.Printingisforpersonal,privateuseonly.Nopartofthisbookmay
roledoesthehospitalitymanagerplayinmanagingthemarketingmix?Howis
bereproducedortransmittedwithoutpublisher'spriorpermission.Violatorswillbeprosecuted.
themarketingmixused?
6.Whatfactorscanaffectthemarketingmix?Howmightthesefactorsaffectthe
marketingmix?Howmightamanageranticipatetheimpactthatthesefactors
mighthave?
7.Whatareservices?Doyoubelievethatservicesmarketingshouldbestudied
separatelyfromproductmarketing?Whyorwhynot?
8.Listanddiscussseveralofthereasonsbehindthegrowthinservices.Whichof
thesedoyouconsidertobethemostimportant?Why?
9.Howdoservicesdifferfromtangiblegoods?
10.Whataredestinationmarketingorganizations?Whatistheirmajorfunction?
11.Whatarethetwomostcommontypesofdestinationmarketingorganizations?
Howaretheyfunded?
12.Describetheservicetrendsthatareaffectingthehospitalityandtourismindustry.
CASE STUDY
Campus Center Hotel
AlargestateuniversityinacollegetownintheNortheastownsandoperatesa120room
hotelonitscampus.ThereisahotelmanagerwhoreportstotheCampusCenterbuilding
manager.TheCampusCenterbuildingalsohasabookstore,retailfoodoperations,apost
office,abarbershop,andseveralothersmallretailstoresgearedtowardstudents.In
addition,thereismeetingspaceoperatedbyConferenceServicesthatisindependentof
thehotel,butthetwoenterprisesworkcloselytoattractgroupsforconferencesand
seminars.Thereisn'tadedicatedparkingareaforthehotel,butthereisaparkinggarage
withinwalkingdistancethatisconnectedthroughanundergroundtunnel.However,ittakes
about10to15minutestogettothegaragefromthehotel,andthereisan$8.00dailyfee
forparking.Alltheoffcampuscompetitorshavefreeparkinginlotsadjacenttothehotels.
Intermsofcompetition,thereareseverallimitedservicehotels(e.g.,EconoLodge,Holiday
InnExpress,andHamptonInn)andaMarriottCourtyardwithin2to5milesofthecampus.
However,noneofthosehotelshasasmuchmeetingspaceastheCampusCenterHotel,
nordotheyhavethelevelofcateringservicesthatthecampuscanoffer.Unfortunately,the
CampusCenterHoteldoesnothaveafullservicesitdownrestaurantlikethoseinclose
proximitytosomeofthecompetitors'hotels.Guestshavetoleavethecampustofind
anythingmorethanquickservicestylefood.Mostoftherestaurantsintheareaarequick
serviceorcasualdining,althoughthereareafewrestaurantsthatwouldbeconsideredfine
casualorfinedining.Somearewithinwalkingdistanceofthecampus(about1miletothe
smalldowntownarea),butthatisn'tagoodoptionfromNovemberthroughFebruarywhen
theweatheriscold.
Recently,thehotelmanagerwasaskedtoassessthehotel'scurrentoperationand
determinewhatcouldbedonetobettercompetewiththeotherhotelsforthetransientand
corporatemarkets,aswellassomeofthesportsteamsandsmallergroupsthatfrequent
thearea.Luckily,thehotelmanagerhadadegreeinhospitalitymanagementandstudied
hotelmarketing.HeknewthattheCampusCenterHotelhadarelativelyloweraverage
roomratethantheotherhotelsbecauseofthegroupbusinessandthediscountsgivento
theuniversity'sstudentsanddepartments.Healsoknewthattheotherhotelswerenewer
andhadrelativelyniceraccommodationsforguests.Finally,themanagerknewthatthe
otherhotelsalsohadlargeradvertisingbudgetsbecausetheywereaffiliatedwithknown
brandsthroughafranchiseagreement.TheCampusCenterHotelreliedonwordofmouth
throughstudentsandalumni,ConferenceServicessalespeople,andtheuniversity's
website.
Case Study Questions and Issues

1.Howcanthemarketingmixbeappliedtothissituation?Discusseachofthefour
traditionalcomponents(i.e.,4P's)andhowtheycanbeusedtoincreaseoccupancyand
revenuesfortheCampusCenterHotel.
2.Whatotherinformationwouldbeusefulforthistaskandhowcanitbeobtained?
3.Howwouldthistypeofmarketingmixanalysisbedifferentifitwasforatangiblegood
suchasacomputerinsteadofahotel(service)?
CASE STUDY
Location, Location, Location?
BruceAdamsstoodintheparkinglotfacinganemptyrestaurantbuilding.Therestaurant
hadclosed60daysearlier,afterbeinginbusinessforabout8months.Ashevisually
surveyedthearea,henoticedseveralthingsofinterest.Thebuildingitselfwasfairlynew,
havingbeenbuilt10yearsagobyafranchiseeofanationalbudgetsteakhousechain.In
thecurrentconfiguration,thebuildinghadthreeseparatediningareas,withseatingfor40,
50,and30intherespectiveareas.Inaddition,therewasaloungethathad12seatsatthe
barandspaceforanadditional16seats.Thequalityofthebuildingwasverygood,andthe
equipment,althoughnotnew,wascertainlybetterthanwhathe'dseeninotherlocations.
Bruce,whoownedthreeotherrestaurantsinanothercitywithinthestate,believedthatthe
localareaofferedpotential.Asuccessful130room,fourstoryDaysInnwaslocatednextto
therestaurant,anditwaspositionedataninterchangeofaninterstatehighway.Asmall
residentialcommunitynorthoftherestaurantconsistedofapproximately100singlefamily
homespricedslightlyabovetheaverageforthecity.Totheeastandsouthoftherestaurant
wereover1,500apartments,occupiedpredominantlybystudentsattendingalocal
university.Thecityinwhichthebuildingwaslocatedhadarapidlygrowingpopulationof
50,000,andtheeffectivetradingareapopulationforbusinessesinthecitywasover
200,000.Severaluniversitiesandacommunitycollegewerewithina10mileradiusofthe
restaurant.
Thelocalindustrialbaseconsistedofanumberofsmallmanufacturingoperations.The
largestemployersmanufacturedpartsfortheautomotiveindustry,publishedbooksfor
nationalandinternationaldistribution,manufacturedequipmentfortheagriculturalindustry,
producedbeerforoneofthenation'slargestbrewers,andprovidedtruckingand
transportationservices.Inaddition,therewasagrowingserviceeconomy,andthecitywas
hometoaregionalmedicalcenterandastrongprofessionalcommunity.Atthepresent
time,overalleconomicconditionsintheareaweregood.Unemploymentwasverylow,less
than2percent,wellbelowboththestateandnationallevels.
Ashestoodintheparkinglot,Brucediscussedtherestaurantsitewithabusiness
associateandacommercialrealestateagent.Heaskedwhathefeltwasanobvious
question:Withwhatappeartobesomanypositiveattributesforthislocation,whyhasn't
anyonebeensuccessfulhere?Inthe10yearssincethebuildingwasconstructed,there
hadbeenfivedifferentrestaurantconcepts,noneofthemsuccessful.Thefailedconcepts
includedabudgetsteakhouse,asouthernbarbecuerestaurant,twodifferentmidpriced
casualdiningconcepts,andmostrecentlyasomewhatupscalefinediningconcept.Allhad
proventobeunsuccessful.Mostclosedtheirdoorswithin9to12months.Thelongest
runningrestaurantremainedopenfor22months.Theonlyindividualsmakinganymoney
fromthislocationwerethecommercialrealestateagents.Asthediscussioncontinued,
Brucewonderedaloud,Whattypeofproductservicemixmightbesuccessfulhere?What
typeofconceptmightattractandretaincustomers?Howmightweapproachthe
developmentofasuccessfulrestaurant?

1.Howcanthemarketingconceptbeappliedtothissituation?
2.ShouldBrucebeconsideringthepotentialproductservicemixforarestaurantatthis
locationatthistime?Orshouldhebefocusedonotherissues?Ifso,whatmightthey
be?
3.WhatinformationdoesBruceneedinordertomakeadecisionaboutthepossible
purchaseorleaseofthissite?
NOTES
1AmericanMarketingAssociationDictionarywebsite,
www.ama.org/AboutAMA/Pages/DefinitionofMarketing.aspx.
2LeoRenaghan,ANewMarketingMixfortheHospitalityIndustry,TheCornellHoteland
RestaurantAdministrationQuarterly(April1981),pp.31,35RobertC.Lewis,RichardE.
Chambers,andHarshaE.Chacko,MarketingLeadershipinHospitality:Foundationsand
Practices,2nded.(NewYork:WileyandSons,1994),pp.394395.
3ChristopherH.LovelockandLaurenWright,PrinciplesofServiceMarketingandManagement,
1sted.(EnglewoodCliffs,NJ:PrenticeHall,1999),pp.714.
4Ibid.,pp.1417.
5DestinationMarketingAssociationInternational,www.destinationmarketing.org/page.asp?
pid=21.
6Richard.B.Gartrell,DestinationMarketingforConventionandVisitorBureaus,2nded.
(Dubuque,IA:Kendall/Hunt,1994).
2
THE EXTERNAL ENVIRONMENT AND SUSTAINABILITY
CourtesyofLEGOLANDCalifornia.LEGO,LEGOLAND,theLEGOandLEGOLANDlogosandthebrick
configurationaretrademarksoftheLEGOGroupandareusedherewithspecialpermission.2004The
LEGOGroup.
Chapter Objectives
1.Discusstheexternalenvironmentsthatinfluencethehospitalitymarketingprocess.
2.Describetheconceptofsustainabledevelopment.
3.Describehowtomanageforsustainabledevelopmentandcommunicateinitiatives.
2.1 INTRODUCTION
Duringthepastdecade,manychangeshavehadanimpactonthehospitalityindustryinthe
UnitedStates.Theindustryhasconfrontedandadaptedtosuchdiversesituationsaseconomic
recession,overbuilding,increasedcompetition,increasedemphasisontechnology,increased
emphasisontheenvironment,newerformsofdistributionandsalesusingtechnology,increased
foreignownershipofpreviouslyAmericanbrands,changesindininghabits,changesinfood
consumptionpatterns,theeverincreasingglobalizationofthehospitalityandtourismindustry,
andtheimpactofinternationalterrorism.Eachoftheseexternalforceshasbroughtwithit
changesthathospitalityfirmshavehadtomaketosurviveandremaincompetitiveinaglobal
marketplace.Thisrelatestotheconceptofsustainabilitythatreferstotheabilityofan
organizationtofunctionefficientlyandeffectivelyandremaincompetitiveoverthelongterm.
Sustainability
Theabilityofindividualsororganizationstoendureandfunctionoverthelongterm.
Initially,thebusinesscommunityfocusedoneconomicsustainability,butnowtheworldhas
embracedanapproachthatseekstoensureenvironmentalandsocialsustainabilityaswell.In
otherwords,thereisanemphasisonpeopleandtheplanet,aswellasprofits.Thehospitality
andtourismindustryisheavilyaffectedbythisinitiativebecauseitrelies,toalargeextent,on
travelbetweendestinations.Althoughvisitorsareagoodpositivesourceofeconomicimpacton
adestination,therearealsonegativeimpactsontheenvironmentandthelocalcommunity.
Therefore,itisnecessaryfordestinationstomanagethepositiveandnegativeimpactsrelated
totheireconomies,environments,andsociety.Thischapterwillstartwithadiscussionofthe
externalenvironmentthataffectshospitalityandtourismfirms,andthenaddresstheissueof
sustainability.
2.2 THE EXTERNAL ENVIRONMENT

Whenmarketingmanagersconsiderchangesinmarketingstrategyortactics,theyoften
examinethechangesinfivemajorcomponentsoftheexternalenvironment:economic,social,
competitive,politicalandlegal,andtechnological.Firmscannotdirectlyinfluencetheirexternal
environment,buttheycanmonitorchangesandbesomewhatproactive.Itiscriticalforfirmsto
engageinsomelevelofenvironmentalscanning,sotheycantakeadvantageofmarketing
opportunitieswhileanticipatinganythreatstotheirbusiness.Environmentalscanningcanbea
formalmechanismwithinafirm,ormerelytheresultofsalespeopleandmanagersconsciously
monitoringchangesintheenvironment.Thelargerthefirm,themorelikelyitwillhavea
structuredapproachtoscanningtheenvironmentanddocumentingtrends.Thefollowing
sectioncontainsbriefdescriptionsofeachoftheexternalenvironments.
Environmentalscanning
Environmentalscanningcanbeaformalmechanismwithinafirm,ormerelytheresultof
salespeopleandmanagersconsciouslymonitoringchangesintheenvironment.
2.2.1 The Economic Environment

Thegoalofallmarketingactivityistocreateandsatisfycustomers.Consumers'purchasing
power,orabilitytopurchaseproductsandservices,isdirectlyrelatedtotheeconomichealthof
thecity,state,andcountry.Asmarketersstudytheeconomicenvironment,theyareconcerned
aboutsuchthingsasinflation,recession,unemployment,resourceavailability,interestrate
trends,personalincomegrowth,businessgrowthandperformance,andconsumers'confidence
intheeconomy.Thereareotherkeyeconomictermsthatrelatetomarketingandwillbeused
throughoutthetext.Theconsumerpriceindex(CPI)isameasureoftherelativelevelofprices
forconsumergoodsintheeconomy.Asthismeasurerises,therearemoreconcernsabout
inflationandapooreconomy.Thetermdisposableincomereferstotheportionofan
individual'sincomethatisleftforspendingafterrequireddeductionssuchastaxes.
Discretionaryincomeisprobablyamoreimportantmeasureformostmarketersbecauseit
referstotheincomethatisavailableforspendingafterdeductingtaxesandnecessary
expendituresonhousing,food,andbasicclothing.
Purchasingpower
Theextenttowhichconsumershavetheabilitytopurchaseproductsandservices.
Consumerpriceindex(CPI)
Ameasureoftherelativelevelofpricesforconsumergoodsintheeconomy.
Disposableincome
Anindividual'sincomethatremainsforspendingafterrequireddeductionssuchastaxes.
Discretionaryincome
Anindividual'sincomethatisavailableforspendingafterdeductingtaxesandnecessary
HotelssuchastheWingateTulfarrisHotelandGolfResortinCountyWicklow,Ireland,
offerarangeofroomratesandamenitiesforguestswithdifferinglevelsofpurchasing
power.
Herearesomeexamplesofissuesandtrendsrelatedtotheeconomicenvironmentthataffect
thehospitalityandtravelindustry:
Thepercentageofindependentlyownedhospitalityoperationshasdeclined,resultingina
concentrationofpoweramonglargehospitalitychains.Inturn,thesechainshavebecome
large,multinationalfirmsbasedintheUnitedStatesorabroad.
Anincreaseintheamountofdiscretionaryincomehasresultedinanincreaseinthe
percentageofthehouseholdfoodbudgetspentoutsidethehome.Foodawayfromhomeas
ashareofhouseholdfoodexpenditureshasrisensteadilysince1970,reaching43.1percent
in2012.1
Afteraperiodofexcesssupplyduetooverbuildinginthe1980s,hoteloccupancy
percentagesfelltothelow60s.Thistrendlaterreverseditselfbecauseofthestrong
economyandbusinessgrowth.Followingarecessionintheearly1990s,occupancyand
profitabilityreachedalltimehighsformanylodgingcompanies.Then,inthe2000s,the
eventsofSeptember11andtheglobalrecessioncausedhoteloccupanciestodecreaseand
manypropertiessufferedoperatinglosses.Thehospitalityindustry,likemostother
industries,experiencesthesebusinesscyclesresultinginperiodsofexpansionand
recession.
Variationsinconsumerpurchasingpowerhaveledthehospitalityandtravelindustrytooffer
productsandservicesatdifferentpricelevels.Forexample,mostofthemajorlodgingchains
nowhaveestablishedmultiplebrands,rangingfromeconomytoluxury,basedonpricesand
amenities.Eachbrandtargetsaspecificmarketsegment.
Someoftheissuesintheeconomicenvironmentarecloselyrelatedtothetrendsinthesocial
environment,whichwillbediscussednext.
2.2.2 The Social Environment

Thereareconstantchangesinthesocialenvironmentasconsumersevolve.Thesocial
environmentisaffectedbyalltheotherenvironments.Changesintheeconomy,advancesin
technology,competitiveactions,andgovernmentregulationsallshapethewayconsumersview
theworld.Thesechangesmaybesudden,ortheymaytakeplaceoveranumberofyearsor
evendecades.
First,therehavebeenchangesindemographics,orcharacteristicsthatdescribethe
population,suchasage,income,education,occupation,familysize,maritalstatus,andgender.
Second,therehavebeenchangesinconsumers'attitudes,interests,andopinionsthat
determinetheirlifestyles.
Demographics
Characteristicsthatdescribethepopulationsuchasage,income,education,occupation,
familysize,maritalstatus,andgender.
Someissuesrelatedtothesocialenvironmentaffectthehospitalityandtravelindustry:
Theincreaseddiscretionaryincomeandtimepressuresexperiencedbytwoincomefamilies
haveanimpactontheirlodging,dining,andtravelbehaviors.Thesefamiliestakemorebut
shortervacationstofittheirbusylifestyles.Also,theyarequalityconsciousandfocuson
brandnames.
TheproportionofolderAmericansandtheirpurchasingpowerarecontinuallyincreasing.
Seniorcitizensarebecomingaveryimportantmarketsegmentbecausepeopleareliving
longer.Furthermore,thereisanimprovedqualityoflifeamongseniors,andtheirdisposable
incomecontinuestoincrease.Thissegmenthasspecificneeds,andtheAmerican
AssociationofRetiredPersons(AARP)isoneofthestrongestpoliticallobbying
organizationsinthenation.
ThedietaryhabitsoftheAmericanpeoplehavealsochanged,andinsomewaysarebipolar:
thepercentageofindividualscharacterizedasoverweightorobeseisatanalltimehigh,yet
manyindividualsareshowinganincreasedconcernfortheirhealth.Thetrendhasbeen
towardhealthier,morenaturalfoods.Insupportofthis,theUnitedStatesDepartmentof
AgriculturepublishesDietaryGuidelinesforAmericans,whichoutlinesthedietarygoalsfor
thenation.TheAmericanHeartAssociationprovidesmenureviewandrecipesthatmeet
theirdietaryguidelinesforgoodhealth.Manyfoodserviceoperationsnowfeaturemenu
itemsthathavebeenapprovedbythisorganization.TheNationalRestaurantAssociation
hasalsobeenactiveinthisarea,especiallyineducatingitsmembers.
Fastfoodrestaurants,extendedstayhotels,andthegrowthinthecruiseindustryareallthe
resultofchangesinthesocialenvironment.Thesechangescanofferopportunitiesfornew
productsandservices,whileposingathreattoexistingcompanies.Forexample,theincreasing
emphasisonbrandnameshasresultedintremendousgrowthinrestaurantchainssuchas
OutbackSteakhouse,Starbucks,PaneraBread,Subway,Chili's,andApplebee's.Thisgrowthof
regionalandnationalbrandshascomeattheexpenseofmanyindependentrestaurants.
2.2.3 The Competitive Environment

Withinallmarkets,avarietyofcompetitorsseektowinthefavoroftheconsumer.Eachoffers
whatitbelieveswillbethebestcombinationofproductsandservicesdesignedtoresultin
maximumconsumersatisfaction.Thecompetitivestructureinanindustrycanrangefroma
monopoly,withonesellerandmanybuyers,toperfectcompetition,withmanybuyersand
sellersofhomogeneousproductsthatarealmostexactlythesame.Inbetween,thereisthe
oligopoly,withafewsellersandmanybuyers,andthemostcommonformofcompetitive
structure,monopolisticcompetition,wheretherearemanybuyersandsellerswith
differentiatedproducts.Thepriceelasticityofdemandisameasureofthepercentagechange
indemandforaproductresultingfromapercentagechangeinprice.Thepriceelasticityof
demandnormallyincreasesasthecompetitivestructurechangesfrommonopolytooligopolyto
monopolisticcompetitionandendswithperfectcompetition.Thehospitalityandtourismindustry
ishighlycompetitive,withnewcompaniesenteringtheindustryeveryday.Inthebusinessworld,
fourlevelsofcompetitionmustbeconsideredinorderforfirmstobeabletoprotecttheir
positionsinthemarket:2
Competitivestructure
Acombinationofbuyersandsellersinamarket.
Monopoly
Acompetitivestructureinanindustrywithonesellerandmanybuyers.
Perfectcompetition
Acompetitivestructureinanindustrywithmanybuyersandsellersofhomogeneous
productsthatarealmostexactlythesame.
Oligopoly
Acompetitivestructureinanindustrywithafewsellersandmanybuyers.
Monopolisticcompetition
Acommon,competitivestructurewheretherearemanybuyersandsellerswith
differentiatedproducts.
Priceelasticityofdemand
Ameasureofthepercentagechangeindemandforaproductresultingfromapercentage
changeinprice.
Productformcompetitionexistsamongcompaniesthatprovidesimilarproductsand
servicestothesamecustomersatasimilarpricelevel.Forexample,McDonald's
competeswithBurgerKingandWendy'sDeltaAirlinescompeteswithUnitedAirlinesand
USAirwaysHertzcompeteswithAvisandNationalandFourSeasonsHotelscompetes
withRitzCarltonandotherluxuryhotels.
Productcategorycompetitionexistsamongcompaniesthatmakethesameclassof
products.Inthiscase,McDonald'scompeteswithotherfastfoodrestaurantssuchasPizza
Hut,TacoBell,andKFCDeltaAirlinescompeteswithcharterairlinesandcommuterairlines
HertzcompeteswithallthelocalrentalcarcompaniesandFourSeasonsHotelscompetes
withnonluxuryhotelchainssuchasMarriottandSheraton.

Generalcompetitionexistsamongcompaniesthatofferthesamebasicservicethat
fulfillsthesamebasicconsumerneeds.Forexample,McDonald'scompeteswithall
restaurantsaswellaswithconveniencestoresandsupermarketsDeltaAirlinesandHertz
competewithallformsoftransportation,suchasbusandrailandFourSeasonsHotels
competeswithallformsoflodging,suchasbedandbreakfastsandboutiquehotels.
Budgetcompetitionexistsamongallcompaniesthatcompeteforconsumers'
disposableincomes.Mostconsumershavelimitedbudgetsthatcanbeusedfor
purchasingproductsandservices,andallcompaniescompetefortheseconsumerdollars,
especiallydiscretionaryincome.Thehospitalityandtravelfirmsdiscussedearlierwould
competewithdepartmentstores,movietheaters,healthclubs,andfinancialinstitutionsfor
consumers'limitedresources.
Ascompaniesexaminethecompetitiveenvironment,threeimportantquestionsneedtobe
addressed.Thequestionsmayseemstraightforward,buttheanswersareoftendifficultto
determine,andmanyfirmsdonotmakethecorrectdecision:
1.Shouldwecompete?
2.Ifwecompete,inwhatmarketsshouldwecompete?
3.Whatshouldourcompetitivestrategybe?
Theresponsetothefirstquestionshouldbebasedonsuchthingsasthefirm'sresourcesand
objectives.Thecompanymustexaminethelevelofpotentialsales,potentialprofitability,andthe
overallfeasibilityofcompeting.Afirmmaydecidethatitshouldnotcompeteiftherisks
outweighthepotentialreturnsoriftheprojectedreturnsarenotashighasitwouldliketosee.
Thesecondquestionrelatestothemarketsinwhichafirmwishestocompete.Mostfirmselect
nottocompeteinallpotentialmarkets.Forexample,althoughmanyfirms,suchasMarriott
International,havedevelopedbrandsthatcompeteinallpricesegmentsofthelodgingindustry
(economythroughluxury),others,suchasHyattHotelsandResorts,initiallydidnotchooseto
competeinallpricesegments.Ownersbelievedthatthesinglebrandstrategywouldservethe
firm'sbestlongterminterests.Morerecently,Hyatthasadoptedthemultibrandstrategy.The
followinginformationwaspostedatwww.hyatt.com:
Hyatt Brands and Afliates in Addition to Hyatt Hotels

Andaz:Boutiquestylehotels
HyattPlace:Upscaleselectservicehotels
HyattHouse:Upscaleallsuitehotelswithfullkitchensforextendedstayguests
HyattResidenceClub:Collectionofgenerouslyappointedluxuryresidencesinexclusive
destinations
HyattZilaraandHyattZiva:Allinclusiveresorts
Thethirdquestionrelatestomarketingstrategy.Howshouldthefirmattempttogaina
competitiveadvantage?Thesedecisions,whichwillbeexploredinmuchgreaterdepth
throughoutthetext,arerelatedtoissuessuchasproductsandservices,pricing,distribution,
andpromotion.
2.2.4 The Political and Legal Environment

Understandingthepoliticalandlegalenvironmentmeansunderstandingtherulesand
regulationsbywhichthecompetitivegameisplayed.Atalllevelsofgovernmentlocal,state,
national,andinternationaltherearelawsandregulationsthatbusinessesmustfollow.To
competesuccessfully,afirmmustunderstandnotonlythecurrentlawsandregulationsbutalso
anynewonesthatmightcomeintoplayinthefuture.Mostprofessionalhospitalityandtourism
managersbelongtooneormoreprofessionalassociations.Oneofthegoalsofthese
associationsistohelpmembers
notonlyunderstanddevelopinglawsandregulationsbutalsotohaveinfluenceinhowtheyare
writtenthroughlobbyingeffortswithpoliticiansandgovernmentofficials.Twoexamplesof
hospitalityindustryassociationsaretheNationalRestaurantAssociation(NRA)andthe
AmericanHotel&LodgingAssociation(AH&LA).Herearesomeexamplesofissuesrelatedto
thepoliticalandlegalenvironmentthataffectthehospitalityandtourismindustry:
Changesinthefederaltaxcodeshavemadehoteldevelopmentlessdesirablethan
underprevioustaxcodes.Socalledpassiveinvestments,inwhichtheinvestorisnotan
activeparticipantinthedailymanagementofthefacility,arenottreatedasfavorablyunder
thenewfederaltaxcodesastheywereinthepast.Asaresult,futurehoteldevelopment
decisionsarebasedmoreonoperationalfeasibilityandlessontherealestateinvestment
aspectsoftheproject.
Asameanstoreducethefederalbudgetdeficit,costsarebeingshiftedtostateand
localgovernments.Toraisetaxrevenuesatthelocallevelwithoutincurringthedisapproval
oflocalvoters,manylocalitieshaveimplementedorincreasedtaxesonlodgingand
restaurantmeals.Theseusertaxesservetoincreaseconsumerperceptionsofthepricesfor
hospitalityandtravelproductsandcanhaveamajornegativeimpactonoperations.
Changesinnutritionlabelingandfoodhandlingrequirementsaffectthefoodservice
industry.TheFoodandDrugAdministrationandotherfederal,state,andlocalagencies
enactrulesthatrequiresfoodserviceproviderstodisplaynutritionalinformationontheir
menus,andusesafefoodhandlingprocedurestoprotectconsumers.
National,state,andlocalgovernmentsalsopasslawsthatcanaffectfirms'operations
withoutusingtaxes.Forexample,thefederalgovernmentintheUnitedStateshaschosen
tostayonthesidelines,localandstategovernmentsaretakingontheissueofsmokingin
publicplacessuchasrestaurants.Thisdirectlyaffectsthecompetitivestructureofthe
industrywhenregulationsdonotaffectallfirmsequally.
Affordablepriceandfamiliarbrandsareimportantinaglobalmarket.
Theideaofalevelplayingfieldiscriticalwhengovernmentsevaluatenewtaxesand
regulations.Itisoftendifficultforfirmstoaddresssocialissuesasapriorityoverprofits,
especiallysmallfirmswithverylimitedresources.However,governmentscanmakesurethat
theirlawsandregulationsdonotdistortthebalanceofcompetition.
Smokingbanshaveaffectedhospitalityfirmsandconsumers.Thisisasmokingzone
intheMunichAirport.
2.2.5 The Technological Environment
Weliveinanincreasinglytechnologicalandinterconnectedsociety.Withtheevolutionofthe
personalcomputerfromanexpensivedesktopmachinetootherdevicessuchaslaptops,
smartphones,andtabletsandthepervasiveaccesstotheInternetviacellulardataplansand
wificonnections,ourliveshavechangedinwaysweperhapscouldnothaveevendreamed
aboutbefore.Thepowerofcomputersdoublesroughlyevery18to24months,withprices
constantlydropping.Computersarebeingusedformoreandmoreapplicationseveryday.
Althoughthehospitalityandtourismindustryremainsahighlylaborintensiveandpersonal
contactorientedindustry,computersandtechnologyhavehadandwillcontinuetohavean
impact.Theareainwhichtechnologywillhavethegreatestimpactinthenext10yearsisin
digitalmarketingwhereaproductserviceprovidercanreachindividualcustomersonthe
Internetthroughcorporatewebsitesandsocialmedia.Thisallowsmarketerstomonitorguests'
purchasingbehaviorandthentailorserviceofferingstomeettheirneeds.
Digitalmarketing
ThemarketingofproductsandservicesusingtheInternetandotherformsofelectronic
media.
Thefollowingaresomeexamplesofissuesrelatedtothetechnologicalenvironmentthataffect
Newtechnologieshavehelpedtocombatlaborshortagesandthehighcostoflabor
byenablinghospitalityandtravelfirmstoshiftsomeofthesedutiestoconsumers
throughselfserviceoperations.Examplesincludeautomatedcheckinandcheckout.
Thisisoccurringwithinallsegmentsoftheindustry,fromfastfoodrestaurantstoluxury
hotelsandresorts.Theverycompetitiveenvironmentinwhichcommercialairlinesoperate
hasmadethemleadersincostsavingapplicationsoftechnology.
Theincreasingsophisticationanddecreaseinpriceofcomputertechnologyhavehad
asignificantimpact.Mostofthelargerfirmsmaintainrelationaldatabasesanduse
resourcemanagementsystemsthatcanprovidemanagerswiththepotentialtobetterserve
customers.Thistechnologyisbecomingmoreaccessibletosmallerfirmsthroughservice
contractorsandconsultants.
ThedevelopmentandgrowthoftheInternethaschangedthecompetitivestructurein
thehospitalityandtravelindustry.Evensmallfirmscannowmarketonanationalor
internationalbasis.SellingontheInternetalsoreducesthecostsassociatedwithservice
delivery,therebyincreasingtheprofitpotentialforservicefirms.Thetrendtoward
consumers'evaluatingservicealternativesandmakingonlinepurchaseshasbeen
significant.
Thehospitalityindustryhasexperiencedgrowthduetothesechanges.Mostoftheleading
hospitalityexpertsprojectcontinuedindustrygrowth,albeitasomewhatslowerrate.Certainly,a
fewlargeobstaclesloomonthehorizon.Existingeconomiccycleswillcausesomeupwardand
downwardshiftsinthehospitalityindustry,andfurtherchangesinthetaxcodesmayhavesome
negativeimpactonbusinesstravelandentertaining.
2.3 SUSTAINABLE DEVELOPMENT

Ingeneral,thefocusofsustainabledevelopmentisonoperatingcompaniesandtourism
destinationsinawaythatensuresfuturegenerationswillbenefiteconomically,willhaveaclean
environment,andwillpreservesociety,includingthewellbeingofindividualsandthe
community.ThemostcommonlyciteddefinitionisthefromtheBrundtlandReport:
Sustainabledevelopment
Developmentthatmeetstheneedsofthepresentwithoutcompromisingtheabilityoffuture
generationstomeettheirownneeds.
Sustainabledevelopmentisdevelopmentthatmeetstheneedsofthepresentwithout
compromisingtheabilityoffuturegenerationstomeettheirownneeds.Itcontainswithinit
twokeyconcepts:
theconceptofneeds,inparticulartheessentialneedsoftheworld'spoor,towhich
overridingpriorityshouldbegivenand
theideaoflimitationsimposedbythestateoftechnologyandsocialorganizationonthe
environment'sabilitytomeetpresentandfutureneeds.3
Figure2.1illustratestherelationshipbetweenthethreecomponentsofsustainable
development:environment,economic,andsocial.Sustainabledevelopmentoccurswhere
amongallthreecomponentsoverlap,asshowninthediagram.Thisdemonstratesabalance
amongpeople,planet,andprofit.Theoverlapbetweentheenvironmentandtheeconomic
componentssuggeststhathospitalityorganizationsareabletoachieveadequateprofitswhile
stillpreservingnatureandtheenvironment.Theoverlapbetweentheenvironmentandsocial
componentssuggeststhatsocietybenefitsfromhavingabetterqualityoflife.However,that
doesn'tensurethatsocietybenefitsasawholeeconomically.Forexample,whentourism
destinationspromotesustainability,oneofthegoalsistoreducepovertyandhavepeople
withlowerincomesbenefitfromincreasedtourism.Unfortunately,thisnormallydoesnot
occurwealthierpeopleandorganizationsusuallyreapthebenefitsandsometimesremove
themoneyfromthelocaleconomy.Finally,theoverlapbetweentheeconomicandsocial
componentssuggeststhatbusinesspracticesresultineconomicprosperityforsocietyasa
whole,includingthepoorandotherdisadvantage.
FIGURE2.1Sustainabledevelopment.
2.3.1 Environmental Sustainability

Theareathatgetsthemostattentionindiscussionsaboutsustainabilityistheenvironment.
Environmentalsustainabilityistheabilitytomaintainreasonablelevelsofrenewableand
nonrenewableenergy,waste,water,andpollutionindefinitely.Inparticular,peopleand
governmentagenciesareconcernedaboutthegreenhouseemissionsthataffectclimate
change.Carbonfootprintisatermusedtorefertothetotalamountofgreenhousegas
emissionscausedbypeople,organizations,products,andeventsthrougheverydayactivities.
Thisbasicallyincludesallcarbondioxide(CO2)andmethane(CH4)emissions,aswellas
nitrousoxide(N2O)andfluorinatedgases.
Environmentalsustainability
Theabilitytomaintainreasonablelevelsofrenewableandnonrenewableenergy,waste,
water,andpollutionindefinitely.
Carbonfootprint
Thetotalamountofgreenhousegasemissionscausedbypeople,organizations,products,
andeventsthrougheverydayactivities.
Numeroussourcesmaybeusedtomeasurethecarbonfootprintforanindividualor
organization(e.g.,U.S.EnvironmentalProtectionAgencywebsiteandEarthLab.com).Afteran
individualororganizationdeterminesitscarbonfootprint,actioncanbetakentooffsetthe
impact.Carbonoffsetsaremeasuredinmetrictonsandcanbeassimpleasplantingtreesor
donatingtoanonprofitorganizationthatfocusesonactivitiestoreducegreenhouseemissions.
Hospitalityfirms,especiallylargehotelsandresorts,areheavyusersofwaterandenergyinthe
creationanddeliveryoftheirservices.Inaddition,hospitalityfirmscreatealotofwaste.
Typically,companiesthatengageingreenpracticestrytosaveenergy,minimizewaste,
conservewater,andreducepollution.
2.3.1.1 ENERGY MANAGEMENT.

Someofthepracticesusedbyhotelstosaveenergyaretheinstallationofenergyefficient
appliances,theuseofenergyefficientlightbulbs,centralcontrolsforheatingandair
conditioning,andencouraginggueststoturnofflightsandreuselinens.Another
recommendationistopowerdownunusedequipmentandturnofflightsinunoccupiedrooms
(e.g.,installoccupancysensors).Similarly,restaurantcompaniesandownerscouldinstall
energyefficientappliancesandlightbulbs,andpowerdownequipmentatnight.Also,
restaurantsandhotelfirmscanpurchaseorganicfoodsthatareproducedusingrenewable
resources.Infact,hospitalityfirmscansaveenergybyusingmorerenewableenergysources
suchassolar,wind,geothermal,biomass,andwatertocreateelectricityandprovidepowerfor
theirownoperations.Inadditiontotheenergyfromthesun(solar)andwind,theflowofwater
cancreateenergy,ascantheheatfromEarth(geothermal)andburningorganicorlivingmatter
(biomass).Traditionally,companiesreliedonnonrenewableenergysourcessuchasoil,coal,
nuclear,andnaturalgas.
Anonrenewableresourceisanaturalresourcethatcannotberemadeorregrownatascale
comparabletoitsconsumption.Forexample,nuclearfissionusesuraniumtocreateenergy,but
oncetheuraniumisused,itisgoneforever.Fossilfuelssuchasoil,coal,andnaturalgasare
considerednonrenewablebecauseittakesalongtimetoreplenishthemaftertheyareused.
Conversely,renewableresourcessolar,wind,andwater,forexamplecanbereplenishedina
shortperiodoftime.Unfortunately,thedecisionoftencomesdowntomoney.Theuseof
renewableenergysourcescanrequireaninitialcapitalinvestmentinnewequipmentthatcanbe
costprohibitiveforsomecompanies,especiallythosethatdon'tunderstandthelongtermcost
savingsfromusingalternativeenergysources.
Regardingrestaurantsandhotels,gasstovesarethemostefficientregardingcarbonemissions
andaremoreconsistentindistributingheattofood.Propaneisevenmoreefficient,butthe
downsideisthatpropaneissignificantlymoreexpensivetousethannaturalgas.Theother
optionistousearenewableenergysourcesuchassolarorwindtoefficientlyprovideenergyfor
anelectricstove.Newerrefrigeratorsandcoolerscanbecostly,buttheimprovementsin
efficiencywillnotonlyhelptheenvironmentbutitwillalsoreduceoperatingcosts.
2.3.1.2 WASTE MANAGEMENT.

Hospitalityfirmscanalsohelptheenvironmentthroughwastemanagementprograms.Thisis
accomplishedbycreatingprogramstoreducewastebyreusingproductsandrecycling.The
bestwaytomanagewasteistopurchasesuppliesthatarebiodegradable,andrecycleany
nonbiodegradablematerials.Itisalsoimportanttoproperlydisposeofhazardoussubstances.
Hospitalityfirmscanpurchaseproducts(e.g.,soapandshampoo)forguestconsumptionthat
areinbiodegradablepackaging.Inaddition,guestscanbeencouragedtoreusesoapand
shampooinsteadofopeningnewcontainerseachdayanddiscardingtheunusedportions.
Anotherareawherehotelsandrestaurantscanreducewasteisbycompostingleftoverfood
items.Itisestimatedthat50percentofrestaurantwasteisfood,and65to75percentofall
wasteinlandfillsconsistsoforganicsthatcouldbecompostedorrecycled.Finally,firmscan
recyclepaper,glass,andplastictoreducewasteinlandfillsandavoidincineration.Itshouldbe
notedthattheU.S.FoodandDrugAdministrationdoesnotallowfoodgradeplastictobemade
fromrecycledmaterial.Also,chemicalsand
energyareusedtorecycleplastics,andmostoftheplasticsarerecycledinChinaandcould
involvetransportationallhavingnegativeeffectsontheenvironment.
2.3.1.3 WATER CONSERVATION.

Onceagain,hotelsandotherlodgingfacilitiesareheavyusersofwater.Therecanbehundreds
orthousandsofguestsstayingatalargehotelandallofthemaretakingshowersandusingthe
toilet.Therefore,thereisagreatdealofwaterusagepersquarefootofspacerelativetoone's
homeorapartment.Infact,itisn'tuncommonforhotelgueststoconsumemorewaterwhen
travelingthanwhenathome.Theyassumetheroompriceincludesunlimitedusageandthey
tendtotakemoreshowersafterswimming,workingout,goingtothebeach,and/orsightseeing.
Hotelswimmingpoolsareanothermajorsourceofwaterusage.Everyeffortshouldbemadeto
reducewaterwaste.Forinstance,lowflowshowerheadsandlowflowtoiletscanbeinstalledin
hotelsinanefforttoreducewaterusage.Also,pooltemperaturescouldbesetcoolerandpool
coversmightbeusedtoreduceevaporation.Usingrecycledwaterfromlakesandpondsto
waterthefairwaysandthegreensofgolfcoursesatresortswouldalsoconservewater.Finally,
guestscanbeencouragedtoreuselinensandtowelstoreducetheamountoflaundry,and
hotelscanpurchaselaundryequipmentthatminimizestheuseofwater(e.g.,ozonelaundry
system).
Restaurantdishwashersshouldbefilledbeforeuse,andthestaffcanscrapeoffleftoverfood
andpresoakpotsandpansbeforeputtingtheminthedishwasher.Useoflowflowtoiletsand
installationofwaterefficientaeratorsonsinkswillconservewater.Allhospitalityemployees
shouldcheckforleaksandmakesurewaterisn'tcontinuallyrunningfromfaucetsortoilets.
Anotherpracticethatcanbeusefulistofillguests'waterglassesonlywhenrequested.
However,therecanbeatradeoffbetweenbeingenvironmentallyfriendlyandkeeping
customerssatisfied.Finally,forwateringoutdoorplantsandgrass,restaurantsandhotelscan
reusegraywaterthatcomesfromshowersandsinks,aswellasrainwatercollectedfromroofs
andpavedsurfaces.
2.3.1.4 MANAGING POLLUTION.

TheEnvironmentalProtectionAgency(EPA)intheUnitedStatesisconcernedaboutthequality
ofair,aswellasothereffectsontheenvironmentfrombusinessoperations,includingthe
hospitalityindustry.Mostdevelopedcountries,andmanydevelopingcountries,havesimilar
organizationstomonitorthecountry'senvironmentalhealth.Bothlodgingandfoodservice
operationscontributetothepollutionproblembyusingcleaningsupplies,syntheticmaterials,
andpaintsthatreleasetoxicairpollutantsandvolatileorganiccompounds(VOC)thateventually
worktheirwayintotheoutdoorenvironment.Inaddition,hospitalityfirmsreleaseozone
depletingsubstancessuchaschlorofluorocarbons(CFCs)throughimproperlymaintained
heating,ventilation,andairconditioning(HVAC)equipmentandrefrigerationunits.
TheEPAhassuggestedseveralpracticesthatcouldbeemployedbyhospitalityfirmstoreduce
airpollution:4
1.Changecleaners.Usenontoxicproductswheneverpossible,purchasecleanerswithlow
toxicairpollutantandVOCcontent,andchoosepumpstylesprays.
2.Maintainbuildings.Usewaterbasedorotherlesstoxicpaintsandcoatings,onlyrefinish
thoseportionsoffloorswherethemostwearoccurs,anduseindoorfurnituremadeofwood
insteadofpressedwoodproducts
3.Controlozonedepletingsubstanceemissions.CheckforleaksinHVACunitsand
refrigerationsystemsregularly,recoverandreuseozonedepletingsubstances,replaceold
equipmentwithmoreefficientequipment,andinspectfireextinguishersfrequentlyforleads
(especiallyiftheycontainhalon).
2.3.2 Economic Sustainability

Economicsustainabilitycanbedefinedastheabilitytosupportagivenlevelofeconomic
productionindefinitely.Thebasicpremiseofeconomicsustainabilityittoutilizeanorganization's
existingresourcesefficientlyandresponsiblyinanattempttocontinueoperatingprofitablyover
thelongrun.Intherestaurantindustry,onecouldarguethatanothergoalcouldbesurvival,
giventhefailurerates.However,economicsustainabilityisnormallyassociatedwithmonetary
goalssuchasmaintainingadequateprofitmargins,providinganacceptablereturnon
investmentfor
ownersandshareholders,andbeingabletoservicedebtrequirements.Oneofthemain
criticismsofcorporationsisthattheysacrificelongtermenvironmentalsustainabilityforshort
termprofits.
Economicsustainability
Theabilitytosupportagivenlevelofeconomicproductionindefinitely.
Hotelshavefoundthatsustainabilityeffortscanincreaseprofitsbyreducingcosts.
Fromamoreglobalperspective,countriesandregionsareusuallycomparedbasedongross
domesticproduct(GDP)percapita,grossnationalincome(GNI)percapita,orsomeother
measureofincomethatcanbeusedasanindicatorofthestandardofliving.Thistypeof
assessmentismorerelevantwhenlookingattourismdestinationsandcountriesasawhole.
Sustainabledevelopmentinthetourismindustryisparticularlyimportantbecausedestinations
usegovernmentfundingtogeneraterevenuethatgetschanneledbacktothegovernment
throughtaxesandusedtosupportsocialprograms.Itisalsoawaytohelpthoseinsocietythat
arelessfortunate(e.g.,communitybasedtourism).
2.3.3 Social Sustainability

Socialsustainabilitycanbedefinedastheabilityofacountryorasocietytomaintainan
adequatestandardoflivingindefinitely.Thisconcept,whichisoftenreferredtoashuman
development,ismonitoredonagloballevelbykeepingstatisticsonthingssuchasthe
percentageofthepopulationatthepovertylevel,accesstoqualitywater,accesstomedical
facilitiesanddiseasecontrol,lifeexpectancy,andliteracy.Twooftheunderlyingthemesin
socialsustainabilityareequityanddiversity.Thenotionofequityfocusesontheabilityand
willingnessofacommunitytoprovideopportunitiesandresourcestoallitsmembers,regardless
ofrace,religion,gender,incomelevel,andsoon.Inotherwords,allmembersofthecommunity
shouldhaveaccesstothesamelevelofeducationandhealthcare,andthereshouldbe
affordablehousingandemploymentopportunities.Therelatednotionofdiversityfocusesonthe
extenttowhichsocietywelcomesmembersfromallwalksoflife.Itnotonlyreferstoone'srace
andincomebutalsotoone'spoliticalandreligiousviews.
Socialsustainability
Theabilityofacountryorasocietytomaintainanadequatestandardoflivingindefinitely.
Hospitalityfirmscanhelpaccomplishsociety'sgoalsbyprovidinggoodpayingjobsandcareers
forlocalresidentsratherthanbringinginalloftheirownmanagersandstafffromoutsidethe
community.Inaddition,theycanoffertrainingprogramsandskillsdevelopmentforlower
incomeandatriskmembersofthecommunity.Hotelandrestaurantbusinesseshavemanyjobs
availabletothosewithouthighereducation.Hoteltaxesandsalestaxesgeneratedbyvisitors
andlocalresidentsproviderevenuesforthelocalcommunitytouseforsocialprograms.The
tourismindustryisalsogoodforbringingoutsidemoneyintothecommunityandprovidinga
positiveeconomicimpactinthewayofjobsandtaxrevenues.However,oneofthecomplaints
withthetourismindustryisthatthereareleakagesfromthecommunitybecausetravelrelated
companiesareheadquarteredinotherareasanddon'talwaysreinvesttheprofitsinthe
community.Othercriticismsarethattouristscanhaveanegativeimpactonthelocalcultureby
changingsocialnormsandexposingresidentstooutsideinfluences,andthattouristshave
accesstoresources(e.g.,cleanwaterandenergy)thattheresidentsdon'thave(i.e.,in
developingcountries).

2.3.3.1 CORPORATE SOCIAL RESPONSIBILITY.

Corporatesocialresponsibilitycanbedefinedasthecontinuingvoluntarycommitmentby
corporationstobehaveethicallyandtocontributetotheeconomicdevelopment,socialequity,
andenvironmentalprotectionofsocietyasawhole.Someofthekeyaspectsofthedefinition
are:
1.Itisacontinuingcommitment,oralongterminitiative.
2.Itisvoluntary,suggestingthatorganizationsneedtoselfregulateandencourage
participationamongbothinternalandexternalstakeholders.
3.Itfocusesonthetriplebottomlineeconomic,social,andenvironmentalimpacts.
Thegoalistocreatesharedvaluebetweentheorganizationandsociety.Inotherwords,
organizationsshouldbeabletoachievetheireconomicgoalswhile,atthesametime,protect
theenvironmentandcontributetothesocialwelfareofthecommunity.However,itisnot
uncommonfororganizationstofindthattheymustcomplywithsocialand/orenvironmental
standardsthatthegovernment,orindustryregulatorybody,imposesonthem.
2.4 MANAGING FOR SUSTAINABILITY

Itisimportanttotrainemployeestoadheretothesustainabilityinitiativescreatedbyhospitality
firmsandtourismorganizations.Inaddition,managementhastohaveamonitoringprocessin
placethatincludessomewaytoevaluateperformanceintermsofsustainability.Ifan
organizationisgoingtodelivereconomicprosperity,environmentalquality,andsocietalwell
being,itisnecessarytointegratethethreecomponentsintothestrategicplanningprocessof
theorganization.Also,theorganizationneedstobetransparentregardingitsoperationsand
activities.Finally,therehastobesomelevelofmeasurementandreportingoftheorganization's
performanceintermsofsustainability.Thetriplebottomlineisanaccountingandrecording
systemusedbyfirmstomonitorsustainabilityperformanceonallthreecomponentspeople,
planet,andprofits.Table2.1containsasummaryofthethreecomponentsandsomeexamples
ofmeasuresthatcanbeusedtomonitorperformanceforthehospitalityandtourismindustries.
Triplebottomline
Anaccountingandrecordingsystemusedbyfirmstomonitorsustainabilityperformanceon
allthreecomponentspeople,planet,andprofits.
TABLE2.1
SustainabilityIndicators
COMPONENT HOSPITALITYMEASURES TOURISMMEASURES
Environmental Greenhouseemissions Airandwaterquality

(Planet) Energyconsumption Energyconsumption
Waterconsumption Waterconsumption
Solidandtoxicwaste Naturalresources
Solidandtoxicwaste
Economic Revenuesandprofits Personalincomeandlevelofpoverty

(Profits) Operatingcosts Unemploymentrate
Employeecompensation GDPpercapita
Jobcreation Jobgrowth
Communityinvestments
Social Workforcediversity Lifeexpectancy

(People)
Employeeturnover Violentcrimespercapita
Healthcarecoverage Incidenceofdiseases
Incidentsofdiscrimination Medicalfacilitiesanddoctors
Employeetrainingandeducation Educationofpopulation
Workplaceinjuries
2.4.1 Communicating Sustainability Initiatives

Itisimportantfororganizationstomakesureemployeesareawareoftheirsustainabilitygoals
inordertoachievethosegoals.Inaddition,thesustainabilityinitiativesofthefirmshouldbe
communicatedtoexternalstakeholderssuchascustomers,suppliers/vendors,
stockholders/investors,thegovernment,andthecommunity.Thehumanresourcesdepartment
inlargercompaniesisresponsibleforinternalcommunicationsregardingthesustainability
initiatives,aswellastrainingandsocializationofemployeestothesustainabilityculture.
Stakeholderengagementisalsoimportantindeterminingtheorganization'ssustainability
initiatives.
Inadditiontowords,statistics,anddatameasurements,itisimportanttocreatemorevisualand
compellingelementstoconveyanorganization'scommitmenttosustainability.Thefollowingfive
suggestionswereprovidedinanarticlepublishedontheGreenBiz.comwebsite:5
1.Communicationsthatyoucansee,touch,orevenlistentoprovideatangiblemeasureof
sustainabilitysuccess.Itisrecommendedthatfirmsprovidethistangibleevidencein
newsletters,annualreports,andothersupplementalmaterialsavailableonlineand
distributedinhardcopy.
2.Developabrand/identitytorepresentandhighlightyoureffortsinsustainability.Itshouldbe
consistentwiththeoverallbrand,buthaveitsownuniquecharacteristic(s)tocreateinterest
amongtargetmarkets.Thiswillhelpwithemployeerecruitmentandretention,employee
engagement,andcustomerloyalty.
3.Createamemorablethemeandtitlethattiescloselywithanorganization'score
competencies.Itshouldbecreativeandberelatedtothecorporatenameand/orcorporate
culture.
4.Manysustainablemeasurescanbetakenwithaprintedpiece.Forexample,ifan
organizationcarriesoutitssustainabilityinitiatives,itmightbepossibletoaddacertification
logotoitscollateralmaterials.
5.Takeadvantageofthetechnologythatexiststoday.Thiscanbedonethroughtheuseof
socialmedia,QRcodes,andonlinepollsandsurveys.Firmscanpromotetheirsustainability
effortsthroughthesevehicles.
Globalsustainabilityrequiresorganizations,governments,andindividualstochangetheway
theythinkandactinregardtotheenvironmentandsociety.Itistheresponsibilityoffirmsto
educateconsumersandencouragethemtopurchaseenvironmentalfriendlyproductsand
services.Additionally,itisnecessaryfororganizationstocommunicatetheireffortsasameans
ofobtainingacompetitiveadvantagewithcustomerswhovaluefirmswithgreenpractices.The
UnitedNationsEnvironmentProgramme(UNEP)developedareporttohelporganizations
produceeffectivecampaignsforcommunicatingsustainability.6TheUNEPprovidesaneight
stagesustainabilitycommunicationsplanningprocess(seeFigure2.2).
FIGURE2.2Sustainablecommunicationsplanningprocess.
Thefirststageinvolvesdoingresearchtogetabetterunderstandingofthesituationsothatyou
canincreaseyourchancesofsuccess.Onemeansofobtainingpertinentinformationistoscan
theexternalenvironments(competitive,economic,politicalandlegal,social,andtechnological)
todetermineifthereareanyissuesthatmightaffectyourcampaign.Thiswillputyoursituation
inthepropercontext.Also,lookatothersustainabledevelopmentcampaignsinyourmarket.
Thesecondstageinvolvesdoingadditionalresearchonyourtargetaudience.Segmentyour
marketandprioritizethesegments.Then,determinewhatmotivatesyourtargetaudienceand
howbesttoreachthemwithprintandbroadcastmedia.Finally,identifypotentialopinionleaders
andinfluencerswhocanhelpdistributeyourmessage.
Afteryouhavecompletedyourresearch,thethirdstageinvolvessettingobjectivesforyour
campaign.Thisshouldbecompletedbeforeyoulaunchyourcommunicationscampaign.The
objectivesshouldbeclear,concise,andmeasurable.Theyshouldbespecific,includingwhatis
tobeaccomplishedandthetimeframeinwhichtoachievetheresults(e.g.,reducewater
consumptionby10percentwithinthenextyear).Thefourthstageistodecideonastrategic
approachtoachieveyourobjectives.Thisinvolvesdevelopingalistofpossiblealternativesand
thenevaluatingthealternativestodeterminewhichwouldhavethebestpotentialforsuccessin
meetingyourobjectives.Itisimportanttoestablishabudgetanddoacost/benefitanalysisto
makesurethatthealternativeprovidespositivebenefits(bothtangibleandintangible)that
exceedthecosts
(bothmonetaryandnonmonetary)ofpursuingthealternative.Itisalsohelpfultoinclude
stakeholdersinthisprocesssothattheybuyintoyourcampaign.
Thefifthstageinvolvesdevelopingthemessage(s)thatwillappealtoyourtargetaudience(s)
andcreateabasicthemeforyourcampaign.Youcandevelopauniquebrandforthispurpose
anduseaspecificlogoandbrandedstatementsinallyourcommunications.Themessage(s)
canbeadjusted,ortailored,toappealtovarioussegments.Thesixthstageinvolveschoosing
theproperchannels,ormediavehicles,touseindistributingthemessage(s)tothetarget
audience(s).Youcanusetheresearchfromthesecondstagetohelpinthisregard.
Theseventhstageisoneofthemostimportantstages.Itinvolvesdeterminingwhois
responsibleformanagingthecampaignandestablishingafinalbudgetandtimelineforthe
campaign.Youneedtodevelopalistofrequiredresources(e.g.,people,materials,andmoney)
andcreateaprojectschedulethatcanbeusedtoallocateresourcesandmonitortheproject
stages.Additionally,youshoulddevelopacrisismanagementplanthatcanbeimplementedin
theeventsomethingunexpectedoccurs.Theeighthandfinalstageinvolvesthemeasurement
andevaluationofthecampaign.Everyeffortshouldbetakentoobtainmeasurableresultsthat
canbeusedtoassessthesuccess,orfailure,ofthevariouscomponentsofthecampaign.
Measurementcanaddresstheprocessofdeliveringthemessage(s),theoutcome(s)ofthe
campaignrelatedtochangesinawareness,attitudes,orbehaviors,andtheimpactofthe
campaignonsustainabledevelopmentinitiatives.
2.4.2 Sustainability Programs and Certications

Oneotherissueformanagementtoconsideriswhetherornottoobtainsometypeof
sustainabilityorgreencertificationtorecognizetheorganization'seffortsinthisarea.The
benefitofhavingacertificationisthatitlendscredibilitytothefirmbecauseithasmetthe
standardsandcriteriaofanobjectiveorganization.Mostofthecertificationgroupsprovidea
logoorsealofapprovalthatfirmscandisplayontheirwebsitesandfacilitiesthatcanadd
valuetomarketingcampaigns.Also,itencouragesfirmstotracktheirperformance,anditcan
helpmotivatestaffandemployeestosupportthefirm'ssustainabilityinitiatives.However,there
isusuallyareviewprocessthatrequiresthefirmtokeeprecordsanddocumentitsperformance.
Thisadditionaleffortandthecostofthecertificationmightoutweighthebenefitsforsome
hospitalityandtravelorganizations.
Currently,therearethreemainorganizationsthatprovidecertificationfortherestaurantindustry.
TheGreenRestaurantAssociationisanonprofitorganizationlocatedinBoston,Massachusetts.
Thecostofthecertificationstartsat$300peryearbasedonthetermofthecontract,the
restaurantsize,andthenumberoflocationsinvolved.Theorganizationperformsan
environmentalassessmenttocreateabaselineandthenworkswiththerestaurantstoimprove
theirstandardstomeetthecriteriafortheGreenRestaurant4.0certification.TheSustainable
RestaurantAssociationisbasedinLondonandhasrecentlystartedtoprovidecertificationsin
theUnitedStates.Thecertificationinvolvesrestaurantsaddressing14focusareasacrossthree
sustainabilitycategories:sourcing,environment,andsociety.Theprocessishandledmainly
onlineandcosts$295.TheU.S.HealthfulFoodCouncilisanonprofitorganizationlocatedin
Washington,DC.ThiscertificationisbasedontheU.S.GreenBuildingCouncilLEED
certificationprogramandthecoststartsat$400.TheREAL(ResponsibleEpicureanand
AgriculturalLeadership)certificationincludesanutritioncomponent,unliketheother
certifications.
AccordingtoGreenLodgingNews7,27states,PuertoRico,fivecities,andtworegionscurrently
havesomeformofgreenlodgingprogram.CertificationprogramsareofferedthroughU.S.
organizationssuchasTripAdvisorfromNewton,MassachusettstheU.S.Environmental
ProtectionAgency(EPA)GreenSealfromWashington,DCandAudubonInternationalinNew
York.Inaddition,thereareglobalorganizationssuchasSustainableTravelInternational.Some
ofthecertificationsaretourismbasedandincludelodgingfacilitiesforexample,the
CertificationforSustainableTourisminCostaRica,GreenGlobeinCalifornia,andEarthCheck
inAustralia.Agenda21,anonbindingsustainabledevelopmentactionplanstartedbytheUnited
Nationsin1992,createdaplatformfornations,states,cities,andregionstouseindeveloping
sustainabletourismprograms.
CHAPTER REVIEW
2.5 SUMMARY OF CHAPTER OBJECTIVES
Thischaptercoveredtheexternalenvironmentthatispartofthemarketingprocess
introducedinChapter1.Theexternalenvironmentconsistsoftheareasthataffectthe
marketingprocess,butarenotunderthedirectcontrolofmarketingmanagers.Thefive
majormarketingenvironmentsareeconomic,social,competitive,politicalandlegal,and
technological.Firmsuseenvironmentalscanningtokeepabreastofchangesinthe
externalenvironmentthatcouldresultinopportunitiesorthreatstotheorganization.Some
oftheexternalenvironmentscanbeindirectlycontrolledthroughobtainingpatents,creating
barrierstoentry,and/orlobbyingforfavorablegovernmentregulation.
Thesecondpartofthischapterfocusedonsustainability.Thethreemajorcomponentsof
sustainabilityinhospitalityandtourismoperationsaresocial,environmental,andeconomic.
Theseareoftenreferredtoaspeople,planet,andprofits,respectively.Thegoaloftoday's
organizationsshouldbeonmanagingthistriplebottomlinetoensurethat,whilemaking
adequateprofits,businessesleavetheplanetandsocietyinthesame,orbetter,condition.
Thishasledtoafieldofinquirythataddressescorporatesocialresponsibility.All
organizationsshouldstrivetobegoodcommunitycitizensbyestablishingsustainability
initiatives,measuringthemwithsustainabilityindicators,andcommunicatingtheirresultsto
theirvariousstakeholders(e.g.,employees,investors,suppliers,customers,andthelocal
community).

Carbonfootprint
Demographics
Digitalmarketing
Discretionaryincome
Disposableincome
Monopoly
Oligopoly
Perfectcompetition
Purchasingpower
Sustainability
Triplebottomline

1.Whatarethekeyvariablesinthemarketingenvironment?Inyouropinion,which
isthemostimportant?Why?
2.Ofthevariablesinthemarketingenvironment,isthereoneortwothatyou
believeamarketingmanagercaninfluenceorpredictmoreeasilythanthe
others?Ifso,whichone(s),andwhy?
3.Whatchangesintechnologywillimpactthehospitalityandtourismindustryin
thenext5years?Whatspecificpositiveandnegativeimpactsfromtechnology
doyouforesee?
4.Definesustainabledevelopment.Whatarethethreemajorcomponentsof
sustainabledevelopment?
5.Whichcomponentofsustainabledevelopmentreceivesthemostattentionfrom
hospitalityandtourismorganizations?Explainyouranswer.
6.
Whatisenvironmentalsustainability?Discussthevariousareaswhere
hospitalityandtravelfirmscanaddressenvironmentalsustainability.
7.Whatisacarbonfootprint?Whatcanorganizationsdotomitigatetheirimpacton
theenvironmentinthisregard?
8.Whatiscorporatesocialresponsibility?Doyouthinkhospitalityfirmsdoagood
jobinthisarea?Whatmorecouldtheydo?
9.Whataresomeofthemorecommonsustainabilityindicatorsusedbyhospitality
andtourismorganizationstomonitorsustainabilityperformance?
10.Howcanhospitalityfirmscommunicatetheirsustainabilityinitiativesto
stakeholders?
CASE STUDY
Arizona Hotel Resort and Spa
Youhaverecentlybeenhiredasthegeneralmanagerforaluxuryresorthotelin
Scottsdale,Arizona,thatboastsoneofthenicestspasinthecountry.However,thehotel
hasdoneverylittleplanninginthepastandhasreliedmainlyonitsreputation.Asthenew
generalmanager,youdecidetoengageinanenvironmentalscanningtasktodetermine
theimpactoftheexternalenvironmentonyourhotel'soperation.

1.Discussthepotentialimpactofeachoftheexternalenvironmentsonyourhoteland
spa.
2.What,ifanything,canbedonetoaddressthesepotentialimpacts?
CASE STUDY
Bushwood Country Club
TyWebbwasrecentlyhiredasthegeneralmanagerattheBushwoodCountryClub.One
ofhismaininitiativesasthenewGMistoimprovetheclub'ssustainabilityeffortsandfind
waystobecomeamoreenvironmentallyfriendlycountryclub.Thecountryclubhasafine
diningrestaurantandaclubhousegrilltoserviceitsmembers.Inaddition,thereisan18
holeprofessionalgolfcourse.Theareawherethecountryclubislocatedoftenhas
droughtsandwatershortagesthroughoutthesummermonthsandthelocalresidentsand
businessesfacecertainwaterrestrictions.Therefore,itwouldgreatlybenefitthecourseto
reduceitswaterusage.CarlSpackleristhegolfsuperintendentresponsibleforthe
maintenanceofthecourse.Hehasbeenattendingconferencesongolfcourse
sustainabilityandisexcitedabouttheopportunitytoimplementsomeofthepractices
presentedattheconferences.
Therestaurantshaven'timplementedanygreenpracticestodate,andthereisdefinitely
roomforimprovement.DannyNoonanistheclubhousemanagerinchargeofthe
restaurantandbarbusiness.Hedoesn'tshareMr.Spackler'senthusiasmandfeelsthatitis
awasteoftimeandmoneytoincorporatethenecessarychangestobecomeagreen
facility.Also,TyWebbhastosellthemembersonhavingaspecialassessmenttoraisethe
moneynecessarytoimplementthenewprograms.Thisisn'teasy,seeingastheannual
duesarealreadyonthehighsideandmemberswon'tbewillingtopayadditionalfees
unlesstheyseeadirectbenefit.ThereisaBoardofDirectorselectedbythemembersthat
willmakethefinaldecisionaboutaspecialassessmentbasedontheirdiscussionswiththe
members.

1.WhatisthefirstthingTyWebbshoulddobeforemeetingwiththeBoardofDirectors?
2.Whataresomeoftherecommendationsthatcanbemadeforthegolfcourse?
3.Whataresomeoftherecommendationsthatcanbemadefortherestaurants?
4.Whoisthetargetaudience(s)forcommunicatingthesustainabilityinitiatives?
5.DevelopanoutlineofacommunicationsplanthatTyWebbcoulduse,includingspecific
objectives,messages,channels,andsoon.
NOTES
1EconomicResearchService,U.S.DepartmentofAgriculture(USDA),FoodExpenditures,
www.ers.usda.gov/dataproducts/foodexpenditures.aspx.
2DonaldR.LehmanandRussellS.Winer,AnalysisforMarketingPlanning,2nded.
(Homewood,IL:RichardD.Irwin,1991).
3WorldCommissiononEnvironmentandDevelopment(WCED),OurCommonFuture(Oxford:
OxfordUniversityPress,1987),p.43.
4ReducingAirPollutionfromtheHospitalityIndustry(LodgingSector),EPACommunity
InformationSheet,September12,2005.
5MelissaWicinskiandJenniferGriffith,5WaystoCommunicateSustainabilitybeyondWords,
GreenBiz.com,May1,2013.www.greenbiz.com/blog/2013/05/01/5wayscommunicate
sustainabilitybeyondwords.
6CommunicatingSustainability:HowtoProduceEffectivePublicCampaigns,preparedby
FuterraSustainabilityCommunicationsfortheUnitedNationsEnvironmentProgramme
(UNEP),2005.
7Hasek,Glenn.2014.NumberofStateLevelCertification,RecognitionProgramsStandsat
27.GreenLodgingNews,February12.Availableatwww.greenlodgingnews.com/numberof
statelevelcertificationrecognitionprograms.

2
THE EXTERNAL ENVIRONMENT AND SUSTAINABILITY
CourtesyofLEGOLANDCalifornia.LEGO,LEGOLAND,theLEGOandLEGOLANDlogosandthebrick
configurationaretrademarksoftheLEGOGroupandareusedherewithspecialpermission.2004The
LEGOGroup.
Chapter Objectives
1.Discusstheexternalenvironmentsthatinfluencethehospitalitymarketingprocess.
2.Describetheconceptofsustainabledevelopment.
3.Describehowtomanageforsustainabledevelopmentandcommunicateinitiatives.
2.1 INTRODUCTION
Duringthepastdecade,manychangeshavehadanimpactonthehospitalityindustryinthe
UnitedStates.Theindustryhasconfrontedandadaptedtosuchdiversesituationsaseconomic
recession,overbuilding,increasedcompetition,increasedemphasisontechnology,increased
emphasisontheenvironment,newerformsofdistributionandsalesusingtechnology,increased
foreignownershipofpreviouslyAmericanbrands,changesindininghabits,changesinfood
consumptionpatterns,theeverincreasingglobalizationofthehospitalityandtourismindustry,
andtheimpactofinternationalterrorism.Eachoftheseexternalforceshasbroughtwithit
changesthathospitalityfirmshavehadtomaketosurviveandremaincompetitiveinaglobal
marketplace.Thisrelatestotheconceptofsustainabilitythatreferstotheabilityofan
organizationtofunctionefficientlyandeffectivelyandremaincompetitiveoverthelongterm.
Sustainability
Theabilityofindividualsororganizationstoendureandfunctionoverthelongterm.
Initially,thebusinesscommunityfocusedoneconomicsustainability,butnowtheworldhas
embracedanapproachthatseekstoensureenvironmentalandsocialsustainabilityaswell.In
otherwords,thereisanemphasisonpeopleandtheplanet,aswellasprofits.Thehospitality
andtourismindustryisheavilyaffectedbythisinitiativebecauseitrelies,toalargeextent,on
travelbetweendestinations.Althoughvisitorsareagoodpositivesourceofeconomicimpacton
adestination,therearealsonegativeimpactsontheenvironmentandthelocalcommunity.
Therefore,itisnecessaryfordestinationstomanagethepositiveandnegativeimpactsrelated
totheireconomies,environments,andsociety.Thischapterwillstartwithadiscussionofthe
externalenvironmentthataffectshospitalityandtourismfirms,andthenaddresstheissueof
sustainability.
2.2 THE EXTERNAL ENVIRONMENT

Whenmarketingmanagersconsiderchangesinmarketingstrategyortactics,theyoften
examinethechangesinfivemajorcomponentsoftheexternalenvironment:economic,social,
competitive,politicalandlegal,andtechnological.Firmscannotdirectlyinfluencetheirexternal
environment,buttheycanmonitorchangesandbesomewhatproactive.Itiscriticalforfirmsto
engageinsomelevelofenvironmentalscanning,sotheycantakeadvantageofmarketing
opportunitieswhileanticipatinganythreatstotheirbusiness.Environmentalscanningcanbea
formalmechanismwithinafirm,ormerelytheresultofsalespeopleandmanagersconsciously
monitoringchangesintheenvironment.Thelargerthefirm,themorelikelyitwillhavea
structuredapproachtoscanningtheenvironmentanddocumentingtrends.Thefollowing
sectioncontainsbriefdescriptionsofeachoftheexternalenvironments.
Environmentalscanningcanbeaformalmechanismwithinafirm,ormerelytheresultof
salespeopleandmanagersconsciouslymonitoringchangesintheenvironment.
2.2.1 The Economic Environment

Thegoalofallmarketingactivityistocreateandsatisfycustomers.Consumers'purchasing
power,orabilitytopurchaseproductsandservices,isdirectlyrelatedtotheeconomichealthof
thecity,state,andcountry.Asmarketersstudytheeconomicenvironment,theyareconcerned
aboutsuchthingsasinflation,recession,unemployment,resourceavailability,interestrate
trends,personalincomegrowth,businessgrowthandperformance,andconsumers'confidence
intheeconomy.Thereareotherkeyeconomictermsthatrelatetomarketingandwillbeused
throughoutthetext.Theconsumerpriceindex(CPI)isameasureoftherelativelevelofprices
forconsumergoodsintheeconomy.Asthismeasurerises,therearemoreconcernsabout
inflationandapooreconomy.Thetermdisposableincomereferstotheportionofan
individual'sincomethatisleftforspendingafterrequireddeductionssuchastaxes.
Discretionaryincomeisprobablyamoreimportantmeasureformostmarketersbecauseit
referstotheincomethatisavailableforspendingafterdeductingtaxesandnecessary
Purchasingpower
Theextenttowhichconsumershavetheabilitytopurchaseproductsandservices.
Ameasureoftherelativelevelofpricesforconsumergoodsintheeconomy.
Disposableincome
Anindividual'sincomethatremainsforspendingafterrequireddeductionssuchastaxes.
Discretionaryincome
Anindividual'sincomethatisavailableforspendingafterdeductingtaxesandnecessary
HotelssuchastheWingateTulfarrisHotelandGolfResortinCountyWicklow,Ireland,
offerarangeofroomratesandamenitiesforguestswithdifferinglevelsofpurchasing
power.
Herearesomeexamplesofissuesandtrendsrelatedtotheeconomicenvironmentthataffect
Thepercentageofindependentlyownedhospitalityoperationshasdeclined,resultingina
concentrationofpoweramonglargehospitalitychains.Inturn,thesechainshavebecome
large,multinationalfirmsbasedintheUnitedStatesorabroad.
Anincreaseintheamountofdiscretionaryincomehasresultedinanincreaseinthe
percentageofthehouseholdfoodbudgetspentoutsidethehome.Foodawayfromhomeas
ashareofhouseholdfoodexpenditureshasrisensteadilysince1970,reaching43.1percent
in2012.1
Afteraperiodofexcesssupplyduetooverbuildinginthe1980s,hoteloccupancy
percentagesfelltothelow60s.Thistrendlaterreverseditselfbecauseofthestrong
economyandbusinessgrowth.Followingarecessionintheearly1990s,occupancyand
profitabilityreachedalltimehighsformanylodgingcompanies.Then,inthe2000s,the
eventsofSeptember11andtheglobalrecessioncausedhoteloccupanciestodecreaseand
manypropertiessufferedoperatinglosses.Thehospitalityindustry,likemostother
industries,experiencesthesebusinesscyclesresultinginperiodsofexpansionand
recession.
Variationsinconsumerpurchasingpowerhaveledthehospitalityandtravelindustrytooffer
productsandservicesatdifferentpricelevels.Forexample,mostofthemajorlodgingchains
nowhaveestablishedmultiplebrands,rangingfromeconomytoluxury,basedonpricesand
amenities.Eachbrandtargetsaspecificmarketsegment.
Someoftheissuesintheeconomicenvironmentarecloselyrelatedtothetrendsinthesocial
environment,whichwillbediscussednext.
2.2.2 The Social Environment

Thereareconstantchangesinthesocialenvironmentasconsumersevolve.Thesocial
environmentisaffectedbyalltheotherenvironments.Changesintheeconomy,advancesin
technology,competitiveactions,andgovernmentregulationsallshapethewayconsumersview
theworld.Thesechangesmaybesudden,ortheymaytakeplaceoveranumberofyearsor
evendecades.
First,therehavebeenchangesindemographics,orcharacteristicsthatdescribethe
population,suchasage,income,education,occupation,familysize,maritalstatus,andgender.
Second,therehavebeenchangesinconsumers'attitudes,interests,andopinionsthat
determinetheirlifestyles.
Demographics
Characteristicsthatdescribethepopulationsuchasage,income,education,occupation,
familysize,maritalstatus,andgender.
Someissuesrelatedtothesocialenvironmentaffectthehospitalityandtravelindustry:
Theincreaseddiscretionaryincomeandtimepressuresexperiencedbytwoincomefamilies
haveanimpactontheirlodging,dining,andtravelbehaviors.Thesefamiliestakemorebut
shortervacationstofittheirbusylifestyles.Also,theyarequalityconsciousandfocuson
brandnames.
TheproportionofolderAmericansandtheirpurchasingpowerarecontinuallyincreasing.
Seniorcitizensarebecomingaveryimportantmarketsegmentbecausepeopleareliving
longer.Furthermore,thereisanimprovedqualityoflifeamongseniors,andtheirdisposable
incomecontinuestoincrease.Thissegmenthasspecificneeds,andtheAmerican
AssociationofRetiredPersons(AARP)isoneofthestrongestpoliticallobbying
organizationsinthenation.
ThedietaryhabitsoftheAmericanpeoplehavealsochanged,andinsomewaysarebipolar:
thepercentageofindividualscharacterizedasoverweightorobeseisatanalltimehigh,yet
manyindividualsareshowinganincreasedconcernfortheirhealth.Thetrendhasbeen
towardhealthier,morenaturalfoods.Insupportofthis,theUnitedStatesDepartmentof
AgriculturepublishesDietaryGuidelinesforAmericans,whichoutlinesthedietarygoalsfor
thenation.TheAmericanHeartAssociationprovidesmenureviewandrecipesthatmeet
theirdietaryguidelinesforgoodhealth.Manyfoodserviceoperationsnowfeaturemenu
itemsthathavebeenapprovedbythisorganization.TheNationalRestaurantAssociation
hasalsobeenactiveinthisarea,especiallyineducatingitsmembers.
Fastfoodrestaurants,extendedstayhotels,andthegrowthinthecruiseindustryareallthe
resultofchangesinthesocialenvironment.Thesechangescanofferopportunitiesfornew
productsandservices,whileposingathreattoexistingcompanies.Forexample,theincreasing
emphasisonbrandnameshasresultedintremendousgrowthinrestaurantchainssuchas
OutbackSteakhouse,Starbucks,PaneraBread,Subway,Chili's,andApplebee's.Thisgrowthof
regionalandnationalbrandshascomeattheexpenseofmanyindependentrestaurants.
2.2.3 The Competitive Environment

Withinallmarkets,avarietyofcompetitorsseektowinthefavoroftheconsumer.Eachoffers
whatitbelieveswillbethebestcombinationofproductsandservicesdesignedtoresultin
maximumconsumersatisfaction.Thecompetitivestructureinanindustrycanrangefroma
monopoly,withonesellerandmanybuyers,toperfectcompetition,withmanybuyersand
sellersofhomogeneousproductsthatarealmostexactlythesame.Inbetween,thereisthe
oligopoly,withafewsellersandmanybuyers,andthemostcommonformofcompetitive
structure,monopolisticcompetition,wheretherearemanybuyersandsellerswith
differentiatedproducts.Thepriceelasticityofdemandisameasureofthepercentagechange
indemandforaproductresultingfromapercentagechangeinprice.Thepriceelasticityof
demandnormallyincreasesasthecompetitivestructurechangesfrommonopolytooligopolyto
monopolisticcompetitionandendswithperfectcompetition.Thehospitalityandtourismindustry
ishighlycompetitive,withnewcompaniesenteringtheindustryeveryday.Inthebusinessworld,
fourlevelsofcompetitionmustbeconsideredinorderforfirmstobeabletoprotecttheir
positionsinthemarket:2
Acombinationofbuyersandsellersinamarket.
Monopoly
Acompetitivestructureinanindustrywithonesellerandmanybuyers.
Perfectcompetition
Acompetitivestructureinanindustrywithmanybuyersandsellersofhomogeneous
productsthatarealmostexactlythesame.
Oligopoly
Acompetitivestructureinanindustrywithafewsellersandmanybuyers.
Acommon,competitivestructurewheretherearemanybuyersandsellerswith
differentiatedproducts.
changeinprice.
Productformcompetitionexistsamongcompaniesthatprovidesimilarproductsand
servicestothesamecustomersatasimilarpricelevel.Forexample,McDonald's
competeswithBurgerKingandWendy'sDeltaAirlinescompeteswithUnitedAirlinesand
USAirwaysHertzcompeteswithAvisandNationalandFourSeasonsHotelscompetes
withRitzCarltonandotherluxuryhotels.
Productcategorycompetitionexistsamongcompaniesthatmakethesameclassof
products.Inthiscase,McDonald'scompeteswithotherfastfoodrestaurantssuchasPizza
Hut,TacoBell,andKFCDeltaAirlinescompeteswithcharterairlinesandcommuterairlines
HertzcompeteswithallthelocalrentalcarcompaniesandFourSeasonsHotelscompetes
withnonluxuryhotelchainssuchasMarriottandSheraton.

Generalcompetitionexistsamongcompaniesthatofferthesamebasicservicethat
fulfillsthesamebasicconsumerneeds.Forexample,McDonald'scompeteswithall
restaurantsaswellaswithconveniencestoresandsupermarketsDeltaAirlinesandHertz
competewithallformsoftransportation,suchasbusandrailandFourSeasonsHotels
competeswithallformsoflodging,suchasbedandbreakfastsandboutiquehotels.
Budgetcompetitionexistsamongallcompaniesthatcompeteforconsumers'
disposableincomes.Mostconsumershavelimitedbudgetsthatcanbeusedfor
purchasingproductsandservices,andallcompaniescompetefortheseconsumerdollars,
especiallydiscretionaryincome.Thehospitalityandtravelfirmsdiscussedearlierwould
competewithdepartmentstores,movietheaters,healthclubs,andfinancialinstitutionsfor
consumers'limitedresources.
Ascompaniesexaminethecompetitiveenvironment,threeimportantquestionsneedtobe
addressed.Thequestionsmayseemstraightforward,buttheanswersareoftendifficultto
determine,andmanyfirmsdonotmakethecorrectdecision:
1.Shouldwecompete?
2.Ifwecompete,inwhatmarketsshouldwecompete?
3.Whatshouldourcompetitivestrategybe?
Theresponsetothefirstquestionshouldbebasedonsuchthingsasthefirm'sresourcesand
objectives.Thecompanymustexaminethelevelofpotentialsales,potentialprofitability,andthe
overallfeasibilityofcompeting.Afirmmaydecidethatitshouldnotcompeteiftherisks
outweighthepotentialreturnsoriftheprojectedreturnsarenotashighasitwouldliketosee.
Thesecondquestionrelatestothemarketsinwhichafirmwishestocompete.Mostfirmselect
nottocompeteinallpotentialmarkets.Forexample,althoughmanyfirms,suchasMarriott
International,havedevelopedbrandsthatcompeteinallpricesegmentsofthelodgingindustry
(economythroughluxury),others,suchasHyattHotelsandResorts,initiallydidnotchooseto
competeinallpricesegments.Ownersbelievedthatthesinglebrandstrategywouldservethe
firm'sbestlongterminterests.Morerecently,Hyatthasadoptedthemultibrandstrategy.The
followinginformationwaspostedatwww.hyatt.com:
Hyatt Brands and Afliates in Addition to Hyatt Hotels

Andaz:Boutiquestylehotels
HyattPlace:Upscaleselectservicehotels
HyattHouse:Upscaleallsuitehotelswithfullkitchensforextendedstayguests
HyattResidenceClub:Collectionofgenerouslyappointedluxuryresidencesinexclusive
destinations
HyattZilaraandHyattZiva:Allinclusiveresorts
Thethirdquestionrelatestomarketingstrategy.Howshouldthefirmattempttogaina
competitiveadvantage?Thesedecisions,whichwillbeexploredinmuchgreaterdepth
throughoutthetext,arerelatedtoissuessuchasproductsandservices,pricing,distribution,
andpromotion.
2.2.4 The Political and Legal Environment

Understandingthepoliticalandlegalenvironmentmeansunderstandingtherulesand
regulationsbywhichthecompetitivegameisplayed.Atalllevelsofgovernmentlocal,state,
national,andinternationaltherearelawsandregulationsthatbusinessesmustfollow.To
competesuccessfully,afirmmustunderstandnotonlythecurrentlawsandregulationsbutalso
anynewonesthatmightcomeintoplayinthefuture.Mostprofessionalhospitalityandtourism
managersbelongtooneormoreprofessionalassociations.Oneofthegoalsofthese
associationsistohelpmembers
notonlyunderstanddevelopinglawsandregulationsbutalsotohaveinfluenceinhowtheyare
writtenthroughlobbyingeffortswithpoliticiansandgovernmentofficials.Twoexamplesof
hospitalityindustryassociationsaretheNationalRestaurantAssociation(NRA)andthe
AmericanHotel&LodgingAssociation(AH&LA).Herearesomeexamplesofissuesrelatedto
thepoliticalandlegalenvironmentthataffectthehospitalityandtourismindustry:
Changesinthefederaltaxcodeshavemadehoteldevelopmentlessdesirablethan
underprevioustaxcodes.Socalledpassiveinvestments,inwhichtheinvestorisnotan
activeparticipantinthedailymanagementofthefacility,arenottreatedasfavorablyunder
thenewfederaltaxcodesastheywereinthepast.Asaresult,futurehoteldevelopment
decisionsarebasedmoreonoperationalfeasibilityandlessontherealestateinvestment
aspectsoftheproject.
Asameanstoreducethefederalbudgetdeficit,costsarebeingshiftedtostateand
localgovernments.Toraisetaxrevenuesatthelocallevelwithoutincurringthedisapproval
oflocalvoters,manylocalitieshaveimplementedorincreasedtaxesonlodgingand
restaurantmeals.Theseusertaxesservetoincreaseconsumerperceptionsofthepricesfor
hospitalityandtravelproductsandcanhaveamajornegativeimpactonoperations.
Changesinnutritionlabelingandfoodhandlingrequirementsaffectthefoodservice
industry.TheFoodandDrugAdministrationandotherfederal,state,andlocalagencies
enactrulesthatrequiresfoodserviceproviderstodisplaynutritionalinformationontheir
menus,andusesafefoodhandlingprocedurestoprotectconsumers.
National,state,andlocalgovernmentsalsopasslawsthatcanaffectfirms'operations
withoutusingtaxes.Forexample,thefederalgovernmentintheUnitedStateshaschosen
tostayonthesidelines,localandstategovernmentsaretakingontheissueofsmokingin
publicplacessuchasrestaurants.Thisdirectlyaffectsthecompetitivestructureofthe
industrywhenregulationsdonotaffectallfirmsequally.
Affordablepriceandfamiliarbrandsareimportantinaglobalmarket.
Theideaofalevelplayingfieldiscriticalwhengovernmentsevaluatenewtaxesand
regulations.Itisoftendifficultforfirmstoaddresssocialissuesasapriorityoverprofits,
especiallysmallfirmswithverylimitedresources.However,governmentscanmakesurethat
theirlawsandregulationsdonotdistortthebalanceofcompetition.
Smokingbanshaveaffectedhospitalityfirmsandconsumers.Thisisasmokingzone
intheMunichAirport.
2.2.5 The Technological Environment
Weliveinanincreasinglytechnologicalandinterconnectedsociety.Withtheevolutionofthe
personalcomputerfromanexpensivedesktopmachinetootherdevicessuchaslaptops,
smartphones,andtabletsandthepervasiveaccesstotheInternetviacellulardataplansand
wificonnections,ourliveshavechangedinwaysweperhapscouldnothaveevendreamed
aboutbefore.Thepowerofcomputersdoublesroughlyevery18to24months,withprices
constantlydropping.Computersarebeingusedformoreandmoreapplicationseveryday.
Althoughthehospitalityandtourismindustryremainsahighlylaborintensiveandpersonal
contactorientedindustry,computersandtechnologyhavehadandwillcontinuetohavean
impact.Theareainwhichtechnologywillhavethegreatestimpactinthenext10yearsisin
digitalmarketingwhereaproductserviceprovidercanreachindividualcustomersonthe
Internetthroughcorporatewebsitesandsocialmedia.Thisallowsmarketerstomonitorguests'
purchasingbehaviorandthentailorserviceofferingstomeettheirneeds.
Digitalmarketing
ThemarketingofproductsandservicesusingtheInternetandotherformsofelectronic
media.
Thefollowingaresomeexamplesofissuesrelatedtothetechnologicalenvironmentthataffect
Newtechnologieshavehelpedtocombatlaborshortagesandthehighcostoflabor
byenablinghospitalityandtravelfirmstoshiftsomeofthesedutiestoconsumers
throughselfserviceoperations.Examplesincludeautomatedcheckinandcheckout.
Thisisoccurringwithinallsegmentsoftheindustry,fromfastfoodrestaurantstoluxury
hotelsandresorts.Theverycompetitiveenvironmentinwhichcommercialairlinesoperate
hasmadethemleadersincostsavingapplicationsoftechnology.
Theincreasingsophisticationanddecreaseinpriceofcomputertechnologyhavehad
asignificantimpact.Mostofthelargerfirmsmaintainrelationaldatabasesanduse
resourcemanagementsystemsthatcanprovidemanagerswiththepotentialtobetterserve
customers.Thistechnologyisbecomingmoreaccessibletosmallerfirmsthroughservice
contractorsandconsultants.
ThedevelopmentandgrowthoftheInternethaschangedthecompetitivestructurein
thehospitalityandtravelindustry.Evensmallfirmscannowmarketonanationalor
internationalbasis.SellingontheInternetalsoreducesthecostsassociatedwithservice
delivery,therebyincreasingtheprofitpotentialforservicefirms.Thetrendtoward
consumers'evaluatingservicealternativesandmakingonlinepurchaseshasbeen
significant.
Thehospitalityindustryhasexperiencedgrowthduetothesechanges.Mostoftheleading
hospitalityexpertsprojectcontinuedindustrygrowth,albeitasomewhatslowerrate.Certainly,a
fewlargeobstaclesloomonthehorizon.Existingeconomiccycleswillcausesomeupwardand
downwardshiftsinthehospitalityindustry,andfurtherchangesinthetaxcodesmayhavesome
negativeimpactonbusinesstravelandentertaining.
2.3 SUSTAINABLE DEVELOPMENT

Ingeneral,thefocusofsustainabledevelopmentisonoperatingcompaniesandtourism
destinationsinawaythatensuresfuturegenerationswillbenefiteconomically,willhaveaclean
environment,andwillpreservesociety,includingthewellbeingofindividualsandthe
community.ThemostcommonlyciteddefinitionisthefromtheBrundtlandReport:
Developmentthatmeetstheneedsofthepresentwithoutcompromisingtheabilityoffuture
generationstomeettheirownneeds.
Sustainabledevelopmentisdevelopmentthatmeetstheneedsofthepresentwithout
compromisingtheabilityoffuturegenerationstomeettheirownneeds.Itcontainswithinit
twokeyconcepts:
theconceptofneeds,inparticulartheessentialneedsoftheworld'spoor,towhich
overridingpriorityshouldbegivenand
theideaoflimitationsimposedbythestateoftechnologyandsocialorganizationonthe
environment'sabilitytomeetpresentandfutureneeds.3
Figure2.1illustratestherelationshipbetweenthethreecomponentsofsustainable
development:environment,economic,andsocial.Sustainabledevelopmentoccurswhere
amongallthreecomponentsoverlap,asshowninthediagram.Thisdemonstratesabalance
amongpeople,planet,andprofit.Theoverlapbetweentheenvironmentandtheeconomic
componentssuggeststhathospitalityorganizationsareabletoachieveadequateprofitswhile
stillpreservingnatureandtheenvironment.Theoverlapbetweentheenvironmentandsocial
componentssuggeststhatsocietybenefitsfromhavingabetterqualityoflife.However,that
doesn'tensurethatsocietybenefitsasawholeeconomically.Forexample,whentourism
destinationspromotesustainability,oneofthegoalsistoreducepovertyandhavepeople
withlowerincomesbenefitfromincreasedtourism.Unfortunately,thisnormallydoesnot
occurwealthierpeopleandorganizationsusuallyreapthebenefitsandsometimesremove
themoneyfromthelocaleconomy.Finally,theoverlapbetweentheeconomicandsocial
componentssuggeststhatbusinesspracticesresultineconomicprosperityforsocietyasa
whole,includingthepoorandotherdisadvantage.
FIGURE2.1Sustainabledevelopment.
2.3.1 Environmental Sustainability
Theareathatgetsthemostattentionindiscussionsaboutsustainabilityistheenvironment.
Environmentalsustainabilityistheabilitytomaintainreasonablelevelsofrenewableand
nonrenewableenergy,waste,water,andpollutionindefinitely.Inparticular,peopleand
governmentagenciesareconcernedaboutthegreenhouseemissionsthataffectclimate
change.Carbonfootprintisatermusedtorefertothetotalamountofgreenhousegas
emissionscausedbypeople,organizations,products,andeventsthrougheverydayactivities.
Thisbasicallyincludesallcarbondioxide(CO2)andmethane(CH4)emissions,aswellas
nitrousoxide(N2O)andfluorinatedgases.
Theabilitytomaintainreasonablelevelsofrenewableandnonrenewableenergy,waste,
water,andpollutionindefinitely.
Carbonfootprint
Thetotalamountofgreenhousegasemissionscausedbypeople,organizations,products,
andeventsthrougheverydayactivities.
Numeroussourcesmaybeusedtomeasurethecarbonfootprintforanindividualor
organization(e.g.,U.S.EnvironmentalProtectionAgencywebsiteandEarthLab.com).Afteran
individualororganizationdeterminesitscarbonfootprint,actioncanbetakentooffsetthe
impact.Carbonoffsetsaremeasuredinmetrictonsandcanbeassimpleasplantingtreesor
donatingtoanonprofitorganizationthatfocusesonactivitiestoreducegreenhouseemissions.
Hospitalityfirms,especiallylargehotelsandresorts,areheavyusersofwaterandenergyinthe
creationanddeliveryoftheirservices.Inaddition,hospitalityfirmscreatealotofwaste.
Typically,companiesthatengageingreenpracticestrytosaveenergy,minimizewaste,
conservewater,andreducepollution.
2.3.1.1 ENERGY MANAGEMENT.

Someofthepracticesusedbyhotelstosaveenergyaretheinstallationofenergyefficient
appliances,theuseofenergyefficientlightbulbs,centralcontrolsforheatingandair
conditioning,andencouraginggueststoturnofflightsandreuselinens.Another
recommendationistopowerdownunusedequipmentandturnofflightsinunoccupiedrooms
(e.g.,installoccupancysensors).Similarly,restaurantcompaniesandownerscouldinstall
energyefficientappliancesandlightbulbs,andpowerdownequipmentatnight.Also,
restaurantsandhotelfirmscanpurchaseorganicfoodsthatareproducedusingrenewable
resources.Infact,hospitalityfirmscansaveenergybyusingmorerenewableenergysources
suchassolar,wind,geothermal,biomass,andwatertocreateelectricityandprovidepowerfor
theirownoperations.Inadditiontotheenergyfromthesun(solar)andwind,theflowofwater
cancreateenergy,ascantheheatfromEarth(geothermal)andburningorganicorlivingmatter
(biomass).Traditionally,companiesreliedonnonrenewableenergysourcessuchasoil,coal,
nuclear,andnaturalgas.
Anonrenewableresourceisanaturalresourcethatcannotberemadeorregrownatascale
comparabletoitsconsumption.Forexample,nuclearfissionusesuraniumtocreateenergy,but
oncetheuraniumisused,itisgoneforever.Fossilfuelssuchasoil,coal,andnaturalgasare
considerednonrenewablebecauseittakesalongtimetoreplenishthemaftertheyareused.
Conversely,renewableresourcessolar,wind,andwater,forexamplecanbereplenishedina
shortperiodoftime.Unfortunately,thedecisionoftencomesdowntomoney.Theuseof
renewableenergysourcescanrequireaninitialcapitalinvestmentinnewequipmentthatcanbe
costprohibitiveforsomecompanies,especiallythosethatdon'tunderstandthelongtermcost
savingsfromusingalternativeenergysources.
Regardingrestaurantsandhotels,gasstovesarethemostefficientregardingcarbonemissions
andaremoreconsistentindistributingheattofood.Propaneisevenmoreefficient,butthe
downsideisthatpropaneissignificantlymoreexpensivetousethannaturalgas.Theother
optionistousearenewableenergysourcesuchassolarorwindtoefficientlyprovideenergyfor
anelectricstove.Newerrefrigeratorsandcoolerscanbecostly,buttheimprovementsin
efficiencywillnotonlyhelptheenvironmentbutitwillalsoreduceoperatingcosts.
2.3.1.2 WASTE MANAGEMENT.

Hospitalityfirmscanalsohelptheenvironmentthroughwastemanagementprograms.Thisis
accomplishedbycreatingprogramstoreducewastebyreusingproductsandrecycling.The
bestwaytomanagewasteistopurchasesuppliesthatarebiodegradable,andrecycleany
nonbiodegradablematerials.Itisalsoimportanttoproperlydisposeofhazardoussubstances.
Hospitalityfirmscanpurchaseproducts(e.g.,soapandshampoo)forguestconsumptionthat
areinbiodegradablepackaging.Inaddition,guestscanbeencouragedtoreusesoapand
shampooinsteadofopeningnewcontainerseachdayanddiscardingtheunusedportions.
Anotherareawherehotelsandrestaurantscanreducewasteisbycompostingleftoverfood
items.Itisestimatedthat50percentofrestaurantwasteisfood,and65to75percentofall
wasteinlandfillsconsistsoforganicsthatcouldbecompostedorrecycled.Finally,firmscan
recyclepaper,glass,andplastictoreducewasteinlandfillsandavoidincineration.Itshouldbe
notedthattheU.S.FoodandDrugAdministrationdoesnotallowfoodgradeplastictobemade
fromrecycledmaterial.Also,chemicalsand
energyareusedtorecycleplastics,andmostoftheplasticsarerecycledinChinaandcould
involvetransportationallhavingnegativeeffectsontheenvironment.
2.3.1.3 WATER CONSERVATION.

Onceagain,hotelsandotherlodgingfacilitiesareheavyusersofwater.Therecanbehundreds
orthousandsofguestsstayingatalargehotelandallofthemaretakingshowersandusingthe
toilet.Therefore,thereisagreatdealofwaterusagepersquarefootofspacerelativetoone's
homeorapartment.Infact,itisn'tuncommonforhotelgueststoconsumemorewaterwhen
travelingthanwhenathome.Theyassumetheroompriceincludesunlimitedusageandthey
tendtotakemoreshowersafterswimming,workingout,goingtothebeach,and/orsightseeing.
Hotelswimmingpoolsareanothermajorsourceofwaterusage.Everyeffortshouldbemadeto
reducewaterwaste.Forinstance,lowflowshowerheadsandlowflowtoiletscanbeinstalledin
hotelsinanefforttoreducewaterusage.Also,pooltemperaturescouldbesetcoolerandpool
coversmightbeusedtoreduceevaporation.Usingrecycledwaterfromlakesandpondsto
waterthefairwaysandthegreensofgolfcoursesatresortswouldalsoconservewater.Finally,
guestscanbeencouragedtoreuselinensandtowelstoreducetheamountoflaundry,and
hotelscanpurchaselaundryequipmentthatminimizestheuseofwater(e.g.,ozonelaundry
system).
Restaurantdishwashersshouldbefilledbeforeuse,andthestaffcanscrapeoffleftoverfood
andpresoakpotsandpansbeforeputtingtheminthedishwasher.Useoflowflowtoiletsand
installationofwaterefficientaeratorsonsinkswillconservewater.Allhospitalityemployees
shouldcheckforleaksandmakesurewaterisn'tcontinuallyrunningfromfaucetsortoilets.
Anotherpracticethatcanbeusefulistofillguests'waterglassesonlywhenrequested.
However,therecanbeatradeoffbetweenbeingenvironmentallyfriendlyandkeeping
customerssatisfied.Finally,forwateringoutdoorplantsandgrass,restaurantsandhotelscan
reusegraywaterthatcomesfromshowersandsinks,aswellasrainwatercollectedfromroofs
andpavedsurfaces.
2.3.1.4 MANAGING POLLUTION.

TheEnvironmentalProtectionAgency(EPA)intheUnitedStatesisconcernedaboutthequality
ofair,aswellasothereffectsontheenvironmentfrombusinessoperations,includingthe
hospitalityindustry.Mostdevelopedcountries,andmanydevelopingcountries,havesimilar
organizationstomonitorthecountry'senvironmentalhealth.Bothlodgingandfoodservice
operationscontributetothepollutionproblembyusingcleaningsupplies,syntheticmaterials,
andpaintsthatreleasetoxicairpollutantsandvolatileorganiccompounds(VOC)thateventually
worktheirwayintotheoutdoorenvironment.Inaddition,hospitalityfirmsreleaseozone
depletingsubstancessuchaschlorofluorocarbons(CFCs)throughimproperlymaintained
heating,ventilation,andairconditioning(HVAC)equipmentandrefrigerationunits.
TheEPAhassuggestedseveralpracticesthatcouldbeemployedbyhospitalityfirmstoreduce
airpollution:4
1.Changecleaners.Usenontoxicproductswheneverpossible,purchasecleanerswithlow
toxicairpollutantandVOCcontent,andchoosepumpstylesprays.
2.Maintainbuildings.Usewaterbasedorotherlesstoxicpaintsandcoatings,onlyrefinish
thoseportionsoffloorswherethemostwearoccurs,anduseindoorfurnituremadeofwood
insteadofpressedwoodproducts
3.Controlozonedepletingsubstanceemissions.CheckforleaksinHVACunitsand
refrigerationsystemsregularly,recoverandreuseozonedepletingsubstances,replaceold
equipmentwithmoreefficientequipment,andinspectfireextinguishersfrequentlyforleads
(especiallyiftheycontainhalon).
2.3.2 Economic Sustainability

Economicsustainabilitycanbedefinedastheabilitytosupportagivenlevelofeconomic
productionindefinitely.Thebasicpremiseofeconomicsustainabilityittoutilizeanorganization's
existingresourcesefficientlyandresponsiblyinanattempttocontinueoperatingprofitablyover
thelongrun.Intherestaurantindustry,onecouldarguethatanothergoalcouldbesurvival,
giventhefailurerates.However,economicsustainabilityisnormallyassociatedwithmonetary
goalssuchasmaintainingadequateprofitmargins,providinganacceptablereturnon
investmentfor

ownersandshareholders,andbeingabletoservicedebtrequirements.Oneofthemain
criticismsofcorporationsisthattheysacrificelongtermenvironmentalsustainabilityforshort
termprofits.
Theabilitytosupportagivenlevelofeconomicproductionindefinitely.
Hotelshavefoundthatsustainabilityeffortscanincreaseprofitsbyreducingcosts.
Fromamoreglobalperspective,countriesandregionsareusuallycomparedbasedongross
domesticproduct(GDP)percapita,grossnationalincome(GNI)percapita,orsomeother
measureofincomethatcanbeusedasanindicatorofthestandardofliving.Thistypeof
assessmentismorerelevantwhenlookingattourismdestinationsandcountriesasawhole.
Sustainabledevelopmentinthetourismindustryisparticularlyimportantbecausedestinations
usegovernmentfundingtogeneraterevenuethatgetschanneledbacktothegovernment
throughtaxesandusedtosupportsocialprograms.Itisalsoawaytohelpthoseinsocietythat
arelessfortunate(e.g.,communitybasedtourism).
2.3.3 Social Sustainability

Socialsustainabilitycanbedefinedastheabilityofacountryorasocietytomaintainan
adequatestandardoflivingindefinitely.Thisconcept,whichisoftenreferredtoashuman
development,ismonitoredonagloballevelbykeepingstatisticsonthingssuchasthe
percentageofthepopulationatthepovertylevel,accesstoqualitywater,accesstomedical
facilitiesanddiseasecontrol,lifeexpectancy,andliteracy.Twooftheunderlyingthemesin
socialsustainabilityareequityanddiversity.Thenotionofequityfocusesontheabilityand
willingnessofacommunitytoprovideopportunitiesandresourcestoallitsmembers,regardless
ofrace,religion,gender,incomelevel,andsoon.Inotherwords,allmembersofthecommunity
shouldhaveaccesstothesamelevelofeducationandhealthcare,andthereshouldbe
affordablehousingandemploymentopportunities.Therelatednotionofdiversityfocusesonthe
extenttowhichsocietywelcomesmembersfromallwalksoflife.Itnotonlyreferstoone'srace
andincomebutalsotoone'spoliticalandreligiousviews.
Theabilityofacountryorasocietytomaintainanadequatestandardoflivingindefinitely.
Hospitalityfirmscanhelpaccomplishsociety'sgoalsbyprovidinggoodpayingjobsandcareers
forlocalresidentsratherthanbringinginalloftheirownmanagersandstafffromoutsidethe
community.Inaddition,theycanoffertrainingprogramsandskillsdevelopmentforlower
incomeandatriskmembersofthecommunity.Hotelandrestaurantbusinesseshavemanyjobs
availabletothosewithouthighereducation.Hoteltaxesandsalestaxesgeneratedbyvisitors
andlocalresidentsproviderevenuesforthelocalcommunitytouseforsocialprograms.The
tourismindustryisalsogoodforbringingoutsidemoneyintothecommunityandprovidinga
positiveeconomicimpactinthewayofjobsandtaxrevenues.However,oneofthecomplaints
withthetourismindustryisthatthereareleakagesfromthecommunitybecausetravelrelated
companiesareheadquarteredinotherareasanddon'talwaysreinvesttheprofitsinthe
community.Othercriticismsarethattouristscanhaveanegativeimpactonthelocalcultureby
changingsocialnormsandexposingresidentstooutsideinfluences,andthattouristshave
accesstoresources(e.g.,cleanwaterandenergy)thattheresidentsdon'thave(i.e.,in
developingcountries).
2.3.3.1 CORPORATE SOCIAL RESPONSIBILITY.

Corporatesocialresponsibilitycanbedefinedasthecontinuingvoluntarycommitmentby
corporationstobehaveethicallyandtocontributetotheeconomicdevelopment,socialequity,
andenvironmentalprotectionofsocietyasawhole.Someofthekeyaspectsofthedefinition
are:
1.Itisacontinuingcommitment,oralongterminitiative.
2.Itisvoluntary,suggestingthatorganizationsneedtoselfregulateandencourage
participationamongbothinternalandexternalstakeholders.
3.Itfocusesonthetriplebottomlineeconomic,social,andenvironmentalimpacts.
Thegoalistocreatesharedvaluebetweentheorganizationandsociety.Inotherwords,
organizationsshouldbeabletoachievetheireconomicgoalswhile,atthesametime,protect
theenvironmentandcontributetothesocialwelfareofthecommunity.However,itisnot
uncommonfororganizationstofindthattheymustcomplywithsocialand/orenvironmental
standardsthatthegovernment,orindustryregulatorybody,imposesonthem.
2.4 MANAGING FOR SUSTAINABILITY

Itisimportanttotrainemployeestoadheretothesustainabilityinitiativescreatedbyhospitality
firmsandtourismorganizations.Inaddition,managementhastohaveamonitoringprocessin
placethatincludessomewaytoevaluateperformanceintermsofsustainability.Ifan
organizationisgoingtodelivereconomicprosperity,environmentalquality,andsocietalwell
being,itisnecessarytointegratethethreecomponentsintothestrategicplanningprocessof
theorganization.Also,theorganizationneedstobetransparentregardingitsoperationsand
activities.Finally,therehastobesomelevelofmeasurementandreportingoftheorganization's
performanceintermsofsustainability.Thetriplebottomlineisanaccountingandrecording
systemusedbyfirmstomonitorsustainabilityperformanceonallthreecomponentspeople,
planet,andprofits.Table2.1containsasummaryofthethreecomponentsandsomeexamples
ofmeasuresthatcanbeusedtomonitorperformanceforthehospitalityandtourismindustries.
Triplebottomline
Anaccountingandrecordingsystemusedbyfirmstomonitorsustainabilityperformanceon
allthreecomponentspeople,planet,andprofits.
TABLE2.1
SustainabilityIndicators
COMPONENT HOSPITALITYMEASURES TOURISMMEASURES
Environmental Greenhouseemissions Airandwaterquality

(Planet) Energyconsumption Energyconsumption
Waterconsumption Waterconsumption
Solidandtoxicwaste Naturalresources
Solidandtoxicwaste
Economic Revenuesandprofits Personalincomeandlevelofpoverty

(Profits) Operatingcosts Unemploymentrate
Employeecompensation GDPpercapita
Jobcreation Jobgrowth
Communityinvestments
Social Workforcediversity Lifeexpectancy

(People) Employeeturnover Violentcrimespercapita
Healthcarecoverage Incidenceofdiseases
Incidentsofdiscrimination Medicalfacilitiesanddoctors
Employeetrainingandeducation Educationofpopulation
Workplaceinjuries

2.4.1 Communicating Sustainability Initiatives

Itisimportantfororganizationstomakesureemployeesareawareoftheirsustainabilitygoals
inordertoachievethosegoals.Inaddition,thesustainabilityinitiativesofthefirmshouldbe
communicatedtoexternalstakeholderssuchascustomers,suppliers/vendors,
stockholders/investors,thegovernment,andthecommunity.Thehumanresourcesdepartment
inlargercompaniesisresponsibleforinternalcommunicationsregardingthesustainability
initiatives,aswellastrainingandsocializationofemployeestothesustainabilityculture.
Stakeholderengagementisalsoimportantindeterminingtheorganization'ssustainability
initiatives.
Inadditiontowords,statistics,anddatameasurements,itisimportanttocreatemorevisualand
compellingelementstoconveyanorganization'scommitmenttosustainability.Thefollowingfive
suggestionswereprovidedinanarticlepublishedontheGreenBiz.comwebsite:5
1.Communicationsthatyoucansee,touch,orevenlistentoprovideatangiblemeasureof
sustainabilitysuccess.Itisrecommendedthatfirmsprovidethistangibleevidencein
newsletters,annualreports,andothersupplementalmaterialsavailableonlineand
distributedinhardcopy.
2.Developabrand/identitytorepresentandhighlightyoureffortsinsustainability.Itshouldbe
consistentwiththeoverallbrand,buthaveitsownuniquecharacteristic(s)tocreateinterest
amongtargetmarkets.Thiswillhelpwithemployeerecruitmentandretention,employee
engagement,andcustomerloyalty.
3.Createamemorablethemeandtitlethattiescloselywithanorganization'score
competencies.Itshouldbecreativeandberelatedtothecorporatenameand/orcorporate
culture.
4.Manysustainablemeasurescanbetakenwithaprintedpiece.Forexample,ifan
organizationcarriesoutitssustainabilityinitiatives,itmightbepossibletoaddacertification
logotoitscollateralmaterials.
5.Takeadvantageofthetechnologythatexiststoday.Thiscanbedonethroughtheuseof
socialmedia,QRcodes,andonlinepollsandsurveys.Firmscanpromotetheirsustainability
effortsthroughthesevehicles.
Globalsustainabilityrequiresorganizations,governments,andindividualstochangetheway
theythinkandactinregardtotheenvironmentandsociety.Itistheresponsibilityoffirmsto
educateconsumersandencouragethemtopurchaseenvironmentalfriendlyproductsand
services.Additionally,itisnecessaryfororganizationstocommunicatetheireffortsasameans
ofobtainingacompetitiveadvantagewithcustomerswhovaluefirmswithgreenpractices.The
UnitedNationsEnvironmentProgramme(UNEP)developedareporttohelporganizations
produceeffectivecampaignsforcommunicatingsustainability.6TheUNEPprovidesaneight
stagesustainabilitycommunicationsplanningprocess(seeFigure2.2).
FIGURE2.2Sustainablecommunicationsplanningprocess.
Thefirststageinvolvesdoingresearchtogetabetterunderstandingofthesituationsothatyou
canincreaseyourchancesofsuccess.Onemeansofobtainingpertinentinformationistoscan
theexternalenvironments(competitive,economic,politicalandlegal,social,andtechnological)
todetermineifthereareanyissuesthatmightaffectyourcampaign.Thiswillputyoursituation
inthepropercontext.Also,lookatothersustainabledevelopmentcampaignsinyourmarket.
Thesecondstageinvolvesdoingadditionalresearchonyourtargetaudience.Segmentyour
marketandprioritizethesegments.Then,determinewhatmotivatesyourtargetaudienceand
howbesttoreachthemwithprintandbroadcastmedia.Finally,identifypotentialopinionleaders
andinfluencerswhocanhelpdistributeyourmessage.
Afteryouhavecompletedyourresearch,thethirdstageinvolvessettingobjectivesforyour
campaign.Thisshouldbecompletedbeforeyoulaunchyourcommunicationscampaign.The
objectivesshouldbeclear,concise,andmeasurable.Theyshouldbespecific,includingwhatis
tobeaccomplishedandthetimeframeinwhichtoachievetheresults(e.g.,reducewater
consumptionby10percentwithinthenextyear).Thefourthstageistodecideonastrategic
approachtoachieveyourobjectives.Thisinvolvesdevelopingalistofpossiblealternativesand
thenevaluatingthealternativestodeterminewhichwouldhavethebestpotentialforsuccessin
meetingyourobjectives.Itisimportanttoestablishabudgetanddoacost/benefitanalysisto
makesurethatthealternativeprovidespositivebenefits(bothtangibleandintangible)that
exceedthecosts
(bothmonetaryandnonmonetary)ofpursuingthealternative.Itisalsohelpfultoinclude
stakeholdersinthisprocesssothattheybuyintoyourcampaign.
Thefifthstageinvolvesdevelopingthemessage(s)thatwillappealtoyourtargetaudience(s)
andcreateabasicthemeforyourcampaign.Youcandevelopauniquebrandforthispurpose
anduseaspecificlogoandbrandedstatementsinallyourcommunications.Themessage(s)
canbeadjusted,ortailored,toappealtovarioussegments.Thesixthstageinvolveschoosing
theproperchannels,ormediavehicles,touseindistributingthemessage(s)tothetarget
audience(s).Youcanusetheresearchfromthesecondstagetohelpinthisregard.
Theseventhstageisoneofthemostimportantstages.Itinvolvesdeterminingwhois
responsibleformanagingthecampaignandestablishingafinalbudgetandtimelineforthe
campaign.Youneedtodevelopalistofrequiredresources(e.g.,people,materials,andmoney)
andcreateaprojectschedulethatcanbeusedtoallocateresourcesandmonitortheproject
stages.Additionally,youshoulddevelopacrisismanagementplanthatcanbeimplementedin
theeventsomethingunexpectedoccurs.Theeighthandfinalstageinvolvesthemeasurement
andevaluationofthecampaign.Everyeffortshouldbetakentoobtainmeasurableresultsthat
canbeusedtoassessthesuccess,orfailure,ofthevariouscomponentsofthecampaign.
Measurementcanaddresstheprocessofdeliveringthemessage(s),theoutcome(s)ofthe
campaignrelatedtochangesinawareness,attitudes,orbehaviors,andtheimpactofthe
campaignonsustainabledevelopmentinitiatives.
2.4.2 Sustainability Programs and Certications

Oneotherissueformanagementtoconsideriswhetherornottoobtainsometypeof
sustainabilityorgreencertificationtorecognizetheorganization'seffortsinthisarea.The
benefitofhavingacertificationisthatitlendscredibilitytothefirmbecauseithasmetthe
standardsandcriteriaofanobjectiveorganization.Mostofthecertificationgroupsprovidea
logoorsealofapprovalthatfirmscandisplayontheirwebsitesandfacilitiesthatcanadd
valuetomarketingcampaigns.Also,itencouragesfirmstotracktheirperformance,anditcan
helpmotivatestaffandemployeestosupportthefirm'ssustainabilityinitiatives.However,there
isusuallyareviewprocessthatrequiresthefirmtokeeprecordsanddocumentitsperformance.
Thisadditionaleffortandthecostofthecertificationmightoutweighthebenefitsforsome
hospitalityandtravelorganizations.
Currently,therearethreemainorganizationsthatprovidecertificationfortherestaurantindustry.
TheGreenRestaurantAssociationisanonprofitorganizationlocatedinBoston,Massachusetts.
Thecostofthecertificationstartsat$300peryearbasedonthetermofthecontract,the
restaurantsize,andthenumberoflocationsinvolved.Theorganizationperformsan
environmentalassessmenttocreateabaselineandthenworkswiththerestaurantstoimprove
theirstandardstomeetthecriteriafortheGreenRestaurant4.0certification.TheSustainable
RestaurantAssociationisbasedinLondonandhasrecentlystartedtoprovidecertificationsin
theUnitedStates.Thecertificationinvolvesrestaurantsaddressing14focusareasacrossthree
sustainabilitycategories:sourcing,environment,andsociety.Theprocessishandledmainly
onlineandcosts$295.TheU.S.HealthfulFoodCouncilisanonprofitorganizationlocatedin
Washington,DC.ThiscertificationisbasedontheU.S.GreenBuildingCouncilLEED
certificationprogramandthecoststartsat$400.TheREAL(ResponsibleEpicureanand
AgriculturalLeadership)certificationincludesanutritioncomponent,unliketheother
certifications.
AccordingtoGreenLodgingNews7,27states,PuertoRico,fivecities,andtworegionscurrently
havesomeformofgreenlodgingprogram.CertificationprogramsareofferedthroughU.S.
organizationssuchasTripAdvisorfromNewton,MassachusettstheU.S.Environmental
ProtectionAgency(EPA)GreenSealfromWashington,DCandAudubonInternationalinNew
York.Inaddition,thereareglobalorganizationssuchasSustainableTravelInternational.Some
ofthecertificationsaretourismbasedandincludelodgingfacilitiesforexample,the
CertificationforSustainableTourisminCostaRica,GreenGlobeinCalifornia,andEarthCheck
inAustralia.Agenda21,anonbindingsustainabledevelopmentactionplanstartedbytheUnited
Nationsin1992,createdaplatformfornations,states,cities,andregionstouseindeveloping
sustainabletourismprograms.
CHAPTER REVIEW
Thischaptercoveredtheexternalenvironmentthatispartofthemarketingprocess
introducedinChapter1.Theexternalenvironmentconsistsoftheareasthataffectthe
marketingprocess,butarenotunderthedirectcontrolofmarketingmanagers.Thefive
majormarketingenvironmentsareeconomic,social,competitive,politicalandlegal,and
technological.Firmsuseenvironmentalscanningtokeepabreastofchangesinthe
externalenvironmentthatcouldresultinopportunitiesorthreatstotheorganization.Some
oftheexternalenvironmentscanbeindirectlycontrolledthroughobtainingpatents,creating
barrierstoentry,and/orlobbyingforfavorablegovernmentregulation.
Thesecondpartofthischapterfocusedonsustainability.Thethreemajorcomponentsof
sustainabilityinhospitalityandtourismoperationsaresocial,environmental,andeconomic.
Theseareoftenreferredtoaspeople,planet,andprofits,respectively.Thegoaloftoday's
organizationsshouldbeonmanagingthistriplebottomlinetoensurethat,whilemaking
adequateprofits,businessesleavetheplanetandsocietyinthesame,orbetter,condition.
Thishasledtoafieldofinquirythataddressescorporatesocialresponsibility.All
organizationsshouldstrivetobegoodcommunitycitizensbyestablishingsustainability
initiatives,measuringthemwithsustainabilityindicators,andcommunicatingtheirresultsto
theirvariousstakeholders(e.g.,employees,investors,suppliers,customers,andthelocal
community).

Carbonfootprint
Demographics
Digitalmarketing
Discretionaryincome
Disposableincome
Monopoly
Oligopoly
Perfectcompetition
Purchasingpower
Sustainability
Triplebottomline

1.Whatarethekeyvariablesinthemarketingenvironment?Inyouropinion,which
isthemostimportant?Why?
2.Ofthevariablesinthemarketingenvironment,isthereoneortwothatyou
believeamarketingmanagercaninfluenceorpredictmoreeasilythanthe
others?Ifso,whichone(s),andwhy?
3.Whatchangesintechnologywillimpactthehospitalityandtourismindustryin
thenext5years?Whatspecificpositiveandnegativeimpactsfromtechnology
doyouforesee?
4.Definesustainabledevelopment.Whatarethethreemajorcomponentsof
sustainabledevelopment?
5.Whichcomponentofsustainabledevelopmentreceivesthemostattentionfrom
hospitalityandtourismorganizations?Explainyouranswer.
6.
Whatisenvironmentalsustainability?Discussthevariousareaswhere
hospitalityandtravelfirmscanaddressenvironmentalsustainability.
7.Whatisacarbonfootprint?Whatcanorganizationsdotomitigatetheirimpacton
theenvironmentinthisregard?
8.Whatiscorporatesocialresponsibility?Doyouthinkhospitalityfirmsdoagood
jobinthisarea?Whatmorecouldtheydo?
9.Whataresomeofthemorecommonsustainabilityindicatorsusedbyhospitality
andtourismorganizationstomonitorsustainabilityperformance?
10.Howcanhospitalityfirmscommunicatetheirsustainabilityinitiativesto
stakeholders?
CASE STUDY
Arizona Hotel Resort and Spa
Youhaverecentlybeenhiredasthegeneralmanagerforaluxuryresorthotelin
Scottsdale,Arizona,thatboastsoneofthenicestspasinthecountry.However,thehotel
hasdoneverylittleplanninginthepastandhasreliedmainlyonitsreputation.Asthenew
generalmanager,youdecidetoengageinanenvironmentalscanningtasktodetermine
theimpactoftheexternalenvironmentonyourhotel'soperation.

1.Discussthepotentialimpactofeachoftheexternalenvironmentsonyourhoteland
spa.
2.What,ifanything,canbedonetoaddressthesepotentialimpacts?
CASE STUDY
Bushwood Country Club
TyWebbwasrecentlyhiredasthegeneralmanagerattheBushwoodCountryClub.One
ofhismaininitiativesasthenewGMistoimprovetheclub'ssustainabilityeffortsandfind
waystobecomeamoreenvironmentallyfriendlycountryclub.Thecountryclubhasafine
diningrestaurantandaclubhousegrilltoserviceitsmembers.Inaddition,thereisan18
holeprofessionalgolfcourse.Theareawherethecountryclubislocatedoftenhas
droughtsandwatershortagesthroughoutthesummermonthsandthelocalresidentsand
businessesfacecertainwaterrestrictions.Therefore,itwouldgreatlybenefitthecourseto
reduceitswaterusage.CarlSpackleristhegolfsuperintendentresponsibleforthe
maintenanceofthecourse.Hehasbeenattendingconferencesongolfcourse
sustainabilityandisexcitedabouttheopportunitytoimplementsomeofthepractices
presentedattheconferences.
Therestaurantshaven'timplementedanygreenpracticestodate,andthereisdefinitely
roomforimprovement.DannyNoonanistheclubhousemanagerinchargeofthe
restaurantandbarbusiness.Hedoesn'tshareMr.Spackler'senthusiasmandfeelsthatitis
awasteoftimeandmoneytoincorporatethenecessarychangestobecomeagreen
facility.Also,TyWebbhastosellthemembersonhavingaspecialassessmenttoraisethe
moneynecessarytoimplementthenewprograms.Thisisn'teasy,seeingastheannual
duesarealreadyonthehighsideandmemberswon'tbewillingtopayadditionalfees
unlesstheyseeadirectbenefit.ThereisaBoardofDirectorselectedbythemembersthat
willmakethefinaldecisionaboutaspecialassessmentbasedontheirdiscussionswiththe
members.

1.WhatisthefirstthingTyWebbshoulddobeforemeetingwiththeBoardofDirectors?
2.Whataresomeoftherecommendationsthatcanbemadeforthegolfcourse?
3.Whataresomeoftherecommendationsthatcanbemadefortherestaurants?
4.Whoisthetargetaudience(s)forcommunicatingthesustainabilityinitiatives?
5.DevelopanoutlineofacommunicationsplanthatTyWebbcoulduse,includingspecific
objectives,messages,channels,andsoon.
NOTES
1EconomicResearchService,U.S.DepartmentofAgriculture(USDA),FoodExpenditures,
www.ers.usda.gov/dataproducts/foodexpenditures.aspx.
2DonaldR.LehmanandRussellS.Winer,AnalysisforMarketingPlanning,2nded.
(Homewood,IL:RichardD.Irwin,1991).
3WorldCommissiononEnvironmentandDevelopment(WCED),OurCommonFuture(Oxford:
OxfordUniversityPress,1987),p.43.
4ReducingAirPollutionfromtheHospitalityIndustry(LodgingSector),EPACommunity
InformationSheet,September12,2005.
5MelissaWicinskiandJenniferGriffith,5WaystoCommunicateSustainabilitybeyondWords,
GreenBiz.com,May1,2013.www.greenbiz.com/blog/2013/05/01/5wayscommunicate
sustainabilitybeyondwords.
6CommunicatingSustainability:HowtoProduceEffectivePublicCampaigns,preparedby
FuterraSustainabilityCommunicationsfortheUnitedNationsEnvironmentProgramme
(UNEP),2005.
7Hasek,Glenn.2014.NumberofStateLevelCertification,RecognitionProgramsStandsat
27.GreenLodgingNews,February12.Availableatwww.greenlodgingnews.com/numberof
statelevelcertificationrecognitionprograms.
3
UNDERSTANDING THE BEHAVIOR OF HOSPITALITY
CONSUMERS
CourtesyofCarnivalCruiseLines.
Chapter Objectives
1.Defineconsumerbehaviorandexplainwhyitisimportanttostudy.
2.Listanddiscusstheexternalandinternalfactorsthatinfluenceconsumerbehavior.
3.Describetheconsumerdecisionmakingmodel.
4.Explaintheproblemsolvingprocessstrategiesemployedbyconsumers.
5.Outlinethethreelevelsofconsumerproblemsolving.
6.Listcharacteristicsuniquetoorganizationalbuying.
3.1 INTRODUCTION
Successfulmarketingmanagersfocusonunderstandingtheirconsumers'wantsandneedsas
clearlyaspossible.Thoroughmarketingresearchhasallowedmarketingmanagersoftangible
products,suchasautomobiles,toothpaste,laundrydetergent,andmostotherproducts,to
understandtheircustomers.Morerecently,marketershavebeguntobetterunderstandthe
subjectofconsumerbehaviorasitrelatestotheconsumptionofservices.Thisknowledge
enablesmarketingmanagerstodevelopsophisticatedmarketingprogramsaimedatvery
specifictargetmarketsegments.
Oneofthemostperplexingproblemsconfrontinghospitalitymanagersistounderstandwhy
hospitalityconsumersbehaveastheydo.Thischapterexploresseveralimportantaspectsof
consumerbehavior,includingtheinternalandexternalfactorsthatinfluenceconsumerbehavior,
thewayinwhichconsumersmakepurchasedecisions,thesatisfactionofhospitalityconsumers,
andhowcontinuousqualityimprovementcanbeusedasamarketingtool.Ingeneral,consumer
behaviorcanbedefinedasthestudyofhowanindividual'sthoughts,feelings,attitudes,
opinions,andpatternsofbehavioraffectwhathebuys,whenhebuys,whyhebuys,andhowhe
usestheproductorservicehepurchases.Thestudyofconsumerbehaviorfocuseson
understandingconsumersastheypurchaseproductsorservices.Thisbehaviortakesplace
withinthelargercontextoftheenvironmentinwhicheachpersonoperates.Therefore,
consumerbehaviorexaminestherolesandinfluencesthatothershaveonthebehaviorof
individualconsumers.
Understandingthebehaviorofhospitalityandtourismconsumersisamongthemostimportant
challengesfacingmanagement.Itiscriticalthatmanagersremaininconstantcommunication
withthosewhoconsumetheproductsandservices.Equallycriticalistheimportanceof
managerstopaycloseattentiontoconsumerneedssothattheywillbereadytochange
elementsofthemarketingmixwhenconsumerpreferences,wants,orneedschange.For
example,inrecentyearsmanyconsumershavedemonstratedanincreasingemphasison
healthierdiets.Thisconcernhasledthemtorequesteven,insomecases,demandmenu
choicesthatarehealthier.Restaurantshaverespondedbyprovidingmenuchoicesthatare
lowerinfatandsaltandaddingmorefreshfruits,vegetables,andgrains.Theproductsand
servicesmadeavailabletoconsumersmustrespondtothechangingneedsofthetargetmarket
segments.
Thestudyofconsumerbehaviorisbasedontwofundamentalideas:(1)consumerbehavioris
rationalandpredictableand(2)marketerscaninfluencethisbehavior.Contrarytowhatsome
maythink,thebehaviorofconsumersisnotirrationalorrandom.Consumerbehaviorthat
appearstobeirrationaltotheoutsideobserverisveryrationaltotheindividualmakingthe
purchasedecisions.Aswe'venoted,restaurantsareincreasingthenumberofhealthiermenu
choicesbecauserestaurantguestsweredemandingthem.Yet,atthesametime,thesaleof
dessertsandothersweetshasalsoincreased.Isthisrational?Doesitmakesensefroma
consumer'spointofview?Howcanconsumersappeartoexhibitthisconflicting,andperhaps
irrational,behavior?
Consideritfromtherestaurantguest'spointofviewanditisveryrational.Supposethata
particularcustomerhasmadehealthymenuchoicesallduringtheweek.However,whendining
outonFridayevening,sheindulgesinahighcalorie,highfatdessert,sayingtoherfriends,It's
beenalong,hardweek,andI'mgoingtotreatmyselftothemochaswirlcheesecake.Thisis
notirrationalbehaviorinthemindoftheconsumer.Shebelievesthatshehascutbackon
calorieandfatconsumptionallweekandinfactdeservesaspecialtreatatdinneronFriday.
Thechallengeforrestaurantmarketersistorecognizethetrendsinconsumerbehaviorand
providetheproductsandservicesthatconsumersdemand.
3.1.1 Describing Consumer Behavior

Consumerbehaviorcanbedescribed,andtosomeextentitcanbepredicted,basedontheory.
JamesMcNeal,inhisclassicbookConsumerBehavior,advancestheideathathumanbehavior
isinfluencedbyseveralfactors:socialsetting,socialforces,roles,andattitudesrelativeto
roles.1
3.1.1.1 SOCIAL SETTING.

Allconsumersmakedecisionsandtakeactionswithinthelargersocialsettingand,indoingso,
areinfluencedbytheirpeers.Inaddition,thesameconsumerswill,inturn,influencetheactions
ofotherconsumers.Socialsettingswillvarygreatly.Forexample,

thesocialsettingofaconsumerlivinginNewYorkCityisverydifferentfromthatofsomeone
livinginAmes,IowaParis,FranceoranEasternEuropeancountry.
Trekkinginalargecityisinfluencedbydifferentsocialforcesthanhikinginthe
mountains.
3.1.1.2 SOCIAL FORCES.

Forceswithinthesocietysetthestandardsofacceptablebehavior.Theserulesarebothwritten
andunwritten,andtheyareestablishedbythosewithinthesocietywiththemostinfluence.For
example,thebehaviorthatacollegestudentexhibitsatapartyoncampusislikelytobequite
differentthanthebehaviorexhibitedwhileathomeduringbreak.Differentsocialforcesareat
workinthesetwosituations.
3.1.1.3 ROLES.
Aroleisapatternofbehaviorassociatedwithaspecificpositionwithinasocialsetting.All
individualsassumeavarietyofroles,someprofessional,otherspersonal.Eachrolebringswith
itasetofexpectationsforbehavior.Forexample,whenapersonisinapositionofauthority,
suchasthemanagerofahotel,employeeslooktothemanagertoprovidedirection,make
decisions,andhelptheoperationrunsmoothly.However,whenthismanagerleavesworkand
goeshome,heorshemayassumealessactivedecisionmakingrolewheninteractingwithhis
orherchildren.Forexample,athome,themanagermaydefertothechildrenthedecisionabout
whattypeofactivitytheywillengageinduringadaythattheyspendtogether.
3.1.1.4 ATTITUDES RELATIVE TO ROLES.

Withineachoftherolesthatweplayareattitudesandknowledgethatwegainaboutthesetting.
Attitudesaredefinedasconsistentlyfavorableorunfavorableevaluationsofobjectsor
situations.Knowledgeisdefinedasfactsthatwegainaboutobjectsorsituations.Attitudesare
directlytiedtoaconsumer'sneeds.Theseneeds,whicharethecauseforallconsumer
behavior,arelinkedtoanindividual'sattitudesandknowledge.
Attitudes
Learnedpredispositionstoactinaconsistentlyfavorableorunfavorablemanner.
3.1.2 Reasons to Study Consumer Behavior

Whyshouldyoustudyconsumerbehavior?First,knowledgeofconsumerbehaviorisimportant
becausemanagersinthehospitalityindustrycomeintodirectcontactwithmanyconsumerson
adailybasis.Oneoftheprimarygoalsforeachofthesemanagersistocreateandmaintain
satisfiedconsumers.Withoutaworkingknowledgeoftheirwantsandneeds,itwillbemuch
moredifficulttosatisfythem.Keepinmindthatthefundamentalreasonforbeinginbusinessis
tocreateandsatisfyconsumers.
Second,ifacompanyistogrowandprosper,managementmustanticipatethewantsand
needsofconsumers.Forexample,ifahospitalitycompanyisconsideringwhethertobuilda
newhotel,appropriatepersonnelmustanticipateaparticularlocation'sdemandforhotelrooms,
meetingspace,andfoodandbeverageservices.Indoingso,theyarelikelytoprojectdemand
forseveralyearsintothefuture.Oneofthewaystohelpmakeabetterdecisioninthiscaseisto
understandmorethoroughlythecurrentandfuturebehaviorofconsumers.
3.2 FACTORS THAT INFLUENCE CONSUMER BEHAVIOR

Consumersdonotmakepurchasedecisionsinavacuum.Rather,theyaresubjecttoboth
externalandinternalfactorsthatinfluencethem.
3.2.1 External Inuences on Consumer Behavior

Externalinfluencesincludeculture,socioeconomiclevel,referencegroups,andhousehold.
Externalinfluences
Externalinfluencesincludeculture,socioeconomicstatus,referencegroups,and
household.
3.2.1.1 CULTURE.
Cultureisdefinedasthepatternsofbehaviorandsocialrelationsthatcharacterizeasociety
andseparateitfromothers.Itconveysvalues,ideals,andattitudesthathelpindividuals
communicatewitheachotherandevaluatesituations.Itisimportantinviewingculturetodraw
legitimategeneralizationsaboutagivencultureorsubculturewithoutresortingtostereotyping.
Anindividual'scultureprovidesaframeofreferenceconcerningacceptablebehaviors,andas
such,cultureisalearnedsetofarbitraryvalues.ThedominantcultureintheUnitedStates
todaystressesequality,useofresources,materialism,individualism,andyouth.
Culture
Patternsofbehaviorandsocialrelationsthatcharacterizeasocietyandseparateitfrom
others.
Differencesinculturesaremostapparentwhenahospitalityandtourismfirmattemptsto
expandintointernationalmarkets.Therearesignificantdifferencesbetween,forexample,the
waythatEuropeansmakepurchasedecisionsandexhibittravelbehaviorandthewaythat
Americansdoso.InmuchofEurope,forinstance,itisverycommonforafamilytotakean
extendedvacationthatmightlastfor2,3,ormoreweeks.InFrance,itisverycommonfor
businessestoshut
downformuchofAugustwhiletheentirecountryisonvacation.IntheUnitedStates,the
oppositetrendisprevalent.Familiesarelesslikelytotakeavacationofmorethan1weekand
aremorelikelytotakeaseriesofminivacationsthatextendover3dayweekends.Infact,in
theearly1990s,thephrasebreakationwasintroducedtodescribetheminiorgetaway
vacationsthathavebecomecommonintheUnitedStates.
InadditiontothegeneralcultureoftheUnitedStates,marketersmustalsobeconcernedwith
subcultures.Subculturesincludegroupsofpeoplewithinthelargerculturewhosharecommon
beliefsorintereststhatdifferfromthemajoritybasedoncommonlifeexperiences.Subcultures
inmarketingareoftenbasedonrace,ethnicity,religion,ornationality.However,theycanalso
bebasedongeographiclocation,age,andsexualorientation.Twomarketsthathavereceiveda
gooddealofattentioninthetravelindustryarethelesbian,gay,bisexual,andtransgender
(LGBT)populationandmillenials(thosebornbetween1980and2000)becauseoftheirdistinct
differencesrelativetotheoverallsociety.Forexample,millenialsconstitutealargepercentage
ofthelaborforceforhospitalityorganizations,butownersandmanagershaveadifficulttime
relatingtotheseindividualsbecauseoftheirdifferentvaluesystems.Ingeneral,millenialsare
moreopentochangeandmorecreativethanpreviousgenerations,buttheyarealsomore
narcissisticandindividualistic.Millenialsoftenwantflexiblehoursandjobenrichment,andthey
changejobsfrequentlybecausethereisnosenseofloyalty.Thislackofloyaltyisalsopresent
inmillenialsasconsumers.Inaddition,theyrelymoreheavilyonwordofmouthandobjective
productreviewsthanontraditionaladvertising.
3.2.1.2 SOCIOECONOMIC LEVEL.

Socioeconomiclevelhasalargeinfluenceinconsumerdecisionmaking.Marketingmanagers
havelongattemptedtocorrelatesocioeconomiclevelwithdiningouthabitsandtravelpatterns.
Hospitalitymanagersmustidentifytherelativesocioeconomiclevelstowhichtheoperation
appealsandtargetthosegroupsdirectlywithacustomizedmarketingmix.Forexample,an
upscaleandexpensivefourorfivestarresortpropertywilltargetitspromotionaleffortstothose
inupperincomegroups.Theseresortsarelikelytoadvertiseinpublicationsreadby
professionalsandthosewhoareinthetop25percentofannualhouseholdincomeinother
words,theresorts'targetmarket.
TheInternetisasuccessfultoolforfirmstoreachvarioussocioeconomicgroups.Forexample,
onlinetravelagentsareabletoreachpricesensitiveconsumerswhotendtohaverelatively
lowerincomesthanmostfrequenttravelers.Theseconsumersusewebsitessuchas
Expedia.comandTravelocity.comtofindgooddealsandbargainpricesforflights,hotels,rental
cars,andtouristattractions.Hotelsalsohavetheirownwebsitesthatareusedtoreachfrequent
travelerswhoaccumulatepointsandredeemthemforfreehotelroomsandvacationpackages.
3.2.1.3 REFERENCE GROUPS.

Areferencegroupisagroupwithwhomanindividualidentifiestothepointwherethegroup
dictatesastandardofbehavior.Referencegroupsexerttremendousinfluenceonconsumers'
hospitalityandtourismpurchasedecisions.Everyindividualisinfluenceddirectlyandindirectly.
Marketingresearchhasidentifiedthreetypesofreferencegroups:comparative,status,and
normative.Thetwomostcommontypesofreferencegroupsarecomparativeandnormative.
Referencegroup
Agroupwithwhomanindividualidentifiestothepointwherethegroupdictatesastandard
ofbehavior.
Celebritiessuchassportsfiguresandpopularentertainersserveascomparativereferentsby
providingstandardsandinfluencingconsumers'behaviors.Oneexampleofthisisthepopularity
ofcertainrestaurantsinmajorcitiessuchasNewYorkCityandLosAngeles.Themediareport
thediningbehaviorsofthecelebrities,andotherconsumerswhoaspiretobelikethose
celebritiesdineatthesametrendyrestaurantsfrequentedbythecelebrities.Thereisalsoa
statuscomponenttoreferencegroups.Restaurantcriticsprovidetheirreviewsofrestaurants
andmanyconsumerswanttobeseenatthehighestratedrestaurants.Itisimportanttonote
thatcomparativereferentsaremerelyobservedandthereisnodirectinteractionbetweenthe
referentandtheindividualbeinginfluenced.
Acquaintancessuchasparents,teachers,andpeersserveasnormativereferentsbyproviding
individualswithnorms,values,andattitudesthroughpersonalinteractions.Forexample,
childrenmightcontinuetovacationatthesamedestinationsthatwerepopularamongtheir
parentsandotherrelativesthroughouttheirchildhoods.AnotherexamplewouldbeSpring
Breakdestinations.Collegestudentsoftenchoosedestinationsthatarepopularamongthe
otherstudentsattheircollegesoruniversities(e.g.,fraternitybrothersorclubmembers).
Ahospitalitymanagercanalsoinfluenceconsumerbehaviorthroughtheuseofopinionleaders.
Opinionleadersincludeformaland/orinformalleadersofreferencegroups,andtheiropinions
normallyinfluenceopinionformationinothers.Commonopinionleadersareleaderswithinthe
community,suchasdoctors,lawyers,andpoliticians,andthosewhoareviewedassubject
matterexperts.Forexample,atravelagentisclearlyanopinionleaderfortravelrelated
products.Potentialtravelersoftenseekadvicefromatravelagentbecausetheybelievethatthe
agenthasknowledgefarsuperiortotheirown.Anotherexampleisthefoodcriticwhowritesfor
alocalnewspaper,orthewriterforatravelmagazineortelevisionshow.Theopinionsthatthe
criticexpressesinanewspapercolumnhavedirectandimmediateinfluenceonreaders.The
survivalofrestaurantsincompetitivemarkets(e.g.,NewYorkCity,LasVegas,LosAngeles)is
greatlyinfluencedbycritics,andafavorablereviewisanecessity.Similarly,travelwriterscan
haveasignificantimpactonthenumberofvisitorstoatourismdestination.
Opinionleaders
Peoplewhoseopinionsimpactthelifestylechoicesandpurchasingbehaviorsofothers.
Hospitalitymanagersoftenstrivetocreatetheirownreferencegroupsandopinionleaders.
Frequentguestscanberewardedwithcomplimentarysamplesofnewmenuitemsorperhapsa
complimentaryflavoredcoffeeorbottleofchampagne.Thechampagnecreatesexcitementand
isverylikelytoincreasesales,asindividualssittingatothertableswanttobecomepartofthe
excitementandoftenorderabottlefortheirowntable.Thedesiredresultisofcoursea
snowballeffectamongmanytables,whichresultsinincreasedsales.Frequentguestscanalso
beusedforfeedbackaboutpotentialnewmenuitemsornewservices.Iftheyarefavorably
impressedwiththenewproductsorservices,theywilltelltheirfriendsandcolleagues,and
increasedbusinesscanresult.
3.2.1.4 HOUSEHOLD.
Ahouseholdisdefinedasthoseindividualswhooccupyasinglelivingunit.Therearemorethan
115millionhouseholdsintheUnitedStates,andwithineveryhouseholdcertaincharacteristics,
leadership,andnormsexist.Leadershipisnormallyrotatedamongmembersofthehousehold.
Forexample,thechildrenmaydecidewhichbreakfastcerealtoeatorwhichfastfood
restauranttopatronize,whileanadultselectsthetypeoflivingaccommodations.Hospitality
marketingresearchpointsoutthatleadershipisoftenshared.Forexample,theparentsnormally
decidewhenthehouseholdwillgoouttoeat,butitisthechildrenwhodecidewhichrestaurant
willbepatronized.
Allexternalinfluencesdiscussedcanaffectthedecisionmakingprocessofaconsumer
wheneveradecisionabouthospitalityandtourismproductsandservicesismade.Theculture,
socioeconomiclevel,referencegroups,andhouseholdmembersinfluencedirectlyand
indirectly,consciouslyandunconsciously,thedininghabitsofallconsumers.
3.2.2 Internal Inuences on Consumer Behavior

Inadditiontoexternalinfluences,internalinfluencesaffectconsumers'choicesaswell
personalneedsandmotives,experience,personalityandselfimage,andperceptionsand
attitudes.Theexactinfluenceofinternalfactorsislesswellknownthantheexternalfactors,as
internalfactorsarenotasobservableandthereforearenotaswelldocumentedand
understood.
InternalInfluences
Personalcharacteristics,beliefs,andexperiencesthatguideaconsumersdecision
making.
3.2.2.1 PERSONAL NEEDS AND MOTIVES.

Aneedisdefinedasalackofsomethingorthedifferencebetweensomeone'sdesiredand
actualstates.Motiveisdefinedasaperson'sinnerstatethatdirectstheindividualtoward
satisfyingafeltneed.Forexample,consumersmaybehungryandtired(theiractualstate),yet
theydesiretobewellfedandrested(desiredstate).Thisfeltneedwouldthereforecausethem
tohavethemotivationtoseekoutarestaurantwherethisneedcouldbesatisfied.
Need
Alackofsomethingorthedifferencebetweensomeone'sdesiredandactualstates.
Motive
Aperson'sinnerstatethatdirectstheindividualtowardsatisfyingaperceivedneed.
Despiteyearsofconsumerbehaviorresearch,itisverydifficult,ifnotimpossible,tofullyexplain
alloftheneedsconsumersfeel.Figure3.1illustratestheroleofneedsinconsumer
behavior.Simplystated,needsleadtomotivation,whichleadstobehavioralintentions,which
ultimatelyleadtoobservablebehavior.Followingbehavior,feedbackaffectsandmaychangea
consumer'smotivation.Tocontinueourearlierexample,oncetheconsumerhadbeentoa
particularrestaurant,ifthemealwassatisfyingandmetpriorexpectations,thenthefeedback
wouldbefavorableandtheconsumerwouldlikelyplantoreturntothisparticularrestaurant.If,
however,themealwasnotsatisfyingordidnotmeetpriorexpectations,thentheindividual's
negativefeelingswouldlikelyresultinnotreturningtothisparticularrestaurant.Itisimportantto
rememberthatsuccessfulmarketingisaboutidentifyingandthenmeetingorexceedingthe
expectationsofconsumers.
FIGURE3.1Needsrelatedtoconsumerbehavior.
Inthemid1900s,AbrahamMaslow,anAmericanpsychologist,developedamodelidentifying
fiveclassesofneedstoday,themodelremainsoneoftheinfluentialcornerstonesofconsumer
behavior.AsshowninFigure3.2,Maslow'shierarchyofneedsisarrangedinthefollowing
order,fromthelowesttohighestlevel:physiologicalneeds,safetyneeds,socialandbelonging
needs,esteemneeds,andselfactualizationneeds.2Individualsarebelievedtosatisfythe
lowerlevelneedsbeforetheymovetothehigherlevelneeds.
Maslow'shierarchyofneeds
MaslowshierarchyofneedsFivemotivationalneedsthatindividualsseektofulfill,
progressinginorderfrombasictocomplex.
FIGURE3.2Maslow'shierarchyofneeds.
3.2.2.2 PHYSIOLOGICAL NEEDS.

Physiologicalneedsareprimaryneedsforfood,shelter,andclothing,whichonemusthave
beforethinkingabouthigherorderneeds.Nearlyallproductsandservicesofferedtoconsumers
byhospitalityandtourismfirmsaddresstheseneeds.
3.2.2.3 SAFETY NEEDS.

Thesesecondlevelneedsincludepersonalsecurityandprotectionfromphysicalharm.The
movementtowardgreatersecurityandsafetywithinthehotelindustryhasaddressedthese
needs.Electronicdoorlocks,increasedlighting,outsideentrancesthatarelockedafterdark,
andmoresophisticatedfiredetectiondevicesallaredesignedtomeetsafetyneeds.
3.2.2.4 SOCIAL AND BELONGING NEEDS.

Afterneedsatthelowertwolevelsaresatisfied,consumerslooktowardachievingsocial
acceptancebyothers.Fromthehospitalityandtourismperspective,wecatertoconsumerswho
wanttojoinprivateclubsthatofferavarietyofsocialandrecreationalactivities.Wealsomake
consumersfeelliketheybelongbymakingspecialproductsandservicesavailableforfrequent
guests.Hotelsthattargetlongertermguests,suchasMarriott'sResidenceInns,willoften
schedulesocialeventsfortheirguestsinordertosatisfythesocialneedsofthosewhoare
awayfromfamilyandfriendsforanextendedperiodoftime.
3.2.2.5 ESTEEM NEEDS.

Whenconsumersfeelaccepted,theyseektoenhancetheirselfesteem.Hospitalityandtourism
companiescatertotheseindividualsbyprovidingahigherlevel
ofpersonalservice.Forexample,airlinesprovidefirstclassandbusinessclass,inadditionto
coach.Airlinesalsoprovidespecialloungesandwaitingareasforfrequenttravelersandfor
individualswhopurchasemembershipsintheirairlineclubs.Anotherexampleisexpensive
restaurantsthatofferonlythefinestfood,beverages,andservice.Theyprovidealevelof
productsandservicesthatcatertotheesteemneedsofguests,andtheyexpendagooddealof
efforttomakeguestsfeelveryspecialandimportant.
3.2.2.6 SELF-ACTUALIZATION NEEDS.

ThehighestlevelneedswithinMaslow'shierarchyfocusonanindividual'sneedtoreachhisor
herfullpotential.Forthemostpart,theseneedsareoftenbeyondthescopeofwhathospitality
andtourismmarketerscanexpecttofulfill.However,thereareexamplesfromwithinthe
hospitalityandtourismindustryregardingaconsumer'sattempttosatisfyselfactualization
needs.Forexample,whenguestsareattractedtosportsprogramsatfivestarresortsfocusing
onhowtoplaythebestgolfortennispossible,theyareseekingtoreachastateofself
actualizationwithregardtothesport.
AnalternativeapproachcombinestheworkofMaslowwiththeworkonpersonalitydevelopment
byErikErikson.3Inthismodel,adultspassthroughthreelifestages,andeachstagewillhelp
determinethekindsofexperienceswillseekasconsumers(seeFigure3.3).Consumers
purchaseproductseitherbecausetheyneedthem,becausetheydesirethem,orboth.
Consumersatisfactionisachievedmainlythroughdesiredriven,ordiscretionarypurchases.
FIGURE3.3Consumerdiscretionarypurchasingoveralifespan.
Inthefirststage,youngadults(age40oryounger)areseekingsatisfactionthroughpurchasing
possessionexperiencesintheirearlycareerdevelopmentandfamilybuildingyears.Examples
ofproductspurchasedduringthisstagearecarsandhouses.Then,astheygrowolder(age40
to60),consumersfocusmoreonpurchasingcateredexperiencessuchastravel,restaurants,
education,andsports.Finally,thethirdstage(ageover60)findsconsumersshiftingtheirfocus
towardbeingexperiencesassociatedwithinterpersonalrelationshipsandsimplepleasures.In
thiscontext,hospitalityserviceswouldbepurchasedmoreinthesecondstage,althoughthey
wouldbepurchasedmerelyforsurvivalthroughoutaconsumer'slifespan.Someresorts,spas,
andtraveldestinationstargetthethirdstageaswell.Forexample,somedestinationsmarket
themselvestooldertravelerswhoareseekingamorespiritualexperience.
PsychologistDavidMcClellandidentifiedthreesocialmotives:achievement,affiliation,and
power.4Achievementcausesanindividualtoworkhardertoreachagoal.Affiliationcauses
individualstobelongtogroupsortoseektheapprovalofothers.Eachpersonhastheneedto
belongandtobeaccepted.Finally,McClellandidentifiedindividuals'needforpower.Individuals
wanttofeelthattheyhavesomecontrolovertheirimmediateenvironment.
3.2.2.7 EXPERIENCE.
Experienceisalsoamajorinternalinfluenceonconsumerbehavior.Asindividualsencounter
newsituations,suchasdininginaparticularrestaurantforthefirsttime,theyintegratetheir
perceptionsintoanexperienceframeworkthatinfluencesfuturedecisions.Theadage,First
impressionsareimportant,appliesdirectlytothehospitalityandtourismindustry.Ifconsumers
areturnedoffthefirsttimetheywalkuptothefrontdeskinahoteloraregreetedbyahostina
restaurant,theyareunlikelytoreturn.OneofthefactorsthathaveledtothesuccessofWalt
DisneyWorldisthatthestaff,calledcastmembers,focusontheguests'
needsfromthemomenttheyarriveonsiteuntiltheydepart.Inthemorning,whencarloadsof
excitedfamiliesarrive,theyaregreetedbysmilingparkinglotcastmemberswhohelpget
everyone'sdayatDisneyofftoamemorablestart.Theseinitialimpressionsarethestartofa
greatdayfortheguestsandleaveanimpression.
Hospitalitymanagersmustrememberthatpeople(consumers)areproductsoftheir
environments.Eachnewexperienceisintegratedintoaframeofreferenceagainstwhichnew
situationsareevaluated.Thisframeofreferenceincludeseachindividual'sbeliefs,values,
norms,andassumptions.Considerthefollowingexample.Aguestwhotravelsmorethan100
dayseachyearchecksintoahotelatwhichshehasnotpreviouslystayed.Astheguestchecks
in,sheisevaluatingthequalityoftheservicereceivedagainstpriorcheckinexperiences.
Basedonherpriorexperience,shemaybelievethatthecheckinprocessshouldnottakemore
than60secondstocomplete.Anyamountoftimeinexcessof60secondswilllikelyresultin
dissatisfactionwiththehotel.Inthisexample,theguesthasabeliefthatcheckinshouldbe
accomplishedquicklyandeasily.Thisisthenormagainstwhichshewilljudgeallcheckins.
3.2.2.8 PERSONALITY AND SELF-IMAGE.

Eachindividualconsumerdevelopsauniquepersonalityandselfimageoveraperiodoftime.
Formarketingpurposes,individualpersonalitytypescanbegroupedintovariousclassifications
suchasswingers,conservatives,leaders,andfollowers.Theimportantthingforhospitality
managerstorememberisthatnohospitalityoperationcanbeallthingstoallpeople.Firmsmust
selectoneormoretargetmarketsthataresubsetsorsegmentsofthetotalmarketandthen
appealdirectlytotheseconsumers.Manyhospitalityorganizationsexperiencedifficultywhen
attemptingtoappealtotoowideasegmentofthetotalmarket.Theresultisquitepredictable:
failuretosatisfyanyofthetargetmarkets,whichleadstopoorfinancialperformanceandoften
failure.
Personality
Anindividual'sdistinctivepsychologicalcharacteristicsthatleadtorelativelyconsistent
responsestohisorherenvironment.
Oneexampleofthistypeofthinkinginvolvedarestaurantthatfeaturedabeefandseafood
menu,withmoderatetohighpricesandasemiformalatmosphere.Thisrestauranthadbeen
successful,buttheownersandmanagersfeltthatmoreprofitscouldandshouldbegenerated.
Inanattempttobroadenthetargetmarket,theatmospherewasmademoreinformal,andthe
menuwaschangedtoincludehamburgers,snacks,sandwiches,andpizza,aswellassteaks
andseafood.Inonly30daysafterthechangewasmade,salesvolumehadincreasedby15
percent.Within3months,however,volumehadfallenby38percent,andwhathadoncebeena
profitableoperationwasnowrunningadeficit.Followingcarefulexaminationoftheperformance
ofseveralhospitalityorganizations,onefindsthatitisnormallythosewithwelldefinedtarget
marketsthatarethemostsuccessful.Thoseattemptingtobeallthingstoallpeopleoftenfail.
3.2.2.9 PERCEPTION AND ATTITUDE.

Eachday,consumersareexposedtothousandsofstimuli.Someofthesestimuliare
consciouslyreceived,resultinginathoughtprocess,whereasothersaresimplyignored.
Perceptionistheprocessbywhichstimuliarerecognized,received,andinterpreted.Each
individualconsumerperceivestheworlddifferently.Perceptionsaremanifestedinattitudes.As
statedearlierinthechapter,attitudesarelearnedpredispositionstoactinaconsistently
favorableorunfavorablemanner.Forexample,someindividuals'attitudesarethatfastfood
mealsareverygoodbecausetheyareofhighqualityandlowcostandcomewithfastand
courteousservice.Otherindividuals'attitudesarethatfastfoodmealsareoflownutritional
valueandpoorculinaryqualityandthattheyarenotvisuallyattractive.Bothtypesofindividuals
holdattitudesbasedontheirperceptions.Theirperceptionsmayormaynotbevalid,butitis
importantforthemarketingmanagertorememberthatperceptionsarethewayanindividual
seestheworld.Inthemindoftheindividualconsumer,theperceptionsandresultingattitudes
arecorrectandvalid.Itisverydifficulttochangetheperceptionsandresultingattitudesthat
individualshavedevelopedovertime.
Perception
Theprocessbywhichstimuliarerecognized,received,andinterpreted.
3.2.3 Consumer Adoption Process

Hospitalityconsumerstodayaredemandingmoresophisticateddiningandlodgingexperiences.
Consumersarebettereducated,earnmoremoney,andaremoreconfidentwhentheytravel
anddineoutsidethehome.Today'shospitalityconsumersareseekingproductsand
servicestailoredtomeettheirspecificneeds.Theyaremoreconcernedaboutnutritionand
safety,andtheyknowmoreaboutvalue.Someofthefollowingtrendsinindividualbehaviorare
affectingconsumerism:
Receivinginstantgratificationratherthantheconceptofselfdenial
Feelingterrificratherthanfeelingresponsible
Improvisingratherthanplanning
Choosingsimplicityovercomplexity
Showingconcernforstatusratherthanegalitarianism
Thesetrendsshapethewayfirmsdevelopandmarkettheirproductsandservices.Thereare
consumermodelsthataidmarketersinunderstandingconsumersanddeterminingstrategies.
Individualshavebeenclassifiedaccordingtowillingnesstochange.Somearenotupsetby
change,whereasothersresistchangeinanyform.Figure3.4illustratesthediffusionof
consumersoveratypicalproductlifecycle.Consumerswilladoptnewproductsatdifferentrates
dependingontheirlevelofaversiontoriskandchange.Whenanewhospitalityoperation
opens,itisveryimportantthatindividualsrepresentingtheinnovatorsandearlyadoptersare
reachedbymarketingefforts.Theseindividualsofferexcellentpotentialasearlycustomers,for
iftheyaresatisfied,theywilltellfriendsandassociates,andthesepeople,inturn,maybecome
customers.Peoplefallingintotheearlyandlatemajoritycategorieswillnotusuallytryanew
hospitalityoperationuntiltheyhaveheardpositivecommentsfromothers.
FIGURE3.4Diffusionandadoptionacrosstheproductlifecycle.
Thisprocessofinfluencingtheinnovatorsandearlyadoptersiscalleddiffusionandadoption.
Thekeyistogettheconsumerswhoaremostlikelytotrynewproductsandservicestomakea
trialpurchasethatis,todineattherestaurant,stayinthehotel,rentacar,orpurchaseaflight.
Iftheyaresatisfiedwiththeproductsandservicesreceived,theywillthenhelpspreadthe
positivewordtoothers,andthenumberofcustomerswillincreaseovertime.Howquickly
consumersadoptanewproductdependsontheactualneedfortheproductandtherisk
associatedwiththeproduct'spurchase.
First,productsthatarenecessarywillbeadoptedmorereadilythanproductsthatarenot
essential.Forexample,afinediningrestaurantmaytakelongertobuildaclientelethanafast
foodrestaurantinagrowingsuburb.Second,themoreriskinvolvedwithaproduct'spurchase,
theslowertheadoptionprocess.Severaltypesofriskareassociatedwiththepurchaseofa
productorservice:
Financialrisk.Themonetarylossthatwouldresultfromawrongdecision
Performancerisk.Thechancethattheproductorservicewillnotmeetaconsumer's
expectations
Physicalrisk.Anymentalorphysicalharmthatcouldoccur
Socialrisk.Thepossibilitythattheproductwillnotmeettheapprovalofone'speers
Forexample,acruisecanbeexpensive,itcarriesacertainprestige,andconsumershavehigh
expectations.Also,therehavebeeninstancesinwhichpassengershavebeenharmedoreven
killed,astheresultoffires,takingonwater,andterrorists.
3.3 CONSUMER DECISION-MAKING MODEL

Whenconsumersmakedecisionsconcerningthepurchaseofgoodsandservices,avery
complexdecisionmakingprocesstakesplace.Numerousvariablesinfluencethisdecision
makingprocess,asthemanymodelsofconsumerbehaviordemonstrate.Figure3.5draws
togetherseveraltheoriesintoamodelthatshowsboththeexternalandinternalinfluenceswe
havejustdiscussed,aswellastheprocessbywhichconsumersmakepurchasedecisions.
FIGURE3.5Aconsumerdecisionmakingmodel.
Thismodelillustratesthemajorstepsinthedecisionmakingprocess,aswellastherole
externalandinternalinfluencesplayastheindividualmakespurchasedecisions.Becauseboth
externalandinternalvariablesinfluenceconsumers'decisionmakingprocesses,hospitality
managersneedtodevelopawarenessofthespecificinfluencesthataremostimportanttotheir
particulartargetmarketsegments.Figure3.5showsfivekeyelementsinthedecisionmaking
model:problemrecognition,informationsearch,evaluationofalternatives,purchasedecision,
andpostpurchaseevaluation.Eachelementisaffectedbyexternalandinternalinfluences.
3.3.1 Problem Recognition

Thedecisionmakingprocessbeginswithproblemrecognition,whichoccurswhenaconsumer
realizesadifferencebetweenheractualstateandherdesiredstate.Thousandsofdifferent
stimulicantriggertheawarenessofaneedoraproblem.Forexample,ifonefeelshungrywhen
drivingdownaninterstatehighway,thismaytriggeraneedtosearchforarestauranttosatisfy
thehungerneed.Inanothersituation,theneedtofeelimportantandbetreatedwiththeutmost
respectmayleadapotentialguesttosearchforanupscalehotelwithaconciergefloorwhen
makingareservation.Theneedmaynotbeginwithinasingleindividual.Forexample,ifa
couplecomeshomeafterbothhaveworkedallday,andonesaystotheother,Let'sgoout
tonightI'mtootiredtocook,thismanifestsajointneedthatonlyoneoftheindividualsmay
havefelt.Hospitalitymarketingmanagersshouldrecognizethewidevarietyofneedsthat
consumersareattemptingtosatisfywhentheydineout.
3.3.2 Information Search

Aftertheneedisraisedtoaconsciouslevel,themodelholdsthatconsumersseektoretrieve
information.Thissearchcaninvolveavarietyofinformationsources,includingreferencegroups
andmembersoftheimmediatehousehold,aswellasthemassmediaintheformofadvertising.
Table3.1providesacomparisonofinformationsourcesbasedontheeffortrequiredandthe
credibilityofthesource.
TABLE3.1
ComparisonofInformationSources.
INFORMATIONSOURCE EFFORTREQUIRED CREDIBILITY
Internal(pastexperience) Low High
External
Personal(friendsandfamily) Low High
Marketing(advertising,promotions,salespeople) High Low
Public(consumerinformation,Internet) High High
Ifthefeltneedisasbasicastheneedtoeatbecauseofhunger,theinformationretrieval
processislikelytobebrief.Thatis,therestaurantfacilityselectedinthiscaseislikelytobe
chosenprimarilybecauseofconvenience,andthenumberofsourcesofinformationconsulted
islikelytobequitesmall.Inothersituations,thenumberofsourcesconsultedcouldbemuch
larger.Considerthemeetingplannerwhoiscoordinatingtheannualmeetingforaprofessional
association.Thisindividualislikelytoconsultseveralsourcesofinformationbeforeselectingan
appropriatehotelforthisimportantevent.Theimportantthingforthehospitalitymarketing
managertorememberisthatconsumersrelytoacertainextentonthemassmediafor
information.
Theamountofinformationtoresearchandthelengthoftheconsumerdecisionmakingprocess
willincreasewiththeconsumer'slevelofinvolvement.Consumerstendtobemoreinvolved
whenthereisagreaterperceivedriskofmakingawrongchoice,whichisnormallyassociated
withproductsorserviceswithhigherprices,morevisibility,orgreatercomplexity.Consumers
tendtocomparethebenefitsofsearch(e.g.,value,enjoyment,selfconfidence)withthecosts
(e.g.,money,time,convenience)todeterminetheperceivedrisk.Therearealsomanyother
situationalfactorsthatwillaffecttheamountofinformationsearch,suchasproductknowledge,
demographics(e.g.,incomeandeducation),andthemarketenvironment.
3.3.3 Evaluation of Alternatives

Aftertheconsumerhasgatheredasufficientamountofinformation,thethirdelementinthe
decisionmakingprocessistoevaluatealternatives.Consumerswhoask,Atwhichoneof
severalpossiblerestaurantsshouldIdinetonight?gothroughacognitiveprocessinanswering
thisquestion,wherebytheyweighthepositiveandnegativeaspectsofeachalternative.They
alsoexaminetheattributesoftheproductservicemixofeachrestaurant.Consumersconsider
therelativeimportanceofeachattributeoftheproductservicemixbymakingtradeoffs
betweenthevariousattributesandtheirlevels.Thefinalresultisanevokedset,oragroupof
brandsthatwillbeconsideredinthefinalpurchasedecision.
Evokedset
Thequalifiedsetofbrandsthatwillbeconsideredinthefinalpurchasedecision.
Marketingmanagersinotherindustrieshavelongrecognizedthiscognitiveprocessandhave
usedittotheiradvantageinadvertisingandpromotingtheirproductsandservices.Ratherthan
simplydiscussingtheirproductsorservicesasiftheyexistedinavacuum,firmsmakedirect
comparisonswiththecompetition.Thisassiststheconsumer'scognitiveprocessofevaluating
alternatives.Ofcourse,everyadvertisermakescertainthatitsproductorservicecompares
favorablywiththoseofthecompetitionbasedonthecriteriaselected.
Thefollowingexampleillustrateshowahospitalityfirmcangainabetterunderstandingofthe
consumerdecisionmakingprocess.AssumetheinformationinTable3.2arepresentsone
consumer'sevaluationoftheimportanceofhotelattributesandtheratingsofthreecompeting
hotelsonthoseattributes.(Thisisthekindofdatathatcouldbecollectedusingacommentcard
orsomeothertypeofsurvey.)Thefirstcolumnundereachhotelrepresentstheactualrating
andthesecondcolumnrepresentstheweightedratingbasedontheimportanceassignedtothe
attributebytheconsumer.Theconsumerwasinstructedtodivide100pointsbetweenthethree
attributesbasedontheirrelativeimportance.Thefigureswereconvertedtodecimalsandthe
weightedratingwascomputedbymultiplyingtheimportanceratingbytheactualrating.The
finalaverage

fortheweightedratingissimplythesumofthescoresforeachattribute.Theratingswerebased
onafourpointscale:1=poor,2=fair,3=good,4=excellent.
TABLE3.2A
EvaluationofAlternativeHotels.
ATTRIBUTE IMPORTANCE HOLIDAYINN MARRIOTT FOURSEASONS
ACTUAL WEIGHTED ACTUAL WEIGHTED ACTUAL WEIGHTED
Price 0.5 4.0 2.0 3.0 1.5 2.0 1.0
Location 0.3 3.0 0.9 3.0 0.9 4.0 1.2
Service 0.2 2.0 0.4 3.0 0.6 4.0 0.8
Quality
Average 3.00 3.30 3.00 3.00 3.33 3.00
ThehospitalitymanagercanseefromtheinformationinTable3.2athatthisconsumerfeelsthat
priceisthemostimportantfactorinchoosingahotel,followedbylocation,andthenservice
quality.Themanagercanalsotellhoweachhotelisperceivedonthesamelistofattributes.In
thisexample,theconsumerpreferstheHolidayInnbasedonhisorherperceptionsofthehotel
andhisorherrelativeimportanceratingforeachoftheattributes.TheHolidayInnreceivedthe
highestweightedaveragetotalacrossthethreeattributes(price,location,andservicequality).
Thissameprocesscanbeusedforamarketsegmentbycombiningthescoresofasampleof
consumersandusingtheaggregatefigures.However,thesectiononconsumerproblemsolving
strategiesexplainshowconsumersemploydifferentheuristicsformakingpurchasedecisions.
3.3.4 Purchase Decision

Thefourthstageintheconsumerdecisionmakingmodelisthepurchasedecision.Itisatthis
pointthattheindividualactuallymakesthedecision.Allexternalandinternalvariablescome
togethertoproduceadecision.Thisdecisionismadebasedontheperceivedriskassociated
witheachalternativeandthewillingnessoftheindividualtotakerisks.Thisriskfactoroffersa
tremendouscompetitiveadvantageforhospitalitychains.Whenconsumersstepthroughthe
frontdoorofaMcDonald's,BurgerKing,RedLobster,oranyothernationallyrecognizedchain,
theyaretakingamuchsmallerriskthaniftheyenteredanindependentrestaurantaboutwhich
theyknewverylittle.Thereislessriskwiththechainoperationbecausetheproductservicemix
iswellknowntocustomers.Independenthospitalityoperationsmustworkveryhardtoestablish
themselvesandtherebyreducesomeoftheriskthatconsumersassociatewithpatronizinga
restaurantwheretheproductservicemixisnotwellknown.
Thereareotherfactors,inadditiontoperceivedriskandriskaversion,thataffecttheconsumer's
purchasedecision.Theactualpurchaseisbasedontheconsumerproblemsolvingstrategy
usedbyeachindividual.Someconsumersbasethedecisionontheirevaluationofallthe
productorserviceattributessimultaneously,whereasothersevaluatetheattributesoneata
time.Also,itdependsontheconsumer'sinvolvementwiththeproductorservicecategoryand
theresultantproblemsolvingtechnique.Bothofthesetopicsarediscussedinthenextsection,
followingthefinalstageintheconsumerdecisionmakingprocesspostpurchaseevaluation.
3.3.5 Postpurchase Evaluation

Followingtheproductservicemixconsumption,thefinalstageispostpurchaseevaluation.How
didtheactualexperiencecomparewiththeexpectationspriortopurchase?Wastheproduct
servicemixbetterthanornotquiteuptothestandardsanticipated?Postconsumptionfeelings
arebasedontwofactors:theconsumer'sexpectationsandtheactualperformancebythe
hospitalityoperation.Forthisreason,itisveryimportantforanyhospitalityoperationtodeliver
theproductservicemixpromisedinadvertisingpromotionorpersonalselling.Failuretoperform
atorabovethelevelanticipatedbytheconsumerislikelytoleadtonegativepostconsumption
feelings.
Thesenegativefeelingsproducedissatisfactionandreducethelevelofrepeatpatronage.From
amanagementperspective,itisimportanttopromiselessanddelivermoreunderpromiseand
overdeliver.Thisisakeyconceptinproducingsatisfiedcustomers.5Finally,thereisaperiodof
timebetweenthepurchaseofhospitalityortourismservicesandwhentheyareconsumed.
Duringthisperiod,consumersmayhavesecondthoughtsornegativefeelingsaboutthe
purchasethishesitancyisreferredtoascognitivedissonance.Thatiswhyitisimportantfor
hospitalityfirmstorunadvertisementsthatdepictsatisfiedcustomers.
Cognitivedissonance
Stressordiscomfortexperiencedbyaconsumerbecauseofconflictingbeliefsorsecond
thoughtsaftertheyhavepurchasedaproductorservice.
Consumerdecisionmakingisextremelycomplex.Marketingmanagersconstantlystrivetolearn
moreaboutthewayconsumersreachdecisions.Aswithotherformsofhumanbehavior,
consumerbehaviormayneverbetotallyunderstood.
3.4 CONSUMER PROBLEM-SOLVING PROCESSES

Consumers,eitherconsciouslyorsubconsciously,employcertainprocessestointegratethe
informationthattheyhaveobtainedovertimetoevaluateandchooseamongthevarious
alternatives.Theseformalintegrationstrategiescanbetermedcompensatory,
noncompensatory,oracombinationofthetwo.
3.4.1 Compensatory Strategies

Whenconsumersusecompensatorystrategies,theyuseaproduct'sstrength(s)inoneor
moreareastocompensatefordeficienciesinotherareas.Inotherwords,consumersview
productsandservicesasbundlesofattributes.Thesetofalternativesthataconsumeris
consideringforpurchasewillcontainproductsorservicesthathavevariouscombinationsof
theseattributesandtheirlevels.Thismultiattributeapproachassumesthatconsumersare
capableofevaluatingeachofaproduct'sattributesandthenarrivingatanoverallassessment,
orscore,fortheproductthatcanbecomparedtoalternativeproducts.Itisbelievedthat
consumersmakethesecomplicatedcomparisonsandtradeoffsandthenchoosetheproduct
thatachievesthehighestrating.
Compensatorystrategies
Consumersuseaproduct'sstrength(s)inoneormoreareastocompensatefordeficiencies
inotherareas.
Forexample,theconsumerinformationinTable3.2bcanbeusedtoillustratethedifferences
betweenthevariousconsumerproblemsolvingprocesses.Accordingtotheinformationinthe
table,ifalloftheattributeswereequallyweighted,theconsumerwouldchoosetheFour
Seasonsbecauseitreceivedthehighestaveragescore(3.33)basedontheactualratings.Even
thoughthehotelreceivedalowerratingforprice,itshigherratingsonlocationandservice
qualitycompensatedforthedeficiency.However,iftheweightedaveragesareused,theHoliday
Innreceivedthehighestaveragescorebecausethisconsumer(ormarketsegment)isrelatively
pricesensitiveandHolidayInn'shigherratingonpriceoffsetthelowerratingsonlocationand
servicequality.
TABLE3.2B
EvaluationofAlternativeHotels.
ATTRIBUTE IMPORTANCE HOLIDAYINN MARRIOTT FOURSEASONS
ACTUAL WEIGHTED ACTUAL WEIGHTED ACTUAL WEIGHTED
Price 0.5 4.0 2.0 3.0 1.5 2.0 1.0
Location 0.3 2.0 0.6 3.0 0.9 4.0 1.2
Service 0.2 2.0 0.4 3.0 0.6 4.0 0.8
Quality
Average 2.66 3.00 3.00 3.00 3.33 3.00
CompensatoryStrategy:highestaveragescore
ConjunctiveStrategy:allscoresaboveminimumthresholdof3.0forallattributes
DisjunctiveStrategy:highestscoreonmostimportantattribute(price)
LexicographicStrategy:highestscorestartingwithmostimportantattribute(price)
3.4.2 Noncompensatory Strategies

Whenusingnoncompensatorystrategies,consumersdonotallowproductstrengthsinone
areatocompensatefordeficienciesorweaknessesinanotherarea.Instead,consumersplace
moreemphasisonindividualattributesandinsomecasesdevelopminimumthresholdstouse
inevaluatingproductsandservices.Therearethreemainnoncompensatorystrategiesthatare
usedbyconsumers:conjunctive,disjunctive,andlexicographic.
Noncompensatorystrategies
Consumerdecisionmakingstrategiesthatplaceanemphasisonexaminingattributes
independentlywithoutallowingtradeoffs.
3.4.2.1 CONJUNCTIVE.
Aconjunctiveapproachinvolvessettingminimumthresholdsforeachattributeandeliminating
brandsthatdonotsurpassthisthresholdonanyonesalientattribute.Theconsumerdetermines
whichattributeswillbeimportantinchoosingbetweenbrands.Forexample,acertainindividual
mightconsiderlocation,foodquality,foodvariety,andpricetobethesalientattributesin
choosingarestaurantwhileonvacation.Byexaminingthemenusthatarepostedinthe
windowsofrestaurantsinabusytouristarea,theindividualcanquicklyeliminaterestaurants
thataredeficientonmenuvarietyorhavepricesthataretoohigh.Inaddition,restaurantswith
goodreputationsforfoodqualityandmenuvarietythatarewithintheacceptablepricerangewill
beeliminatediftheyarenotwithinwalkingdistance.
ReferringtotheexampleinTable3.2b,assumethattheconsumerhasaminimumthresholdof
3.0(good)foralltheattributes.EventhoughtheFourSeasonsreceivedthehighestscoresfor
locationandservicequality,itdidnotmeetthethresholdforprice.Therefore,theconsumer
wouldchoosetheMarriottifheorshewasusingaconjunctivestrategy.Itistheonlyhotelthat
receivedaminimumof3.0onalltheattributes.
3.4.2.2 DISJUNCTIVE.
Someconsumersdonotgetasinvolvedinthepurchaseprocessandmayprefertotakealess
complicatedapproachtomakingpurchasedecisions.Withthedisjunctiveapproach,consumers
stillestablishminimumthresholdsfortheirsalientattributes.However,abrandwillbeacceptable
ifitexceedstheminimumstandardonatleastoneattribute.Consumersapplyingthisapproach
tendtohaveonlyoneortwosalientattributes,theproductsorservicestendtobeverysimilar,
andtheyarenotashighlyinvolvedinthedecisionmakingprocess.Forexample,atruckdriver
mightconsiderprice,location,andbasicqualityinchoosingahotelormoteltostopforthenight.
However,itisnotunusualfortruckdriverstochoosetheclosesthotelormotelwhentheyare
startingtogettired.Similarly,aninternationaltouristmightchoosethefirsthotelthatlooksclean
orfitsherorhispricerange.
Onceagain,theinformationinTable3.2bcanbeusedtoillustratethethoughtprocessbehinda
disjunctivestrategy.Assumethattheconsumerwasconcernedaboutonlyoneattribute.Inthis
case,itwouldprobablybeprice,becauseitreceivedthehighestimportancerating.The
consumerwouldchoosethehotelthatreceivedthehighestratingforprice,whichwouldbethe
HolidayInn.Thisstrategywouldassumethatlocationandservicequalityweren'tasimportant,
giventhattheHolidayInnreceivedthelowestratingsonboth.
3.4.2.3 LEXICOGRAPHIC.
Thelexicographicapproachfallssomewherebetweenconjunctiveanddisjunctivechoice
processesintermsofcomplexity.Justasintheothertwoapproaches,theconsumerdetermines
asetofsalientattributes,orchoicecriteria.Next,heorsheplacesthesechoicecriteriainrank
orderfrommostimportanttoleastimportant.Thentheconsumerevaluatesthealternative
brands,startingwiththemostimportantattribute.Thebrandthatratesthehighestonthemost
importantattributewillbeselected.Iftwoormorebrandstieorarecloselyrated,thenthose
brandsareevaluatedbyusingthesecondmostimportantattribute.Thiscontinuesuntilone
brandremainsorthelistofattributesisexhaustedforcingachoicebetweentheremaining
brands.Itisimportanttonotethatallbrandsarenotevaluatedonallcriteria.Forexample,a
businesstravelermightrankthemostimportantattributesinairlinetraveltobeconvenience,
comfort,foodquality,andprice,inthatorder.Dependingontheairportwheretheflight
originates,thetravelermightbeabletonarrowthechoicesdowntotwoairlinesthatofferdirect
flightsatthepreferredtime.Thefinalchoicemightthenbemadebasedonthefactthatoneof
theairlinesisperceivedbythetravelertoprovidebetterserviceorcomfort.
Finally,theinformationinTable3.2bcanbeusedtodemonstratethislastnoncompensatory
strategy.Thisstrategywouldmakeuseoftheactualratingsbasedontheimportance,orpriority,
assignedtoeachoftheattributes.Theconsumerputstheattributesinorderofprice,location,
and
servicequalitybasedonimportance(highesttolowest).Therefore,thefirststepisforthe
consumertoevaluateallthreehotelsonprice.BecausetheHolidayInnreceivedthehighest
ratingforprice,theconsumerwouldchoosethathotel.However,ifoneoftheotherhotelsalso
receiveda4.0ratingforprice,theconsumerwouldhaveeliminatedtheonethatdidn'tandmove
tothenextattribute.Thisprocesswouldberepeateduntiltherewasonealternativeleft.
3.4.3 Combination Strategies

Oneofthemainquestionsregardingproblemsolvingstrategiesistheabilityofconsumersto
obtain,integrate,andevaluatetheinformationavailableonthemyriadbrandsinmostproduct
categories.Thecompensatoryapproachisparticularlycumbersomeinthisrespect,ascanbe
noncompensatoryapproachessuchasconjunctiveorlexicographicstrategies.Andinmany
cases,thedisjunctiveapproachwouldseemoverlysimplistic.Therefore,itcouldbearguedthat
consumersactuallyuseacombinationofapproachesinanattempttoadapttothepurchase
situationandsimplifythedecisionprocess.Forexample,usingaconjunctivestrategy,afamily
mighteliminateallrestaurantsthatdon'thavechildren'smenus.Thentheremainingrestaurants
couldbeevaluatedusingamorecomplicatedcompensatorystrategyoramoresimple
disjunctivestrategy.
3.5 CONSUMER PROBLEM-SOLVING TECHNIQUES

Theconsumerdecisionmakingprocessdiffersinthelengthoftimeandeffortexpendedoneach
stagebasedontheconsumer'slevelofinvolvementandexperiencewithaproductcategory.
Also,thelevelofinvolvementmaychangedependingonthepurchasesituation.Forinstance,a
youngman'schoiceprocessforarestaurantcoulddiffergreatlywhenitisforadateversusa
dinnerwithhisbuddies.Table3.3providesacomparisonofthethreelevelsofproblemsolving:
routineresponsebehavior,limitedproblemsolving,andextendedproblemsolving.
TABLE3.3
ProblemSolvingTechniques.
CHARACTERISTICS ROUTINE LIMITED EXTENDED
RESPONSE PROBLEM PROBLEM
BEHAVIOR SOLVING SOLVING
Amountofsearch Minimal Moderate Substantial
Numberofbrands One Few Many
considered
Numberofattributes Oneortwo Few Many
evaluated
Cognitiveprocessing Minimal Moderate Substantial
Numberofexternal None Few Many
informationsourcesused
Levelofinvolvement Low Medium High
Totalamountofeffort Low Medium High
3.5.1 Routine Response Behavior

Forsomeproducts,consumersexertverylittleeffortinthedecisionmakingprocess.Some
marketingprofessionalsbelievethatconsumersactuallyskipstagesoftheprocess,whereas
othersfeelthatconsumersmerelymovethroughallofthestagesveryquickly.Thisroutine,or
habitual,
responseinvolvesverylittleinformationsearchorcognitiveprocessingbecausethedecisionis
almostautomatic.Routineresponsebehavioristypicalforlowpriced,frequentlypurchased
productswhereconsumerinvolvementislow.Theamountofeffortthatconsumersexertinthe
problemsolvingprocesstendstodecreaseovertimeastheylearnmoreaboutaproduct
categoryandgainexperiencethroughconsumption.Anexampleofthisbehaviorwouldbe
workerschoosingtheemployeecafeteriaforlunch.
3.5.2 Limited Problem Solving

Manyconsumers'purchasedecisionsinvolvelimitedproblemsolvingbecauseofsomeproduct
differentiationandalternativebrands.Thereissomeinformationsearch,includingexternal
sources,unlikeinroutineresponsebehavior.Consumershavealowtomoderatelevelof
involvement,andtheyconsideramoderatenumberofattributesinmakingthepurchase
decision.Atthispoint,theconsumerusuallyhassomeknowledgeandexperiencewithregardto
theproductcategory.Consumersarewillingtoexertsometimeandefforttoensureagood
choice.Forexample,choosingarestaurantforeverydaydiningisalimitedproblemsolvingtask
formostconsumers.Similarly,thechoiceofairlineorrentalcaragencyusuallyinvolvesafew
salientattributes,andthechoiceofalternativesiseasilyreducedtotwoorthreebrands.
3.5.3 Extended Problem Solving

Extendedproblemsolvingismostoftenassociatedwithhighpricedproductsthatarepurchased
infrequently.Consumersneedtoengageinanextensivesearchprocesstoidentifysalient
attributesandalternativebrands.Consumersarehighlyinvolvedandexertagooddealoftime
andeffortbecauseofthepriceandriskofmakingabadchoice.Thecognitiveprocessis
substantialbecauseconsumersneedtoevaluatethealternativebrandsusingmanyattributes.
Forexample,acoupleplanningacruisewilltalktofriends,aswellasatravelagent,andtake
theirtimetoevaluatethevariouscruiselinesbasedonprice,accommodations,destinations,
cabinavailability,service,andquality.
3.6 ORGANIZATIONAL BUYER BEHAVIOR

Purchasedecisionsdifferbetweenorganizationsandindividualbuyers,butbothtypesofbuyers
aretryingtosatisfytheirparticularneeds.Thebuyingprocessfororganizationsismuchmore
structuredandformalincomparisontotheindividualbuyingprocess.Themostcommon
organizationalmarketsinhospitalityandtourismarethemeetingsmarketforhotelsandthetour
marketfortravel.Inaddition,foodservicecompanieswilloffercateringservicestogroupssuch
ascorporationsandinstitutions,weddingparties,andtourbuses.Finally,hospitalityfirms
purchasesuppliesneededfortheiroperationsfromvariousvendors.Forexample,restaurants
andhotelspurchaseuniforms,computerhardwareandsoftware,paper,andlargefood
quantities.Thissectionhighlightssomeofthemaincharacteristicsoforganizationalbuying.
3.6.1 Characteristics of Organizational Buying

Theorganizationalbuyingprocessincludesthestagesusedbyorganizationstodetermine
needs(problemrecognition),searchforinformation,evaluatealternatives,makeapurchase,
andevaluatethepurchase(postconsumptionevaluation).Ingeneral,organizationsgothrough
thesamedecisionmakingprocessasindividualconsumers.However,therearesomemajor
differencesbetweentheactivitieswithinthestages:
Organizationalbuying
Theprocessorganizationsfollowtoacquirethegoodsandservicestheyusetoproduce
anddelivertheirownproductsandservices.
Largervolumepurchases.Organizationalbuyersusuallypurchaseinlargevolumes.
Meetingplanners,forexample,bookanywherefrom10to1,000ormorerooms,andtour
operatorspackagetripsforgroupsof10ormore.

Deriveddemand.Thedemandfororganizationproductsisderivedfromthedemandfor
consumerproducts.Forexample,whenthedemandforinsuranceincreases,insurance
companieshavemoresalesmeetingsandsponsormoreincentivetrips.Corporationsand
associationstendtohavelargertravelbudgetswhentheirindustriesaredoingwell.
Moreemphasisonspecificationsandservice.Theproductsinorganizationmarketstend
tobemoretechnicalinnature,andbuyersaremoreconcernedaboutspecificationsand
serviceafterthesale.Forexample,meetingplannersareconcernedaboutmeetingroom
dimensions,audiovisualequipment,roomtemperaturecontrol,andconferenceservice.
Rarelydotransientcustomersgointodetailabouttheroomdimensionsandother
specifications.
Professionalbuyersandmorenegotiation.Organizationbuyerstendtobeprofessionals
withanextensiveknowledgeoftheproduct.Therefore,thepurchaseprocesstendstobe
longerandmoreinvolvedfororganizationsthanforregularconsumers.Also,whenbuying
largevolumes,organizationbuyershavemorepowerandcannegotiate.Hotelsandtour
operators,forexample,arewillingtomakemoreconcessionsinthepriceandproduct
servicemixtosellhighervolumetoonebuyer.
Repeatbusiness.Oneofthebenefitsofsellingtoorganizationsisthattheytendtobecome
repeatpurchasers.Forexample,corporationswillusethesamehotelthroughouttheyearto
amasshighervolumeandreceivemoreconcessions.Then,ifthecorporationispleasedwith
theservice,itwillusethehotelformeetingsinsubsequentyears.
Multiplebuyers.Often,morethanoneindividualisinvolvedinthebuyingprocessandmaking
theultimatepurchasedecisionfororganizations.Abuyingcenterorbuyingunitisagroup
ofpeoplethatinfluencesbuyingdecisionsfororganizations.Forexample,manyassociations
havesiteselectioncommitteesthatchoosedestinationsandhotelsforfuturemeetings.
Buyingcenterorbuyingunit
Groupsofpeoplethatinfluencebuyingdecisionsfororganizations.
Table3.4providesacomparisonofthestagesinthebuyingprocessbetweenconsumersand
organizations.Theexampleinvolvesthepurchaseofhotelservicesandprovidesastepbystep
summaryofthepossibleactivitiesateachstage.
TABLE3.4
AComparisonofConsumerandOrganizationalBuying.
STAGEIN CONSUMERPURCHASE ORGANIZATIONALPURCHASEOFHOTEL
THE OFAWEEKENDHOTEL FACILITIESFORANASSOCIATIONMEETING
BUYING ROOM
PROCESS
Problem Acouplefeelslikegetting Anassociationhastoholditsannualmeetingfor
Recognition awayforaweekend. memberstoelectofficers.
Information Basedonpastexperience, Theplannerlooksthroughinformationonfile,
Search theymaycontactatravel contactsthelocalconventionsandvisitorsbureaus
agentorrelyonwordof andhotelsalespeople,considerspastexperience,
mouthandotherformsof looksatwebsites,orlooksatmeetingmagazines
promotion. orotheradvertisingmaterials.
Evaluationof Theyuseroutineorlimited Theplannerreviewshotelspecifications,makes
Alternatives problemsolvingbasedona sitevisits,andtalkstosalespeople.Many
fewsalientattributes. attributesareimportant.
Purchase Aspecifichotelischosen Themeetingplannernegotiateswitha
Decisions andtheroomischargedto salesperson,thetermsaredetermined,anda
acreditcard. contractissigned.
Postpurchase Thereissometimebefore Associationmeetingsareplanned3to5yearsin
Evaluation theactualvisitforcognitive advance,leavingtimeforcognitivedissonance.
dissonance,butitisdifficult Thehotelorthecitycouldundergosomemajor
toevaluatetheservice changeswithinthatperiod.
beforeitisconsumed.
3.6.2 Members of the Buying Unit
Asmentionedearlier,organizationswillnormallyhavebuyingcentersorbuyingunitsthat
influencetheirpurchasedecisions.Fivespecificroleshavebeenidentifiedforindividuals
constitutingabuyingunit:user,influencer,buyer,decider,andgatekeeper.Insomeinstances,
thereismorethanonepersonineachrole,orthesamepersonoccupiesmorethanonerole.
Users.Thesearethepeopleinthefirmwhoactuallyusetheproduct.Forexample,front
deskpersonnelwilluseareservationsystem,waiterswilluseapointofsalesystem,and
meetingattendeeswillusehotelfacilities.
Influencers.Thesearethepeoplewhohavesomeexpertiseintheproductareaandhelp
definethenecessaryspecifications.Forexample,computersystemspersonnelwouldhelp
chooseareservationsystemorapointofsalesystem,andhumanresourcespersonnel
ofteninfluencesiteselectionformeetings.
Buyers.Theseindividualshavetheformalauthorityandresponsibilityformakingthe
purchasedecision.Forexample,anemployeeatthecorporateofficeforahotelorrestaurant
chainwillpurchasereservationsystemsorpointofsalesystems,andameetingplannerwill
signacontractforhotelfacilities.
Deciders.Thesepeoplehavetheauthoritytoselectorapproveasupplier.Theyareoften
topexecutiveswithintheorganizationwhohavetheformalpowertomakedecisions,but
theyarenormallyinvolvedonlywithhighdollarpurchases.Forexample,generalmanagers,
CEOs,directors,andpresidentsusuallyhavethistypeofauthority.

Gatekeepers.Theseindividualscontroltheflowofinformationthatisrelevanttoapurchase
decision.Forexample,administrativeassistantsorreceptionistshavetheabilitytorestrict
theflowofinformationtobuyersandothermembersofthebuyingunit.Hotelsalespeople
mustoftenrelyonadministrativeassistantstogetinformationtomeetingplanners.
3.6.3 Factors That Inuence Organizational Buying

Mostofthefactorsthataffectconsumers'buyingbehaviorarealsorelevanttoorganizational
buyingbehavior.Thisincludesexternalinfluencessuchasenvironmentalfactors(i.e.,
political/legal,technological,economic,andcompetitive),referencegroups(e.g.,trade
associationsandcertificationboards),andculturaldifferences.Culturaldifferencescanbe
external,suchasindividualismversuscollectivism,socialgenderroles,longtermversus
shorttermorientation,andthesociety'slevelofriskaversion.Forexample,Asiancountries
suchasJapanandSouthKoreatendtohavemoreofalongtermbusinessfocusthanthe
UnitedStates,andmanydevelopedcountriesareindividualistsocieties,whereasdeveloping
countriestendtobemorecollectivist.
Inaddition,culturaldifferencescanbeinternalinfluences,suchasthecharacteristicsofthe
organization(e.g.,size,leveloftechnology,andtheinternalrewardsystem),thecharacteristics
oftheindividualsinthebuyingunit(e.g.,personality,motivation,andeducation),andthe
characteristicsofthebuyingunitasawhole(e.g.,size,authority,leadership,andstructure).The
RitzCarltonhotelchain,forexample,focusesonquality,anditstressesqualityinitstrainingand
rewardstructure.Buyingdecisionsarebasedonthewillingnessofsupplierstoadheretothis
sameconceptandsupportthechain'squalitygoals.
CHAPTER REVIEW
Thischapterprovidedabroadoverviewofthecomplexsubjectofconsumerbehavior.
Managementmustconstantlystrivetolearnmoreaboutconsumerbehavior,forthiswill
allowmanagerstobetterservetheneedsofcustomers.Inthisway,salesandprofitscan
beincreasedandacompetitiveadvantagecanbegained.
Avarietyoffactorsinfluenceconsumers'purchasedecisions.Externalinfluencesinclude
culture,socioeconomicstatus,referencegroups,andhousehold.Alloftheseentitiesaffect
thewayaconsumerprogressesthroughthefivestagesofthedecisionmakingprocess:
problemrecognition,informationsearch,evaluationofalternatives,purchasedecision,and
postpurchaseevaluation.Inaddition,internalinfluencessuchasneeds,experiences,
personality,perceptions,andattitudesaffectthedecisionmakingprocess.
Intheory,consumersarebelievedtoapplycertainprocesses,orstrategies,whenthey
evaluatealternatives.Compensatorystrategiesallowproductstrengthstocompensatefor
weaknesses,whereasnoncompensatorystrategiesreducethenumberofsalientattributes
tostreamlinetheprocess.However,itispossiblethatconsumersuseacombinationof
morethanoneapproachorstrategy.Therearevariousproblemsolvingtechniquesthat
considertheconsumers'levelofinvolvementandexplainhowthedecisionmakingprocess
maydifferacrossproductcategories.Thelevelofproblemsolvingrangesfromroutine
responsebehaviortolimitedproblemsolvingtoextendedproblemsolving,dependingon
thesituation.

Attitudes
Buyingcenter
Buyingunit
Cognitivedissonance
Compensatorystrategies
Culture
Evokedset
Externalinfluences
Internalinfluences
Maslow'shierarchyofneeds
Motive
Need
Noncompensatorystrategies
Opinionleaders
Organizationalbuying
Perception
Personality
Referencegroup

1.Whataresomeoftheinternalandexternalinfluencesonconsumerpurchases?
2.Listanddiscussthefivestagesintheconsumerdecisionmakingprocess.
3.Whatarethedifferencesbetweencompensatorystrategiesandnoncompensatory
strategiesforproblemsolving?
4.Giveanexampleofhowaconsumerwoulduseacombinationofproblemsolving
processes.
5.Whatarethethreeproblemsolvingtechniquesusedbyconsumers?Explainhow
theydiffer,usingthestagesoftheconsumerdecisionmakingprocess.
6.
Howwouldahospitalitymarketerusetheconsumeradoptionprocessinplanning
apromotionalstrategy?
7.Howdoesthedecisionmakingprocessdifferbetweenconsumersand
organizations?
8.Whatarethefivecomponentsofthebuyingunit?Giveanexampleofabuying
unitinhospitalityortourism.
CASE STUDY
Spring Break Vacation
Everyyear,studentsflocktopopularSpringBreaklocationsinsouthernUnitedStatesto
enjoysurf,sun,andsandvacations.Thisisparticularlytrueofstudentswhoattendcolleges
inthenorthernpartoftheUnitedStateswheretheweatherisstillcoldinlateFebruaryand
March.SomeofthemorepopulardestinationsareCancun(Mexico),PanamaBeach
(Florida),andSouthPadre(Texas).Inadditiontothesepopulardestinations,studentsare
alsovisitinglesstraditionallocationssuchasskiresorts,casinos,andcitiesonother
continents(e.g.,EuropeandSouthAmerica).
TheotheroptionisforstudentstoparticipateinanalternativeSpringBreakprogram.
Theseprogramsareforstudentswhowanttovolunteertohelplessdevelopedcountries
focusonsocialissuessuchaspoverty,educationreform,andtheenvironment.The
programsaretypicallyrunbynonprofitorganizationsandarealcoholfree.Thegoalisfor
thestudentstohelpcommunitiesinneedand,intheprocess,thestudentsreceivea
positiveexperiencewithafeelingofaccomplishment.Also,someoftheseprogramsfocus
ondestinationswithintheUnitedStates,suchasworkingonrebuildingNewOrleansafter
HurricaneKatrina,orworkingwithHabitatforHumanitytobuildhomesforlowincome
families.
Thenumberofavailableoptionshaschangeddrasticallyovertheyears.Forexample,in
thelate1970sandearly1980s,moststudentswenttoFortLauderdaleorDaytonaBeach
inFlorida.Veryfewevenconsideredleavingthecountry,doingvolunteerwork,orvisitinga
destinationwithacoldclimate.Also,mostofthestudentsdrovetoFloridainsteadofflying,
andtheystayedineconomyoraveragepricedhotels,oftenhaving5to8peopleinaroom.
Themajorityofthestudents'timewasspentlayingonthebeachorbythepool,drinkingin
bars,andsleepinglateinthemornings.Today,studentsvisitpopularattractions,eatatnice
restaurants,andengageinotheroutdooractivitiesforanadditionalfee.

1.Brieflydescribehowatypicalstudentwouldgothroughtheconsumerdecisionmaking
process.Whatwouldsheorhedoateachstage?
2.Whatexternalinfluenceswouldlikelyaffecttheprocess?
3.Whatinternalinfluenceswouldlikelyaffecttheprocess?
4.Whatcausedthechangesthatoccurredsincetheearly1980s?
CASE STUDY
Tempura Garden

TempuraGardenrestaurantoffersAsiancuisineconsistingofJapaneseandsomeKorean
dishes.Themealsarecompetitivelypriced($7to$10forlunchand$8to$16fordinner)
comparedwithotherfullservicerestaurantsinthearea,butthelocationandparkingarea
problem.Therestaurantislocatedawayfromthemaintrafficarea,andthereislimitedparking
available.Fortunately,therestaurantisdoingfairlywellbecauseitisoneofthefewplacesin
townthatofferssushiandotherJapaneseandKoreandishes.However,thedownturninthe
economyhasaffectedthefullservicerestaurantmarket,andtheownerisconcernedabout
competinginthenewenvironment.
Therestauranthasagroupofloyalcustomerswholivenearby,aswellassomeofthelocal
Asianpopulation.Theownerisconcernedaboutkeepingthesecustomerssatisfied,buthemust
alsofindawaytoattractnewcustomerstocontinuetobeprofitable.Therefore,hedecidesthat
thefirststepwouldbetosurveyhiscurrentcustomerstodeterminehowtheyhadfirstheard
aboutTempuraGardenandwhatisimportanttothemwhenchoosingarestaurant.The
followingaretheresultstothefirstquestion.
HOWDIDYOUFIRSTBECOMEAWAREOFTEMPURAGARDEN?
Newspaperadvertisement 10%
Radioadvertisement 5%
Wordofmouth 55%
ValPak 10%
Droveby 20%
Thisprovidedsomeusefulinsightintohowpeoplebecameawareoftherestaurant.Apparently,
wordofmouthwasthemainvehicle,whichisconsistentwithotherstudiesreportedintrade
publications.Theownerdidn'tdomuchradioadvertising,buthedidplaceadsinthenewspaper
andValPak(variousretailcouponscombinedanddeliveredthroughdirectmail)onaregular
basis.
Theotherareaofconcernistheimportanceofvariousattributesorcharacteristicsinchoosinga
restaurant.Inparticular,theownerwantedtoknowifhislocationwasamajorweaknessrelative
tootherfullservicerestaurantsinthearea.Inaddition,hecoulddeterminewhatcharacteristics
weremostimportanttocustomerswhenchoosingarestaurant.Thesurveycontainedasection
forrespondentstoratetheimportanceofalistofcharacteristicsonasevenpointscaleranging
from1=notimportantatallto7=veryimportant.Thefollowingcontainsthemeanimportance
ratings.
CHARACTERISTIC IMPORTANCERATING PERFORMANCERATING
Timelinessofservice 5.64 4.17
Qualityofservice 6.21 4.36
Cleanliness 6.43 4.37
Qualityoffood 6.63 4.50
Menuvariety 5.29 4.32
Employeefriendliness 5.91 4.46
Atmosphere 5.44 4.11
Convenienceoflocation 5.08 4.23
Valueforthepricepaid 6.01 4.18
Inadditiontotheimportanceratings,respondentswerealsoaskedtorateTempuraGarden's
performanceonafivepointscalerangingfrom1=poorto5=excellent.Themean
performanceratingsappearinthethirdcolumnintheprecedinglist.Theownermustnow
examinetheresultsandmakesomedecisionsbasedonhisanalysis.

1.Howdidpeoplefirstbecomeawareoftherestaurant?Howdoesthisaffecttheowner's
approachtocreatingawarenessandgettingpeopletotrytherestaurant?Whatstrategies
wouldyourecommend?
2.Whatarethemostimportantfactorsinchoosingarestaurant?HowdoesTempuraGarden
rateonthesefactors?
3.Discusstheowner'spotentialresponsestotheratingsforeachoftheconsumerproblem
solvingprocesses.
4.Whatadditionalinformationwouldbeuseful?
NOTES
1JamesU.McNeal,ConsumerBehavior(Boston:Little,Brown,1982),pp.515.
2AbrahamH.Maslow,MotivationandPersonality,2nded.(NewYork:HarperandRow,1970).
3DavidB.Wolfe,TheAgelessMarket:TheKeytotheOlderMarketIstoForgetAgeandFocus
onConsumerWantsandNeeds,AmericanDemographics9,7(July1987):26(6).
4DavidC.McClelland,TowardaTheoryofMotiveAcquisition,AmericanPsychologist20
(1965):321333.
5KennethBlanchardandSheldonM.Bowles,RavingFans:ARevolutionaryApproachto
CustomerService(NewYork:WilliamMorrow,1993),p.101.

4
MARKET SEGMENTATION AND POSITIONING
CourtesyofJuliusKielaitis/Shutterstock.
Chapter Objectives
1.Defineandexplainthetermmarketsegmentation.
2.Listvariablesthatarecommonlyusedtosegmentmarkets.
3.Outlinethefourstepprocessusedtosegmentpotentialmarkets.
4.Explaintherelationshipbetweenmarketsegmentationandthedevelopmentofmarketing
strategies.
5.Definepositioninganddescribeitsroleingainingacompetitiveadvantage.
4.1 INTRODUCTION
Gainingandmaintainingacompetitiveadvantageinthebroadconsumermarketforhospitality
andtravelproductsisaverydifficulttask.Itismucheasiertobesuccessfulifafirmtriesto
carveoutasmallernicheorsegmentofthemarket,inwhichthefirmcanestablishacompetitive
uniquenesshence,thedevelopmentofmarketsegmentation.Marketingmanagershavelong
usedmarketsegmentationtoseparatethemarketintosmaller,relativelyhomogeneousgroups.
Therefore,asimpledefinitionformarketsegmentationispursuingamarketingstrategywhere
thetotalpotentialmarketisdividedintohomogeneoussubsetsofcustomers,eachofwhich
respondsdifferentlytothemarketingmixoftheorganization.
Competitiveadvantage
Anadvantageovercompetitorsgainedbyofferinggreaterrelativevaluebasedonlower
pricesand/orhigherquality.
Marketsegmentation
Pursuingamarketingstrategywherethetotalpotentialmarketisdividedintohomogeneous
subsetsofcustomers,eachofwhichrespondsdifferentlytothemarketingmix.
Formanyyears,mosthospitalityandtourismorganizationsattemptedtoservetheneedsofa
fairlywidevarietyofmarkets.Thesegroupsincludedbroadsegmentsthatcutacrossmuchof
thespectrumofage,gender,income,geography,ethnicity,andeducation.Today,many
hospitalitychainsservetheneedsofmarketsinall50statesandseveralforeigncountries.
Therefore,itisimperativethattheyusesometypeofsegmentationstrategy.Thesefirmsmust
keepinmindthedifferencesbetweenvariousconsumergroupsthatrepresenttheirtarget
markets.Forexample,anationalfastfoodchainshouldtakeintoconsiderationthedifferences
amongindividualslivingindifferentregionsoftheUnitedStates.Inadditiontogeographic
location,firmsmustalsoconsiderdifferencesinlifestyleandconsumerbehavior,allofwhich
addspecialchallengestothemarketingoftheproductservicemixforhospitalityandtourism
organizations.
Segmentationcanbeusedeffectivelyinallfacetsofthehospitalityandtourismindustry,evenin
areasthatmayappeartobelesssuitableforsegmentation.Forexample,airlinetravelmaynot
appeartobewellsuitedtosegmentation.Eachyear,millionsoftravelerswillboardaircraftthat
willtakethemtotheirdestination.Atfirstglance,onemightassumethatairlinetravelisafairly
homogeneousproductservingthesamebasicneedformosttravelers.However,airlineshave
beensuccessfulatsegmentingbasedonpricesensitivityandfrequencyofuse.Withinmany
aircrafttoday,youwillfindthreelevelsofservice:firstclass,businessclass,andcoach.Each
leveloffersdifferencesinseatsizeandcomfort,thelevelofamenities,andtheratioofflight
attendantstopassengers.Theindividualconsumerisabletoselectthelevelofservicedesired
andischargedadifferentpriceforeach.Airlinesalsosegmentthemarketbasedonfrequency
oftravel.
4.1.1 The Nature of Market Segmentation

Whyisitdesirabletosegmentmarkets?Manyownersandmanagersofhospitality
organizationsaskthisquestion.Often,theybelievethattheyneedtoappealtoallpotential
customers,andthatbysegmentingthemarkettheywillweakentheircompetitivepositionand
profits.Theybelievethatiftheysegmentthemarketandtargettheirmarketingandpromotional
effortstojustafewselectedsegments,theirsalesvolumewillfall.Thisapproachisshortsighted
andfailstoconsiderthereasonsunderlyingamarketsegmentationapproach.Thebasic
premiseofsegmentationistoallocatelimitedresourcessothatreturnoninvestmentcanbe
maximized.
Marketsegmentation,whendoneproperly,canimprovesalesandprofitsbecauseitallowsthe
organizationtotargetspecificmarketsegmentsthataremuchmorelikelytopatronizethe
organization'sfacilities.Thisapproachpermitsthecompanytomoreeffectivelyallocatescarce
marketingresourcesaimedatthosemarketsegmentswiththehighestprobabilityofpurchasing
theorganization'sproductsandservices.Usingmarketsegmentation,companiescanidentify
thosemarketsegmentsthatareheavyusersoftheirproductsandservices.Atthesametime,
segmentsthatholdlittlepotentialforusingacompany'sproductsreceivelittleornoattention,so
themarketingresourcesthatareavailablearenotwastedonchasingaftermarketsegments
withlittlesalespotential.
Whenthemarketissegmented,differentproductservicemixescanbepromotedtomeetthe
needsofthedifferentsegments.Forexample,ahotel'sbarandrestaurantcanbeusedto
attractavarietyofmarketsegmentsbyvaryingthetypeofentertainmentoffered.Management
couldtrytoincreasesalesvolumebyestablishingspecificnightsoftheweek,suchasjazz
night,oldiesnight,countrynight,andsoon.Eachoftheseeventsoffersaspecifictypeof
entertainmentthatappealstoaspecificclientele.Withinthelodgingsegmentoftheindustry,
hotelsthatcatertothebusiness
travelerareusuallybusyonMondaythroughThursdaynightsandareoftenquiteslowonthe
weekends.Therefore,oneofthemarketingcommunicationsandpromotionalgoalsistotarget
thosemarketsegmentswiththemostpotentialforboostingweekendoccupancy.Eachhotel
chainattemptstopresentthetotalpackageofamenities,room,andfoodandbeverageinan
appealingmanner.Byattemptingtoappealtothosetargetsegmentsseekingagetaway
weekendoraminivacationatagoodprice,thehotelisabletoboostoccupancyandtotal
revenueduringatimewhenthehotelwouldnormallynotbeoperatingatfullcapacity(i.e.,100
percentoccupancy).
4.1.2 Criteria for Effective Segmentation

Asfirmsattempttosegmentmarkets,theyhavemanymethodsfromwhichtochoose.However,
itisimportanttoknowwhentosegmentandhowfarthesegmentationeffortsshouldgoin
targetingspecificmarkets.Thereisapointwhereamarketcanbesegmentedtoomuch,with
theresultingsubsetbeingtoosmalltobeprofitable.Oritmaynotbeefficienttodevelopseveral
differentmarketingprogramsforthevariousmarketsegmentswhenoneortwocouldbeused
fortheentiremarket.Whenanysegmentationeffortsareundertaken,fourcriteriashouldbe
usedtoevaluatetheeffectivenessofthemarketsegmentationstrategy:
1.Substantiality
2.Measurability
3.Accessibility
4.Actionability
First,considersubstantialityinotherwords,determinewhetherthemarketsegmentislarge
enough.Asthemarketissegmented,ahospitalitymanagermanipulatestheelementsofthe
marketingmixtomeettheneedsoftheindividualsegmentsandtoachievethemarketing
objectivesofthefirm.Thesizeofeachofthesesegmentsmustbelargeenoughtowarrantthis
specialattention.Forexample,twodecadesago,veryfewrestaurantshadsectionsoftheir
menusdedicatedtohealthierfoodsbecausethereweren'tenoughcustomerstojustifyit.Since
then,evenfastfoodrestaurantshaveaddedhealthymenuitems,andtoday,manyrestaurants
haveitemstargetingaspecificdietsegmentsuchastheAtkinsdiet.Thisdemonstratesthe
importanceofhavingalargeenoughpopulationtowarranttargetingaspecificmarketsegment.
Substantiality
Thesizeofthesegmentmustbelargeenoughtowarrantspecialattentiontomeetthe
needsofthesegmentandtoachievethemarketingobjectivesofthefirm.
Second,eachofthesegmentsmustpassthemeasurabilitytest.Measurabilityshouldbe
assessedfromtwoperspectives:theoverallsizeofthetargetmarketsegmentandtheprojected
totaldemandorpurchasingpowerofthetargetmarket.Minimumcutoffpointsshouldbe
establishedrelativetothesizeandprojecteddemandofanytargetmarketsegments.Ifthe
numberofconsumersorprojectedtotaldemandwithinagivensegmentfallsbelowthesecutoff
points,targetmarketsegmentscansimplybecombined.
Measurability
Theoverallsizeofthetargetmarketsegmentandtheprojectedtotaldemandorpurchasing
powerofthetargetmarket.
Third,lookataccessibility.Itmustbepossibletoreachthelargetargetmarketsegments
throughavarietyofmarketingcommunicationsefforts.Marketingcommunicationcaninvolvea
widevarietyofapproaches,includingbutnotlimitedtoadvertising,promotion,directmarketing,
telemarketing,andpersonalselling.Withoutaccessibility,thereisverylittlereasonfor
segmentingthetargetmarket.Amajorpurposeforsegmentingthemarketistoisolateviable
segmentsofpotentialbusinessandtodirectmarketingcommunicationeffortsrelatedtospecific
aspectsoftheproductservicemixtowardthesesegments.Withoutaccessibility,thisisnot
possible,andsegmentingthetargetmarketisoflittlevalue.
Accessibility
Thetargetmarketsmustbereachable,oraccessible,throughavarietyofmarketing
communicationefforts.
Fourth,firmsmustbeabletocreatemarketingprogramsthatareeffectiveinattractingbuyers
fromthemarketsegment(i.e.,gettingthemtoact).Inotherwords,actionabilityreferstothe
notionthatcustomerswithinaparticularmarketsegmentshouldsharesimilarcharacteristics,
andreactinasimilarfactiontoaparticularmarketingprogramtacticorstrategy.Forexample,if
arestaurantoffersanearlybirdspecial,itshouldappealtocertaintargetsegmentsandnot
others.Familiesandseniorcitizensmightbewillingtoeatearliertosavemoneyandavoid
crowds,whereasconsumersinothersegmentsaren'taspricesensitiveandaren'twillingto
compromiseonconvenienceforadiscount.Ifallconsumersreactedthesametoafirm's
marketingprogram,thentherewouldn'tbeanyneedtosegmentthemarket.
Actionability
Consumersinthesamemarketsegmentshouldreactsimilarlytothemarketingprogram
usedtotargetthem.
4.2 SEGMENTATION VARIABLES
Marketingmanagerscanusefivebasictypesofvariableswhensegmentingconsumermarkets:
geographic,demographic,psychographic,behavioral,andbenefits.Thesesegmentation
variablescanbeusedaloneorincombinationwithoneanother,dependingonthelevelof
segmentationthatisdesired.Figures4.1ato4.1dillustratethebasicconceptofmarket
segmentation.Figure4.1ashowsamarketthathasnotbeensegmented.Inotherwords,no
attempthasbeenmadetodividethelarge,heterogeneousmarketintosmaller,homogeneous
subsets.Figures4.1band4.1cillustratemarketsthathavebeensegmentedusingonevariable,
andFigure4.1dshowsamarketthathasbeensegmentedusingtwovariables.Inpractice,itis
normallybesttouseatleasttwoormoreofthefollowingtypesofvariablestosegmentmarkets.
FIGURE4.1aAnonsegmentedmarket.
FIGURE4.1bAmarketsegmentedbyage(A=1834,B=3549,C=above49).
FIGURE4.1cAmarketsegmentedbyincome(H=high,M=moderate,L=low).
FIGURE4.1dAmarketsegmentedbyageandincome.
4.2.1 Geographic Variables

Ageographicsegmentation,asthenameimplies,relatestotheconsumer'sgeographicarea
ofresidence.Marketsareoftensegmentedbydividingthecountryintoregionssuchas
Northeast,MidAtlantic,NorthCentral,Southwest,andNorthwest.Segmentationisalso
accomplishedbyexaminingthepopulationofagivenarea.AccordingtotheUnitedStates
CensusBureau,thetotalU.S.populationwas316.1millionin2013,anditisprojectedto
surpass400millionby2040.However,thispopulationisnotevenlydistributeditis
concentratedinmajormetropolitanareas.AccordingtotheWorldBank,thepercentageofthe
U.S.populationlivinginmetropolitanareasremainedat81percentfrom2010through2014.1
Geographicsegmentation
Segmentationtechniquethatfocusesontheconsumersgeographicareaofresidence.
Inadditiontopopulationdensity,therearedifferingpatternsofpopulationmigration.For
example,themetroareaswiththelargestannualpopulationgrowthintheUnitedStatesfrom
2000through2013wereallin,oraround,theSunbelt(e.g.,Florida,Texas,Arizona,Nevada,
California,andtheCarolinas).Interestingly,7ofthetop10metroareaswereonthelistfrom
1980through2000aswell.Theothercurrenttrendisthatpeoplearemovingmoretoward
middledensityareas(e.g.,suburbs)ratherthanlargecitiesandruralareas.Thisisdifferent
fromthetrendinthe1950s,whenpeoplefromthesouthmovednorthtofindjobs,andthetrend
inthe1970s,whenpeoplemovedbacktoruralareas.
Severaldifferenttermsareusedtodescribecitiesandmetropolitanareas,butinmarketing,the
mostpopulartermismetropolitanstatisticalarea(MSA).Thisreferstothesmallesturban
areawithanurbancenterpopulationof50,000andatotalmetropolitanpopulationofmorethan
100,000.Metropolitanstatisticalareasarenormallyurbanareasthatareselfcontainedand
surroundedbyruralareas.ExamplesofMSAsincludeRoanoke,Virginia,andPeoria,Illinois.
Thenextcategoryofurbanareaisprimarymetropolitanstatisticalarea(PMSA).APMSAis
anurbanizedcountyormulticountyareawithapopulationofmorethan1millionindividuals.
ExamplesofPMSAsincludeCookCountyinIllinoisandNassauCountyinNewYork.Finally,
theverylargestcitiessuchasNewYork,Chicago,andLosAngelesareknownasconsolidated
metropolitanstatisticalareas(CMSAs).ACMSAmustincludeatleasttwoPMSAs.
Metropolitanstatisticalarea(MSA)
Aselfcontainedurbanareawithapopulationofatleast50,000thatissurroundedbyrural
areas.
Primarymetropolitanstatisticalarea(PMSA)
Anurbanizedcountyormulticountyareawithapopulationofmorethanonemillion
individuals.
Consolidatedmetropolitanstatisticalarea(CMSAs)
Thelargesttypeofmetropolitanstatisticalarea,consistingofatleasttwoPMSAs.
ResidentsofandvisitorstoMobile,Alabama,canenjoyascenictripalongtheMobile
Riverinasternwheeler.Mobileisanexampleofametropolitanstatisticalarea(MSA).
Geographicvariablesareusedextensivelybytheprintandbroadcastmediatodefineand
describetheirreadersandaudience.Itisalsovitaltoknowthegeographicareasyourbusiness
isin.Forexample,nearly50percentofallroomnightsinthehotelindustryaregeneratedbythe
top25CMSAs,PSMAs,andMSAs.Segmentingahotel'smarketbasedontheoriginofthe
guestsbyusingtheirzipcodesisaneffectivewaytoidentifythoseareasthatmerittheheaviest
concentrationofadvertisingandpromotion.
4.2.2 Demographic Variables

Marketsareoftenvariedbasedondemographicsegmentationsuchasage,gender,income
andexpenditurepatterns,familysize,stageinthefamilylifecycle,educationallevelachieved,
andoccupation.Whenthesevariablesareusedindefiningconsumerswithinthehospitalityand
tourismindustry,certaintrendsemerge.Forinstance,asfamilysizeincreases,thenumberof
timesperweekthatafamilydinesoutsidethehometendstodecrease.Also,whenfamiliesdo
dineout,theirchoiceofrestaurantchangesasthefamilycompositionchanges.Thisis
importantbecausethesizeoftheaveragefamilyintheUnitedStateshasdecreasedoverthe
years.In2012,theaveragefamilysizewas2.55persons,downfrom2.63in1990and2.59in
2000.2Disposableincomepercapitaincreasedfrom$18,435.80in1992to$53,869.60in
2012.3
Demographicsegmentation
Segmentationtechniquethatfocusesonconsumerdemographicssuchasage,income,
gender,andethnicity.
Thefamilylifecycleprovidesagoodexampleofhowvariablescanbecombinedtocreate
categoriesthatcanbeusedforsegmentation.Thefamilylifecycleusesage,maritalstatus,and
thenumberofchildrentocreatecategoriessharingcommondiscretionaryincomelevelsand
purchasingbehaviors.Thetraditionalfamilylifecycleproposesthatasindividualsbecome
adultsandentertheworkforce,theytendtobesingleandhavelowerincomes,resultingin
lowerlevelsofdiscretionaryincomeincomeavailableaftercoveringcurrentexpensesfor
necessityitemssuchasfoodand
housing(seeFigure4.2a).However,theseyoungsinglesdonothavemanyobligationsor
responsibilitiesandsoareabletospendmoneyonitemsthatarenotnecessities.Individuals
begintoincreasetheirincomesastheyage,andyoungmarriedcoupleswithoutchildrenwill
haveincreasingamountsofdiscretionaryincome.However,aftermarriedcoupleshavechildren,
theirdiscretionaryincomesbegintodecrease,untilthechildrenareolderandmoveout.Atthis
point,thecouplesaresaidtohaveanemptynest,anddiscretionaryincomebeginstoincrease
again.Finally,asindividualsreachtheirsocalledgoldenyears,theyretireandseetheir
incomesstarttodecrease.
Familylifecycle
Aconceptthatattemptstodescribehowpurchasingbehaviorschangeasconsumerspass
throughvariouslifestages.
FIGURE4.2aTraditionalfamilylifecycle.
Thistraditionalfamilylifecyclehaschangedovertimeandnowincludesseveralextensions.
First,manypeoplearewaitinglongertogetmarried,thusextendingthesinglestage.In
addition,morepeoplearechoosingnottomarry,andsomesingleadultsadoptchildren.
Second,theincreaseinthedivorceratehasresultedinmoresingleparentsandsecond
marriagesthatinvolveolderparentswithyoungerchildren.Third,therearemoresamesex
couples,andorganizationsarebeginningtorecognizethispartnershipforbenefitsand
adoptions.Finally,peoplearelivinglonger,resultinginahigherpercentageofsolitarysurvivors,
manyofwhomformrelationshipslaterinlife.Figure4.2bprovidesanexampleofamodernized
familylifecycle.
FIGURE4.2bModernizedfamilylifecycle.
Segmentationusingdemographicvariablesisverycommon.Infact,firmsshouldalwayscollect
demographicinformationontheircustomerssothattheycanconstructabasicprofileofheavy
users.Demographicinformationiseasytocollectandunderstand.Also,aggregatedata
collectedbythegovernmentatalllevelscanbeusedforcomparisonsinsurveysandtargeting
potentialmarkets.Finally,demographicclassificationsarewidelyusedbyvariousmediato
describeviewers,listeners,andreaders.Thisallowsfirmstoselectmediavehiclesthatwill
reachindividualsfittingtheprofileofatypicalcustomer.
Theseniormarket,oftenreferredtoasthegraymarket,isgrowingfasterthananyother
marketinAmerica.Bytheyear2050,itisexpectedthatoneinthreeAmericanswillbeage55
orolder.Theseniormarkethasbeenexpandingandisbecomingmoreattractivebecauseolder
Americanshaveagooddealoffreetime,theyarehealthierandlivelonger,andtheyhavemore
discretionaryincomethaneverbefore.Thesetrendsmaketheseniormarketparticularly
attractivetofirmsinthehospitalityandtourismindustry.However,althoughtheageof55isa
commoncutoffusedfordescribingthismarket,theAmericanAssociationforRetiredPersons
(AARP)acceptsmembersstartingat50yearsofage,andmanyfirmsuseafigureintherange
of60to65whenofferingdiscountstotheseniormarket.Regardless,thismarketisgrowingin
sizeaswellascloutwhenitcomestoinfluencingthegovernmentandmarketers.Itisquite
possiblethatAARPisthemostinfluentialassociationinWashington,DC,andmosthospitality
andtourismfirmsoffersometypeofdiscounttoseniorcitizens.
Ifafirmchoosestotargettheseniormarket,itshoulddeterminetheattributesthatareimportant
tothismarketsegmentinpurchasingitstypesofproductsandservices.Productsandservices
couldthenbedesignedandmarketedspecificallytoseniors.Forexample,hotelsshouldprovide
luggagecartsorbellservicesoseniorscangethelpwithheavyluggage.Inaddition,rooms
shouldhavewideaisles,telephones,andremotecontrolswithlargernumbers,simplealarm
clockswithlargenumbers,andeasytousefacilitiesinthebathroom,includingbarsnearthe
toiletandinthebathtubthatcanbeusedforgettingupanddown.Similarly,restaurantsshould
providemenuswithlargeprint,mealsthatarehealthyandhavesmallerportions,andadequate
lightingsothatseniorscanreadthemenus.Finally,hospitalityandtourismfirmsshouldrealize
thatseniorsliketotravelintourgroupsforthecompanionshipandsecurity,theyareveryvalue
conscious,andtheyrequirefrequentstopsforresting,eating,andusingrestroomfacilities.
4.2.3 Psychographic Variables

Psychographicsegmentationisanothercommonlyusedmethodtosegmentmarkets.
Psychographicsreferstosegmentationbasedonlifestyle,attitudes,andpersonality.The
developmentofpsychographicsegmentationisbasedonlifestyleprofilesnormallyderivedfrom
surveyresponsestoAIO(attitudes,interests,andopinions)statements.Psychographicshasthe
followingcharacteristics:
Generally,psychographicsmaybeviewedasthepracticalapplicationofthebehavioraland
socialsciencestomarketingresearch.
Morespecifically,psychographicsmakesuseofresearchproceduresthatareindicatedwhen
demographic,socioeconomic,andusernonuseranalysesarenotsufficienttoexplainand
predictconsumerbehavior.
Mostspecifically,psychographicsseekstodescribethehumancharacteristicsofconsumers
thatmayhavebearingontheirresponsetoproducts,packaging,advertising,promotion,and
publicrelationsefforts.Suchvariablesmayrangefromselfconceptandlifestyletoattitudes,
interests,andopinions,aswellasperceptionsofproductattributes.
Psychographicsegmentation
Segmentationtechniquethatfocusesonconsumerslifestyles,attitudes,andpersonalities.
Psychographicsisusedprimarilytosegmentmarkets,butitcanbeusedforotherpurposesas
well.Forexample,itisusefulwhenselectingthemosteffectiveadvertisingvehicles,inthatthe
vehicle(s)selectedcanbematchedwiththeinterests,attitudes,opinions,andpersonalitiesof
thetargetmarketsegment.Psychographicsisalsohelpfulwhendesigningadvertisingand
promotionmessages.Illustrations,pictures,andtheactualcopycanbedesignedwiththeneeds
ofaspecificmarketsegmentinmind.Bypinpointingthetargetmarketinthismanner,the
advertisingandpromotionalmessagesandimagesarelikelytobemoreeffective,resultingin
increasedsalesandprofits.
AgoodexampleofpsychographicsegmentationistheVALSframework,amarketingtool
developedbyStrategicBusinessInsightstosegmenttheconsumermarketplacebasedon
personalitytraitsthatdriveconsumerbehavior.TheframeworkcontainseightVALSsegments
basedonaconsumers'primarymotivationsandresources:innovators,thinkers,achievers,
experiencers,believers,strivers,makers,andsurvivors.ThebasictenetofVALSisthat
consumers'purchasingbehaviorsareexpressionsoftheirpersonalities.TheVALSframework
allowsmarketerstoidentifymeaningfulmarketsegmentsbasedonconsumers'personalitytraits
andprovidesameanstopredictpurchasingbehaviors.Innovatorsandachievers,forinstance,
wouldbetargetmarketsegmentsforupscalehotelsandrestaurants,whereasthinkers,
believers,andmakerswouldbetargetmarketsegmentsforpopularmidscalechainhotelsand
casualdiningrestaurants.Additionally,innovatorsandexperiencerswouldbethesegments
mostlikelytotrynewhotelandrestaurantconcepts,andmakerswouldbethesegmentmost
likelytobeloyaltoindependentoperators.ThereisanInternetexerciseattheendofthis
chapterthatwillprovidestudentswithadetailedunderstandingoftheVALSsegmentation
framework.
Itshouldbeevidentatthispointthatthedivisionofthemarketintosegmentsshouldnotbe
basedsolelyoneasilyquantifieddemographicvariablessuchasage,sex,orincome.
Rather,thedivisionshouldbebasedonlesseasilydefinedpsychographicfactors,suchas
lifestyle,attitudes,opinions,andpersonality.Individualfirmscandefinetheirtargetmarketsand
addresstheneedsofthosemarketswithproductsandpromotionalcampaigns.Forinstance,
touroperatorscoulddesignvariousoverseastourpackagesthatwouldappealtodifferentsocial
valuegroups.
4.2.4 Behavioral Variables

Anothertypeofvariablethatcanbeusedtodefinemarketsisbehavioralsegmentation,which
focusesonthebehaviorsthatconsumersexhibitinthemarketplace.Forexample,are
consumersloyaloraretheyeasilypersuadedbycompetitors'marketingcommunicationsand
promotionalefforts?Howfrequentlydoconsumersdineout?Wouldtheybeconsideredlight,
medium,orheavyusersofvarioustypesofhospitalityproducts?Whentheytravelonbusiness,
atwhattypesoflodgingfacilitiesdotheystay?Whentheytravelforpleasure,dotheystayat
thesametypesoflodgingfacilitiesaswhentheytravelonbusiness?
Behavioralsegmentation
Segmentationtechniquethatfocusesonthepurchasingbehaviorsexhibitedbyconsumers
inthemarketplace.
Oneofthebestusesofthebehavioralvariablesistoidentifythoseindividualswhoareheavy
users,meaningthattheydineoutfrequently,stayinhotelsmanymorenightsperyearthanthe
averageperson,oraccountforalargepercentageofairtravel.Iftheseindividualscanbe
identified,thenamarketingplancanbeformulatedtoincreaseloyaltyandfrequencyofuse
evenfurther.Forexample,mostairlinesofferafrequenttravelerprogramtoencouragebrand
loyalty.Withineachprogramarevaryinglevelsofmembership.Anyonecanjoin,buttherewards
arecommensuratewiththelevelofuse.Airlinemilescanberedeemedforfreeflightsora
varietyofothertravelservices.Manyhotelsandrestaurantsoffersimilarprograms,andoften,
hotelsandairlinesdevelopstrategicalliancesandcombinetheirprograms.
Frequenttravelerprograms
Loyaltyprogramsthatrewardcustomerscommensuratewiththeirlevelofpurchaseand
use.
Eachyear,moreandmoreresearchisundertakentohelpcompaniesmorefullyunderstand
consumerbehavior.Behavioralvariablesrepresentanexcellentsegmentationtool,forasdata
arecollectedconcerningthemannerinwhichconsumersactuallybehaveinthemarketplace,
theinformationwillallowhospitalitymanagerstogainabetterunderstandingofconsumer
behavior.Asmarketingmanagersincreasetheirunderstandingofwhatmotivatesconsumersto
buy,itwillfacilitatethedevelopmentofproductservicemixesthatwillbettersatisfytheneedsof
consumers.
4.2.5 Benets Sought

Finally,marketsegmentationcanbebasedonthebenefitsthatconsumersareseekingwhen
theypurchaseaproduct.Onceafirmhasdeterminedthebenefitssoughtbyconsumers,itcan
usethisinformationtodesignproductsandservicesandtocreatepromotionalmaterialsthat
focusonthesebenefits.Marketresearchcanbeusedtoidentifythebenefitsthatareimportant
tovarioustypesofconsumers.Thismarketinginformationallowsmanagementtoemploy
benefitsegmentation,whichisbasedonbenefitssought,aswellasdemographic,
psychographic,orbehavioralvariables.
Benefitsegmentation
Segmentationtechniquethatfocusesonbenefitssoughtbyconsumerswhenpurchasinga
product.
Forexample,airlinessegmentconsumersbasedonthebenefitsthoseconsumersseek.
Businesstravelersaremostconcernedaboutconveniencewhenchoosingflights.Theywill
makereservationsatthelastminuteandwanttotravelataconvenienttimewithshortroutes.
Conversely,leisuretravelerswillbookfurtheraheadandsacrificesomeconveniencetogeta
betterpricebecauseitisthemostimportantbenefit.Similarly,airlinesofferfirstclassand
businessclassseatswithadditionalamenitiesforahigherprice,andhotelsofferaconciergeor
businesslevelroomforconsumerswhowantadditionalamenitiesatahigherprice.
Anotherexampleinvolvestherentalcarindustry.Rentalcarcompaniescarryseveralmodelsof
carsandtrucksinordertoaccommodatetheneedsofalltypesoftravelers.Familiesarelooking
forlargercarsorvansthatareeconomical,businesstravelerspreferlargercarswithmore
options,andyoungertravelersmightpreferconvertiblesorsportiercars.Rentalcarcompanies
haveavehicleforanycustomer,nomatterwhatbenefit(s)thecustomerisseeking.
Consumerscanbeseekingdifferentbenefitsfromthesameresortorhotel.
4.3 MARKET SEGMENTATION DECISIONS

Whenfacedwithmarketsegmentationdecisions,ahospitalityandtourismmarketingmanager
shoulduseasystematicapproachthatemployscriticalthinkingandcarefulanalysis.Figure4.3
presentsafourstepprocessthatcanbeusedbymarketingmanagersinsegmentingpotential
markets:(1)identifysegmentationbases,(2)developprofilesforeachsegment,(3)forecast
performanceforeachmarketsegment,and(4)selectthebestmarketsegments.
FIGURE4.3Marketsegmentationdecisionprocess.
4.3.1 Identify Segmentation Bases

Thefirstthingamarketingmanagermustdoistoidentifyoneormorecharacteristicsthatcan
describethetargetmarketsegment.Anyofthepreviouslydiscussedsegmentationcriteriacan
beusedtoaccomplishthis.Inalmostallcases,severalcharacteristicswillbeused.For
example,anew
restaurantmightelecttotargetaconsumermarketconsistingofthefollowingindividuals:25to
40yearsofage,livingincitieswithapopulationgreaterthan500,000,whohaveannual
incomesgreaterthan$35,000.
Theobjectiveofidentifyingthesegmentationbasesistodeveloparelativelyhomogenous
marketsegmentmadeupofindividualconsumerswhowillrespondinasimilarmannertothe
marketingstrategiesandmarketingcommunicationseffortsofthefirm.Itisalsoimportantthat
themembersoftheselectedtargetmarketsplaceahighvalueonthecombinationofattributes
thatthefirmhasusedintheproductservicemix.Forexample,theeconomysegmentofthe
lodgingindustryhasexperiencedexceptionalgrowthinrecentyearsbyofferingbasicamenities
atarelativelylowprice,resultinginahighlevelofperceivedvaluetoconsumers.However,it
wouldnotmakesenseforthistypeoflodgingchaintotargetthemidlevelandseniorexecutives
ofFortune500companies.Theseindividuals,forbothbusinessandpersonalreasons,normally
electtousefullservicehotelsfortheirlodgingandmeetingneeds.
4.3.2 Develop Proles for Each Market Segment

Afterthetargetmarkethasbeenidentified,itisveryimportanttocompileasmuchinformation
aboutthetargetmarketconsumersaspossible.Theoverallgoalistomatchthestatedwants
andneedsofthetargetedsegmentwiththeproductservicemixofferingsandmarketing
communicationsthatthefirmuses.Theimportanceofmatchingconsumers'wantsandneeds
withthemarketingofferingsandcommunicationeffortsofthefirmcannotbeoveremphasized.It
isalsoimportanttoidentifythesimilaritiesanddifferencesamongandbetweenvarioustarget
markets.Peoplewithinthesamemarketsegmentshouldsharesimilarcharacteristicsandreact
inasimilarfashiontochangesinmarketingprograms.Whendevelopingaprofileofthetarget
markets,itisnecessarytousethevarioussegmentationvariablesdescribedearlierinthis
chapter.
Thiscanbeillustratedusingthepopularearlybirdconceptfromtherestaurantindustry.The
ideaofofferingearlybirdspecialsistoshiftdemandfrompeakperiodswhentherestaurant
operatesatfullcapacitytotheearliertimeperiod(e.g.,4:00to6:00P.M.)whenthereisless
demand.Thisallowstherestauranttoavoidturningcustomersawayduringthepeaktimeperiod
anddevelopanothermarketforthepeoplewhoarewillingtodineatthelessdemandedearlier
timeperiod.Thenewmarketconsistsofvariousmarketsegments,includingseniorcitizens,
familieswithyoungchildren,andotherpeoplewhoarepricesensitive.Alowerpriceisthemain
benefitsoughtbyallofthesesegments,butrestaurantsoffersmaller,healthierportionsfor
seniors,kids'mealsforfamilies,andpackagedealsincludingappetizersand/ordessertsfor
otherpricesensitiveconsumers.
4.3.3 Forecast Performance for Each Market Segment

Toforecastthesalespotentialofagivenmarketsegmentoranentiremarketforanygiven
productservicemixisanextremelydifficulttask.Computermodelsandstatisticalapproaches
havefacilitatedtheprocesssomewhat,butitisstillverydifficulttoaccountforallofthevariables
thatcaninfluenceconsumerdemand.Eventhebestforecastsmaybesubjecttoamarginof
errorofseveralpercentagepointsineitherdirection.However,marketingmanagersmusthave
someknowledgeofthelevelofmarketdemandinordertoplanforshortandlongterm
contingenciesaswellasdaytodayoperations.Withoutreasonablyaccurateforecasts,
managersmustoperatebytheseatoftheirpants.Thedemandsofthecompetitivesituationin
thehospitalityandtourismindustrytodaywillnotpermitthiscasualapproach.
Marginoferror
Thedifferencebetweenforecastedvalueandactualvalue.
Marketdemandcanbedefinedaspotentialconsumershavingbothpurchasingpowerand
motivation.Manyvariablescanaffectthedemandwithinanygivensegment.Variablessuchas
consumermotivationareoftendifficulttoquantify.Marketdemandforaproductorserviceisthe
totalvolumethatwouldbeboughtbyaclearlyspecifiedcustomergroupinadefinedgeographic
areainadefinedperiod.Onlywhencleardefinitionsareavailableforeachofthesevariables
canmarketdemandbepreciselycalculated.Determiningtotalmarketdemandisanimportant
marketingfunctionbecausesomanyotherassumptionsarebasedonitsforecast.Hospitality
managersshouldbeabletoexamineforecastsformarketdemandandunderstandtheiruses
andlimitations.Primarydemandisthedemandfortheentireproductclasssecondarydemand
isthedemandforaparticularbrand.Forexample,hotelsinthesameareaarenormally
membersoftheconventionandvisitorsbureausandworktogethertobringtouristsand
meetingstothelocalarea.Thiswillbenefitallthehotels,whichcanthencompeteforthe
variousmarketsegmentsbasedontheirparticularneeds.
Marketdemand
Thetotalvolumethatwouldbeboughtbyaclearlyspecifiedcustomergroupinadefined
geographicareainadefinedperiod.
Projecteddemandfortheproductservicemixiscalculatedbasedonthetotalmarketdemand
multipliedbythemarketshare,orthepercentageofthemarketthatthefirm'sproductservice
mixwillcapture.Marketshareiscalculatedbydividingthefirm'ssalesbythetotalindustry
sales.Determiningtheprojectedmarketshareisanimprecisescience.Itshouldbebasedona
thoroughandobjectiveassessmentofthefirm'scapabilities,therelativecompetitivenessof
thosealsotargetingthesameconsumers,andmarketingstrategiesusedbyallfirms.When
decisionshavebeenmadeaboutthespecificmarketingstrategiesandtacticsthatwillbeused,
thenresourceneedscanbedeterminedtomarkettheproductservicemixtospecifictarget
marketsegments.ThereisamoredetaileddiscussionofsalesforecastinginChapterFive.
Projecteddemand
Thetotalmarketdemandmultipliedbythefirmsmarketshareforaparticularproduct
servicemix.
Marketshare
Thepercentageofthemarketthatthefirm'sproductservicemixwillcapture.
4.3.4 Select the Best Market Segments

Basedonthestepspreviouslydiscussed,thoseresponsiblefordevelopingandimplementing
themarketingplanmustdecideonthespecifictargetmarketsegmentsthatareselected.
Althoughtheuseofdataandfactualinformationisveryimportant,thejudgment,insight,and
experiencethataseasonedmarketingmanagerbringstothedecisionarealsovaluable.The
overallgoalistolimittheuncertaintysurroundingmarketsegmentationdecisions.Decisions
shouldbebasedonacarefulanalysisofthedataandhowtheforecastsofprojecteddemand
andmarketshareweredetermined.Itisimperativethatthemarketingmanagerexaminethe
projectedreturnoninvestment(ROI)thatthetargetmarketwillprovide.Onemaycalculatethe
ROIbydividingreturn,ornetprofit,bytheamountoftheinvestment.Firmswillnormallyhave
targetROIsfortheirinvestments,butthehighertheROI,thebettertheinvestment.
Returnoninvestment(ROI)
Datacalculatedbydividingreturn,ornetprofit,bytheamountoftheinvestment.
4.4 MARKET SEGMENTATION STRATEGIES

Afterspecifictargetmarketshavebeenidentified,themarketingmanagersmustbeginto
developbroadmarketingstrategies.Ingeneral,therearethreesegmentationstrategiesthatcan
beapplied:amassmarketstrategy,adifferentiatedstrategy,andaconcentratedstrategy.
4.4.1 Mass-Market Strategy

Amassmarketstrategycallsonafirmtodeveloponeproductservicemixthatismarketedto
allpotentialconsumersinthetargetmarkets.Thisapproachconsidersthemarkettobeone
homogeneousmarketsegmentwithsimilarwantsandneeds.Thereisnoreasontodevelop
morethanonemarketingprogram,becauseconsumersarealikeandreactinasimilarfashion
tothecomponentsofthemarketingprogram.Forexample,whenMcDonald'sfirstopened,the
firmofferedaverylimitedmenuthatwasconsistentacrosstheentireorganization.Itfeatured
onlyacoupleofhamburgerchoices,milkshakes,softdrinks,andfrenchfries.Nootherchoices
wereavailable,andallstoresofferedtheidenticalmenu.Thisstrategywasalsousedbyhotel
chains(e.g.,HolidayInns),airlines(e.g.,UnitedAirlines),andtourismdestinations(e.g.,cities
andcountries)intheearlystagesoftheirlifecycles.
McDonald'susesamassmarketstrategytocompeteindifferentcountriesthroughout
theworld.
However,inreality,fewproductsorservicesappealtoallsegmentsofthemarket.Sinceits
inception,McDonald'shaschangedthisstrategyinresponsetotrendsinthedemographicand
socialenvironments.Thefastfoodrestaurantnowofferschickensandwiches,salads,andother
menuitemsthatappealtoamorehealthconsciousmarketsegment.Hotels,airlines,andother
hospitalityandtravelfirmshavemovedawayfrommassmarketingaswell.Thelargestthreat
whenusingthisstrategyisthatcompetitorswilltailortheirproductservicemixandtakeaway
marketsharebecausetheyarebetterabletomeettheneedsofsmallertargetmarketsegments
ofconsumers.
4.4.2 Differentiated Strategy

Whenafirmelectstofollowadifferentiatedstrategy,itisfollowingastrategythatcallsforthe
firmtoappealtomorethanonemarketsegmentwithaseparatemarketingprogramforeach
segment.Theoverallobjectiveofthisapproachistoincreasesalesandmarketshareby
capturingsalesfromseveralsmallermarketsegments.Eachofthemarketingprograms,
includingtheproductservicemix,istailoredtothespecificneedsofamarketsegment.
Perhapsthebestexampleofthisapproachwithinthehospitalityandtourismindustryisthe
strategyfollowedbyChoiceHotelsInternational.Thehotelchainhasdevelopednumerous
productservicemixesorbrands,eachtargetingadifferentmarket.Amongthebrandsoffered
byChoiceHotelsareClarionHotelsandSuites,QualityInnsandSuites,ComfortInnsand
Suites,SleepInns,EconoLodge,andTravelodge.Eachofthebrandsoffersadifferentarrayof
amenitiesatvariouspricelevelsinanattempttohaveatleastonebrandthatwillappealtoany
consumerintheeconomyormidpricedmarketsegments.
Adifferentiatedstrategycanalsobeusedattheunitorpropertylevel.Considerahotelthatis
targetingthefollowingmarkets:
Individualtravelers,includingthosetravelingforbothpleasureandbusinessduringthe
week.
Groupmeetings,representingcorporations,associations,social,andothersmaller
segments.
Tourandtravelgroups,includingthosetravelingbymotorcoach.
Eachofthesetargetmarketshasneedsandwantsthatdifferfromtheothermarkets.Those
responsibleforthemarketingeffortsofthehotelswill,usingadifferentiatedstrategy,developa
productservicemixthatmeetstheneedsoftheindividualmarketsegments.Mostsuccessful
firmsusesometypeofadifferentiatedmarketingstrategy.Althoughthemarketingcosts
associatedwithadifferentiatedstrategyarehigherinmostcases,thereturnoninvestmentis
alsohigher.Targetingtheneedsandwantsofspecifictargetmarketsandcommunicating
directlytothesetargetmarketswithseparatemarketingprogramsmeanthatoverallsales
usuallyincrease.
4.4.3 Concentrated Strategy

Aconcentrated,orfocused,strategycallsonfirmstodevelopmodificationsofoneormore
productservicemixesthataremarketedtooneorrelativelyfewmarketsegmentswithlimited
changesinthemarketingprogram.Thisstrategycanbeusedsuccessfullybysmallerfirmsthat
don'thavetheresourcestocompeteinabroadermarket.Considerthatmanyfirmsinthe
lodgingindustryhavedevelopedmultipleproductservicemixesandbrandstargetingmany
markets,butcompaniessuchasHyattHotelsandResortsandRenaissanceHotelshavenot
takenthisapproach.Instead,thesetwohotelchainsconcentratemarketingeffortsonbusiness
travelersandthosewhoneedfullservicelodging.Itisnotaquestionofwhichcompanyis
correct.Rather,itisaquestionofwhichstrategyisthemostappropriateinlightofthefirm's
missionandlongtermgoals.
4.5 POSITIONING THE PRODUCTSERVICE MIX

Whenthemarketsegmentshavebeenselected,managementmustdevelopapositioning
strategyforitsproductsandservicesineachtargetmarket.Putsimply,positioningisthe
processofdetermininghowtodifferentiateafirm'sproductofferingsfromthoseofits
competitorsinthemindsofconsumers.Thisrequiresthefirmtoknowhowimportantcertain
attributesaretoconsumersinpurchasingthefirm'sproduct,andtheconsumers'perceptionsof
howwellthefirmanditscompetitorsaredoingwithrespecttotheseattributes.4Marketerswant
topositiontheirproductssoconsumerspurchasetheminsteadofcompetingproducts.
Positioning
Theprocessofdetermininghowtodifferentiateafirm'sproductofferingsfromthoseofits
competitorsinthemindsofconsumers.
Generally,firmshavechoicesonthepositioningoftheirproducts,anditisimportanttoconsider
thealternatives.Forexample,therewasafamousadvertisingcampaignwarbetweentwocar
rentalcompaniesbasedonmarketpositionthatstartedinthe1960s.Hertzstressedthebenefits
ofusingthenumberonerentalcarcompanytosatisfyconsumerneeds,andAvispositioned
itselfagainstHertzusingtheWetryhardersloganbecausetheywerenumbertwointhe
industry.Meanwhile,Enterprisestressedpickupservice,andBudgetstressedaspecific
productfeature(i.e.,price).Interestingly,EnterpriserecentlypassedbothHertzandAvis(who
mergedwithBudget)becauseoftheiremphasisonserviceandchoiceofmarkets(e.g.,
downtownlocationsandinsurancecompanies).Otherbasesforpositioningcouldbespecific
usageoccasionsorusercategory.Forinstance,MarriottpositionsitsResidenceInnsfor
extendedstaysanditsCourtyardHotelsforbusinesstravelers.Also,firmscouldbasetheir
positioningonintangiblessuchasthefoodorambience.Applebee'shasusedtheslogans
Eatinggoodintheneighborhood,There'snoplaceliketheneighborhood,andSeeyou
tomorrowtocreateapersonalatmosphere,andSubwayusesthesloganEatfreshtofocus
onfoodquality.Finally,itisalsopossibletousemorethanonebasisforpositioningwhen
targetingaspecificmarket.
Severalfactorswillaffectafirm'sdecisionregardingwhichpositioningbasesitshoulduse.First,
afirm'scurrentmarketpositionandthepositionsofitscompetitorsareimportant.Second,afirm
shouldconsiderthecompatibilityofadesiredpositionwiththeneedsofconsumersandthe
goalsofthefirm.Third,afirmmusthavetheresourcesnecessarytocommunicateandmaintain
thedesiredposition.Figure4.4providesafourstepprocessthatconsidersthesefactorsand
canbeusedinpositioningafirm'sproducts.
FIGURE4.4Thepositioningprocess.
4.5.1 Determine the Ideal Mix for Consumers

Thefirststepintheprocessistodeterminewhatconsumersarelookingforwhentheypurchase
aspecificproductorservice.Afterafirmestablishesthisidealmixofattributes,itcanbeginto
examinetheabilityofitsproductservicemixtomeettheneedsofconsumers.Normally,there
areafewsalientattributesthatareimportanttoconsumersinevaluatingthealternative
productsorserviceofferings.Theseattributeswilldifferbyproductorservice,butTable4.1
providessomeofthemoreimportantattributesforhospitalityandtourismproducts.
Salientattributes
Attributesthatarethemostimportanttoconsumersinevaluatingthealternativeproductsor
serviceofferings.
TABLE4.1
ImportantAttributesforHospitalityandTravelFirms
TYPEOF LISTOFATTRIBUTES
FIRM
Restaurant Price,value,qualityoffood,typeoffood,servicequality,menuvariety,employee
friendliness,location,atmosphere,speedofservice,cleanliness,parking
Hotel Price,value,roomquality,restaurantquality,location,numberandtypesof
restaurants,otherfacilities(e.g.,poolandfitnesscenter),cleanliness,atmosphere,
employeefriendliness,speedofcheckinandcheckout,amenities(e.g.,valet
parkingandroomservice),servicequality
Airline Price,value,servicequality,employeefriendliness,ontimeperformance,baggage
handling,directroutes,citiesserved,scheduledflights,frequentflyerprograms
RentalCar Price,value,servicequality,convenience,location,typesofcars,conditionofcars,
speedofservice,pickupanddropoffpolicies
Asyoucansee,manyoftheattributesareimportantforallproductsandservices.Priceisnot
alwaysthemostimportantattribute,butisalmostalwaysoneofthetopthree.Servicequalityis
anotherattributethatisimportanttoconsumersinchoosingserviceproviders,anditis
commonlyusedtodifferentiatebetweenbrands.Otherattributesaremorespecifictoa
particulartypeoffirm.Forexample,foodqualityisveryimportanttoconsumersinchoosinga
restaurant,androomqualityisimportantinchoosingahotel.
Itisnecessaryforfirmstoobtainimportanceratingsfromconsumersusingsometypeof
researchmethod.ThesemethodswillbediscussedinmoredetailinChapter6,butthemost
commonmethodistoconductsometypeofsurvey.Normally,individualsareaskedtoratealist
ofattributesusinganimportancescale.Forexample,arestaurant'scommentcardmayaska
customertoratethequalityoffoodonascaleof1to5,with1beingnotimportantatalland5
beingveryimportant.Theanswerstotheseratingsarecombinedtoprovideanaveragerating
foreachdesiredtargetmarket.Theaveragesforalloftheattributescanthenbeexaminedand
usedtoconstructanidealmixfortheproduct.Inotherwords,whatareconsumerslookingfor?
4.5.2 Measure Consumer Perceptions of Available Services

Aftertheidealmixisdetermined,thenextstepistoexaminethecurrentofferingsofyourfirm
anditscompetitorstoevaluatetheirabilitiestomeetconsumerneeds.Moreimportant,itis
necessarytoobtainconsumerperceptionsofyourserviceandyourcompetitors'services.Even
ifafirmbelievesitsproductservicemixoffersgoodvaluetoconsumers,itisonlytrueif
consumersbelieveittobetrue.Inmarketing,perceptionsareeverything.Itwouldbeacritical
mistakeforafirmtoassumethatitknowswhatconsumerswantandthatitsproductsare
meetingconsumers'wants
andneeds.Onceagain,itisessentialforfirmstoevaluateconsumerperceptionsthroughthe
useofconsumersurveysandotherresearchmethods.Table4.2providesanexampleofa
competitivebenefitmatrixthatcanbeusedbyrestaurantstocompileconsumerperceptionsfor
thefirmanditsclosestcompetitors.
TABLE4.2
CompetitiveBenefitMatrix
POTENTIALBENEFITS OUROPERATION COMPETITORA COMPETITORB
Valueforprice
Qualityoffood
Qualityofservice
Atmosphere
Location
Menuvariety
Atthispoint,itmaybehelpfulforafirmtobeabletovisualizetheinformationinthecompetitive
benefitmatrixbyusingaperceptualmap.Perceptualmappingisatechniqueusedtoconstruct
agraphicrepresentationofhowconsumersinamarketperceiveacompetingsetofproducts
relativetoeachother.Becauseofthedifficultiesassociatedwithgraphingandunderstanding
multidimensionalpresentations,inevaluatingcompetingproductsmanagersmustdetermine
whichtwoorthreedimensionsconsumersconsidermostimportant,andusethesedimensions
toconstructtheperceptualmap.Forexample,Figure4.5providesahypotheticalperceptual
mapforhotelchains.
Perceptualmap
Atechniqueusedtoconstructagraphicrepresentationofhowconsumersinamarket
perceiveacompetingsetofproductsrelativetoeachother.
FIGURE4.5Perceptualmapforhotelservice.
Theperceptualmapwasconstructedusingperceivedpriceandperceivedqualityasthetwo
dimensions.Assumingtheratingsforthehotelchainsonthesedimensionswerecollectedusing
consumerresearch,theplacementofthefirmsintheperceptualspacedepictstheirrelative
positionsinthemarket.Theresultsofperceptualmappingcanbeusedforthefollowing
purposes:
Tolearnhowconsumersperceivethestrengths,weaknesses,andsimilaritiesofthe
alternativeproductservicemixesbeingoffered.
Tolearnaboutconsumers'desiresandhowthesearesatisfiedornotsatisfiedbythecurrent
productsandservicesinthemarket.

Tointegratethesefindingsstrategicallytodeterminethegreatestopportunitiesfornew
productservicemixesandhowaproductorservice'simageshouldbemodifiedtoproduce
thegreatestsalesgain.
Severalmethodscanbeusedtoconstructaperceptualmap.Similaritydissimilaritydata
involveaskingconsumerstomakedirectcomparisonsbetweenalternativebrands.For
example,consumersmightbegiventhenamesofrestaurantsandaskedtoselecttheonesthat
aremostsimilarortheonesthatareleastsimilar.Preferencedatainvolveaskingconsumersto
indicatetheirpreferencesforalistofalternativebrands.Forexample,consumersmightbe
askedtorankorderashortlistofrestaurantsorrateaspecificrestaurantona1to5scale,with
1beingleastpreferredand5beingmostpreferred.Attributedatainvolveaskingconsumers
toratethealternativebrandsonapredeterminedlistofattributes.Forexample,consumers
mightbeaskedtorateagivenrestaurantbasedonaseriesofattributes.
Similaritydissimilaritydata
Datathatinvolveaskingconsumerstomakedirectcomparisonsbetweenalternative
brandsbasedonthedegreeofsimilarity.
Preferencedata
Dataobtainedbyaskingconsumerstoindicatetheirpreferencesforalistofalternative
brands.
Attributedata
Datathatinvolveaskingconsumerstoratealternativebrandsonapredeterminedlistof
attributes.
Afterthedataarecollected,sophisticatedstatisticaltechniquesareusedtoreducethelistof
attributesintotwoorthreedimensionsforeasierpresentationandinterpretation.Management
canthenusetheseperceptualmapstofinetunecurrentproductservicemixesanduncover
gapsinmarketcoveragebetweentheidealmixandthealternativeofferings.
4.5.3 Look for Gaps in Coverage and Select a Desired Position
Aftertheconsumers'perceptionsareobtained,measured,andplottedonaperceptualmap,the
thirdstepintheprocessistoexaminethemapforgapsincoverage.Inotherwords,arethere
anyareasonthemapdepictingidealmixesthatarenotbeingadequatelyservedbythebrands
inthemarket?Oristhereadifferencebetweenthepositionsoughtbymanagementandthe
positionperceivedbyconsumers?Forexample,Subwayenteredthemarketinresponsetoa
lackofvariety(includinghealthieroptions)infoodsbeingofferedbyfastfoodrestaurantssuch
asMcDonald'sandBurgerKing.Similarly,extendedstayhotelswerecreatedinresponseto
consumerswhohadtotravelforextendedperiodsanddidnotlikestayingintypicalhotels.They
wantedtheabilitytocook,dolaundry,avoidcrowdedlobbies,andstayinamoreresidential
setting.
Theresultsoftheconsumerresearchandperceptualmappingenablefirmstodevelopa
positioningstatement.Thepositioningstatementshoulddifferentiatetheorganization's
productservicemixfromthatofthecompetition.Formanyyears,hotelsandrestaurantshave
advertisedandpromotedfinefood,prompt,courteousservice,elegantatmosphere,first
classaccommodations,andtopflightentertainment.Asmightbeexpected,thesepromotional
approachesarenotaseffectiveastheycouldbe.Consumersusuallydonotbelievethese
statementsbecausetheyhaveheardthemmanytimesbeforeandhaveoftenbeen
disappointedwhentheypatronizedthepropertiesthathadmadethesepromotionalclaims.
Also,thesestatementsdolittletoseparatetheorganization'sproductservicemixfromthatof
thecompetition.Ifotherhospitalityorganizationsarepromotingfinefoodorsimilarbenefits,
thenallthepromotionandadvertisingisbasicallythesame.
Positioningstatement
Thepositioningstatementisusedtodifferentiatetheorganization'sproductservicemix
fromthatofthecompetition.
Thekeytosuccessinpositioningistoestablishsomeuniqueelementoftheproductservice
mixandpromoteit.Thisallowsmanagementtodifferentiatetheproductservicemixfromthatof
thecompetitionandtherebygainacompetitiveadvantage.Thisapproachisknownas
establishingauniquesellingproposition(USP).WithaUSP,everyeffortshouldbemadeto
linkthebenefitswithtangibleaspectsoftheproductservicemix.Inthisway,consumershave
somethingtangiblewithwhichtoassociatethehospitalityoperation.
Uniquesellingproposition(USP)
Promotingauniqueelementoftheproductservicemix.
4.5.4 Develop a Strategy for Obtaining the Desired Position

Thefinalstepinthepositioningprocessistodevelopstrategiesforobtainingthedesired
positionthatresultsfromtheanalysesperformedinthefirstthreesteps.Aswithanyother
discussionsofstrategyinthistext,marketingmanagersmustusethecomponentsofthe
marketingmixtodevelopmarketingprogramsthatcanbeusedtoachievethefirm'sobjectives.
Inthiscase,decisionsregardingprice,productservicemix,promotion,anddistributionmustbe
madetohelpthe
firmachieveitsdesiredposition.Itshouldbenotedthattheeasiestchangesinthemarketing
mixinvolvepriceandpromotion.Changestotheproductservicemixanddistributionaremore
complicatedandofteninvolveexpensivechangesintangibleelements.
Oneofthemosteffectivewaystochangeconsumerperceptionsoftheproductservicemixis
throughpromotionandadvertising.Therearemanyexamplesofhowproductshavebeen
positionedorrepositionedusingadvertisingandpromotionalcampaigns.Forinstance,Burger
Kingattemptedtodifferentiateitsproductservicemixassuperiortothoseofotherhamburger
restaurantsinthefastfoodindustry.ThefocusofBurgerKing'sadvertisingisoncharbroiling,its
methodofcookinghamburgers.Theobjectiveoftheadvertisingcampaignistopromotethe
uniqueprocessasprovidingabettertastingburgerofhigherqualitythanthatofitscompetitors.
AsecondexampleofusingproductservicemixpositioningisthemannerinwhichTacoBell
usedpriceandpackagingtogainacompetitiveadvantage.Atatimewhenthetypicalmealata
fastfoodrestaurantcostbetween$3.50and$4.00,TacoBelltookaverydifferentpositioning
strategy.Itintroducedalineofvaluepricedproductsandmealsatpricepointsbetween59and
99cents.Thefocusofallpromotionsandpointofpurchasedisplayswasonlowpriceand
value.Asaresultofthesepromotions,TacoBellwasabletoincreaseitsmarketshare,largely
attheexpenseofotherfastfoodrestaurants.
Finally,EnterpriseRentACartrailedmarketleadersHertzandAvisandneededtodevelopits
ownuniquepositioninordertogainmarketshare.Enterpriseanalyzedthemarketandrealized
therewasagapforlowerpricedrentalcarsinlargercitiesandsurroundingcommunitiesat
locationsotherthanairports.Inresponse,thecompanydecidedtoexpandinmoresuburban
andruralareasandhassincegrowntobethelargestcarrentalagencyinNorthAmerica.In
addition,thecompanywasthefirsttooffercustomersafreepickupserviceasafacilitating
serviceinthemarketingexchange.
AlRiesandJackTroutprovideausefulsetofguidelinestouseindevelopingpositioning
strategiesintheirtexttitledPositioning:TheBattleforYourMind.5Theauthorsformulatedsix
questionsthatshouldbeusedtoguideyourthinking:
1.Whatpositiondoyouown?Thefirststepistodeterminehowyourproductisviewedinthe
mindsofconsumers,relativetoyourcompetitorsbasedonsalientattributes.
2.Whatpositiondoyouwant?Onceyouhavedeterminedyourperceivedpositioninthe
marketplace,youcandecideifitisconsistentwithpositionyouwouldliketohavebasedon
yourfirm'scapabilities.Thiscouldbethemarketleader,oryoucouldcarveoutanichethat
iseasiertoownanddefend.
3.Whommustyououtgun?Itisnecessarytotakeyourcompetitorsintoaccountwhenyouare
developingyourstrategies.Aspreviouslymentioned,itishowyourproductisperceived
relativetothecompetition.Makesureyouhavetheskillsandcompetenciestocompete
directlywithclosecompetitors.Ifyoudon'thaveanadvantage,thentrytoavoiddirect
competition.
4.Doyouhaveenoughmoney?Marketleadersenjoythebenefitofspendinglessmoneyto
defendmarketsharethanchallengersneedtospendtotakeitaway.Therefore,youneedto
makesureyouhaveadequateresourcesforlaunchingyourattack,ordefendingyour
position.
5.Canyoustickitout?Onceagain,itisnecessarytohavethefundstoprotectyourposition.In
addition,itisnecessarytohavesometypeofcompetitiveadvantageoruniquenessthatis
defendable.Ifotherscanrefuteyourclaimsoreasilyimitateyourproductsandservices,
thenyouwon'tbeabletosustainyourpositionoverthelongterm.
6.Doyoumatchyourposition?Itiscriticalthatthepositionyouchooseisconsistentwiththe
missionandvisionofthefirm,andtheproductsandservicesthatthefirmproducesand
delivers.Otherwise,consumerswillbeconfusedandyourmarketingcampaignswillbe
ineffective.
CHAPTER REVIEW
Marketsegmentationisdefinedaspursuingamarketingstrategywherebythetotal
potentialmarketisdividedintohomogeneoussubsetsofcustomers,eachofwhich
respondsdifferentlytothemarketingmixoftheorganization.Marketsegmentationinvolves
consideringseveralsegmentationvariablesaswellassegmentationcriteria.Criteriafor
effectivesegmentationaresubstantiality,measurability,andaccessibilitytotheselected
targetmarkets.Variablesthatcanbeusedtosegmentmarketsincludegeographic,
demographic,psychographic,behavioral,andbenefitssought.
Afterpotentialtargetmarketshavebeenidentified,decisionsmustbemadeconcerning
whichmarketsegmentsofferthebestopportunitytosucceedoncedetermined,these
shouldbepursued.Afourstepprocesswasintroducedtoaccomplishthis.Firmsneedto
identifysegmentationbases,developprofilesforeachsegment,forecastpotentialdemand,
andselectspecifictargetmarketsegments.
Theimportantlinkbetweentargetmarketsegmentationandmarketingstrategywasalso
introduced.Thevastmajorityoffirmsfollowoneofthreebroadstrategies:amassmarket
strategy,adifferentiatedstrategy,oraconcentratedstrategy.Themarketsegmentation
strategiesdifferinthenumberandtypeofmarketingprogramsandtargetmarkets.
Positioningisaveryimportantaspectofthemarketingeffortsofanyhospitality
organization.Thepositioningstatement,andthusthepromotionalmessages,should
clearlyreflectimage,benefitpackageandsupport,anddifferentiationoftheproduct
servicemix.Onlywhenallthreeoftheseelementsarereflectedinthehospitality
organization'sadvertisingandpromotiondoestheorganizationrealizeitsfullpotential.The
positioningstatementshouldbesupportedwithtangibleclues,ratherthantheintangible
andineffectivefinefoodorexcellentserviceslogansusedbymanyfirms.
Hospitalityandtourismfirmsshouldgothroughthepositioningprocessby(1)determining
theidealmixforconsumers,(2)measuringconsumerperceptionsofavailableservices,(3)
lookingforgapsincoverageandselectingadesiredposition,and(4)developingastrategy
forobtainingthedesiredposition.Consumerresearchisvitalinthisprocessofcollecting
informationonconsumerperceptionsregardingthebrandsinthemarket.Perceptualmaps
canbeconstructedthatprovideagraphicalrepresentationoftheconsumerpreferences
andresultingbrandpositions.Thenfirmscanselecttheirdesiredpositionsanddevise
strategiesforobtainingthosepositions.

Accessibility
Actionability
Attributedata
Behavioralsegmentation
Benefitsegmentation
Competitiveadvantage
Consolidatedmetropolitanstatisticalareas(CMSAs)
Demographicsegmentation
Familylifecycle
Frequenttravelerprogram
Geographicsegmentation
Marginoferror
Marketdemand
Marketsegmentation
Marketshare
Measurability
Metropolitanstatisticalarea(MSA)
Perceptualmap
Positioning
Positioningstatement
Preferencedata
Primarymetropolitanstatisticalarea(PMSA)
Projecteddemand
Psychographicsegmentation
Returnoninvestment(ROI)
Salientattributes
Similaritydissimilaritydata
Substantiality
Uniquesellingproposition(USP)

1.

Whatismarketsegmentation?
Ofwhatvalueismarketsegmentationtomarketingmanagers?
Whatvariablesareusedtosegmenttargetmarkets?
Whichofthevariablesfromquestion3doyouseeasmostandleastusefultoa
managerworkinginthehospitalityandtourismindustry?
Citeanddiscussthecriteriaforeffectivesegmentation.
Isitpossibletooversegmentamarket?Ifso,provideanexample.
Whatarethefourstepsinthemarketsegmentationdecisionprocess?
Explainandgiveexamplesofeachofthethreemarketsegmentationstrategies.
Whatispositioning?Whyisitimportant?
Describethefourstepsinthepositioningprocess.
Whatisperceptualmapping?
InternetExercise:TheVALSSurveyistheinstrumentusedtogatherthedata
necessarytoidentifythevariousmarketsegmentsusedintheVALSframework.Usethe
followinglinktoaccesstheStrategicBusinessInsightswebsitewhereyoucantakethe
VALSsurveyanddetermineyourVALSsegmentortype:
www.strategicbusinessinsights.com/vals/presurvey.shtml
Then,youcanusethefollowinglinktogetathoroughdescriptionofeachVALStype:
www.strategicbusinessinsights.com/vals/ustypes.shtml
DoyouthinktheVALStypedeterminedbythesurveyisconsistentwiththeway
youperceiveyourself?
Talktoyourfriendsandrelativesandseeiftheyhaveadifferentperceptionofyou
regardingyourpersonalitytraitsandpurchasingbehavior.
CASE STUDY
Destination Market Segments
Thefourprimarymarketsegmentsforconventionsandvisitorsbureaus(CVBs)are
associations,corporations,touroperators,andindividualtravelers.Associationsconsistof
social,military,education,religious,andfraternal(SMERF)groups,aswellasindustry
tradegroups.Thesegroupscanbelocal,regional,ornational,andtheyallhavemeetings
andeventsthroughouttheyear.Associationsholdconferences,whicharesmaller
meetingsnormallyfocusedoneducationandtraining,andconventions,whicharelarge
annualmeetingsforthenationalmembership.Tradeshowsareconventionsthatinclude
exhibitorsthatsellproductstotheassociation'smembersandtheirorganizations.Manyof
theseconventionsarelargeenoughtoselloutacityandusemostofthehotelroomsthat
areavailable.ThemostpopulardestinationsforthelargestconventionsareLasVegas,
Chicago,Orlando,andLosAngelesbecausetheyhavethenecessarysquarefootagefor
exhibitorsandenoughhotelroomstoaccommodatealltheattendees.
Corporationsalsoholdmeetingsandeventsthroughouttheyearforsalestraining,
advertisingcampaignsandproductlaunches,boardofdirectors,shareholders,andsoon.
Mostofthesemeetingshavelessthan100attendees,buttherearealargenumberof
thesemeetingsrelativetoassociationmeetingsandconventions.Corporationsareless
pricesensitivethantheothermeetinggroupsandindividualtravelers.Inaddition,thereisa
betteropportunityformorefrequentrepeatvisitation.Thesecharacteristicsalladdupto
makethecorporatemarketalucrativemarketfordestinationsthatcanacquiretheir
businessandloyalty.Corporationsalsoholdpicnicsandholidaypartiesfortheiremployees
thatarevaluablepiecesofbusinessformembersorlocalpartnersofthedestination
marketingorganizations(DMOs).
Touroperatorsdeveloptravelpackagesthattheyselltoindividualtravelers.These
packagestypicallyincludeairfare,lodging,andticketstolocalattractions.Travelagentsare
alsopartofthismarketsegmentbecausetheyfunctionasintermediariesbetweenthetour
operatorsandthefinalconsumerwhenthetouroperatordoesn'tselldirectlytothe
consumerviamail,telephone,ortheInternet.Conventionsandvisitorsbureausare
responsiblefororganizingfamiliarization(Fam)toursforthetouroperatorsandtravel
agents.TheCVBapproachesitslocalmembers(e.g.,hotelsandrestaurants)toobtain
donationsinordertohosttheintermediariesfreeofcharge.Thegoalistofamiliarizethe
touroperatorsandtravelagentswiththedestinationsothattheywillpromotetheareato
theirclientsandpotentialcustomers.
Inaddition,destinationmarketingorganizationsareconcernedwithprovidinginformation
andpromotionalmaterialsfocusedontheindividualleisuretraveler.Generally,DMOs
promoteeventssuchasfestivalsandsportingevents,culturalandheritagesitessuch
parksandmuseums,andrecreationalactivitiessuchasamusementparks,shopping
facilities,andgolffacilities.Thisisaccomplishedthroughmasscommunicationsratherthan
usingtheDMOssalesforce.Placementsinmagazinesandarticlesbytravelwritersare
popularformsofmarketingcommunicationsdirectedatthistargetsegment.
1.Whatsegmentationvariablesareusedtocreatethedestinationmarketsegmentsthat
aredescribedinthiscasestudy?
2.Whattypesofhotelswouldcatertoeachofthesemarketsegments?Whatvariables
wouldbeusedtosegmentthehotels?
3.Whatcitieswouldappealtoeachofthesegments?Explainyouranswer.
CASE STUDY
Segmenting and Positioning in the Cruise Industry

Thecruiseindustryhasincreasedinpopularityoverthepasttwodecades.Thishasledto
highervolume,includingmoremarketsegmentsthanjustaffluenttravelers.However,the
cruiselineshavetobecarefulthattheydon'ttrytomixtoomanydifferentgroupsof
customersonthesameship.Inresponse,thecruiselineshaveaddedmoreshipsand
designedthemtoappealtothevariedcustomersegments.Also,therearemanyoutletsfor
purchasingcruisetravel,includingtraditionaltravelagents,onlinetravelagents,airline
agentsandwebsites,andthecruiselineagentsandwebsites.
Thepurposeofthisexerciseistoresearchthevariousdistributionoutletsanddetermine
themakeupofthecruiselineindustry.Thatis,identifythepopularcruiselinesintheUnited
States,howtheyarepositioned,andwhatmarketsegmentstheyserve.Thefollowingisa
descriptionofhowyoucanfindthisinformationthroughtwoofthemorepopularonline
travelagents,butyoucanuseothersourcesaswell.Youshouldlimityoursearchto
Bahamascruisesof3to6nights/days.Itdoesn'tmatterwhatmonthyouuse,solongasit
isapopularcruisingmonthfortheFloridaports(i.e.,FortLauderdale,Miami,andTampa).
First,youcangotowww.expedia.comandclickonCruises.Putinthecriterialistedinthe
previousparagraph(i.e.,Bahamas,3to5nights,alllines)andchooseamonth.Next,click
onChooseandContinueforthevariousselectionsandscrolldowntoAbouttheShip.
Next,youcangotowww.travelocity.comandclickonCruises.Putinthesamecriteria
(exceptitis3to6nights)andchoosethesamemonth.Then,clickonMoreInfoforeach
oftheselections,followedbyReviews.

1.Whatcruiselinesareavailable,andhowaretheypositionedinthemarket?Explain
youranswerbasedonactualevidenceandconstructasimpleperceptualmapbasedon
priceandquality.
2.Whataretheprimarymarketsegmentsforcruiselinesbasedonyourreviewofthe
websites?WhatshipsareavailablewithintheCarnivalCruiseLine,andhowarethey
targetedtoeachofthesesegments?
3.Whatotherwebsitesareavailableforobtainingusefulinformationforhowthecruise
lines,andtheirships,aresegmented?
NOTES
1TheWorldBank,data.worldbank.org/indicator/sp.urb.totl.in.zs.
2UnitedStatesCensusBureau,www.census.gov/hhes/families/data/cps2012avg.html.
3BureauofLaborStatistics,UnitedStatesDepartmentofLabor,
www.bls.gov/emp/ep_table_410.htm.
4JamesH.MartinandJamesM.Daley,HowtoDevelopaCustomerDrivenPositioning
Strategy,Business39(OctoberDecember1989),p.11.
5AlRiesandJackTrout,Positioning:TheBattleforYourMind(NewYork:McGrawHill,1981).
5
DEVELOPING A MARKETING PLAN
CourtesyofFrankGaertner/Shutterstock.
Chapter Objectives
1.Describethetypicalmarketingmanagementcycle.
2.Differentiatebetweenstrategicandtacticalmarketingplans,anddescribetheadvantages
anddisadvantagesofplanning.
3.Describethefourstepsofthemarketingplanningprocess.
4.Explainthequalitativeandquantitativetechniquesfordevelopingsalesforecasts,andthe
criteriausedtoselecttheappropriatesalesforecastingtechniques.
5.1 INTRODUCTION
Marketingisanongoingprocess.Itneedsconstantattentiontobesuccessful.Management
mustregularlyobtainfeedbackanduseittorevisestrategicplans.Management'sroleinthe
marketingeffortiscritical,forwithoutdiligenteffort,theresultswillbelessthansatisfactory.
Largehospitalityandtourismorganizationsnormallyhaveadirectorofmarketingwhois
responsibleforthemanagementofallmarketingactivities.However,inmosthospitalityand
tourismunits,andespeciallyinindependentfirms,themarketingfunctionistheresponsibilityof
anoperationsmanagerwhomustbeconcernedwithotherfunctionsaswell.This,togetherwith
thelackofasizablebudget,resultsinalowpriorityformarketinginthesesituations.The
successfulmarketingofahospitalityoperationisnotsomethingthatcanbeaccomplished
overnightorwithonlyafewhoursofattentioneachweek.Establishingandmaintaininga
successfulmarketingprogramrequiressignificantmanagementtimeandeffort.The
managementactivitiesinmarketingahospitalityoperationcanbedividedintothreemajorareas
thatformamarketingmanagementcycle:marketingplanning,marketingexecution,and
marketingevaluation(seeFigure5.1).Marketingplanningisthefocusofthischapterthetopics
relatedtomarketingexecutionandmarketingevaluationarediscussedinsubsequentchapters.
Thedynamicprocessinvolvingmarketingplanning,execution,andevaluation.
FIGURE5.1Themarketingmanagementcycle.
5.1.1 Marketing Planning

Therearethreebasicquestionsthatshouldbeaddressedduringmarketingplanning.Thefirst
questionis,Wherearewenow?Asituationanalysisshouldbeperformedtodeterminethe
company'sstrengthsandweaknesses.Thisinformationisbasedonpasttrendsandhistorical
performance,anditshouldincludeananalysisofthemarketandthecompetition.Inaddition,it
isnecessarytoscantheenvironmentforopportunitiesandthreats.Oncethecompanyhasa
goodgraspofthesituation,itistimetomoveontothenextquestion.
Marketingplanning
Theprocessofanalyzingpotentialmarketsanddevelopingmarketingprogramsusing
marketingmixstrategiestocompeteinchosenmarkets.
Thesecondquestionis,Wheredowewanttogo?Itisatthispointthatacompanymustsetits
goalsandobjectivesforoperatinginthefuture.Thesegoalsandobjectivesshouldbeclear,
concise,andmeasurableoveraspecifictimeframe.Allemployeesandstakeholdersshouldbe
madeawareofthestrategicdirectionofthefirm.Also,thesegoalsandobjectivesbecome
targetsforevaluatingtheperformanceofthecompany'semployees.Finally,thegoalsand
objectivesshouldbeconsistentwiththecompany'smissionstatement.
Thethirdquestionis,Howarewegoingtogetthere?Afterthecompanydeterminesits
directionforthefuture,itisnecessarytodevisestrategiesandactionplansthatcanserveasa
roadmap.Basically,marketingmanagersdevelopmarketingprogramsthatareconsistentwith
thegoalsofthefirm.Thecomponentsofthemarketingmixareunderthedirectcontrolof
managers,andtheycanbeusedtoformstrategiesthatwillhelpthecompanyreachitsgoals.
Theactionstakenwithprice,theproductservicemix,promotion,anddistributionshouldbe
integratedandleadtoacommonend.
5.1.2 Marketing Execution
Aftertheobjectivesandstrategiesaredetermined,thenextstepistoimplementtheaction
plansdevelopedduringtheplanningprocess,usingthespecifictimetablethatwaspartofthe
marketingplan.Thisisaccomplishedusingthepromotional,advertising,personalselling,and
directmarketingmaterialsandmethodsthatweredevisedintheplanningstage.Employees
shouldbeinformedaboutthecompany'splansforitsserviceofferingsandreceiveadditional
trainingifnecessary.Unitmanagersandfranchiseesshouldbemadeawareofthechangesin
themarketingplansothattheycanimplementthemintheirrespectiveunits.
5.1.3 Marketing Evaluation

Thefinalstepinthemarketingmanagementcycleistomonitorandcontroltheelementsofthe
marketingplan.Dataarecollectedandevaluatedusingavarietyofmarketingresearchmethods
andstoredinformsthatallowforeasyretrieval.Organizationalperformanceneedstobe
analyzedincomparisonwithgoalsandobjectives,lookingfortheunderlyingreasonsforthe
differencebetweenstatedperformancegoalsandactualperformance.Specifically,thecompany
shouldanalyzetheeffectivenessofitsmarketingprograms,includingitsstrategiesforpricing,
promoting,anddistributingitsproductsandservices.Thefirm'sperformancecanbeevaluated
relativetoitscompetitors,usingmeasuressuchassales,marketshare,andcustomer
satisfaction.Finally,atthispoint,firmscanreturntotheplanningstageofthemarketing
managementcycleandmakeanydesiredchangesintheirobjectivesortheirstrategies.
5.2 MARKETING PLANS

Planningfocusesonthefuture.Itinvolvesassessingcurrentenvironmentaltrendsand
determiningwhatismostlikelytooccurinthefuture.Peoplewhoareresponsiblefordeveloping
marketingplanschartacourseofactionthattheybelievewillallowthefirmtoachieveitsstated
objectives.Plannerscanneverbe100percentcertainthattheywillachievetheirstated
objectives,butwelldevelopedplanshaveamuchhigherprobabilityofaccomplishingthe
desiredresults.
Ingeneral,amarketingplanisawrittendocumentthatcontainstheoutlineforabusinessunit's
marketingprogramsandresourceallocationsoveraspecificplanningperiod.Marketingplans
arewrittendocuments,requiringmanagerstoanalyzethecompany,itsproductsandservices,
andtheenvironmentsothattheycanpreparewellorganizeddocumentstoguidetheir
companies.Second,marketingplansarewrittenfortheappropriatebusinesscenterasdefined
bytheorganization.Astrategicbusinessunit(SBU)consistsofproductsthatsharecommon
characteristicsandhavethesamecompetitors.Forexample,withinalargemultibrandlodging
companysuchasMarriottInternational,anSBUmightbeclassifiedasoneofthebrands,such
asFairfieldInnsorCourtyard.Finally,marketingplansaredevelopedforaspecifictimeperiod
thatvariesfromproducttoproductorunittounitbasedonthescopeorbreadthoftheplanning
activity.Forexample,strategicplansarebroad,havefarreachingimplications,andoftenextend
3ormoreyearsintothefuture.Conversely,tacticalplansaremoreshortterminfocus,withan
emphasisonimplementation.
Strategicbusinessunit(SBU)
Businesscentersconsistingofproductsthatsharecommoncharacteristicsandhavethe
samecompetitors.
Strategicmarketingplansresultfromacarefulexaminationofafirm'scorebusinessstrategy
andprimarymarketingobjectives.Wheninvolvedinthistypeofplanning,firmsshouldfocuson
keyareas,startingwiththetypeofbusinessthefirmisinorwishestobein.Next,thefirm
shouldaskwhereitisnowandwhetheritiswhereitwouldliketobe.Ifnot,whatshouldthefirm
dotogetthere?Questionssuchasthesearenoteasytoanswer,buttheyarethefoundationon
whichstrategicplansaredeveloped.Strategicplanningistheprocessofdeterminingthefirm's
primarygoalsandobjectivesandinitiatingactionsthatwillallowittoachievethosegoalsand
objectives.Alltypesofhospitalityandtourismfirmsconductstrategicmarketingplanning,butit
isanabsolutenecessityformultiunitfirmsorchains.
Strategicmarketingplans
Theseplansresultfromacarefulexaminationofafirm'scorebusinessandprimary
marketingobjectives.
Tacticalmarketingplansfocusonimplementingthebroadstrategiesestablishedinthe
strategicplan.Forexample,ifahotel'sstrategyistoincreaseoccupancyby2percentby
focusingonaspecifictargetmarket,howwillthismarketsegmentbeapproached?What
specificstepsneedtobetakentoachievethestatedgoal?Theactualmethodsusedarepartof
thetacticalplan.Tacticalplans
typicallycoveraperiodofoneyearandprimarilyfocusonspecificactivitiesthatmustbe
implementedifthefirmistoachievethegoalsandobjectivesstatedinthelongerrange
strategicplan.Oneofthefocalpointsfortacticalplansistheallocationofresourcestoachieve
thestatedobjectives.Tacticalplansmaygetmodified,basedontheactionsoftheprimary
competitorsandtheavailabilityofresources,butstrategicplansarenormallynotmodified
withoutconsiderablereflection.
Tacticalmarketingplans
Theseplansfocusonimplementingthebroadstrategiesthatareestablishedinthe
strategicmarketingplan.
Withinsmallchainsandindependentoperations,theunitmanagementisoftengrantedgreat
autonomy.Withinlargerchainorganizations,mostaspectsofthemarketingfunctionaretightly
controlled,andthemanagerofanindividualunitismoreinvolvedinimplementingratherthan
planning.Planningisconductedatahigherlevelwithintheorganizationtoensurecoordination
ofmarketingeffortsandconsistencythroughoutthechain.Corporatelevelmarketingmanagers
normallyworkwithmanagersoftheindividualunitstohelpthemformulateandimplement
tacticalplansthatallowtheunittoremainsuccessful,whilesupportingtheoverallcorporate
marketingstrategicplan.
Tacticalplanspreparedforaoneyeartimehorizonarebasedontheanswerstoquestions
similartothoselistedhere:
Whatisourmarketshare?Isitincreasingordecreasing?
Howhavethestrengthsandweaknessesofourfirmchangedinthelastyear?
Howhasourmixofguestschangedinthelastyear?
Whatadvertisingandpromotionswerethemostandleastsuccessfulduringthelastyear?
Whattypesofpromotionsandsaleseffortsshouldweusetobuildbusinessduringourslow
periods?
Whatspecificpromotionandadvertisingscheduleswillleadtosuccess?
Whatinhousepromotionsshouldweschedule?
5.2.1 Advantages and Disadvantages of Marketing Plans

Formulatinganorganizedandwellconceivedmarketingplancanhaveatremendouslypositive
impactonahospitalityfirm.Therearefivemainadvantagesofmarketingplanning:
1.Ithelpsthefirmcopewithchangemoreeffectively.Ifthecompetitiveenvironment
changesrapidly,afirmthathasdevelopedstrategicplanswithseveralcontingencyoptionsis
inabetterpositiontoeffectivelydealwiththechange.
2.Developingmarketingplansensurethatthefirm'sobjectivesareachieved.Theplans
serveasguidestohelpthefirmachievetheobjectives.If,insomeunforeseen
circumstances,theobjectivesarenotattainable,objectivesandplanscanbemodified.This
isdoneafteraverycarefulanalysisofthesituation,investigatingwhytheoriginalobjectives
couldnotbeachieved.
3.Establishingamarketingplanaidsmanagementinmakingimportantdecisions.The
establishedplanscaneasilyserveasapointofreferenceformanagementtoconsultwhen
confrontedwithadifficultdecision.Giventhealternatives,managerscandecidewhichones
willcontributethemosttotheachievementoftheirobjectives.
4.Planningforcesmanagerstoexaminethefirm'soperations.Marketingplansmakeit
necessaryformanagerstorelateemployeetasksandresourceallocationtothefirm's
objectives.Theremustbeacleardelineationofhowtheuseofresourcesandemployee
timewillhelpthefirmachieveitsobjectives.
5.Developingbothstrategicandtacticalmarketingplanshelpsmanagementwhen
evaluatingthemarketingefforts.Resultsofmarketingeffortsarecomparedwithprojected
results,givingmanagementacontrolprocessforthemarketingfunction.
Althoughestablishingamarketingplanhasmanyadvantages,therearealsosome
disadvantagesassociatedwithmarketingplanning.Fivemaindisadvantagesofmarketing
planningfollow:
1.Establishingobjectivesandformulatingamarketingplanareverytimeconsuming.
Thetimethatmanagementinvestsinplanningcanbeexpensive,andtheresultsofplanning
mustbecosteffective.

Theoverallbenefitsoftheseefforts,however,normallyfarexceedthecosttothefirm.
2.Ifplanningistobesuccessfulandhavethedesiredimpactonanorganization,itmust
havethesupportandcommitmentofthetopmanagement.Ifthoseinvolvedinthe
planningprocessperceivethattheyaremerelygoingthroughthemotionsandthattheir
activitieswillnothaveanyimpact,theywillhaveanegativeopinionaboutplanning.Under
thesecircumstances,managersperceivetheplanningprocessasanextraduty.Therefore,
theygiveitalowpriority,resultinginaninferiorplan.
3.Ifmanagersdeveloppoorlyconceivedplansorplansbasedonfalseassumptions,the
plansmaybeinaccurateorineffective.Forthisreason,somemanagersfeelthatplanning
isoflittlevalue.Additionally,unplannedscenarioscandeveloprapidly,renderingmarketing
plansmuchlesseffective.
4.Becauseplansoftenneedtobepreparedwithinashortperiod,itmaynotbepossible
toconductasmuchbackgroundworkasnecessaryforahighqualityplan.Inaddition,
theplanningtaskisoftenassignedtoamanagerwhohasotherdutiesandresponsibilities,
limitingtheamountoftimethemanagerhasforplanning.Managersmustviewthe
developmentofaplanasameanstoanend,suchasincreasedsalesandprofits,notasan
enduntoitself.
5.Manyfirmsdonothavethepersonnelwiththerequiredknowledgeandexpertisein
planning.Manyaspectsareinvolvedinmarketingplanning(discussedlaterinthischapter)
hence,theemployeeresponsibleforplanningshouldhavesomelevelofformaltraining.
Often,managersarefocusedondaytodayoperationsanddonothavethetimeorabilityto
stepbackandviewthebusinessfromastrategicperspective.Ifplansaretobesuccessful,it
isimportanttoadoptalongerterm,strategicperspective.
5.2.2 Why Marketing Plans Fail

Despitethebesteffortsofmarketingplannersandallthoseinvolvedintheplanningprocess,
someplansfailtofullyachievethedesiredresultsbecauseoftacticalshortcomings.The
followingarethemostcommonreasonsthatsomeplansfail,basedonthefindingsofseveral
researchstudies:
Managersdonotintegratestrategicplanningintothedaytodayactivitiesofthefirm.
Inthesecases,managersviewtheplanasanendinitself,ratherthanameanstoachievea
desiredresult.Often,plansarecarefullyprepared,buttheyarenotimplementedbecause
employeesareeitherunableorunwillingtoimplementthem.Theplanningprocessfunctions
asadynamic,ongoingprocess.Plansshouldbeimplemented,evaluated,revised,and
implementedagain.Onlywhenthiscycleiscontinualcanplanningtrulysucceed.
Thoseresponsibleforplanningdonotunderstandtheplanningprocess.When
managersdevelopamarketingplan,theymusttaketimetoworkthroughallstepsofthe
planningprocess.Sometimesmanagerswanttojumpaheadanddrawconclusionsbefore
allenvironmentalvariablesareconsideredandbeforeaclearconsensusisdetermined.
Managersmustavoidthistendency,fortheresultsareusuallyunreliable.Everymemberof
theplanningteammustfullyunderstandthestepsinvolvedintheplanningprocessand
shouldactivelycontributeduringeachstep.
Thereisalackofinputfromlinemanagers.Foramarketingplantosucceed,managers
whohavemajorresponsibilitiesinareasotherthanmarketingmustimplementtheplan.In
somecases,professionalmarketingmanagersassumeresponsibilityfordeveloping
marketingplans,whileimplementationislefttolinemanagerswhoareconcernedmainly
withdaytodayoperations.Thesemanagersdidnotparticipateintheplanningprocessand
donotseetheadvantagesorimportanceofplanning.Inaddition,theplannersdidnot
benefitfromtheoperationalknowledgepossessedbythelinemanagers.
Financialprojectionsarenotmarketingplans.Somehospitalityandtourismfirmsmake
revenueprojectionsorsalesforecastsandcallthisactivitymarketingplanning.

Projectionsbythemselvesarenotplans.Onlywhenplanscontainclearlydefinedtacticsor
actionplansforachievingthedesiredobjectivesdoesplanningtakeplace.
Inputisinadequateandthereisinsufficientconsiderationofallenvironmental
variables.Althoughitremainsimpossibletoconsidereverysinglevariable,therealdanger
isbasingdecisionsandplansonaninsufficientamountofinformation.Managersoftenwant
torushtoaconclusionratherthangatherinformationandmakeinformeddecisions.This
typeofinformationisavailablethroughenvironmentalscanningandtheuseofthefirm's
marketinginformationsystems.
Themanagers'planningfocusestooheavilyonshorttermresults.Managersmust
emphasizeformulatingplansthatwillallowthefirmtomovetowardtheachievementoflong
termgoals.Toofrequently,themanagersemphasizeshorttermprofitsattheexpenseof
longtermobjectivesandprofits.
Noproceduresareestablishedtomonitorandcontroltheplanningprocess.Itis
importanttoestablishprocedurestomonitortheplanningprocessfrombeginningtoend.
Thiswillallowthefirmtomakenecessarychangesbasedonnewinformationorproblems
thatmayarise.Therearemanyotherreasonswhyplansfailtoachievethedesiredresults.
However,ifthemembersoftheplanningteamclearlyfocustheirattentionontheinitial
stagesoftheplanningprocess,thelaterstageswillbecomemucheasiertocomplete,and
theprobabilityofsuccesswillincrease.Itisimportanttoavoidthetemptationtorushthrough
theinitialstepsinordertoproducequickresults.
Anoldsayingthatstillholdstruenotesthattherearethreetypesofcompanies:
1.Companiesthatmakethingshappen.
2.Companiesthatwatchthingshappen.
3.Companiesthatwonderwhathappened.
Companiesthatmakethingshappenaregenerallyengagedinplanning.Theyhaveestablished
amissionstatementaswellasgoalsthatleadtotheformationofoverallstrategiesthatresultin
success.Becomingoverlyconcernedwithdaytodayoperationscausesthedownfallofmany
hospitalityorganizations.Theresultisthatmanagersbecomesoengrossedinmeetingthedaily
demandsoftheirpositionsthattheyfailtoseethebigpicturetheycannotseetheforestforthe
trees.
Becauseofthismyopicperspective,managersarenotawareoftrends,andwhenthe
competitiveenvironmentdoeschange,theyarenotpreparedforit.Successfulplanningisakey
elementinthefinancialsuccessofallfirms.Hospitalityandtourismfirmsthatallocatehuman
andmonetaryresourcesforplanningaremuchmorelikelytoreachtheirfinancialgoalsthan
firmsthatdonotengageinplanning.
5.3 THE MARKETING PLANNING PROCESS

Successfulmarketingbeginswithcarefulassessmentofthecompetitiveenvironment,followed
bythedevelopmentofamarketingplan.Thesectionsthatfollowprovideaframeworkforthis
process.
5.3.1 Framework for Marketing Plans

Marketingplansarenormallydevelopedforbothshorttermandlongtermtimeframes.Short
termplansarenormallyforaperiodofupto1year,whereaslongtermplansforaperiodof
greaterthan1year,oftenfor2ormoreyears.
Oneyearplansarefairlytacticalinnature.Theplansarespecificintermsoftheactionplans
andtheactivitiesthatwillbeundertakentoachievethestatedobjectives.Budgetsareincluded,
andtheallocationsofresourcestoeachactionplanisusuallystated.Performancemetricswill
beusedtogaugethesuccessattainedforeachobjective.Theseperformancemetricsare
normallymonitoredmonthly,oratleastquarterly.Iftheperformancetargetsarenotbeing
achieved,changesintheactionplansandtacticswillbenecessarytoincreasethelikelihoodof
achievingthestatedobjectives.
Longtermplans,normallyforaperiodoflongerthan1year,aredevelopedwithamore
strategicfocus.Theseplansgenerallyfollowaframeworksimilartothefollowing:
I.ExecutiveSummary.Thisisasummarythatprovidesanoverviewoftheentireplan.
II.SituationAnalysis
A.MarketSummary
1.Targetmarkets.Whatspecificmarketsaretargeted?Whyarethesespecificsegments
thebesttargets?Howhavethetargetmarketschangedovertime?
2.Marketanalysis.Wheredoescurrentbusinesscomefrom?Howhasthischangedin
thepast1to2years?
3.Marketdemographics.Describethecustomersdemographically.Wheredotheycome
fromgeographically?Whattravelorconsumptionbehaviordotheyexhibit?
4.Marketneeds.Whatneedsarecustomerstryingtosatisfy?Howhavetheseneeds
changedinthepast1to2years?Whencustomersareaskedwhytheybuyfromyour
organization,whatwouldtheysay?
5.Markettrends.Howhasthemarketorcompetitivebehaviorchanged?Havethere
beenchangesineithersupplyordemand?
6.Marketgrowth.Whathasbeentheannualgrowthinthemarketinthepast1to2
years?Howdoesthisgrowthcomparetoothersimilarsituations?
B.SWOT(Strengths,weaknesses,opportunities,orthreats)Analysis
1.Strengths.Whataretheinternalstrengthsoftheoperation?Whatdoesthe
organizationdowell?Inwhatwaysistheorganizationstrongerthanitscompetitors?
2.Weaknesses.Whataretheinternalweaknessesoftheoperation?Whatdoesthe
organizationneedtoimprove?Inwhatwaysistheorganizationweakerthan,orata
competitivedisadvantageto,competitors?
3.Opportunities.Inwhatwaysistheorganizationpositionedtogainacompetitive
advantage?
4.Threats.Inwhatwaysistheorganizationatacompetitivedisadvantagewhen
externalfactorsareexamined?
C.Competition.Whoarethemajorcompetitors?Howhasthiscompetitivesetchangedin
thepast1to2years?Havecompetitorstakenactionsthatcreatechallengesor
opportunities?
D.ServiceOfferings.Whatistheprimaryproductservicemixoftheorganization?Hasthis
changedinthepast1to2years?
III.MarketingStrategy
A.Mission.Whatisthemissionstatementoftheorganization?Doesthemissionstatement
needtobereviewedormodified?
B.Objectives.Whatistheoverallstrategyoftheorganization?Howisthisstrategy
operationalized?Whatspecificobjectiveswillexecutethestrategy?Howwill
performanceagainsttheobjectivesbemeasured?Aretheobjectivesreasonable?Are
timeparameterstoaccomplishtheobjectivesstated?Whatresourceswillberequiredto
achievetheobjectives?
1.Marketing.Whatarethespecificobjectivesrelatedtothemarketingstrategy?
2.Financial.Whatarethespecificfinancialperformanceobjectives?Thesearenormally
associatedwitheachofthemarketingobjectives.Whatlevelofperformanceis
desired?
C.TargetMarketing.Whatstrategiesandtacticsareassociatedwitheachtargetedmarket
segment?
D.

Positioning.Howistheorganizationpositioned?Howwillthispositioningstrategybe
implemented?
MarketingMix.Howwilleachofthemarketingmixelementsbeimplemented?
F.MarketingResearch.Isanyresearchnecessarytoexecutefuturemarketingplans?
Financials,Budgets,andForecasts
A.SalesForecast.Whatisthemonthlysalesforecastforeachtargetmarket?
B.ExpenseForecast.Whatisthemonthlybudgetforeachiteminthemarketingbudget?
Controls
A.ImplementationMilestonesandMetrics.Whatarethemonthlymilestones?Howwillthesebe
monitored?Whataction(s)willbetakenifperformancefallsbelowthemilestones?
B.ContingencyPlanning.Whataction(s)willbetakenifperformancefallsbelowthe
milestones?Howwilldecisionsregardingchangesinthemarketingplanbemade?Whowill
beinvolvedinthisreviewandanalysis?
Nomagicformulawillguaranteesuccessforafirminthehospitalityandtourismindustry.Even
wellmanagedfirmscanfailtoachievethedesiredlevelofsuccess.However,managerscan
takestepsthatwillincreasetheprobabilityofsuccess.Figure5.2illustratesthebasicstepsin
themarketingplanningprocess.Ifmanagersfocusontheseelements,theyaremorelikelyto
leadthefirminadirectionthatwillaccomplishitsgoals.
FIGURE5.2Themarketingplanningprocess.
Beforeactuallybeginningthemarketingplanningprocess,eachfirmshouldestablishamission
statement.Afirm'smissionstatementdefinesitspurposeandhowtodifferentiateitfromits
competitors.Itshouldprovidemanagerswiththegeneralguidelinesfordecisionmaking.First,
missionstatementstypicallyarebrief,oftenonlyasentenceortwoandalwayslessthantwo
paragraphstheydefinethescopeofbusinessforthecorporation,andtheyanswerthe
question,Whatbusinessarewein?Forexample,ifacorporationdefineditsmissionas
providingoutstandinghospitalityservicesinthebudgetpricedsegmentofthemarket,thiswould
beitsprimaryfocus.Thisisthemessagethatisconveyedtothefirm'sinternalstakeholders:
owners/investors,managers,andemployees.Second,thoseinvolvedintheplanningprocess
oftencreateaseriesofvaluestatements,whichdescribewhatthefirmbelievesinandhowit
willattempttoexecutethemissionstatement.Finally,managerscreateapositionstatement,
whichdescribesthismissiontothefirm'sexternalstakeholders(customers,suppliers,andthe
generalcommunity)intermsofthepublic'sperceptionsofthebenefitsoffered.
Missionstatement
Expressesthefirmspurposeandthequalitiesthatdifferentiatethefirmfromits
competitors.
Positionstatement
Describesthefirmsmissiontoitsexternalstakeholdersintermsofthebenefitsofthefirms
offerings.
Thisideaoffocus,orpurpose,isimportantwhenproceedingwiththemarketingplanning
process.Afirm'smissionisafunctionofitsavailableresourcesandcapabilities.Itisdifficultto
operateoutsidetheseparametersandstillremainsuccessful.Forexample,thebudgethotel
mentionedearlierwouldnotbeabletocompeteforcustomerswithfullservicehotelsthatoffera
widearrayofamenitiesandservicesthatarenotavailableatbudgetproperties.Budgethotels
knowthattheyappealtopricesensitivecustomerswhowantaniceroomthatiscleanandsafe.
Ifthehoteladherestoitsmission,therewillbenoconfusionamongthestakeholders,andthere
isabetterchanceforsuccess.Oncethemissionstatementisestablished,thefirmcanbegin
theplanningprocess.Samplesandinformationoncreatingmissionstatementscanbefoundat
http://www.missionstatements.com/andhttp://onstrategyhq.com/resources/topic/mission
statement/.
5.3.2 Conducting a Situation Analysis

Thefirststepinthemarketingplanningprocessrequiresafirmtoperformasituationanalysis.
Thefirmmustfirstlookatitshistory,andthenobjectivelyassessitsstrengthsandweaknesses
relativetocompetitors.Theplanningprocessshouldincludeananalysisofthepotential
opportunitiesandthreatsposedbythechangesinthefirm'sexternalenvironment.Thesituation
analysisprovidesthebackgroundinformationnecessarytomakedecisionsregardingthefuture
directionofthefirm.Itanswersthequestions,Wherearewenow?andHowdidwegethere?
Managersengagedinplanningcangainabetterunderstandingbystudyingthehistoryofan
organization.
5.3.2.1 HISTORICAL APPRAISAL.

Thehistoricalappraisalstartsbyexaminingthemarket,lookingatitssize,itsscope,and
competitors'marketshares.Itisimportanttolookatthetrendsinthemarkettounderstandhow
thefirmarrivedatitspresentposition.Thefirmshouldexamineinternaldataregardingitssales
history,includingcostsandprofits.Itishelpfultoseethetrendsinsales,costs,andprofit
marginsthatresultedfromchangesinmarketingprogramsandtheenvironment.Thisprovides
insightintopossiblefuturedirectionsbasedonthecurrentpositionofproductsinthemarket.
Manytrendscanbeattributedtochangesintheexternalenvironment.Forexample,changesin
technologyandgovernmentregulationhaveforcedfirmstorethinktheirstrategiesandreact
appropriately.Traditionaltravelagentsoncedominatedthetravelplanningmarket,butnowthey
competewithonlinetravelagentssuchasExpedia.com,Priceline.com,andHotels.com,aswell
asonlinereservationsdirectlythroughtheserviceprovider(e.g.,United.com,Marriott.com,and
Hertz.com).
Historicalappraisal
Anexaminationofthecurrenttrendsinthemarketssizeandscope,andthemarketshares
ofcompetitors.
Firmsmustalsoexaminesaleshistoriesforchangesinconsumerpurchasingpatterns.
Consumersusuallychangetheirbuyingproceduresandpracticesovertime.Forinstance,there
maybechangesinfrequency,quantity,ortimingoftheirpurchases.Understandingthese
changesremainscrucialforfirmsthatwanttobecompetitiveatgettingproductstoconsumers
howandwhentheywantthem.Firmswillundoubtedlyusethisinformationtogaincompetitive
advantagesthroughpricingandproductdesign.Firmsshouldcommunicatetheseadvantages
toconsumersthroughadvertisingandpromotions.Forexample,restaurantmanagersmay
noticethatalargerpercentageofcustomersarediningearlierasaresultoftheagingpopulation
andtheincreaseinfamilieswithsmallchildren.Similarly,resortmanagersmayfindthat
consumersaretakingmorevacationsofshorterduration.Alltypesofhospitalityandtourism
firmswillbenefitfromconductingaformalsituationanalysis,beginningwithahistorical
appraisal.
Managementshouldconductaconsumeranalysistoidentifythebuyersandusersofthe
productandtoassuretheyarethesame.Insomecases,thepersonwhopurchasestheproduct
isnottheuser(e.g.,meetingplanners,touroperators).Inaddition,itisimportanttoidentifythe
individualswhomayinfluenceapurchase(e.g.,familymembers,buyingcenters).Next,firms
mustidentifyotherfactorsthatcouldinfluencethepurchase(e.g.,demographics,
socioeconomicstatus,lifestyle)andanyvariationsinpurchasebehavior(e.g.,seasonalor
cyclicalvariations).Relatedareasincludedeterminingwhatmotivatesconsumerstopurchase
thistypeofproduct,decidinghowthemarketscanbesegmented,andidentifyingthemost
frequentpurchasers.Aftermanagementidentifiesthesalientattributesandtheendbenefitsthat
consumersareseeking,theycandetermineifanyunmetneedscanbetargeted.
Next,managementshouldconductanindustryanalysistodetermineactualandpotential
industrysize,historicalgrowthrateandfuturepredictions,industrystructure(includingcostsand
distribution),
industrytrends,andkeysuccessfactors.Itmaybeusefultorankcompetitorsbymarketshare
andidentifybothdirectandindirectcompetition.Forexample,restaurantsfacecompetitionfrom
supermarkets,conveniencestores,anddeliveryservices.Thenextsectionwillelaborateonthe
processofassessingtheinternalstrengthsandweaknessesoffirms,relativetothecompetition,
andtheopportunitiesandthreatsposedbytheenvironment.
5.3.2.2 SWOT ANALYSIS.

Thenextpartofthesituationanalysisinvolvesadetailedexaminationofthefirm'sinternal
strengthsandweaknesses,andtheexternalopportunitiesandthreats.Thisanalysisisoften
referredtoasaSWOTanalysis.Figure5.3illustratesthevariouscomponentsofaSWOT
analysisandtheirrelationshipswithoneanother.
SWOTanalysis
Theanalysisofafirmsstrengthsandweaknessesrelativetocompetitors,andthepotential
threatsandopportunitiesposedbytheexternalenvironment.
FIGURE5.3SWOTanalysis.
Thestrengthsandweaknessescomponentsofamarketingplanreflectanevaluationofthe
firm'sinternalsituation.Whatarethethingsthatthefirmdoeswell,andwherearetheybelow
standard?Theopportunitiesandthreatsreflectanassessmentoftheexternalenvironmentthat
thefirmfaces.Strengthsandopportunitiesrepresentpositiveattributesthatthefirmcanuseto
gainacompetitiveadvantage.Ifitemsthatappearasstrengthsandopportunitiesforthefirmare
similartoweaknessesandthreatsforthecompetitors,thenthefirmhasadistinctcompetitive
advantagetoleverageforgainsinsalesandmarketshare.Similarly,weaknessesandthreats
areviewedasproblemareas.Firmsneedtocompensateforweaknessesuntiltheycan
eliminatethem,andifpossible,threatsneedtobeanticipatedsostrategiescanbedevelopedto
minimizetheirimpact.
AsshowninFigure5.3,strengthsandopportunitiesareitemsthatcanbeleveragedtogaina
competitiveadvantage.Forexample,ifafoodserviceoperationfoundthattherewouldbe
minimalcompetitionforanoffpremisecateringbusinessinadditiontoitsexistingrestaurant
operation,thiswouldrepresentanopportunityanareaforpotentialgrowth.Usingthesame
example,afoodserviceoperationmightfindthatifitdecidedtoentertheoffpremisecatering
business,competitionmightfollow.Thispotentialcompetitionrepresentsanexternalthreat.
Inherentinthisanalysisistheneedformanagerstoexaminewhatthebusinessdoeswelland
whatcouldbeimproved.Atthesametime,acriticalassessmentofthemarketisneededto
determine,asspecificallyaspossible,thethreatsandpotentialopportunitiesthatexistoutside
thefirm.Managementmustask,Whatdowehaveorofferthatisdifferent,unique,orsuperior
towhatthecompetitionoffersconsumers?Managementmustalsoexaminetheorganization's
shortcomingsbyasking,Whatdoweprovidethatisbelowaverage?
Theprocessofidentifyinginternalstrengthsandweaknessesorexternalthreatsand
opportunitiesissimilartoexaminingabalancesheetwithassetsandliabilities.Thestrengths
andopportunitiesareusedtopromotethebusinessandtomakedecisionsaboutnewdirections
thatshouldbetaken.Conversely,managersmustmakeeveryefforttocorrectorneutralizethe
weaknessesandthreats.Manymanagersfinditdifficulttoidentifyanorganization's
weaknessesorthreatsclearly,tendingtooverlookordownplaynegativefactors.Successful
managerscanusuallypredictthefutureandadapttomeetthechangesthatareoccurringinthe
marketplace.Althoughthismaynotbeentirelytrue,thosewhoaresuccessfulseemtoknow
whatwilloccurinthemarketplacebeforeitactuallyhappens.Isitluckorsuccessfulplanning?
Onedefinitionofluckispreparationmeetingopportunity.Successfulmanagersarestudentsof
trends.TheycarefullywatchthebroadmarketingenvironmentdiscussedinChapter2,looking
forsubtlechangesintheeconomic,politicalandlegal,social,andtechnologicalenvironments
thatmaypotentiallyinfluencetheirbusinesses.
Theycarefullystudythemovesmadebytheircompetitorsanddoeverythingtheycantostay
closetotheircustomers.Indoingso,theyattempttomatchtheirproductservicemixtothe
constantlychangingneedsandwantsoftheircustomersandpotentialcustomers.
5.3.3 Dening the Firm's Goals and Objectives

Afirm'sgoalsandobjectivesshouldevolvefromthemissionstatement.Goalsarebroad
statementsofwhatthefirmseekstoaccomplish.Forexample,afirmmaydevelopagoalthat
states,WeareseekingtoachievethenumberonemarketshareinthemidAtlanticregion.
Thegoaldoesnottellhowtheresultsaretobeachievedrather,itstates,inbroadterms,the
desiredresult.Objectivesaremoredetailedstatements,orrefinements,ofwhatthefirm
intendstoaccomplish.Agoodobjectiveincludes(1)whatwillbeaccomplishedinmeasurable
terms,(2)withinwhatspecifictimeframeitwillbeaccomplished,(3)whichindividualorgroup
willberesponsibleforachievingtheobjective,and(4)howtheresultswillbeevaluated.
Goals
Goalsarebroadstatementsofwhatthefirmseekstoaccomplish.
Objectives
Objectivesaremoredetailedstatementsofwhatthefirmintendstoachieve.
5.3.3.1 PURPOSE OF OBJECTIVES.

Theobjectivesserveseveralfunctions.Foronething,theyenablemanagementtoarriveata
consensusconcerningtheprimaryactivitiesoftheorganization.Inaddition,responsibilityfor
specificobjectivesgetsassignedtospecificmanagers,therebyestablishingaccountability.Ifa
welldefinedobjectiveisassignedtoaspecificmanager,thatindividualassumesresponsibility
forfollowingthroughandseeingthattheobjectiveiscompleted.Therefore,theresultsarelikely
tobemorepositivethanifnooneindividualisassignedresponsibility.
Forobjectivestoachievetheirgreatestpurpose,theymustbeestablishedwiththeinputof
manyindividualmanagers.Theprocessofdefiningobjectivescanserveasabrainstormingand
motivationaltool.Whenindividualshaveinputintoformulatingtheorganizationalmarketing
objectives,theydevelopasenseofownershipandallegiancetowardtheobjectives.Asaresult,
employeesarelikelytoworkmorediligentlytoachievestatedobjectives.Formulatingwell
writtenandmeasurableobjectivestakestime,andcareshouldbetakentoensurethatthe
objectivesremainfeasible.Severalcharacteristicsofgoodobjectivesfollow:
Objectivesshouldbespecificandeasytounderstand.Theyshouldnotbetoobroadand
difficulttodefine.Everyoneinvolvedinformulatingtheobjectivesshouldclearlyunderstand
thepreciseobjectivestowardwhichtheorganizationseekstomove.
Objectivesshouldidentifyexpectedresults.Theyshouldbequantitativesothatnogray
areawillexistforpurposesofevaluation.Whenmanagersstateanobjectiveinquantitative
terms,theexpectedresultsaremorereadilyunderstood.
Objectivesmustbewithinthepoweroftheorganizationtoachieve.Whenestablishing
objectives,managementmustkeepinmindtherelativeabilitiesoftheorganization.
Objectivesmustbeacceptabletotheindividualswithintheorganization.Management
mustcometoaconsensusconcerningtheobjectives.Itisextremelydifficultforafirmto
achievethestatedobjectivesifthemanagers,whohaveinputintotheformationofthe
objectives,donotagree.
Table5.1providesexamplesofobjectivesthatarewellstatedaswellassomethatarepoorly
stated.Itiseasytoseehowthetwotypesdifferintheirabilitiestosteerfirmsandallowforthe
measurementofperformance.Thewellstatedobjectivesareclearandconcise.Theyprovidea
specifictimeframeforcompletion,andtheycontainquantifiedtargets.Inadditiontostating
objectives,itisnecessaryforfirmstoexplainhowtheresultswillbeevaluatedandwhohasthe
actualresponsibilityforattainingtheobjective.Finally,adequateresourcesmustbecommitted
toachievingeachobjective,includingpersonnel,facilities,andfinancialresources.
TABLE5.1
ExamplesofObjectives
WELLSTATEDOBJECTIVES POORLYSTATED
OBJECTIVES
Ourobjectiveistoincreaseoccupancyratefrom70percentto75 Ourobjectiveisto
percentwithin1yearbydecreasinggroupratesby5percent. increaseoccupancyrate.
Ourobjectiveistoincreaseourawarenessratingfrom60percent Ourobjectiveisto
to70percentwithinoneyearbyallocating$200,000toadvertising increaseawarenessover
foranawarenesscampaign. thenextyear.
Ourobjectiveistoincreasetheaveragecheckby10percentwithin Ourobjectiveisto
6monthsbyprovidingwaiterswitha2hoursuggestiveselling increasetheaverage
trainingprogram. checkbytrainingwaiters.
5.3.3.2 TYPES OF OBJECTIVES.

Objectivesaregroupedintofourmaincategories:financial,sales,competitive,andcustomer.
Table5.2containsalistofspecificobjectivesthatcanbeusedundereachofthefour
categories.Financialobjectivesfocusonthefirm'sabilitytogenerateenough
moneytopayitsbills,offerinvestorsanadequatereturn,andretainsomeoftheearningsfor
investinginthefirm.Salesobjectivesfocusonthelevelofsalesinunitsordollars,andthefirm's
salesrelativetoitscompetitors(i.e.,marketshare).Competitiveobjectivesfocusonthefirm's
abilitytocompeteinthemarketplace.Thefirmpositionsitselfagainstthecompetition,
determinesthebeststrategiesforsurvival,ortriestokeeppacewiththecompetitionintermsof
salesgrowth,marketshare,and/ormarketingexpenditures.Finally,customerobjectivesfocus
onthefirm'sabilitytomakeconsumersawareofitsproducts,providethemwithaproduct
servicemixthatmeetstheirexpectations,andcreatealevelofgoodwillamongcustomersand
otherstakeholders.
TABLE5.2
TypesofObjectives
MAINCATEGORY SPECIFICOBJECTIVES
Financial Maximizeprofit
Targetrateofreturn
Increasecashflow
Sales Increaseormaximizesalesrevenues
Increasevolume(numberofunitssold)
Increaseormaximizemarketshare
Competitive Positionagainstcompetitors
Longtermsurvival
Maintaincompetitiveparity(marketshareormarketingexpenditures)
Customer Increasemarketawareness
Increasecustomersatisfaction
Improveorchangeperceivedimage
Creategoodwill
Firmscanuseacombinationofobjectives,suchasadesiretomaximizeprofitandincrease
customersatisfaction.Inmostsituations,objectivesdonotconflict,sothefirmcanworkat
attainingboth.However,itisnecessarytoprioritizemultipleobjectivesandallocateresources
appropriately.Onepotentialproblemwithmultipleobjectivesisthattherecouldbeaconflict
betweenthem.Forexample,considerthecaseofafirmthatwantstoincreasemarketshare
andmaximizeprofit.Intheshortrun,increasesinmarketshareareaccomplishedbylowering
priceand/orincreasingmarketingexpendituresonchangesintheproductservicemixand
promotion.Eitherdecreasingpriceorincreasingmarketingexpenditureswillresultinadecrease
inshorttermprofits.Thefirmmustrethinkitsobjectivesormakeadistinctionbetweenshort
termandlongtermprofits.
SubwayRestaurantsofferspecialpromotionalpricesasamarketpenetrationstrategy.
5.3.4 Formulating Marketing Strategies and Action Plans

Astrategyisthemannerbywhichanorganizationattemptstolinkwith,respondto,integrate
with,andexploititsenvironment.Inotherwords,afirm'sstrategiesintegrateitsmission,goals,
objectives,andactionplans.Whenwellformulated,strategieshelpfirmsmaximizetheuseof
theirresources.This,inturn,putstheminaviablepositionwithinthecompetitiveenvironment.
Timingiseverything.Managersmustalwayslookforastrategicwindow,oralimitedperiod
whenmarketingopportunitiespresentthemselvesandthefirmisinapositiontotakeadvantage
ofthoseopportunities.Forexample,imaginethatyourfirmhadstockpiledalargesupplyof
frozenbeeftenderloinsandyourmajorcompetitorhadnot.Duetoweatherconditionsinthe
majorgrowingareas,abeefshortageoccurred.Pricesescalatedrapidlyandsuppliesofbeef
tenderloinswerelow.Thisoccurrencewouldofferyourfirmastrategicwindowinwhichtogaina
competitiveadvantage.Youcouldundercutcompetitors'pricesfortheproductandruna
promotionthatyourcompetitionwouldbeunabletomatch.
Strategicwindow
Limitedperiodsoftimewhenmarketingopportunitiespresentthemselvesandthefirmisin
apositiontotakeadvantageofthoseopportunities.
Whendevelopingamarketingstrategy,amanagerfirstselectsthemarketsthefirmwilltarget
andthenblendstheelementsofthemarketingmix,whichincludestheproductservicemix,
price,promotion,anddistribution.Strategicoptionsforeachofthemarketingmixareaswillbe
discussedinmoredetailinlaterchapters.However,variousframeworkscanbeusedbyfirmsto
aidingeneralstrategyformulation.Oneofthemorepopularframeworksprovidesfourbasic
strategiesforachievinggrowthbasedonwhethertheproductsareneworcurrentlyexistand
whetherthemarketsareneworarecurrentlybeingserved.Thesegrowthstrategiesappearin
Table5.3.
TABLE5.3
ProductDevelopmentStrategyOptions
EXISTINGPRODUCT NEWPRODUCT
ExistingMarket MarketPenetration ProductDevelopment
NewMarket MarketDevelopment ProductDiversification
Amarketpenetrationstrategyfocusesonsellingtheexistingproductservicemixtothe
existingtargetmarkets.Mostfirmswillattempttoincreasethequalityandconsistencyofthe
productservicemixasameansofincreasingcustomersatisfaction,promotingbrandloyalty,
andincreasingsalesandmarketshare.Forexample,ifaMcDonald'sfranchiseecontinuedto
expandbyopeningstoresinaruralpartofthecountry,thiscouldrepresentamarketpenetration
strategy.
Marketpenetrationstrategy
Amarketpenetrationstrategyfocusesonincreasingthemarketshareofexistingproducts
incurrentmarkets.
Inanefforttoincreasesales,managementattemptstoincreasetherateofrepeatpatronage,
buildingonasolidclientbase.Anotherpartofthisstrategyistoincreaseinitialpatronage
among
membersofexistingmarketswhohavenotpreviouslypatronizedthehospitalityoperation.
Managementcanaccomplishthisbyattractingpatronsfromcompetingoperations,thereby
increasingthemarketshare.Theoverallgoalistwofold:toincreasesalesandtoincrease
marketshare.Managersfrequentlyselectthisstrategyduringperiodsofeconomicuncertainty,
suchaswhentheinflationrateishigh.Asitbecomesmoreexpensivetoborrowcapitalfor
physicalexpansion,oneofthebestwaystogrowistoincreasesaleswithinexistingunits.In
thismanner,alargerpercentageoftheincreasedsaleswilleventuallybecomeprofits.
Thebasisofaproductdevelopmentstrategyistheideaofdevelopingnewproductsfor
existingmarkets.Asnewelementsoftheproductservicemixgetintroduced,management
ensuresthelongtermfinancialviabilityofthefirmbyincreasingsales.Examplesofthisstrategy
arecommonwithinthehospitalityandtourismindustry.Forinstance,noncommercialfood
servicefirmssuchasAramarkandSodexohavelongmanagedthefoodserviceoperationsfor
hostfirms,companieswhoseprimarybusinessisnotprovidingafinalfoodproduct(e.g.,
businesses,hospitals,collegesanduniversities,andothergovernmentandnonprofit
organizations).Buildingonthesuccessfulrelationshipthathasbeenestablishedthrough
runningthefoodserviceaspectsofthebusiness,AramarkandSodexohaveexpandedinto
facilitiesmanagement(i.e.,managingallaspectsofstadiumsandarenasforevents).Another
possibleproductdevelopmentstrategyforcontractfoodservicefirmsistomanageuniversity
housinganddiningservices.
Productdevelopmentstrategy
Astrategythatfocusesonachievinggrowthbydevelopingnewproductsforexisting
markets.
Nohospitalityortourismfirmcanremainunchangedfortoolongandexpecttoprosper.Markets
change,consumerneedsandwantschange,andso,too,musttheproductservicemixofany
hospitalityandtourismfirm.Forexample,considertheproductdevelopmentofanyofthefast
foodchains.Newmenuitemshavebeenaddedcontinuallyovertheyearstoincreaseunitsales
andexpandthetotalmarket.McDonald'swasthefirsttoputbreakfastitemsonitsmenu,adding
significantlytototalsalesoftheindividualunitsandthetotalcorporation.Later,itaddeddrive
throughservice.Thenitaddedsoftserveicecreamandsaladsinordertoexpandtheproduct
servicemixandtotalsales.AlthoughMcDonald'sisnolongerasdominantasitoncewasinthe
fastfoodmarket,thecompanyhascontinuallysoughtwaystoexpanditsproductservicemix
andincreasesales.
Amarketdevelopmentstrategyfocusesondevelopingnewmarketsforexistingproductsand
services.Inthecaseofhotelsandrestaurants,thisnormallyinvolvesbuildingnewunitsand
expandingintonewmarkets.Oneofthemostlucrativegrowthareaswithinthehospitalityand
tourismindustryisoutsidetheUnitedStates.Asgrowthratesslowwithinthedomesticmarket,
largehospitalityandtourismmarketerslooktogrowinternationally.HyattHotelsandResorts
hastargetedmanyAsiancountriesforitsexpansion,whileotherhotelchainshavefocusedon
Europeancountries.Foreignmarketsofferattractivegrowthprospectsbecausemanyare
virtuallyuntapped.However,thispotentialforhighreturniscounterbalancedbyrisksassociated
withthepoliticalandeconomicenvironmentsinforeigncountries.Mostlocalandregional
hospitalityfirmsstillchoosetoaddunitsinotherregionswithintheUnitedStatesbefore
attemptingoverseasexpansion.Orahospitalityfirmmayformapartnershiporstrategicalliance
withanotherfirmthathasastrongerinternationalpresence.Forexample,whenMarriott
InternationalacquiredtheRenaissanceHotelschain,itsecuredmanyinternationallocations
thatenjoyedbothastrongimageandprofitablehotels.Indoingso,MarriottInternationaldidnot
havetoestablishaMarriottbrandedhotelintheselocations.
Marketdevelopmentstrategy
Astrategythatfocusesonachievinggrowthbypursuingnewmarketsforexistingproducts
andservices.
Adiversificationstrategyinvolvesintroducingnewproductsandservicesintonewmarkets.
Thisstrategyoffersthemostlongtermpotential,butitisalsothestrategywiththegreatest
degreeofrisk.Theupsidepotentialisimportantbecauseanysalesgeneratedwillbenewsales.
Theywillnottakesalesawayfromexistingproductsandservices.Whenexistingcustomersbuy
newproductsandservicesratherthanexistingproductsandservices,thisiscalled
cannibalization.Whenafirmintroducesnewproductsandservicesintonewmarkets,thereis
nopotentialforcannibalization.However,therisk,andpotentialdownside,isthatactualsales
willlagthecompany'sforecastedsalesandnotmeetprofitprojections.Inthiscase,a
diversificationstrategywouldfail.
Diversificationstrategy
Astrategyforgrowththatinvolvesintroducingnewproductsandservicesintonewmarkets.
Otherpopularframeworksofferbaselinestrategiesbasedonthefirm'scompetitiveposition,or
businessstrengths,andthegrowthrateinthemarket,orindustryattractiveness.Ingeneral,
firmswithweakcompetitivepositionsshouldlookforwaystoimprovetheirstatus,eitherby
concentratingonasinglebusinessorthroughmergersandacquisitions.Firmsinmarketswith
slowgrowthratesshouldlookfornewmarketsorformallianceswithotherfirmstostrengthen
theirpositions.Thisallowsthemtosurviveandprosper,whereasotherfirmsfinditnecessaryto
divestorliquidate.
Manyhospitalityandtourismfirms,particularlysmallorganizations,oftendonotdevotethe
humanandmonetaryresourcesnecessarytodevelopadequatestrategicmarketingplans.
Withoutsuchplans,themarketingstrategycaneasilybecomereactionarytheorganization
merelyreactstoeachnewcompetitiveforceandlacksanoverallsenseofdirectionand
purpose.Conversely,anorganizationthatdevelopswelldefinedstrategicmarketingplanshas
laidthegroundworknecessaryforaproactivemarketingeffortthattakestheinitiativeinsteadof
allowingcompetitorstocontroltheenvironment.
5.3.5 Implementing Action Plans and Evaluating Performance

Oncemanagementselectsthebeststrategicalternatives,itmustdevelopactionplansanda
timetableforimplementation.Actionplansaredeveloped,indicatingthespecificsofwhatwill
happen,whenitwillbedone,andhowthemarketingplanwillbeimplemented.Thisdoesnot
meanthatitisinflexible,butaclearimplementationplanremainsimportant.Actionplansshould
containthefollowinginformation:
Whowillassumeprimaryresponsibilityforeachpartoftheactionplan?
Howwilltheseindividuals(teams)proceedtoimplementtheactionplan?
Whenshouldtheseindividuals(teams)havetheactionplancompleted?
Whatresourceswillbenecessarytofullyimplementtheactionplan?
Howwilltheresultsoftheplanbeevaluated?
Whatspecificmetricswillbeusedtomeasuresuccess?
Followingthedevelopmentoftheactionplansbutbeforeimplementingthem,managersmust
completetwoactivities.First,animplementationschedulemustbedeveloped.Becausenotall
theactionplanswillbeimplementedatthesametime,anorderlytimetableorschedulewill
determinewhenthevariousactionsshouldbecarriedout.Second,asetofperformancecriteria
forevaluatingtherelativesuccessoftheactionplansmustbeestablished.Performancecriteria
shouldbemeasurable.Itisimportanttorememberthatmarketingplanningisacontinuous
processrequiringmonitoringandadaptingbasedonactualperformance.Fourkeycontrolareas
existtoevaluateperformance:sales,costs,profits,andconsumers.Thesecontrolareasclosely
relatetothetypesofobjectivesdiscussedearlierinthissection.
Salescontroldatashouldfocusonthefirm'ssalesbymarketsegment,marketshare,and
salesinput.Thequantifiedsalesobjectivesshouldbebrokendownonaquarterlybasisby
marketsegmentandusedasastandardagainstwhichactualsalesresultscanbecompared.
Managersshouldevaluatedifferencesintermsofabsolutedollaramount,aswellas
percentagesthatallowforeasiercomparisons.Firmsshoulddeterminewhytherearevariances
betweenthetargetedsalesfiguresandtheactualsalesfigures,eveniftheactualfiguresare
betterthanexpected.Thentheelementsofthemarketingplancanbeadjustedtoreflectthe
changesthataredeemednecessary.
Salescontroldata
Datafocusedonthefirm'ssalesbymarketsegment,marketshare,andsalesinputs.
Anothermeasureofafirm'sperformanceintermsofsalesismarketshare.Marketsharedata
providethefirmwithacomparisonofitsperformancerelativetoitscompetitors.Theformulato
determinemarketshareisthefirm'ssalesdividedbytotalindustrysales.Marketshareis
expressedasapercentageofsalesinthetotalmarketplace.Thefirststepinperformingmarket
shareanalysisistodefinethemarket.Forexample,ahotelchaincouldcalculateitsmarket
sharebasedonsalesintheentirelodgingindustryorbasedonsalesinitskeysegment(s),such
aseconomy,luxury,extendedstay,orallsuites.Thefirm'ssalesfigureswouldremainthesame,
butthedenominator,whichreflectsthebasisforcomparison,wouldchange.Therefore,the
definitionofthemarketiscriticalintheoverallanalysis.
Thefinaltypeofsalescontroldatainvolvesthefirm'ssalesinput.Inotherwords,what
resourceswereusedtoobtainsales,andhowefficientlyisthefirmusingitsresources?Mainly,
salesinputdatadealwiththevariouscomponentsofthepromotionmix:advertising,personal
selling,salespromotions,andpublicity.First,firmsneedtoexaminetheamountoftimeand
moneyspentbyitssalesforce.Howmuchtimeisspentinsellingandnonsellingactivities,how
manycallsaresalespersonnelmakingperday,whataretheirexpenses,andwhatistheir
conversionratewith
customers?Forexample,hotelscandetermineaverages,orbenchmarks,toevaluatethe
performanceoftheirsalespeople.
Salespeopleareassignedquotasthatcanbeevaluatedonanannual,quarterly,ormonthly
basistodeterminetheirprogress.Second,thefirmcanlookattheeffectivenessofits
advertisingandsalespromotions(publicityisdifficulttoassessbecauseitisfreeandnoteasy
tocontrol).Howmanyconsumersintheirtargetmarketsarereached,andwithwhatfrequency?
Whatisthecostperthousandofreachingthoseconsumers,andhowmanyinquiriesare
receivedinresponsetothepromotion?
Forexample,arestaurantmayputadiscountcouponintheValPakthatlocalresidentsreceive.
Itisimportanttokeeptrackoftheredemptionratetodeterminethenetimpactofthepromotion.
Whatdiditcosttorunthepromotion?Howmuchnewbusinesswasgenerated?Towhatextent
diddiscountedbusinesscannibalizeexistingbusiness?
Costcontroldataareanotherformofdatausedtoevaluateperformance.Firmsshould
comparetheirforecastedbudgetswithactualbudgetstodeterminewheretherearelarge
deviations.Normally,salesforecastsarethebasisforestablishingbudgetsforvariousexpense
itemsandareusuallyexpressedasapercentageofsales.Thiscostinformationisdetermined
onanannualbasis,butmostoftenmanagersevaluateiteithermonthlyorquarterly.Anylarge
discrepanciesarereviewedtodeterminethecause,andadjustmentsaremade.Someofthe
morecommonexpenseratiosareprofitmargins,sellingexpenseratio,costpersalescall,and
advertisingexpenseratio.Inmostcases,thevariousexpenseitemsaredividedbytotalsales.
However,aswithsalescontroldata,itisimportanttoanalyzethedatabymarketsegment.This
willhelpthefirmidentifytheprofitabilityofitsproductsandmarketsegments.Thestandardsfor
someofthesecostitemsarebasedonthehistoricalperformanceoffirmswithintheindustry.
Forexample,acommonruleofthumbintherestaurantindustryistokeepfoodcostsbetween
25and35percentofthetotalcostsofoperation.Whentheactualpercentageexceedsthis
range,itshouldalertthemanagementofapotentialproblem.
Costcontroldata
Datafocusedonthefirm'scostsandexpensesforeachmarketsegment.
Profitcontroldataareafunctionofsalesandcostsandshouldbebrokendownbymarket
segmentaswell.Toperformthistypeofanalysis,itisimportanttounderstandbasicaccounting
andincomestatements.Hereisatypicalincomestatement:
Salesrevenue $1,100,000
Costofgoodssold 560,000
=Grossprofit 540,000
Sellingexpenses 175,000
Depreciation 100,000
Administrativeoverhead 150,000
=Operatingprofit 115,000
Interestexpense 30,000
=Pretaxprofit $85,000
Profitcontroldata
Thisisafunctionofsalesandcostsandshouldbebrokendownbymarketsegment.
Itiscrucialthatfirmsexaminetheincomestatementtodeterminewhynetprofitisnegativeor
doesnotmeetthetargetsetinthemarketingplan.Often,firmsapproachprofitabilityfromacost
perspectivewithouthavingagoodunderstandingofpricingstrategy.Chapter7coverspricingin
detail,butitisimportanttoknowhowconsumers'pricesensitivityimpactsafirm'sproductsand
services.Thereisnosimplesolutionforobtainingdesiredprofitlevels.Itisnoteasytomaximize
salesrevenueandminimizecostssimultaneously.Decreasesincostscanleadtolowerquality
anddecreasedsalesandprofits.Insomecases,salesrevenuecanincreasewhenthefirm
incursadditionalcoststoimprovetheproductservicemixandraisesprices.Theincome
statementisaveryusefultoolformarketers.Itshouldbestudiedcarefullytodeterminethelevel
ofprofitability,andifthedesiredresultsarenotbeingachieved,thesourceoftheproblemcan
bedeterminedbytracingitbackthroughthesectionsoftheincomestatementtodeterminethe
causeorcauses.Oncethecauseisidentified,aplanforcorrectiveactioncanbedeveloped.
Consumerfeedbackisthefinalareaofperformanceevaluation,anditisakeyelementin
understandingtheresultsofthefinancialanalyses.Consumerfeedbackprovidesfirmswith
informationregardingawareness,knowledge,attitudes,purchasingbehavior,andcustomer
satisfaction.
Consumerfeedback
Informationreceiveddirectlyfromconsumersregardingtheirexperienceswithaproductor
service.
Chapter3discussedconsumerbehavior,andChapter6discussestheresearchmethodsused
toobtainthisinformation.Inmanycases,thefinancialdataaremerelyasymptomofproblems
withinthefirm.Itisoftennecessarytoobtainconsumerfeedbacktogainatrueunderstandingof
theproblem.
Itcanbedetrimentalifmanagersfocustoomuchonnumbersandnotenoughonconsumer
needs.Forexample,ahotelinBostonwasexperiencingadecreaseinoccupancyratein
relationtootherhotelsinthearea.Managementtriedtoapproachtheissuebydiscounting
prices,butithadverylittleeffect.Afterspeakingwithcustomers,thehotelrealizedthatbusiness
travelersfoundtheroomstoosmall.Businesstravelersarenotaspricesensitiveasother
travelers,buttheyarequalityconscious,whichexplainedtheineffectivenessoftheprice
discountingstrategy.Asaresult,thehoteldecidedtofocusonthegovernmentmarketbecause
ofthehotel'slocation.
Thegovernmentmarketispricesensitive(thereisanallowableperdiem)andnotasquality
conscious,andthehotelcouldselectivelydiscounttothislargevolumemarket.Onceagain,itis
importanttopointoutthatmarketingplanningisacontinuousprocess.Marketingmanagers
mustevaluatethesituationandadapttochangesthatoccur.Evaluatingthesuccessofthe
marketingplanisthemomentoftruth.Managersdevelopaplantoincreasetheprobabilityof
success,andoncetheplanisimplemented,itisimportantformanagementtomonitorthe
results.Anyvariancefromthepredictedresultsshouldbeidentified,evaluated,andcorrected.
Astheenvironmentchangesortheresultsvary,managementmayneedtoreturntothe
appropriatesteptoreformulatemarketingstrategyortheactionplans.Themarketingplanning
processcontinuesasadynamicprocedure,withsufficientflexibilityallowingforchangesin
strategies,actionplans,orimplementationschedules.
5.4 SALES FORECASTING

Oneofthemostcriticalcomponentsofamarketingplanistheforecastforsales.Sales
forecastingistheprocessfordeterminingcurrentsalesandestimatingfuturesalesfora
productorservice.Thesuccessofthefirmoftenresultsfromtheaccuracyofforecasts.The
decisionsabouttheelementsofthemarketingmixthataremadeduringthesituationanalysis
arebasedonsalesforecasts.
Salesforecasting
Theprocessfordeterminingcurrentsalesandestimatingfuturesalesforaproductor
service.
5.4.1 Sales Forecasting Techniques

Salesforecastingtechniquesareseparatedintotwobroadcategories:quantitativetechniques
andqualitativetechniques.Quantitativetechniquesusepastdatavaluesandemployasetof
rulestoobtainestimatesoffuturesales.Qualitativetechniquesrelyonjudgmentorintuitionand
tendtobeusedwhendataarenotreadilyavailable.Quantitativemethodscanbefurther
classifiedaseithercausalortimeseries.Bothtypesofquantitativemethodsusetrendsin
historicaldatatopredictfuturesaleshowever,causalanalysistechniquesestablishacause
andeffectrelationshipbetweenvariablesandtheresultsusinghistoricaldatatoestablishthe
relationshipbetweensalesandotherfactorsthatarebelievedtoinfluencesales.These
techniquesmodeltherelationshipsbetweensalesandothervariablesthatcanhelppredict
changesinsales.Timeseriestechniquesextrapolatefuturesalesestimatesbasedonthetrend
inhistoricalsales.Inotherwords,pastsalesareusedtopredictfuturesales,assumingallother
factorsthataffectsaleswillcontinuetohaveasimilareffectinthefuture.Theforecasting
techniquesdescribedinthischapterarepresentedinaconceptualframework.Useofthese
techniquesrequiresasoundstatisticalbackground.Thetechniquesarepresentedsothat
marketingmanagerswillhaveabetterunderstandingoftherangeoftechniquesthatare
available.
Causalanalysis
Analysistechniquesthatlookforcauseandeffectrelationshipsbetweentwoormore
variables.

5.4.1.1QUALITATIVEFORECASTINGTECHNIQUES.
Thegoalofqualitativeforecastingtechniquesistoforecastchangesinthebasicsalespattern
aswellasthepatternitself.Qualitativetechniquesareoftendifficulttoapply,andtheytendtobe
verytimeconsumingandcostly.Therefore,thesetechniquesareusedmainlyforlongterm
forecastsandinsituationsthatareofmajorimportancetothefirm.Itisimportantforfirmsto
predictchangesinsalespatternssotheycantakeadvantageofopportunitiesandminimizethe
impactofthreats.Topredictthesechanges,firmsenlisttheaidofexperts,orindividualswithan
intimateknowledgeoftheproductanditsmarkets.Thefollowingbasicapproachesare
classifiedasqualitativeforecastingtechniques:
Expertopinion.Marketerslooktoapanelofexpertswithknowledgeoftheindustryandthe
marketplacetoprovideaforecast.Avarietyofsourcesareconsulted,andtheresultsare
combinedtoformaconsensusforecastbasedonexpertopinion.Theseexpertscanbe
fromwithinthefirmorfromoutsidethefirm.Often,secondarysources,suchasforecasts
publishedinmajortradejournalsorbusinessjournals,areused.Theresultingforecastcan
beobtainedbysimplyaveragingtheindividualforecasts,oramorecomplicatedweighting
systemcanbeusedbasedontheexperienceandknowledgeofthepanelmembers.
Delphitechnique.TheDelphitechniqueinvolvesseveralroundsofforecastingandreview
byapanelofexperts.Itcanbeverytimeconsuming,butitisoftenquiteaccurate.This
techniqueinvolvescollectingforecasts,developingcomposites,andsendingthedatato
thoseparticipatingseveraltimesuntilaconsensusresults.TheDelphitechniqueisnormally
usedwhenthedecisionisanimportantoneandtherearenotimeconstraints.Panel
membersareabletoadjusttheirforecastsafterseeingtheforecastsofothersonthepanel.
Salesforceforecast.Thesalesforceforecasttechniqueaggregatesthesalesforecastof
eachsalespersonorunit,dependingontheleveloftheforecast.Forexample,ahotelmay
haveeachofitssalespeopleprovideaforecastforhisorherterritoryandthencombinethe
forecaststoobtainanoverallestimate.Alternatively,ahotelorrestaurantchainmayhave
eachunitprovideaforecastandthencombinetheforecaststoobtainanoverallestimatefor
thechain.Therationaleforusingthistechniqueisthatitmaybemoreaccuratetoforecast
thesalesforeachterritoryorunitratherthantoobtainahigherlevelforecastandbreakit
downforoperationalpurposes.Eachsalesperson,orunitmanager,isintouchwiththe
customersandchangesintheenvironment.
Surveyofbuyingintentions.Firmscanusemarketingresearchtoaskpotentialcustomers
abouttheirfuturepurchaseintentionsandthenestimatefuturesales.Thistypeofforecast,
orsurveyofbuyingintentions,isverysubjectivebecausethereisnoclearrelationship
betweenpurchaseintentionsandactualpurchasebehavior.However,thiskindofinformation
isreadilyavailablefrompublishedsourcessuchasSales&MarketingManagement.
Expertopinion
Marketerslooktoapanelofexpertswithknowledgeoftheindustryandthemarketplaceto
provideaforecast.
Delphitechnique
TheDelphitechniqueinvolvescollectingforecasts,developingcomposites,andsending
thedatatothoseparticipatingseveraltimesuntilaconsensusresults.
Salesforceforecast
Thistechniqueaggregatesthesalesforecastofeachsalespersonorunit.
Surveyofbuyingintentions
Firmsusemarketingresearchtoaskpotentialcustomersabouttheirfuturepurchase
intentionsandthenestimatefuturesales.
Theexpertsemployedinthesemethodsmaybasetheirjudgmentonpriorexperience,orthey
mayusesophisticatedquantitativetechniquestomodeltheeffectsofotherfactorsthatinfluence
thelevelofsales.However,theultimateoutcomeistopredictchangesinsalespatterns.
5.4.1.2 QUANTITATIVE FORECASTING TECHNIQUES.

Thecommonelementinquantitativeforecastingtechniquesisthattheyarebasedalmost
exclusivelyonhistoricaldata.Theseforecastingtechniquestendtobequickerandlesscostly
becausethedataarereadilyavailablethroughexistingsources.Quantitativeforecasting
techniquesarealsogaininginpopularityduetotheirlevelofprovenaccuracyand
improvementsincomputertechnology.Manyspreadsheetsoftwarepackages,suchasMicrosoft
Excel,havestatisticalapplicationsthatcanbeusedforquantitativeforecasting,andother
statisticalprogramsandforecastingpackagesareavailableatareasonableprice.Inaddition,
theseprogramsareeasytouse,andmanyarecompatiblewithsoftwareforpreparingreports
andcharts.Thetwobasicquantitativeforecastingtechniquesaretimeseriesanalysisand
causalmethods.
5.4.1.3 TIME SERIES ANALYSIS.

Thetimeseriesanalysismethodusesstatisticaltechniquestofitatrendlinetothepatternof
historicalsales.Thetrendlineisexpressedintermsofamathematicalequationthatcanbe
usedtoprojectthetrendforwardintofutureperiodsandpredictsales.
Thetrendlinecanbelinear(astraightline)ornonlinear(acurvedline)dependingonthepattern
ofthehistoricaldata.Fourmajorcomponentsofatimeseriesshouldbeconsideredinchoosing
atechnique:(1)trend,orthelongtermpattern(2)cycle,ormediumtermchangesdueto
businessandeconomicchanges(3)seasonal,shorttermmovementsbasedonbuying
patternsand(4)residual,unpredictableinfluencesordisturbances.Herearethemostcommon
methodsoftimeseriesanalysis:
Trendextrapolation.Thesimplestmethodforforecastingsalesisthelinearprojectionof
pastsales,ortrendextrapolation.Itassumesthatthefactorsthatinfluencedsalesinthe
pastwillhavethesameeffectonfuturesales,andalldatapointsareweightedequally.This
issomewhatnaive,butfirms'basicmarketingprogramsandcompetitivesituationsnormally
donotchangedrasticallyfromyeartoyear.Thismethodisverysimple,thedata
requirementsareminimal,anditcanbeveryaccurateforproductsinindustrieswithlow
growthrates.
Movingaverage.Themovingaveragetechniqueusesshorttermforecasts(e.g.,monthly)
andtakestheaverageofthemostrecentperiodstopredictfuturesales.Forexample,next
month'ssalesareforecastusingtheaverageofthemonthlysalesforthelast3or4months.
Thismethodissimpleandcanbeusedwhensalesarefairlystablethroughouttheyear,with
onlysmallfluctuations.
Exponentialsmoothing.Thetechniqueofexponentialsmoothingusesthetrendlineto
predictfuturesaleshowever,itplacesmoreweightonthemostrecentperiods.Thismethod
isbetteratpickinguptrendsthantheprevioustimeseriesmethods,andtherearemore
complexformulasthatallowforcyclesandseasonaleffects.
Timeseriesanalysis
Thismethodusesstatisticaltechniquestofitatrendlinetothepatternofhistoricalsales.
Trendextrapolation
Thesimplestmethodforforecastingsalesisthelinearprojectionofpastsales.
Movingaverage
Thistechniqueusesshorttermforecasts(e.g.,monthly)andtakestheaverageofthemost
recentperiodstopredictfuturesales.
Exponentialsmoothing
Thistechniqueusesthetrendlinetopredictfuturesaleshowever,itplacesmoreweighton
themostrecentperiods.
Therearemoresophisticatedtimeseriestechniques,buttheyarebeyondthescopeofthistext.
Forexample,thereisagroupofmethodsreferredtoasautoregressivemovingaverages
(ARMA),whichexpressforecastsasalinearcombinationofpastactualvaluesand/orpast
errors.Thesemethodsarebecomingmorewidespread,buttheyrequiremorethana
rudimentaryknowledgeofforecasting.
5.4.1.4 CAUSAL METHODS.

Causalmethodsareoftenreferredtoasexplanatorymethodsbecausetheyusehistoricaldata
toestablishtherelationshipbetweensalesandotherfactorsthatarebelievedtoinfluencesales.
Theotherfactors,orcausalfactors,candifferbasedontheleveloftheforecast.Thehigherthe
levelorthemoremacroorientedtheforecast,themorelikelythevariablesaretobeeconomic,
suchasdisposableincome,unemployment,andconsumerprices.Astheforecastbecomes
morespecific,ormicrooriented,thecausalfactorsbecomemorespecific,suchasprice,
advertisingexpenditures,andcompetitors'pricesandadvertising.
However,toforecastsalesbasedonthesecausalfactors,onemustforecastthecausal
variablesaswell.Inaddition,thedatarequirementsforcausalmethodsaremoreextensivethan
forqualitativeortimeseriesforecastingtechniques.Thetwomostcommoncausalmethodsare
asfollows:
1.Regressionanalysis.Aregressionanalysisidentifiesthecausalfactors,orindependent
variables,thatcanbeusedtopredictthelevelofsales,orthedependentvariable.Single
regressionanalysisusesoneindependentvariable,andmultipleregressionanalysisuses
morethanoneindependentvariable.Trendextrapolationisactuallyasimplifiedformof
regressionanalysisthatusestimeastheindependentvariableandsalesasthedependent
variable.Forexample,amanagermightwanttostudytheimpactthatthegrowthrateofthe
economyorintensityofcompetitionhasonannualsales.
2.Econometricmodels.Ineconometricmodels,statisticaltechniquesareusedtosolvea
simultaneoussetofmultipleregressionequations.Inthiscase,acausalfactormaybe
predictedasadependentvariablefromseveralothercausalfactorsandthenusedasan
independentvariableinanequationtopredictsales.Thismethodismorecomplicatedand
requiressomeexpertiseinstatisticalmodeling.Inaddition,thistechniquerequiresthe
largestamountofdatabecauseofthenumberofvariablesbeingusedinthevarious
equations.Econometricmodelsarebestusedwithinacorporateormultiunitcompetitive
situationandarenotreadilyadaptableforuseatthesingleunitlevel.
Regressionanalysis
Thistechniqueidentifiesthecausalfactors,orindependentvariables,thatcanbeusedto
predictthelevelofsales,orthedependentvariable.
Econometricmodels
Thismodelusesstatisticaltechniquestosolveasimultaneoussetofmultipleregression
equations.
5.4.2 Selecting a Forecasting Technique

Allofthesalesforecastingtechniquesdiscussedearlierhaveadvantagesanddisadvantages
basedonthesituation.Therefore,itisimportanttoapplyasetofselectioncriteriainchoosing
theappropriatetechnique.Thefollowingcriteriacanbeusedinforecastingtoevaluatethe
situationandtoselectthetechniquethatisbestsuitedtothefirm'sneeds:
Thetimehorizon.Theperiodoftimeoverwhichadecisionwillhaveanimpactwillclearly
affecttheselectionofthemostappropriatetechnique.Timeseriesmethodsperformbestfor
shortterm(1to3months)andmediumterm(3monthsto2years)forecasts,whereas
qualitativetechniquesarebestforlongterm(morethan2years)newproductforecasts.
Causalmethodsperformbestintheshortterm,buttheycanalsobeusedquiteeffectively
formediumtermforecasts.
Theavailabilityofdata.Thetypeandamountofdataavailablecanhaveamajoreffecton
thechoiceoftechnique.Ifonlyhistoricalsalesdataareavailable,thentimeseriesmethods
wouldbemostappropriate.However,ifverylittledataareavailable(e.g.,fornewproducts),
thenthequalitativetechniqueswouldbemostappropriate.Ifdataareavailableforalarge
rangeofvariables,thencausalmethodscanbeemployed,providingagooddealof
informationregardingrelationshipsbetweenvariables.
Thepatternofthedata.Themajorityofquantitativeforecastingtechniquesassumea
particularpatterninthedatatobeforecast.Timeseriesmethodsworkbestwhenthereare
definedpatterns(trends),includingcyclesandseasonalchanges.However,causalmethods
andqualitativemethodsworkbestinhighgrowthmarketsandwhentheremaybeturning
pointsinthepattern.
Thedesiredlevelofaccuracy.Thedesiredlevelofaccuracywillvarybasedontheuseof
theforecast.Forecastsforcontrolpurposestendtobeshorttermandneedtobemore
precise,whereasforecastsforplanningtendtobelongertermandcanbelessprecise.
Causalmethodswillnormallybethemostaccurateintheshorttermundervarious
conditions.However,timeseriesmethodscanbeveryaccuratewhenthereisastrongtrend
inthedata.Qualitativemethodswilltendtobemostaccurateforlongtermforecasts
becausetheyusethecombinedforecastsofexperts.
Cost.Itisnecessarytotradeoffthebenefitsofthevariousmethodsbasedontheother
criteriawiththecostinvolvedinusingthetechnique.Costwillbeafunctionofdata
collection,storage,andanalysis.Thetimeseriesmethodsrequiretheleastamountofdata
andexpertise,resultinginthelowestcost.Causalmethodscanbecostlybecausethey
requirethemostdataandexpertise,whereasqualitativemethodsincuralargeexpensefor
datacollection.
Easeofapplication.Theeasewithwhichthevariousforecastingtechniquescanbe
employeddependsonfactorssuchasthefirm'scomputercapabilities,theexpertiseofits
employees,andtheavailabilityofdata.Timeseriesmethodsaretheeasiesttoemploy,
whereascausalmethodsandqualitativemethodsaresomewhatmorecomplicated.
Whenmakingdecisions,managersmustuseallofthesecriteriainselectingtheappropriate
forecastingtechnique.Certaininterrelationshipsamongthecriteriamayhelpsimplifythe
selectiontask.Forexample,whengoodhistoricaldataareavailable,timeseriesmethods
provideaccuracyforshorttermforecasts.Choosingthebestforecastingtechniqueisimportant
becausemanyoftheelementsofthemarketingplanarebasedonthesalesforecasts.
CHAPTER REVIEW
Thischapterhasdiscussedtheroleofmarketingplanninginthemarketingmanagement
cycleandtheessentialprocessforformulatingmarketingplans.Strategicmarketing
planning(i.e.,buildingonthefirm'smission)focusesongoalsandobjectivestodevelop
longtermplans.Conversely,tacticalplanningismoreshorttermandimplementation
oriented.Effectivemarketingplanningincludesbothstrategicandtacticalcomponents.
Althoughtherearenumerousadvantagesanddisadvantagestoplanning,severalresearch
studieshaveclearlydemonstratedthatfirmsthatengageinmarketingplanningholda
decisiveadvantageoverthecompetitionandexhibitimprovedfinancialperformance.
Themarketingplanningprocessincludesfourimportantstages:(1)conductingasituation
analysis,(2)definingthefirm'sgoalsandobjectives,(3)formulatingmarketingstrategies
andactionplans,and(4)implementingactionplansandevaluatingperformance.The
situationanalysisincludesahistoricalappraisalandaSWOTanalysistodeterminewhere
thefirmisintermsofinternalstrengthsandweaknesses,andexternalopportunitiesand
threats.TheseSWOTsarethebasisonwhichstrategicmarketingplansaredeveloped.
Strengthsandopportunitiesareleverageitemsonwhichfirmsdevelopcompetitive
advantages.Conversely,weaknessesandthreatsareproblemareasthatmustbe
minimizedifthefirmistoachievemaximumsuccess.Goalsarebroadstatementsofwhat
thefirmseekstoaccomplish.Objectivesaremoredetailedstatementsofwhatthefirm
wantstoachieve.Wellwrittenobjectivesshouldstate(1)whatwillbeaccomplishedin
measurableterms,(2)withinwhatspecifictimeframeitwillbeaccomplished,(3)which
individualorgroupwillberesponsibleforachievingtheobjective,and(4)howtheresults
willbeevaluated.Thefirm'smarketingstrategieswillguidethefirmtoachieveits
objectives,andtheentireprocessshouldbemonitoredandtheperformanceevaluatedso
thatnecessarychangescanbemade.
Thelastsectionofthechapterreviewedsalesforecasting,includingbothqualitativeand
quantitativetechniques.Salesforecastsarecrucialinestablishingobjectivesandstrategies
andareusedtosetbudgetsformarketingplanning.Firmsmustunderstandtheadvantages
anddisadvantagesofthevariousforecastingtechniquessotheycanselecttheappropriate
techniqueforagivensituation.Theselectionofaforecastingtechniqueisbasedonthe
timehorizon,availabilityofdata,patternofdata,desiredlevelofaccuracy,cost,andease
ofapplication.

Causalanalysis
Consumerfeedback
Costcontroldata
Delphitechnique
Diversificationstrategy
Econometricmodels
Expertopinion
Exponentialsmoothing
Goals
Historicalappraisal
Marketdevelopmentstrategy
Marketingplanning
Marketpenetrationstrategy
Missionstatement
Movingaverage
Objectives
Positionstatement
Productdevelopmentstrategy
Profitcontroldata
Regressionanalysis
Salescontroldata
Salesforceforecast
Salesforecasting
Strategicbusinessunit(SBU)
Strategicmarketingplans
Strategicwindow
Surveyofbuyingintentions
SWOTanalysis
Tacticalmarketingplans
Timeseriesanalysis
Trendextrapolation

1.
Whatisthemarketingmanagementcycle?Explainanddiscussthemajor
activitieswithwhichamanagermustbeconcerned.
2.Whatisthedifferencebetweenstrategicandtacticalmarketingplans?Provide
examplesofthetypesofquestionstacticalmarketingplansseektoanswer.
3.Whataretheadvantagesanddisadvantagesassociatedwithplanning?
4.Whydomarketingplansfail?Whatstepsmightamarketingmanagertaketo
increasetheprobabilityofsuccess?
5.Illustrateanddiscussthestepsinthemarketingplanningprocess.
6.WhatisaSWOTanalysis?HowcanSWOTsbeleverageorproblemitems?
7.ConductaSWOTanalysisforarestaurantlocatedinyourarea.Howmightthis
restaurantleverageelementsofitsSWOTs?
8.Whatarethecriteriaforwellwrittenobjectives?
9.Whatarethefourproductdevelopmentstrategyoptions?Provideexamplesand
justificationofhospitalityandtourismfirmsthatyoubelieveuseeachofthefour
options.
10.Whatarethetypesofcontroldatathatareusedtoevaluateperformance?
11.Whatissalesforecasting?Whyisitimportant?
12.Explainthedifferencebetweenqualitativeandquantitativeforecasting
techniques.
CASE STUDY
Kilts and Ale
ThreeinvestorsstartedanewrestaurantconceptinSouthernCalifornia.Therestaurantis
basicallyanAmericanversionofthepubsfoundintheUnitedKingdom.Thewaitresses
wearkiltsandthemenuconsistsofpopularpubfaresuchasbangersandmash,corned
beefandcabbage,shepherd'spie,andfishandchips.Inaddition,therestaurantcarriesa
wideassortmentofbeersfromEngland,Ireland,Scotland,Germany,andBelgium.The
atmospherematchesthatofanIrishpubwithdartsandtelevisionscarryingsoccergames
andrugbymatches.Theconceptwaspopularatfirstandtheownersopenedupseveral
restaurants.However,itseemstheareahasbecomesaturatedandthesalesperstoreare
startingtobecomestagnant.Therefore,theownersarelookingforwaystoincreasesales
fortheorganization.
OneoftheproblemsisthatKiltsandAlehasseveralrestaurantswithinarelativelysmall
geographicarea.Theotherissueisthatafewcompetitorshaveenteredthemarketwith
similarconcepts.Mostofthecompetitorsareoneunitoperations,soKiltsandAlehas
beenabletomaintainastrongmarketshareandacompetitiveadvantageintermsofper
unitcostsbasedonvolumeandeconomiesofscale.Therestaurantsmaintargetmarkets
areworkersduringlunchandyoungercouplesormiddleagedcoupleswithoutchildren
duringdinnerandweekends.Inaddition,thechainhassomerestaurantsnearcollege
campusesthatarefrequentedmainlybystudentsonnightsandweekends.Therestaurants
alsogetgoodcrowdsofexpatriatesandstudentsfromtheUnitedKingdomandEuropeto
watchnotablesoccergamesandrugbymatches.
Theownersenjoyedstronggrowthandprofitsovertheyearsandtheyarenowconcerned
howtoinvestthatmoneytomaximizetheirreturnoninvestment.Theyrealizethatitis
importanttomaintainsomelevelofgrowth,bothperstoreandforthechainasawhole.
However,theyaren'tsureifitwouldbewisetoinvestmoremoneyintothesameconcept,
orwithinthesamegeographicarea.

1.Howcouldtheownersachievegrowthusingamarketpenetrationstrategy?Givesome
specificdetailsonactionstheycouldtake.
2.Howcouldtheownersachievegrowthusingamarketdevelopmentstrategy?How
wouldtheydeterminethenewmarkets?
3.Howcouldtheownersachievegrowthusingaproductdevelopmentstrategy?
4.Howcouldtheownersachievegrowthusingadiversificationstrategy?
5.Whichofthefourstrategieswouldyourecommendandwhy?Howdidyouarriveatyour
opinion?
CASE STUDY
Planning at the Westwind Resort
WhenWendellAdamsbecamethegeneralmanagerattheWestwindResort,heknewthat
itwouldbeachallenge.Hispredecessor,ManfredGunlock,washighlyregardedandhad
beeninthepositionformorethan20years.Duringthattime,theresortenjoyedsuccessby
buildinganewlodge,addingmorethan1,000timeshareunits,andaddingmoresnow
makingequipmentthatextendedtheskiseason.DuringMr.Gunlock'stenure,Westwind
Resortbecameafourseasonresort.Thegolfcoursewasverygood,withgolfersplaying
morethan25,000roundsannually.Theseroundsweredividedevenlybetweenresort
guestsandyearroundpermanentresidents.
Theresortcateredtofamilies,asitfeaturedamodestpricingstructureandafocuson
providingmaximumvalueforthem.About60percentoftheresortbusinesscamefrom
families.Manyofthemhadchildrenbetweentheagesof5and17.
Wendellalsoknewthattheresortfacedchallenges.WestwindResorthadbeguntoslip.
Salesweredown4percent,andthequalityoftheproductservicemixwasperceivedto
havedeclinedslightlyaswell.Whilestillprofitable,theresortwasnotproducingthelevelof
cashflowthatithadinpreviousyears.WhenWendellacceptedthejob,heworriedthat
maybeManfredGunlockhadretiredbecausehesawtroubleaheadforWestwindResort.
Wendellhadtakensomeverypositivefirststeps.Heassembledthemanagementteamfor
ahalfdayoffsiteplanningsession.Westwindhadbeenruninaveryentrepreneurial
fashion,withMr.Gunlockmakingalltheimportantdecisionswithoutmuchinputfromother
managersoreventheboardofdirectors.Althoughthisapproachhadbeensuccessfulin
thepast,Wendellbelieveditwastimetoimplementamoresystematicapproach.He
wantedtodevelopamissionstatementandacompletemarketingplanfortheresort.
Withoutaroadmap,howwillweknowwherewearegoing?hetoldhisstaffduringthe
planningmeeting.Wendellhadhopedtodevelopamissionstatementduringtheplanning
meeting,butthemembersofhismanagementteamfeltitwouldbebettertocompletean
assessmentoftheresort'scurrentpositionpriortodevelopingamissionstatement.They
alsobelievedthatthemissionstatementshouldcomefromtheboardofdirectors,notfrom
themanagers.Intheend,Wendellagreedwiththem,andtheydevelopedaSWOT
analysis.Theresultsoftheirworkareshownhere.
SummaryoftheStrengths,Weaknesses,Opportunities,andThreats(SWOTs)for
WestwindResort
Strengths
Morethan1,500yearroundresidentsresideinprivatehomesattheresort.
Theresorthasagoodreputationforfoodandbeverageservice.
Westwindoffersfourseasonsports,includingskiingandgolf.
Theairportonthepropertyissuitableforuptosixpassengerturbopropaircraft.
Thereislowturnoveramongstaff.
WestwindResortislocatedapproximately90minutesfromamajormetropolitanarea.
Theresortcarriesonlyasmallamountoflongtermdebt.Themortgageonthelodge
(built15yearsago)ispaidoff.
Opportunities
Westwindhasestablishedareputationasbeingafamilyorientedresort.
Nocompetingresorthasanairport.
Thefourseasonrecreationalofferingscanbeexpanded.
Weaknesses
Lodgeoccupancyhasdeclinedslightly,to65percentyearround.Peakweekends
duringtheskiseasonareoverbooked.

Theaveragedailyroomrateforlodgeguestshasnotkeptpacewithinflationforthe
past3years.
TherehasbeensomemanagementturnoversincetheretirementofManfredGunlock.
DuetothelocationoftheresortinthemidAtlanticregion,theskiseasonislimitedto
approximately60to75days.
Thelodge,althoughonly15yearsold,lacksafreshnessinthedecor.Itappearstobe
olderthan15years.
Althoughcashflowispositive,itislowerthaninpastyears,duetoadeclineinprofits.
Threats
Twootherfourseasonresortsarelocatedwithina90minutedriveofWestwind.Both
arenewerandoffermoreamenities.
Salesoftimeshareunitshaveslowedinrecentyears,asbuyershavesoughttime
shareunitsofferedbymajorchainsratherthanindependentresorts.
Ofthethreecompetingresortswithinathreehourdrivingradius,twoareownedby
majorcorporationswithsignificantresourcesandborrowingcapacity.
HavingcompletedtheSWOTanalysis,themanagerswerefeelingverygood.Thiswasthe
firsttimethatmanyofthemhadeverbeeninvolvedinsuchanactivity.Theyenjoyed
havingtheopportunitytotalkaboutthefutureoftheresortandhowtheirindividual
contributionscouldpositivelyimpactthefuture.

1.WhatshouldthemissionstatementforWestwindResortbe?
2.Howshouldthemissionstatementbedeveloped?Whoshouldreviewitandhaveinput?
3.HowcouldWendellusetheSWOTsthatthemanagementteamhaddevelopedtoform
thebasisforamarketingplan?
4.Howshouldheleadtheteaminthedevelopmentofamarketingplan?Whatshouldbe
thenextsteps?
5.Whatadditionalcomponentsofthemarketingplanneedtobedeveloped?What
additionaldataandinputwouldbenecessarytocompletetheplan?
6
INFORMATION FOR MARKETING DECISIONS
Courtesyofmama_mia/Shutterstock.
Chapter Objectives
1.Listandexplainthecomponentsofamarketinginformationsystem.
2.Identifyprimaryandsecondarydatasourcesforgatheringmarketinginformation.
3.Describethemarketingresearchprocessindetail.
4.Identifyethicalissuessurroundingmarketingresearchandinformationsystems.
6.1 INTRODUCTION
Sincetheadventofpersonalcomputers,theworldhasexperiencedaninformationexplosion,
andallindustrieshavemadesubstantialadvancesininformationcollection,analysis,storage,
andretrieval.Thehospitalityindustrywasverymuchapartofthistrend.Astheexternal
environmentbecomesmoreintricateandmorecompetitive,informationalneedsbecomemore
complex.Organizationsthatemployasystematicapproachtocollecting,analyzing,storing,
retrieving,andusinginformationeffectivelyandefficientlyarelikelytobethemostsuccessfulin
thefuture.Withoutthepropertypesofinformationavailableonatimelybasis,managementis
morelikelytomakedecisionsthatwilladverselyaffecttheperformanceoftheorganization.The
newversionsofhotelreservationsystemsandrestaurantpointofsalesystemsarecapableof
obtainingmoreformsofdatathatcanbeusedinmakingmanagerialdecisions.Revenue
managementandyieldmanagementsoftwareareavailabletohelporganizedataforpricing
decisions,andstatisticalprogramsareavailableforanalyzingdataandmakingforecasts.
6.1.1 Marketing Information Systems

Amarketinginformationsystem(MIS)isthestructureofpeople,equipment,andprocedures
usedtogather,analyze,anddistributeinformationneededbyanorganization.Thesearethe
datatobeusedasabasisformarketingdecisions.Marketinginformationsystemisabroader
andmoreencompassingtermthanmarketingresearch,whichisjustonecomponentofa
managementinformationsystem.Marketresearchisfocusedonacquiringinformationfora
specificresearchobjectiveorproject,representingaonetimeuse.Forexample,apotential
restaurantownermayundertakeafeasibilitystudyandusemarketresearchtodetermine
whethertobuildanewrestaurantinacertainlocationbasedonthedemographicsofthearea.
Suchaninformationgatheringstudyisdesignedtoansweraveryspecificquestion:Shouldwe
openthistypeofrestaurantinthisarea?
Marketinginformationsystems(MIS)
Thestructureofpeople,equipment,andproceduresusedtogather,analyze,anddistribute
informationusedbyanorganizationtomakeinformeddecisions.
Amarketinginformationsystem,bycontrast,ispartofanongoingdatagatheringprocess
involvinginitialdatacollectionaswellasroutineandsystematicdatacollectionprocedures.For
example,ahotelmanagermaychoosetocollectdatabymeansofazipcodeanalysisofguest
registrationinformationtodeterminethegeographicprofileoftheguestsofahotel.This
systematicandroutineinformationgatheringisnotintendedtoaddressonespecificquestion
butisinsteadpartofanoverallsystemdesignedtomonitorthedegreeofmarketingsuccess
thattheoperationisabletoachieve.
Awelldesignedmarketinginformationsystemsatisfiesfourbasiccriteria:
Itmustincludeastructuredorganizationorestablishedsystemofpeopleandinformation
gatheringprocedures.
Thesystemshouldbedesignedtogenerateacontinuousflowofinformationtoprovide
accurateandcurrentmarketinginformationformanagement.
Informationshouldbegatheredfrominsideandoutsidetheorganization.External
informationgatheringmethodsincludeconsumersurveys,whereasinternalinformation
gatheringmethodsinvolveemployeemeetings,guestcommentcards,analyzingpointof
saledata,allguestregistrationinformation,andinhouseguestsurveys.
Informationshouldbecompiledsothatmanagementcanuseitasabasisformarketing
decisions.
Itwouldbeextremelydifficultforthemanagementofahospitalityorganizationtomake
decisionswithoutaccurateanduptodatemarketinginformation.Professionalmanagement
demandsthatdecisionsbebasedonsoundinformation.Managerscanreducetheuncertainty
surroundingmarketingdecisionswhenvaluableinformationisavailable.
Akeycomponentofaneffectivemarketinginformationsystemishavingaccurateinformation
abouttheenvironment.Thefoundationforthisdatacollectionisenvironmentalscanning,which
referstoaprocesswherebyexternalfactorsthatcouldaffectanorganizationarecontinually
evaluated.Aconceptualmodelofthecomponentsofamarketinginformationsystemisshown
in

Figure6.1.Dataaregeneratedforeachofthethreesubenvironments(themacroenvironment,
thecompetitiveenvironment,andtheorganizationalenvironment).Thedataarethencompiled,
summarized,andstoreduntilneededbymanagement.Attheappropriatetime,management
canreadilyretrievedatasummaries,evaluatemarketingtrends,andformulatemarketingplans
andstrategies.Therearethreeoverridingobjectivesofamarketinginformationsystem:
1.Tocollectrelevantdataconcerningeachofthesesubenvironments.
2.Tocompile,summarize,andstorethedata.
3.Tohavedatareadilyavailableformanagementonatimelybasis.
FIGURE6.1Componentsofamarketinginformationsystem.
6.1.2 Requirements for a Successful Marketing Information System

Thebasictaskofgatheringdataisimportanttoanorganization,butaneffectivemarketing
informationsystemisonethatisabletoorganizethistaskandsupplythefirmwithuseful
information.Togeneratedatathatareusefulformanagersanddecisionmakers,amarketing
informationsystemshouldfulfillthreerequirements:
1.AMISshouldbeobjective.Managementshouldbeabletoquantifyandanalyzethe
informationgathered.Managementneedsasmuchpurelyobjectivedataaspossibleto
createmetricsandmakesounddecisions.Toomanyhospitalitymanagersrelyheavilyon
subjectiveopinionsfordecisionmakingpurposes,andtheirdecisionsareoftenincorrect.
Decisionsbasedonpurelypersonalopinionareoftenlessthansuccessfulwhen
implemented.Decisionsbasedonacombinationofdataandmanagerialinsightand
experiencegenerallyyieldhigherqualitydecisions.
2.
AMISshouldbesystematic.Themarketinginformationsystemisnotanonoffprocessit
isasystemthatshouldbedesignedtoprovideacontinuousstreamofinformationsourcefor
management.Wheninformationiscollectedinasystematicandcontinuousmanner,the
qualityandquantityofdataimprove.Forexample,manyconferencehotelsreceivefeedback
onlyfrommeetingplannersonanadhocbasis,ratherthandevelopasystemrequiring
feedbackfromeachmeeting.
3.AMISshouldbeuseful.Manystudiesproduceinformationthatisoflittlevalue.Thisis
obviouslynotthepurposeofamarketinginformationsystem.Oneruleofthumbtofollowis
this:collect,compile,andstoreinformationonlyifitisusedactivelydonotcollect
informationandthenfileitawaywithoutusingit.Forexample,manyhotelsstillcollect
commentcardswithoutinputtingtheresultsinthecomputer.Managerssimplyreadoverthe
commentsandratingsandthenmanuallyfilethecards.Theadventoflowcostand
increasedcapacityharddiskstoragewithinpersonalcomputershasmadeiteasytocompile
datatobeexaminedusingsometypeofanalyticalsoftware(e.g.,MSExcel,SPSS,etc.).
6.2 SOURCES OF MARKETING INFORMATION

Avarietyofsourcescanbeusedtoobtaintheinformationnecessarytofuelamarketing
informationsystem.Theseinformationsourcescanbegroupedintotwomaincategories:
secondarydataandprimarydata.Secondarydatawerepreviouslycollectedforanother
purpose.Primarydataaregeneratedforaspecificpurposewhentheinformationisnot
availableelsewhere.Itisnormallyadvisabletosearchforsecondarydatabeforeengagingina
primarydatacollectionprocess.Thesecondarydatamayprovidetheinformationnecessaryto
makeadecision,andeveniftheydon't,theymaybeusefulindevelopingthecollectionprocess
forprimarydata.Figure6.2illustratesthepossiblesourcesofinformationformarketing
decisions.
Secondarydata
Datathathavealreadybeencollectedbyanothersourceandmadeavailabletointerested
partieseitherforfreeoratareasonablecost.
Primarydata
Datathatarecollectedforacurrentstudyorprojectandtailoredtomeetthespecific
informationneedsforthatstudyorproject.
FIGURE6.2Informationsources.
6.2.1 Secondary Data

Asalreadymentioned,secondarydataarealreadyavailablefromothersourcesandsummarize
informationaboutoperations,marketing,humanresourcemanagement,financialperformance,
andothertopicsofinteresttomanagement.Ashrewdmanagerwillmakeathoroughcheckof
allavailablesecondarydatasourcesbeforeundertakingprimarydatacollection.Themajor
advantagesofusingsecondarydataare:
Cost.Itismuchlessexpensivetoobtaininformationfromexistingsourcesthantodevelop
entirelynewdata.Theseexistingsourcesmayrequireanominalchargefortheinformation,
butitwillbemuchlessthanthecostofundertakingprimarydatacollection.
Timeliness.Secondarydataareavailablealmostinstantaneously.Amanagercanhave
accesstodataveryquicklyanddoesnothavetowaitweeks,orperhapsmonths,forprimary
datatobecollected,analyzed,andsummarized.Byusingsecondarydatawhenever
possible,amanageravoidsthetimeandeffortofdevelopingtheresearchdesign,designing
thedatacollectioninstrument,andcollectingthedata.Instead,amanagercanmerelylocate
theappropriatesourceandaccesstheinformationdesired.Thisprocesscanbecompleted
inafewhoursordays,whereasprimarydatacollectioncantakeweeksormonthsto
complete.
However,secondarydatacollectiondoeshavethefollowingdisadvantages:
Limitedapplicability.Amanagerhasnoassurancethatinformationgatheredbyotherswill
beapplicabletoaparticularhospitalityoperation.Forexample,informationobtainedabout
consumerrestaurantpreferencesintheUnitedStatesmightnotbeusefultoarestaurant
managerinNewYorkCity,giventheuniquenatureofthemarket.
Informationmaybeoutdated.Managersneedcurrentandaccurateinformationonwhich
tobasedecisions.Alltoooften,secondarydataarenotasusefulastheymightbemerely
becausetheyarenotcurrent.Forexample,theresultsofaconsumerattitudesurvey
conductedbyarestaurant4yearsagomightbeoflimitedvaluetoamanagermakingplans
today.ThisisacommonproblemwithusingU.S.Censusdatatogetthedemographicsfor
geographicregionsbecausetheCensusisonlyconductedevery10years.
Reliability.Wheneverahospitalityoperatorusessecondarydataasthebasisforadecision,
themanagerrunstheriskthattheinformationmaynotbereliableandaccurate.Amanager
woulddowelltodeterminewhocollectedthedataandwhatmethodofdatacollectionwas
used.Informationisonlyasgoodastheindividualswhocollectitandthemethodstheyuse.
Ifastudyisadministeredwithoutfollowingasoundscientificprocess,orthereisn'tany
informationgivenabouttheresearchprocess,theresultsandconclusionsshouldbeviewed
withcaution.
Therearetwomaintypesofsecondarydatathatcanbeusedbymanagerswithinafirm(see
Figure6.2).Internaldataexistwithinthefirmandcanbeobtainedwithminimaltimeandeffort.
Advancesincomputertechnologyhavemadeiteasiertoobtainthisinformationandprovideitto
managersinaformthatisuseful.Externaldataarenotreadilyavailablewithinthefirm.
Managersmustobtainthesedatabyspendingmoretimeand/ormoneycontactingoutside
sources.TheInternethasmadethisamucheasiertask,butthereisstillafairamountofeffort
involved.Thevarioussourcesofinternalandexternaldataarediscussednext.
6.2.1.1 INTERNAL DATA.

Thecomponentofamarketinginformationsystemthatisthesimplesttodesignandimplement
isaninternalsystem,orthecomponentdesignedtocollectdatafromwithintheorganizational
environment.Whenconsideringtheorganizationalenvironment,managementneedstobe
concernedonlywithinformationavailablefromwithinthephysicalconfinesoftheorganization's
units,whethertheyarehotelsorrestaurants.Thiscomponentofamarketinginformationsystem
requireslesstimeandmoneythandoesthecompetitiveenvironmentorexternallygenerated
marketinginformation.
Theinternalcomponentofamarketinginformationsystemisveryvaluabletomanagement
becauseitprovidesawealthofinformation.Managementhasthreemainsourcesofinternal
marketinginformation:guesthistoriesandsalesdata,employeesandmanagementstaff,and
customerfeedback:

Guesthistoriesandsalesdata.Withinahoteloperation,theminimumrecordsthatshould
bemaintainedarebothindividualandgroupguesthistories.Thesewillpermitmanagement
tomonitorchangesinzipcodeoriginofguests,lengthofstay,guestexpenditureperday,
andotherpertinentdataconcerningguests.Withinarestaurantoperation,therecords
maintainedshouldincludecustomercountsforeachmealperiodandsalesforeachmenu
itemoveraspecifiedperiodoftime.Manylargerorganizationshaveasophisticated
managementinformationsysteminplace.However,forthesmallerorganizations,thedesign
ofamanagementinformationsystemismucheasierthanithasbeeninthepast.Many
pointofsaleterminalsinterfacewithpersonalcomputers,makingthetransferofdatatooff
theshelfdatabasemanagementandaccountingsoftwarelikeMicrosoftOfficerelatively
easy.
Employeesandmanagementstaff.Alltoooften,hospitalitymanagementignoresthe
wealthofinformationthatisinformallygatheredbylineemployeessuchasfrontdesk
personnel,housekeepers,telephoneoperators,restaurantservicepeople,andhostsand
hostesses.Theseindividualsareinconstantcontactwithguests,yettheyarerarelyaskedto
relaycustomercommentsandreactionstomanagers.Theseemployeesrepresentan
excellentsourceofinformation,althoughtheinformationtheyprovidemaynotbetotally
objective.Itisagoodideaformanagementtomeetwithemployeesonaregularbasisto
discussproblemsandopportunities.
Customerfeedback.Thefocusofthemarketingconceptisthehospitalityoperation's
clientele.Allaspectsoftheentireoperationshouldbeaimedatsatisfyingtheseindividuals.
Thepurposeofusinganinternalmarketinginformationsystemistosolicitopinionsand
commentsfromthecurrentclientele.Thiscanbedoneinanumberofways,suchashaving
themanagertalkwithafewofthecustomers,offeringafeedbacksystem(e.g.,onlineortoll
freenumber),surveyingpastguests/diners,orhavingservicepersonnelaskthecustomers
directly.Forexample,cardsareplacedinguestroomsorareprovidedtotheguestsupon
checkoutorwhentheyhavefinishedamealinarestaurant.Thepurposeistosolicittheir
opinionsandcommentsconcerningtheoperation'squality.
Allthreeinternalsourcesofmarketinginformationareveryvaluable.Together,theycanprovide
agreatdealofusefulinformationwithwhichtomakedecisions.Historically,hospitality
managershavefailedtousethesesourcestomaximaladvantage,butthecurrentcompetitive
situationinthehospitalityindustrydictatesthatallsourcesofinformationbeusedtogaina
competitiveadvantageandtoearnmaximalfinancialrewards.
6.2.1.2 EXTERNAL DATA.

Althoughexternallygeneratedmarketinginformationisextremelyvaluable,itisnormallynot
collectedonadailybasis,asisthecasewithinternallygeneratedmarketinginformation.Thisis
duetoamuchlargerinvestmentoftime,money,andotherscarceresourcesrequiredfor
externallygeneratedinformation.Managementshouldconsiderusingawidevarietyofsources
ofexternalmarketinginformation.Literallythousandsofsourcesareavailable,andthese
sourcesarelimitedonlybymanagement'sowneffortstolocatethem.Severaltypicalsourcesof
externalmarketinginformationare:
Tradeassociations.Manyindustriesformtradegroupsthatprovidedatafortheirmembers.
Thesetradeassociationscollectinformationfromtheirmembersandthenprovideindustry
averagesthatcanbeusedasbenchmarkstomeasureafirm'srelativeperformance.Some
ofthepopulartradeassociationsforthehospitalityindustryaretheNationalRestaurant
Association,theAmericanHotel&LodgingAssociation,andtheHospitalitySalesand
MarketingAssociationInternational.DataforthetourismindustryarecollectedbytheWorld
TourismOrganization(WTO)andgovernmenttravelbureaus.
Travelbureaus.Cities,states,andcountriesusuallyformorganizationsthatareresponsible
forpromotingtraveltothearea,andoftenprovidedestinationspecificresearchreportsand
statisticsformembersand/orthegeneralpublic.Mostcitieshaveachamberofcommerce
thatisresponsibleforpromotingbusinessinthecityand,insomecases,tourismaswell.
Largercitiesandregionsformconventionandvisitorsbureaus(CVBs)forthesolepurpose
ofpromotingbusinessandleisuretraveltotheregion.Similarly,moststatesandcountries
havegovernmenttravelandtourismbureausthatareresponsibleforpromotingtraveltothat
stateorcountry.
Tradejournalsandperiodicals.Manyindustry,ortrade,journalsareavailabletofirms.
Tradeassociationsoftenpublishtheirownjournals,butmanyotherorganizationspublish
periodicalscoveringcertainindustries.Someofthemorepopularhospitalitypublicationsare
Restaurants&Institutions,RestaurantHospitality,Nation'sRestaurantNews,Restaurant
Business,LodgingHospitality,LodgingMagazine,andHotel&MotelManagement.The
articlesinthesepublicationsprovideinformationonnewproductsandadvertising
campaigns,aswellascurrenttrendsintheindustry.
Otherperiodicals.Inadditiontotradejournalsthatspecializeinacertainindustry,other
publicationscoverbusinessinavarietyofindustries.Someofthemorepopularbusiness
publicationsthatcoverthehospitalityandtourismindustriesareBusinessWeek,WallStreet
Journal,Fortune,Barron's,andForbes.
Internet.ThegrowthinboththequantityandqualityofinformationavailableontheInternet
iswelldocumented.UsingoneormoreoftheavailableInternetsearchengineswilluncover
information,someofwhichwillbehighlyvaluableformanagers.Akeyconsiderationfor
managersisbeingabletodeterminetheaccuracyandusefulnessofinformationgathered
fromtheInternet.
Universitysources.Universitiesandcollegeshavewellstockedlibrariesthatcanbea
valuableresourceforfirmsinthearea.Theseinstitutionsoftenhaveaccesstomanyofthe
othersourcesofexternaldata.Inaddition,universitiesandcollegesformcenterstoresearch
specificareassuchashospitality.Thisinformationisoftenfreetothepublicoravailablefora
reasonablefee.
Governmentsources.Local,state,andfederalgovernmentsmaintaindetaileddataonall
aspectsoftheeconomythedataarefreeoravailableforanominalfee.TheU.S.Census
gathersdetailedinformationaboutthepopulationandretailbusiness,andtheStatistical
AbstractoftheUnitedStatescontainssimilarinformationinabbreviatedform.Censusand
statisticaldocumentsarenowavailableinelectronicform,enablingquickersearchesand
dataretrieval.Thefederalgovernmentalsocollectsinformationaboutforeigncountriesand
providesspecialiststoanswerspecificquestionsandaddressinquiries.
Syndicatedservices.FirmssuchasHarrisandGalluppolls,TargetGroupIndex,Nielsen,
andW.R.Simmonsspecializeincollectinganddistributingmarketinginformationforafee.
Thesesyndicatedservicesprovideinformationaboutconsumerprofilesandshopping
behaviors,consumerresponsestosalespromotionsandadvertising,andconsumer
attitudesandpreferences.Thisinformationisusefulinfocusingonmarketsegmentsusing
aggregatedata.Theseservicesoftenadvertiseintradepublicationsandmarketing
periodicals.
Guides,indexes,anddirectories.Othervaluablesourcesofexternalinformationinclude
guides,indexes,anddirectoriesthatareavailableatmostuniversitylibrariesandlarger
publiclibraries.GuidessuchastheBusinessPeriodicalsIndexprovidereferencesbysubject
matterforarticlesinmajorjournalsandtradepublications.Also,mostmajorpublications
suchastheWallStreetJournalandtheNewYorkTimeshaveindexesthatprovide
referencesbysubjectmatterforarticlesthatappearedinthoseparticularsources.Finally,
LexisNexisisanexcellentonlineresourcefordataabouttheperformanceofpubliclytraded
companies.
Thereisagooddealofexternalinformationavailableforhospitalityandtravelfirms.Therefore,
itisimportanttocreateasystematicprocessforgatheringinformation.Thefollowingprocess
shouldbeusedwhencollectingexternalinformation:
Statetheknownfacts.Beforeundertakinganexternalstudy,makeaninventoryofalldata
currentlyavailable.Managerscanthendecidewhatadditionalinformationisneeded,and
howtocollectit,basedonacost/benefitanalysis.
Listspecificgoalsandobjectives.Afterabaseofinformationhasbeenestablished,a
planmustbeformulated.Goalsandobjectivesarethebasisforthisplanandtheyguidethe
restofthedatagatheringprocess.

Collectallrelevantdata.Atthispointtheactuallegworkmustbedonetoensurean
adequatesample.Theinformationmustbegatheredinawaythatensuresitisbothvalid
andreliable.Validityisthedegreetowhichthedatagatheredmeasurewhattheyare
supposedtomeasure.Reliabilityisthedegreewithwhichdataconsistentlymeasure
whatevertheyaredesignedtomeasure.
Summarizethedataandanalyzethesituation.Nomatterwhichdatacollectionmethodis
used,sometypeofsummaryandanalysismustbedonetoreducethedataintoa
manageablepackage.Thenmanagementcanaccesstheorganizedinformationanduseit
forawidevarietyofdecisions.
6.2.2 Primary Data

Primarydataconsistoforiginalresearchdonetoanswercurrentquestionsregardingaspecific
operation.Forexample,afoodservicemanagermayattempttodetermineconsumerattitudes
towardnewmenuofferingsortosolicitconsumerperceptionsofincreasedmenupricesor
differentportionsizes.Thistypeofdataisverypertinenttoanindividualoperationbutmaynot
beapplicabletoothersituations.
Theadvantagesofusingprimarydataincludethefollowing:
Specificity.Thesedataaretailoredtooneoperationandcanprovideexcellentinformation
fordecisionmakingpurposes.
Practicality.Primarydatacanprovidesolidreallifeinformationandapracticalfoundationto
beusedinthedecisionmakingprocess.
However,usingprimarydatahasthefollowingdisadvantages:
Cost.Foranindividualmanager,gatheringprimarydataisextremelyexpensive.Togather
primarydataevenfromacityof100,000peoplemayprovetobeamonumentaltaskforan
operatorandmaycosttoomuchintimeandmoney.
Timelag.Marketingdecisionsoftenmustbemadequickly,yetitrequiresagooddealof
timetoconductathoroughinformationgatheringstudy.Whileamanageriscollectingthe
data,thecompetitionmaybedrivingthehospitalityortourismoperationintobankruptcy.
Duplication.Althoughprimarydataaregearedtowardaspecificoperation,othersourcesof
existingdatamaycloselyduplicatetheinformationcollectedandwouldthereforebe
appropriatefordecisionmakingpurposes.Thisduplicationofeffortisveryexpensive,and
primarydatacollectionshouldthereforebeundertakenonlyafterallsecondarydatasources
havebeenexhausted.
Ingeneral,theadvantagesofusingsecondarydatatendtobethedisadvantagesofusing
primarydata,andviceversa.Table6.1providesacomparisonofprimaryandsecondarydata
collectionmethods.Asmentionedearlier,beforecollectingprimarydata,itisadvisableto
performasecondarydatasearchtodeterminethenecessityandscopeofaprimarydata
collectioneffort.Thenextsectioncoversthemarketingresearchprocessthatisfollowedwhen
collectingprimarydata.
TABLE6.1
ComparisonofPrimaryandSecondaryDataCollection
Methods
CHARACTERISTIC SECONDARYDATA PRIMARYDATA
Costtocollectdata Low High
Timeframetocollectdata Short Long
Specificityofdata Low High
Reliabilityofdata Unknown High
Timelinessofdata Canbeoutdated Recent
6.3 THE MARKETING RESEARCH PROCESS
Themarketingresearchprocessisundertakentoanswerawidevarietyofquestions,which
mightinclude:Wheredoourguestscomefrom?Howfrequentlydopeopledineoutinthis
area?Inwhattypesofrestaurantsdotheymostfrequentlydine?Inaddition,hospitalityand
tourismorganizationsmightwanttoaddressmorespecificquestionssuchasthemenuitemsto
beoffered,thepricetocharge,andthepropermixoftransientandgrouptravelers.Eitherway,it
isnecessarytouseasystematicprocessforconductingresearch.
Marketingresearchprocess
Aprocessusedtocollectdataaboutmarketingprograms,externalenvironments,and
consumermarketsinanattempttoimprovethequalityofmarketingdecisions.
Conductingmarketingresearchisnotaninexpensiveproposition,andwhenresearchis
undertaken,caremustbetakentoensurethatpropermethodsareused.Thisistruewhether
thehospitalityorganizationconductsitsownmarketingresearchorreliesonexternal
consultants.Marketingresearchdataareonlyasgoodasthemethodologyused.Ifapoor
methodologyisused,theresultsarenotlikelytodescribethesituationaccurately,and
marketingdecisionsbasedonthisinformationarenotlikelytobeveryappropriate.Figure6.3
containsthefivestepsinvolvedinthemarketingresearchprocess.
FIGURE6.3Themarketingresearchprocess.
6.3.1 Step 1: Dene the Problem

Beforeconductinganymarketingresearch,afirmmustdecidewhethermarketingresearchis
necessaryand,ifso,whatkind.Ingeneral,marketingresearchshouldbeundertakenifit
addressesaspecificproblemthatcouldaffectyourbusinessifithelpsinselectingbetween
alternativesforachievingmarketingobjectives,ifitassistsingainingacompetitiveadvantage,
orifitprovidesusefulinformationonyourmarkets.1Marketingresearchmaynotbeneededif
theinformationisalreadyavailable,thereisinsufficienttimeformarketingresearch,resources
arenotavailable,orcostsofconductingtheresearchoutweighthepotentialbenefitsofhaving
theinformation.
Ifthedecisionismadetoproceedwiththemarketingresearch,theresearchproblemshouldbe
clearlydefined.First,itisnecessarytoviewtheproblemfromthemarketingmanager's
perspective.Normally,aproblemisbroughttotheattentionofamanagerwhenthereisa
decreaseinaperformancemeasuresuchassalesvolume,profit,ormarketshare.Itis
importantnottomistake
thisfortheprobleminstead,recognizeitasasymptomofanunderlyingproblem.Forexample,
ifahotel'soccupancyratehassuddenlyfallen,therecouldbeanumberofcauses.Anew
competitormayhaveopened,currentcompetitorsmaybediscountingpricesorincreasing
advertisingexpenditures,consumersmaybedissatisfiedwiththehotel,theremightbe
constructionintheimmediatearea,ortheremightbeadownturnintheeconomy.Anyoneof
thesefactors,oracombinationofthem,couldbethecauseofthedecreaseinperformance.
6.3.2 Step 2: Plan the Research

Thesecondstepinthemarketingresearchprocessinvolvesplanningtheresearchdesignfor
obtainingthedesiredinformationtoaddresstheresearchproblem.Theresearchdesignis
basicallyamasterplanspecifyingthemethodsandproceduresforcollectingandanalyzingthe
neededinformation.Therearethreemaincategoriesofresearchdesignsfromwhichtochoose,
basedontheobjectivesoftheresearch:exploratoryresearch,descriptiveresearch,andcausal
research.
Researchdesign
Amasterplanspecifyingthemethodsandproceduresforcollectingandanalyzingthe
neededinformation.
6.3.2.1 EXPLORATORY RESEARCH.

Exploratoryresearchisusedtogainbackgroundinformationwhenafirmdoesn'thaveagood
understandingofthenatureoftheproblem.Itcanalsobeusedtoobtainadditionalinformation
aboutatopicandtogeneratehypothesesthatstatetherelationshipsbetweentwoormore
variables.Thisresearchtendstobeinformalandunstructured,anditismainlyusedtogain
backgroundinformation,defineterms,andclarifyproblems.Thehypothesesthataregenerated
usingexploratoryresearchcanbetestedinfutureresearchefforts.Someofthemorecommon
methodsforconductingexploratoryresearcharesecondarydataanalysis,experiencesurveys,
caseanalysis,andfocusgroups.Secondarydataanalysisistheprocessofreviewingexisting
informationthatisrelatedtotheresearchproblem.
Exploratoryresearch
Researchusedtodeterminethegeneralnatureoftheproblem.
Secondarydataanalysis
Theprocessofreviewingexistinginformationthatisrelatedtotheresearchproblem.
Experiencesurveysaresimilartothequalitativemethodsdiscussedinthesalesforecasting
sectionofChapter5.Basically,informationisgatheredfromindividualswhoarebelievedtobe
knowledgeableabouttheresearchtopic.Caseanalysisreferstotheuseofinformationabouta
situationthatresemblesthecurrentsituationsurroundingthecurrentresearchproblem.
Hospitalityfirmscouldbenefitfromtheexperiencesofotherfirmsintheirindustry,oroffirmsin
otherindustriesthatfacedsimilarcircumstances.
Oneofthemostcommonmethodsofexploratoryresearchisthefocusgroup.Focusgroups
consistof8to12peoplewhorepresentthepopulationbeingstudiedandarebroughttogetherin
aninformalsettingtodiscusstheissuessurroundingtheresearchproblem.Thesessions
generallylastfrom1to2hoursandareguidedbyamoderatorwhoensuresthatallthegroup's
membersgiveinputandthatallthepertinenttopicsarecovered.Focusgroupsarevaluablefor
testingnewproductdesignsandserviceconcepts,testingadvertisingcampaigns,andgaining
insightintothemarket'sbasicneedsandattitudes.Manyfocusgroupsessionsarevideotaped
sotheycanbeexaminedinmoredetailatalaterdatebyanumberofdifferentpeople.The
potentialweaknessesoffocusgroupsarethat,giventhesmallnumberofparticipants,thegroup
maynotcompletelyrepresentthepopulationofinterest.Also,becausethegroupsare
unstructured,theinformationprovidedduringthesessionisoftenverysubjectiveandopento
interpretation.Finally,itmaybedifficultandexpensivetorecruittheparticipants,themoderator,
andafacilityforafocusgroup.
Focusgroup
Agroupof8to12peoplewhorepresentthepopulationbeingstudiedandarebrought
togetherinaninformalsettingtodiscusstheissuessurroundingaresearchproblem.
6.3.2.2 DESCRIPTIVE RESEARCH.

Thesecondcategoryofresearchdesign,descriptiveresearch,isconcernedwithanswering
thebasicquestionsofwhobuystheproduct,whatcustomersdowiththeproduct,wherethey
buy,whentheybuy,whytheybuy,andhowtheybuy.Primarily,theresearcheristryingtoprofile
thecustomerbaseintermsofdemographics,psychographics,attitudes,andpurchasing
behavior.Therearebasicallytwotypesofstudiesthatcanbeusedtocollectthisinformation:
crosssectionalstudiesandlongitudinalstudies.Acrosssectionalstudymeasuresthe
populationatonepointintimeitprovidesasnapshotofthepopulation.Thistypeofstudyis
normallyusedtoaddressaparticularproblemwhenitarises.Alongitudinalstudyisusedto
measurethesamepopulationoveranextendedperiodoftime.Generally,thesestudiesusethe
samesample,referredtoasapanel,andcollectthesameinformationovertime(e.g.,oncea
year).Longitudinaldataareusefulindeterminingtrendsandchangesinconsumerneedsand
attitudes.Forexample,manyfirmsofferingsyndicatedserviceswilltrackthetrendsinan
industrybyconstructingandmaintainingapanelofconsumerswhocompleteanannualsurvey.
Descriptiveresearch
Researchthathelpsanswerthequestionswho,what,where,when,why,andhow.
Crosssectionalstudy
Astudyusedtomeasurethepopulationofinterestatonepointintime.
Longitudinalstudy
Astudyusedtomeasurethesamepopulationoveranextendedperiodoftime.
6.3.2.3 CAUSAL RESEARCH

Causalresearchfocusesoncauseandeffectrelationshipsthatarepertinenttoaresearch
problem.Aseriesofifthenstatementscanbeusedtomodelcertainelementsofthehospitality
service.Forexample,ahospitalityfirmmaywanttoexaminehowaparticularchangeinthe
marketingmixaffectssales,marketshare,and/orcustomersatisfaction.Thefollowing
relationshipscouldbetested.Ifthequalityoffoodisimproved,customersatisfactionwill
increase.Ifontimeperformanceimproves,marketsharewillincrease.Ifanadditional
salespersonishired,occupancyratewillincrease.
Causalresearch
Researchusedtodefinecauseandeffectrelationshipsbetweenvariables.
Thepotentialbenefitsofunderstandingcausalrelationshipsaregreat.Firmscoulddesignbetter
products,createeffectiveadvertisingcampaigns,andsetpricesthatwillmaximizerevenue.
Unfortunately,manyfactorsaffecttheconsumerdecisionmakingprocess,eitheraloneorin
combination,anditisalmostimpossibletounderstandthemcompletely.Infact,many
researchersarguethatthereisnosuchthingastruecausality.Regardless,asmanagers'
understandingofconsumerbehaviorincreases,thefirm'sperformancewillimprove.
6.3.3 Step 3: Collect the Data

Twomajordecisionsmustbemadeduringthisstageinthemarketingresearchprocess.They
involvechoosingadatacollectionmethodanddeterminingthesamplingplan.Onceadata
collectionmethodischosen,thedatacollectioninstrument,orform(e.g.,surveyquestionnaire
orobservationform)mustbedesignedtofitthatmethodandtheresearchobjectives.Designing
datacollectionformsisdiscussedinmoredetailintheAppendix.Weaknessesinanyofthese
areascanhaveaprofoundimpactonthereliabilityandvalidityoftheresults.Aspreviously
noted,reliabilityreferstotheconsistencyofresponsestoquestions,andvalidityreferstothe
accuracyofthemeasure.Itispossibletohavereliabilitywithoutvalidity,butforameasuretobe
valid,itmustalsobereliable.Forexample,apoorlywrittenquestioncansolicitconsistent
responses,butitmaynotbeavalidmeasureoftheconstructthatisbeingstudied.Evenwith
thebestsample,apoorlydesignedcollectionformwillresultininaccuratedata.Similarly,awell
designedcollectionformisuselessifthesampledoesnotrepresentthepopulation.
6.3.3.1 DATA COLLECTION METHODS.

Aftertheresearchdesignhasbeenplanned,itisnecessarytodeterminethebestmethodfor
collectingthedata.Thethreepossiblemethodsforobtainingprimarydataareobservation,
surveys,andexperiments.Theappropriatemethodwilldependontheresearchobjectivesand
theresearchdesign.Exploratoryresearchismostoftenaccomplishedusingobservationand
surveys.Descriptiveresearchusesallofthedatacollectionmethods,butitreliesveryheavily
oninformationreceivedfromsurveys.Finally,experimentsareusedalmostexclusivelyfor
causalresearch.However,observationandsurveysarealsousedtoobtaininformationtostudy
causalrelationships.
Observationinvolveswatchingconsumersandmakingorganizednotestodocumentorrecord
theobservedbehavior.Whendoingthistypeofresearch,itisimportantthatallindividuals
actingasobserversrecordtheirobservationsinthesamemanner.Directobservationrefersto
theprocessofobservingbehaviorasitactuallyoccurs,byeitherapersonoramechanical
device.Forexample,hotelsandrestaurantsusemysteryshopperstoexperiencetheservice
firsthandandrecordtheirobservations.Similarly,someamusementparkchainshavecameras
andemployeesthatareusedtoobservethebehavioroftheemployeestomakesuretheyare
payingattentionandadheringtosafetyprocedures.Indirectobservationreferstotheprocessof
observingbehaviorafterthefact.Forexample,restaurantscanexaminetheuneatenportionof
mealstodeterminetheeatingbehaviorsoftheirguests.Thisphysicaltraceevidenceisusefulin
decidingwhichmealitemstoincludeandwhichonestoeliminate,orreducetheportionsize.In
mostcases,theobservationisdisguisedsoasnottoaffecttheconsumer'sbehavior(e.g.,
observingvisitorsinlineatanamusementpark)however,thereareinstances,suchasfood
testing,whensubjectsknowtheyarebeingobserved.Oneofthedisadvantagesofobservation
isthatsubjects'behaviorcanbedifficulttointerpret,especiallytheattitudesandmotivation
behindit.
Observation
Aprocessinvolvingwatchingconsumersanddocumentingtheirbehavior.
Surveysinvolveaskingconsumerstoprovideinformationregardingtheissuessurroundingthe
researchproblemonaquestionnaireorcommentcard.Thesurveycanbefilledinbythe
researcher,completedwiththeaidofacomputer,orcompletedbytherespondent(self
administered).Whenusedproperly,thesurveymethodcangatheragreatdealofuseful
information.
Thesurveymethodisadaptabletoavarietyofsituationsandisrelativelyinexpensive.Surveys
maybeaccomplishedusinganumberofdifferentmethods,includingtelephonesurveys,direct
mailsurveys,personalinterviews,orelectronicsurveys.Asummaryoftheadvantagesand
disadvantagesofthesemethodsisprovidedinTable6.2.
Surveys
Datacollectioninstrumentsdesignedtogatherspecificinformationforaparticularresearch
problemthroughaseriesofquestionsandstatements.
TABLE6.2
ComparisonofSurveyDataCollectionMethods
CHARACTERISTIC DIRECTMAIL TELEPHONE PERSONAL ELECTRONIC
SURVEYS SURVEYS INTERVIEWS SURVEYS
Costperrespondent Low Medium High Low
Speedofresponse Low High Medium High
Responserate Low Medium High Low
Interviewerbias Low Medium High Low
Allowsfeedback Low Medium High Medium
Abilitytohandle High Medium Low Medium
sensitivetopics
Abilitytohandle Medium Low High Medium
complexquestions
Telephonesurveysarethemostcommonmethodofsurveydatacollectionbecausetheyarethe
easiesttoimplementandproduceveryquickresults.Anothermajoradvantageofthistypeof
surveyisthecost.Notravelisinvolved,andasingleindividualmaycontactandsolicitanswers
fromalargenumberofpeopleinafairlyshortperiodoftime.However,thereisnofacetoface
contact,andpeopleareoftennotinclinedtoanswerquestionsoverthephone,especiallyifthey
arecomplicated.Therefore,thereliabilityoftheanswersreceivedoverthetelephonecanbean
issue.Anotherexampleisthenationaldonotcalllistthatprohibitstelemarketersfrom
contactingindividualswhochosetobeonthelist,whichcanleadtoabiasedsample.However,
politicalpollsandnoncommercialsurveysarenotincludedintheprohibition.
Directmailsurveysoffereaseofcompletion,respondentanonymity,andalowcostper
response.However,thereareafewmajordrawbacks.First,theresponserateisnormallyquite
low,andthecollectionprocessisslow.Often,lessthan25percentofthesurveysareproperly
completedandreturned,anditmaytakeupto3months,and2or3mailings,toobtainan
adequatesample.Withsuchalowresponserate,thereisariskthattheindividualswho
returnedthesurveysdonotrepresentthepopulation,andsoanydecisionsbasedontheresults
couldbebiased.Second,directmailsurveysdonotallowanyindepthquestioning,andtheydo
notallowforfollowupquestions.Therespondentmerelyseesthewrittenquestionsandhasno
opportunityforclarification.Thismaymakeitmoredifficulttogenerateanswersthatreflectthe
complexityofopinionwithinthetargetedmarketsegments.
Personalinterviewsallowmoreindepthquestioning.Aninterviewernormallyusesaguide
sheettodirecttheinterviewandmayadjustthequestioningtofocusonapointofspecial
interestortofollowupananswergivenbytherespondent.Therearetwodrawbacksto
personalinterviewsasasurveyingtechnique.First,themajordrawbackiscostperinterview.It
isextremelyexpensivetohaveaninterviewerspendalongperiodoftimewitheachindividualin
ordertogatherinformation.Anindepthinterviewcanlastaslongasanhourhence,the
numberofindividualswhocanbeinterviewedislimited,andthecostperinterviewisquitehigh.
Thecostoftravelalsomakesthistypeofsurveyexpensive.Second,agooddealoftraining
mustbedoneforinterviewerstobeeffective.Inaddition,supervisionisrequiredinordertohave
controlovertheinterviewers.Interceptinterviewsareaformofpersonalinterviewconductedin
majortrafficareassuchasshoppingmalls,inanattempttoeliminatesomeofthedrawbacks
associatedwithcostandspeedofresponse.
Electronicsurveysareincreasinginpopularitybecauseoftheavailabilityofemailaddresslists
andadvancesintechnology.Therearetwobasictypesofelectronicsurveys:webbased
surveysandemailsurveys.Webbasedsurveystypicallyprovideimmediatefeedbackforthe
researcher,as

wellassimplifythedatacodingandeditingprocess.Emailsurveysareeitherembeddedwithin
theemailmessageorattachedtoamessage.Theymustbecompletedandreturnedtothe
researcher,andrequiredatainputandediting.Also,linkstowebbasedsurveyscanbe
containedwithinanemailmessage.Themajoradvantagesofelectronicsurveysarethelow
costperrespondenttocollectdata(lessthandirectmail),thespeedofresponse(most
responsesarecollectwithin2weeks),andtheeaseofdatainput(ifwebbased).Themajor
drawbacksofthisapproacharethatemailaddressescanbeoutdatedandoftenfilterincoming
mail,andtheresponserateislowbecauseofalltheclutterandspammail.However,this
methodcombinestheadvantagesofdirectmailandtelephonesurveys.Popularwebbased
surveyprogramssuchasSurveyMonkeyandQualtricsarereadilyavailabletoanysize
organizationorindividual,andtheprogramsareeasytouse.
Commentcardsareaparticularformofsurveythatisfrequentlyusedinthehospitalityand
tourismindustry.Theyresembleacombinationofaninterceptbasedonthelocationandthe
directmailsurveybasedonitsselfadministerednature.Themainobjectiveofcommentcards
istogatherinformationfromcustomersabouttheirlodgingordiningexperiencetodetermineif
theyaresatisfiedwiththeservice.Thecardisnormallyplacedintheguest'sroominahotelor
onthetableinarestaurant.Thisallowsthecustomertoprovideimmediatefeedbackregarding
theserviceanditsdelivery.Inadditiontoimmediatefeedback,commentcardsalsohaveother
benefits:(1)theyarelessexpensivethanothersurveymethods,(2)theycanbetailoredtothe
needsoftheorganization,(3)theycanbestandardizedforeasyanalysisandcomparisons,and
(4)customerneedscanbetrackedovertime.Figures6.4aand6.4bareexamplesoftypical
restaurantandhotelcommentcards.
Thankyouforsharingyourthoughtswithus.Pleasereturnthiscardandplaceitinthe
commentboxlocatedattheentrance.Welookforwardtoservingyouagain!
Excellent Good Fair Poor
Seating
Employeefriendliness
Promptnessofservice
Menuvariety
Foodquality
Atmosphere
Valueforpricepaid
Whattimeofdaydidyouvisittherestaurant?_____________
Whatdayoftheweekdidyouvisittherestaurant?______________
Whatmealdidyouorder?______________
Howcouldwemakeyourexperiencemoreenjoyable?________________
FIGURE6.4aRestaurantcommentcard.
Pleasehelpusimproveourservice
Excellent Good Fair Poor
Howwouldyourateourhoteloverall?
Howwouldyouratethefollowing?
Roomreservationasrequested
Checkinspeedandefficiency
Cleanlinessofroom
Dcorofyourroom
Checkoutspeedandefficiency
Valueofroomforpricepaid
Parking
Howwouldyourateourhotelteamintermsoffriendlyandefficientservice?
Reservationstaff
Frontdeskclerk
Housekeepingstaff
Telephoneoperators
Bellman
Managementstaff
Additionalcomments:_______________
Ifamemberofourstaffwasparticularlyhelpful,pleaseletusknowsowecanshowthat
personourappreciation:_______________
Whatdidhe/shedo?___________________
Whatwasyourroomnumber?____________
Optional:
Name:________________
Address:________________
Pleaseleavethiscardinyourroomorplaceitinthecommentboxinthelobby.Thankyoufor
yourtime.
FIGURE6.4bHotelcommentcard.
Therearealsosomedisadvantagesassociatedwithcommentcards:(1)thereisoftenalow
responserateandthesamplemaynotberepresentativeofthepopulation,(2)theycandeal
withonlyalimitednumberofissuesbecauseoftheirshortlength,and(3)therecanbe
problemswithreliabilityandvalidity.However,itispossibletoimprovetheresponserateby
handingthemoutpersonally(e.g.,waitstafforfrontdeskstaff),keepingthemsimple(e.g.,
usingclosedendedquestions),leavingaspaceforcomments,offeringanincentive,and/or
promisingconfidentiality(e.g.,useacollectionboxorpostagepaidreturn).
Whenconductingexperiments,aresearcherdividesthesampleofpeopleintogroupsand
exposeseachgrouptoadifferenttreatmentwhiletryingtocontrolforotherextraneousfactors
thatmayaffecttheoutcome.Thetreatmentvariableisreferredtoastheindependentvariable,
andtheoutcomeofthetreatmentismeasuredusingadependentvariablebecausechangesin
thevariable
aredependentonchangesinthetreatment.Inotherwords,thereisacauseandeffect
relationshipinwhichtheindependentvariableisthecauseandthedependentvariableisthe
effect.Experimentscanbeconductedinthefieldundernormalconditionsorinalaboratory
setting,whereextraneousfactorscanbemoreeasilycontrolled.Forexample,Marriott
Internationalexperimentedwithitssalesforcetofindthebestapproach.Thehotelchain
allowedsomesalespeople
toworkfromhomeandsellmultiplepropertiesratherthansellonepropertyfromanofficeinthe
hotel.Theperformanceofthesetwogroupsintermsofvolumeandrevenueswasthen
comparedtodeterminethebestapproachbasedonthegeographicarea.
Experiments
Adatacollectionprocessusedtocompareacontrolgroupwithoneormoretreatment
groupstodetermineifthereareanydifferencesattributedtothevariable(s)beingtested.
Testmarketingisacommonformoffieldexperimentconsistingofmanipulationsinthe
marketingmixatcertainlocationsthatrepresentthecompetitiveenvironmentandconsumer
profileoftheoverallpopulation.Forexample,allofthenationalquickservicerestaurantchains
usecitiesacrossthecountryastestmarketcenters.Ineachcity,thecompanieswillintroduceor
testmarketnewproductsormarketingmixchangestoobtaincustomerreactionsandto
projectfuturesales.Salesmaythenbecomparedwiththoseatothertestmarketcentersto
determinethepopularityofnewandolditemsandtodecidewhichproductswillbeintroduced
systemwide.Testmarketsarecommonfornewrestaurantconceptsaswell.Darden
Restaurants'launchedSeasons52in2003.Themarketingmixandmenuwerefirsttestednear
corporateheadquartersinOrlando,Florida,andthenexpandedtootherareasinFloridaand
Atlanta,Georgia,oncethecompanywascomfortablewiththebusinessmodel.Aftermorethan
adecade,theconceptisnowlocatedinseveralotherstatessuchasCalifornia,Massachusetts,
NewYork,NewJersey,Texas,Alabama,Illinois,andIndiana.
Testmarketing
Acommonformoffieldexperimentconsistingofmanipulationsinthemarketingmixat
certainlocationsthatrepresentthecompetitiveenvironmentandconsumerprofileofthe
overalltargetpopulation.
6.3.3.2 DETERMINING THE SAMPLING PLAN.

Samplingistheprocessofusingasmallsubsetofthepopulationtoobtaininformationthatcan
beusedtomakeinferencesaboutthetotalpopulation.Apopulationistheentiregroup,or
targetmarket,thatisbeingstudiedforthepurposeofansweringtheresearchquestions.A
sampleisthesubsetofthepopulationthatisdrawninsuchawaysoastorepresenttheoverall
population.Normally,thecostofacensus,ortheinvestigationoftheentirepopulation,is
prohibitive,andthesurveywouldtaketoomuchtimetocomplete.Therefore,asampleisused
inhopesthattheresultscanbeappliedtotheoverallpopulation.Wheneverasampleisused
insteadofacensus,therearesomedifferencesbetweenthesampleresultsandactual
populationmeasures.Thisdifferenceisreferredtoassamplingerror.TheAppendixattheend
ofthischaptercoversthesamplingprocessindetailandexplainshowtodeterminethe
appropriatesamplesize.Asamplingunitisthebasiclevelofinvestigation.Thesampleunit
couldbeanindividual,ahousehold,oranorganization.Forexample,studiesinthehospitality
industrycouldlookatahotel'sguest,aspecifichotelproperty,orahotelchain.
Population
Theentiregroup,ortargetmarket,thatisbeingstudiedforthepurposeofansweringthe
researchquestions.
Sample
Thesubsetofthepopulationthatisdrawninsuchawaysoastorepresenttheoverall
population.
Census
Asampleconsistingoftheentirepopulation.
Samplingerror
Thedifferencebetweenthesampleresultsandactualpopulationmeasures.
Samplingunit
Thebasiclevelofinvestigationinaresearchstudy.
6.3.4 Step 4: Analyze the Data

Twobasicformsofstatisticalanalysisareusedinmarketingresearch:descriptiveanalysisand
inferentialanalysis.Descriptiveanalysisusesaggregatedatatodescribetheaverageor
typicalrespondent,andtowhatdegreerespondentsvaryfromthisprofile.Themeasuresused
forcentraltendencyarethemode,median,andmean.Modereferstothevaluethatoccurs
mostoften.Medianreferstothevaluethatrepresentsthemiddleofanorderedsetof
responses.Inotherwords,theresponsesareorderedfromhightolow,orlowtohigh,andthen
themiddlevalueisdetermined.Meanreferstothearithmeticaverage,orthesumofall
responsesdividedbythenumberofresponses.Themeasuresofvariabilityarethefrequency
distribution,range,andstandarddeviation.Thefrequencydistributionprovidesthecountsfor
eachvalueinthesetofresponses.Therangeiscalculatedbytakingthedifferencebetweenthe
highestvalueandthelowestvalueoftheorderedsetofresponses.Thestandarddeviationisa
measureofvariancebetweentheobservedvaluesandthemeanforthesetofresponses.
Descriptiveanalysis
Ananalysisusingaggregatedatatodescribetheaverageortypicalrespondent,andto
whatdegreerespondentsvaryfromthisprofile.
Thesecondformofstatisticalanalysisisinferentialanalysis,whichisusedtotesthypotheses
andestimatepopulationparametersusingsamplestatistics.Statisticssuchasthetstatisticand
thezstatisticareusedtotestfordifferencesbetweenthesamplemeanandahypothesized
mean.Theseteststatisticscanalsobeusedtotestfordifferencesbetweentwogroups,and
analysisofvariance(ANOVA)isusedtotestfordifferencesbetweenmorethantwogroups
basedontheirrespectivemeansandvariances.Correlationsandcrosstabulationsareusedto
determineifanassociationexistsbetweentwovariables.Ifso,thetwovariableswillvary
togethereitherdirectlyorinversely.Finally,multivariatestatisticscanbeusedtotestfor
relationshipsbetweenmorethantwovariables.Theseformsofstatisticalanalysisarebeyond
thescopeofthistext,andinterestedreadersshouldrefertoamarketingresearchtextformore
details.2
Inferentialanalysis
Ananalysisofcauseandeffectrelationshipsusedtotesthypotheses.
6.3.5 Step 5: Prepare the Final Report

Aftertheresearchiscompletedandthedataareanalyzed,itisnecessarytoprepareafinal
reportthatprovidesadetailedoutlineoftheresearchdesign,summarizestheresults,and
providessomeconclusionsorrecommendations.Theresearchershouldconsidertheaudience
forthepresentationwhenpreparingthefinalreport.Bothwrittenandoralreportshavebeen
criticizedforthingssuchasexcessivelength,impracticalrecommendations,andtheuseof
complexterms.Thesemistakescanbeavoidediftheresearcherdeterminesthepersonalityand
requirementsoftheaudienceandtakesthemintoconsiderationwhenpreparingthereport.For
example,manyclientsprefertobeshowntheresultssummarizedintablesandchartsrather
thantoreaddetaileddiscussionsincludingstatistics.
Therearesomeguidelinesthatcanbefollowedwhenpreparingthefinalreportthatwillimprove
theprobabilityofclientsatisfaction,aswellassuccess.First,theresearchteamshouldplanto
devoteanadequateamountoftimetopreparingthereport.Infact,thetimeforreport
preparationshouldbeincludedinthetimeframeoutlinedintheproposal.Second,theoriginal
proposalshouldbeexaminedandtheresearchobjectivesshouldbeaddressedinthefinal
report.Third,theresearchteammustunderstandtheneedsoftheaudienceanddeterminethe
contentandlengththatareappropriateforthereport.Fourth,itisimportanttoanticipate
possibleobjectionsorconcernsandtoaddresstheminthereportorpresentation.
Mostwrittenreportsfollowastandardoutline.Thereportnormallybeginswithanexecutiveor
managementsummarythatclearlyandconciselystatestheproject'sobjectives,methods,
conclusions,andrecommendations.Next,theactualbodyofthereportbeginswithadetailed
discussionoftheresearchobjectives,followedbyanexplanationoftheresearchmethodology,
includingitsadvantagesandlimitations.Theresearchmethodologysectioncontainsthe
elementsoftheresearchplan,includingquestionnairedesign,sampling,datacollection,and
typeofanalysis.Thenextsectioncontainsadetaileddescriptionoftheresults,withreferences
tocharts,figures,andtablesthatsummarizetheresults.Finally,thereportendswiththe
conclusions,implications,andrecommendationsoftheresearchteam.Anytables,charts,
figures,orothersupplementalmaterialswillappearinanappendixattheendofthereport.
Examplesofsupplementalmaterialswouldbeanannotatedquestionnairecontainingtheresults
foreachquestion,oralistofresponsestoopenendedquestions.
6.4 DESTINATION RESEARCH

Thegoalofresearchistoreducetheuncertaintysurroundingmanagerialdecisions.These
decisionsaremadeonaregularbasisandincludedintheorganization'smarketingplan.There
arefourmainobjectivesofresearchregardingtourismdestinations:
1.Whatistheprofileofthevisitors,orpotentialvisitors,thatcomposethetargetmarket(s)for
thedestination?
2.Whatistheoverallvalue,oreconomicimpact,providedbythetargetmarket(s)?
3.Whataretheattributesorcharacteristicsassociatedwiththedestinationthatattractvisitors,
andhowdoesthedestinationcomparewithotherdestinationsonthoseattributes?
4.Howshouldthemarketingmixbecomposedforeachtargetmarket?Forexample,what
typesofmarketingcommunicationsshouldbeusedtoreachthetargetmarkets,andwhat
shouldthemessagebe?
Variousresearchdesignsandmethodologiesmaybeusedtoobtainthenecessaryinformation
toanswerthesequestions.However,itisimportantforthedestinationmarketingorganizationto
weighthebenefitsofcollectingadditionalinformationagainstthecostsofcollectingit,inorderto
choosetheappropriatecutoffpointinordertomakeadecision.
Someoftheinformationisneededonacontinualbasis(e.g.,monthlyvisitorarrivals,occupancy
rates,andaveragedailyrates),whereasotherstudiesareneededonlyonaperiodicbasis(e.g.,
economicimpactandforecasting,destinationimage,andinquiryconversion).Mostofthe
informationthatisrequiredonacontinualbasisisobtainedthroughbasictrackingandreporting
methods.Themorecomplicatedstudiesthatareconductedperiodicallyarediscussedinthe
followingsections.
6.4.1 Economic Impact Studies

Tourisminmanycountriesorregionsisanindustrythatbringssignificanteconomiceffectsto
thelocaleconomy.Tourismnotonlycontributestothelocaleconomymonetarilybyincreasing
foreignexchangeandthepurchaseofgoodsandservicesbutitalsocreatesmanyjob
opportunities.Inaddition,tourismgeneratesindirecteffectstootherindustriesthatsupplyand
supportvarioustourismactivities.Thereareseveralwaystoestimatetheeconomicimpactsof
tourism.Aninputoutputmodelthatmultipliestotaltouristexpendituresbyregionalmultipliersis
themostcommonlyusedmethod.Theprimarysourceofeconomicimpactfromtourismis
derivedfromtourists'expendituresduringtheirtrips.Themajorcategoriesoftourist
expendituresaretransportation,accommodations,meals,shopping,andtouristattractions.
Changesintouristexpenditurescanbringthreetypesofeffectstoalocaleconomy:
1.Directeffect:Thisreferstotheeffectbroughttoestablishmentsandemployeeswhere
touristsspendtheirmoney.
2.Indirecteffect:Thisresultsfromtheneedoftourismsectorstopurchasefromother
industriesinordertoproduceitsoutput.Continuousinteractionsamongsectorswillbe
generatedbythesepurchasesuntilthemoneyrespentbecomesnegligible.
3.Inducedeffect:Thisistheincomelevelincreaseasaresultoftourism.Aportionofthe
increasedincomewillberespentonthefinalgoodsandserviceswithinthelocaleconomy.
Economicimpactsoftourismcomefromthespendingoftouristswithinthelocalarea,changein
regionalincomesandchangesinemployment.Toassesseconomicimpacts,thelocalregionis
generallydefinedasallcountieswithinagivenradiusofthedestination,usually30to60miles.
Satelliteaccountsandvisitorsurveyinputoutputmodelsarethetwoprincipalmethodsusedfor
estimatingtheeconomicimpactsgeneratedfromtourism.
Thesatelliteaccountmethodidentifiesanoverallestimateoftourismcontributiontostateand
nationaleconomiesbyutilizingdatafromacountrysSystemofNationalAccounts.Using
existingeconomicdataforthecomponentsoftourisminanacceptedsystemofaccountsisthe
advantageofthesatelliteaccountingapproach.However,thedisadvantageisthatitisrelatively
moredifficulttogathercompleteinformationnecessarytoextracttourismactivityfromnational
economicaccounts.Furthermore,itismoredifficulttoapplythismethodatthenationallevelor
forsubcategoriesoftourismactivities.
Satelliteaccountmethod
Theprocessusedtoidentifyanoverallestimateoftourismcontributiontothestateand
nationaleconomiesbyutilizingdatafromacountrysSystemofNationalAccounts.
Theinputoutputmodelisamorecommonapproachforestimatingtheeconomicimpactsof
tourismbydirectlysurveyingtouriststoobtaindataontheirspendinghabits.Thedirectsurvey
methodismoreapplicableinestimatingtheimpactsofaparticularactiononthelocaleconomy.
Byadaptingappropriateeconomicratiosandmultipliers,estimationoftouristexpenditurescan
betransformedintotheresultingjobsandincomeofagivenregion.Thebasicequationsofthe
inputoutputmodelareasfollows:
Inputoutputmodel
Acommonapproachforestimatingtheeconomicimpactsoftourismbydirectlysurveying
touriststoobtaindataontheirspendinghabits.
Anothermorecomplicatedandrigorousapproachtoestimatetheincomeandjobsgeneratedby
tourismistheuseofmultiplieranalysis.Therearethreetypesofmultipliers:
1.Outputmultiplier:Theratioofchangeintotalproductiveoutputofthetotaleconomy
broughtbytheinitialchangeintouristexpenditure
2.Incomemultiplier:Thechangeinincome,suchaswages,salaries,andprofitsofthe
economy,resultingfromthechangeintouristexpenditure
3.Employmentmultiplier:Thechangeofjobopportunitiesassociatedwiththechangeintotal
touristexpenditure
Multiplieranalysis
Proceduretoestimatetheadditionalimpactgeneratedinatouristdestinationforevery
dollarspentonthetouristproductitself.
Thepurposeofusingmultiplieranalysisistoestimatetheadditionalimpactgeneratedina
touristdestinationforeverydollarspentonthetouristproductitself.Agreateramountof
local/regionalresourceutilizationandlowerproportionofimportedgoodsthatsupplylocal
consumptionandproductionwillresultinahighermultiplier.Figure6.5providesalistof
examplequestionsthatcanbeusedinobtainingthenecessaryinformationforconductingan
economicimpactanalysis.
1.HowlongdidyoustayinthePioneerValley?
______________days__________nights
2.Wheredidyoustayduringyourvisit?
(Pleasenamethelodgingfacility)
Hotel_______________________________
Family/friends________________________
Bed&Breakfast_______________________
Campground__________________________
Other:______________________________
3.Howmanypeoplewereinyourparty?
Adults____________Children___________
4.Approximatelyhowmuchdidyouspendonthefollowing:
Accommodations $___________
Food $___________
TouristAttractions $___________
Shopping $___________
Transportation $___________
Other(pleasespecify) $___________
FIGURE6.5Economicimpactsamplequestions.
Thegoalistoobtaininformationontotalspendingforthetripandthen,usingtheinformationon
thesizeofthepartyandthelengthofthetrip,toconvertthefiguresintoperpersonperdayso
thattheinformationcanbecomparedovertimeandacrossmarketsegments.Inaddition,there
areoftenquestionstodeterminethetypeofaccommodations,attractionsvisited,wherethe
respondentshoppedanddined.ThisinformationisusefultotheCVBinrecruitingmembers,
obtaininggovernmentfunding,andcommunicatingthevalueoftheorganizationtothelocal
economy.
6.4.2 Destination Image Studies

Destinationchoiceisinfluencedbyanindividual'sperceptionsofalternativepossibilities(i.e.,
cities,regions,orcountries).Therefore,itisimportantforadestinationthatwantstoattract
visitorstopromoteacoherentimage.Destinationimagereferstotheimpressionsaperson
holdsaboutadestinationinwhichsheorhedoesnotreside.Imagescanbeformedthrough
contactorexperience,ortheycanbedevelopedintheabsenceofcontact.Perceptionsabout
destinationimageareformedthroughadvertisingandpromotions,newsaccounts,discussions
withfriendsorrelatives,travelagents,andpastexperiences.Destinationscannoteasilychange
theirphysicalattributes,suchasthelandscapeorclimate,sotheymustbuildtheirimages
arounduniqueattributesthatprovidethemwithsometypeofsustainablecompetitive
advantage.Thedestination,includingitsattractions,shouldbedesignedtomeettheneedsof
thetargetmarket.Therefore,thediagnosisofthedestination'sstrengthsandweaknesseson
salientattributes,relativetocompetitiveattractions,iscriticalindesigningthetourismofferings
andprogramstomarketthem.
Figure6.6providesanexampleofaquestionthatcouldbeincludedinaquestionnaireusedina
destinationimagestudy.
Howwouldyourate____oneachofthefollowingdestinationattributes?
Poor Excellent
Accommodations 1 2 3 4 5
Scenery 1 2 3 4 5
ShoppingFacilities 1 2 3 4 5
Restaurants 1 2 3 4 5
Climate/Weather 1 2 3 4 5
TouristAttractions 1 2 3 4 5
HistoricalAppeal 1 2 3 4 5
SafetyandSecurity 1 2 3 4 5
FIGURE6.6Destinationimagesamplequestion.
Theexampleincludesonlyeightattributes,butstudiesoftenincludeasmanyas15to20
differentattributesrepresentingbothtangibleandintangibleelementsofthedestination.Also,it
ispopulartoputtheattributesintheformofastatement(e.g.,SanAntoniohasmany
attractionsorSanAntoniohasagoodnightlife)andasktherespondenttoprovidehisorher
levelofagreementonascalerangingfromstronglyagreetostronglydisagree.Eitherway,it
ispossibletoobtainrespondents'perceptionsofthedestinationontheattributesprovided.The
meanratingscoreforeachattributecanprovidethebasicinformationregardingperceptions,or
moresophisticatedstatisticalmethodslikefactoranalysisandmultidimensionalscalingcanbe
usedtoidentifyusefuldimensionsandcreateaperceptualmap.Theperceptualmapcan
comparealternativedestinationsiftheperceptionsaregatheredforthemaswell.Thesedata
arecombinedwiththedemographicsandtravelbehaviorsoftherespondentstosegmentthe
marketbasedonvisitorprofiles(e.g.,seniors,families,etc.).
6.4.3 Conversion Studies

Thepurposeoftheconversionstudyistomeasuretheeffectivenessofthedestination
marketingorganization'sadvertisingandpromotion.Themostimportantperformancemeasure
isthenumberofinquiriesthatareconvertedtovisitors.Inquiriescometoconventionand
visitorsbureausthroughthreemainsources:telephone,website,anddropcardsplacedin
magazines.Thegoalistomeasuretheconversionrateoneachofthethreemethodsofinquiry
todeterminethemosteffectivemeansofreachingthetargetmarket.Themostpopular
advertisingandpromotionpiecesforconventionsandvisitorsbureausarethevisitor'sguide,
magazineads,andtelevisionads,dependingontheoverallbudget.Inaddition,theremightbea
meetingplanner'sguide,butmanyCVBsofferthemonlyinelectronicversions.Thisseemsto
bethepreferenceformeetingplannersbecausesomeofthemdealwithalargenumberof
destinationsandhotels,andtheydon'twanttomaintainlargevolumesofguidesinhardcopy
form.Figure6.7providesasamplelistofquestionsthatcanbeusedtomeasuretheconversion
rateforleisuretravelers.
1.HowdidyoufirstbecomeinterestedintheParadiseValley?
Magazine
Friends/Relatives
Internet
Newspapers
Hotel/Restaurantbrochures
Other_________________________________
2.AfterrequestinginformationandreceivingTheGuide,didyouvisittheParadiseValley?
Yes(skipto#__)
No
3.Ifnot,whatwereyourreasonsfornotvisitingtheParadiseValley?
Cost
Alternativedestination
Distance
PersonalReasons
Other_________________________________
4.Didyouvisitanalternativedestination?(pleaselist)
___________________________________________________
___________________________________________________(skipto#__)
5.ForwhichofthefollowingdidyouuseTheGuide?(checkallthatapply)
Accommodations
Touristattractions
Maps
Restaurants
Shopping
Other:_________
6.WhatwasthepurposeofyourtriptotheParadiseValley?
Business
Leisure(vacation)
VisitingColleges
BusinessandLeisure
Family/Friends
Other:_________
FIGURE6.7Conversionstudysamplequestions.
Thesequestionsobtaininformationonhowrespondentsfirstbecameawareofthedestination,if
theydecidedtovisitafterreceivingthepromotionmaterials,thereasontheydidn'tvisit,and
whatotherdestinationstheymighthavevisited.Inaddition,therearequestionsaboutthe
purposeofthetripandhowthevisitorsusedtheguide.Otherquestionsthatareimportantare
thelengthofstayandthelikelihoodofvisitationinthenearfuture(returnorfirsttime).Finally,it
shouldbenotedthattheinformationforallthreetypesofstudiescanbepartofone
questionnaire:economicimpact,destinationimage,andconversion.Thequestionsforallthree
studiescanbecombinedwithquestionsabouttripbehaviorsandvisitor(orinquiry)profiles
basedondemographicsandpsychographics.
6.5 ETHICAL ISSUES IN MARKETING RESEARCH
Aswithmostotherareasinmarketing,thereispotentialforunethicalbehaviorinmarketing
research.Researchethicsisthecodeofbehaviorsetbysocietyandtheresearchindustryto
defineappropriatebehaviorforfirmsandindividuals.Threepartiesareinvolvedinthemarketing
researchprocess,andeachhasitsownsetofrightsandobligationsconcerningethics.The
followingisabriefdescriptionoftherightsandobligationsforrespondents,researchsuppliers,
andclients.Table6.3containsasummaryoftheobligationsandrightsoftheresearchparties.
Researchethics
Thecodeofbehaviorsetbysocietyandtheresearchindustrytodefineappropriate
behaviorforfirmsandindividualsengagedintheresearchprocess.
TABLE6.3
RightsandObligationsofPartiesInvolvedinMarketingResearch
RESPONDENTS SUPPLIERS CLIENTS
Obligationtoprovide Obligationtomaintainprivacy Obligationtorevealactualnatureof
truthfulresponses ofrespondents theresearch
Righttoprivacy Obligationtoremainobjective Obligationtobehonestwhen
solicitingresearchproposals
Righttorefuseto Obligationtopresentresults Obligationtohaveareal
participate accurately commitmenttotheresearch
Righttoknowtruenature Obligationtobase
oftheresearch conclusionsonactualresults
6.5.1 Rights and Obligations of the Respondents

Researchclientsmakemajordecisionsbasedontheinformationtheyobtainthroughsurveys
andotherresearchmethods.Therefore,itisincumbentonrespondentstobetruthfulintheir
responsesandtheirbehaviorwhentheychoosetoparticipate.Researchsupplierscountonthis
honesty,butthesuppliersmustbehonestwithrespondentsaswell.Respondentshavetheright
toprivacyandshouldbeallowedtorefusetoparticipate.Also,researchsuppliersshouldhonor
anyconfidentiality
agreementsthattheymaymakewithrespondents.Finally,respondentshavetherighttobe
informedaboutthetruenatureoftheresearch.Respondentsareoftencontactedunderthe
guiseofresearchwheninrealityitismerelyasalespitch.Thistypeofdeceptionisnot
acceptablebehaviorundernormalethicalstandards.
6.5.2 Rights and Obligations of the Research Suppliers

Asjustmentioned,researchsuppliershaveanobligationtomaintaintheprivacyand
confidentialityofboththeirrespondentsandtheirclients.Researchsuppliersshouldnotperform
researchforthesakeofselling,andtheyshouldnotselltheirliststootherfirms.These
suppliershaveanobligationtoremainimpartialandobjectiveinperformingtheirresearch.Also,
theresultsshouldbepresentedaccurately,withoutanyattempttomisrepresentthem.Similarly,
conclusionsshouldbebasedontheactualresults,notmisrepresented,ortailored,tomeetthe
needsoftheclient.
6.5.3 Rights and Obligations of the Clients

Clientshaveanobligationtobeopenandforthrightwithresearchsuppliersregardingtheactual
natureoftheresearch.Ifclientssendoutarequestforproposals(RFP),itshouldbeforan
actualproject,nottoobtaininformationforconductingtheirownresearchorfornegotiatingwith
otherresearchsuppliers.Clientsshouldnotmisrepresenttheresearchprojectasapilotstudy
thatcouldleadtomoreprojectsinanattempttodecreasethecost.Finally,clientsshouldhavea
sincerecommitmenttoresearchandplantouseitproperly.Theyshouldnotputunduepressure
ontheresearchsuppliertomisrepresentresultstosuittheclient'swishes.
Insomecases,theclientfirmconductsresearchthroughaninhouseresearchdepartment.In
thissituation,theclientandtheresearchsupplierareoneandthesame,andthefirmissubject
totherightsandobligationsofbothparties.Thisdiscussionisnotmeanttobecomplete
instead,itprovidesanoverviewofthemostcommonareasforunethicalbehavior.
CHAPTER REVIEW
Marketinginformationsystemsshouldbedesignedtoproducedatathatareusefultoa
hospitalitymanager.Thisinformationcanbeusedasabasisfordecisionsitshouldnot,
however,beusedasthesoledeterminingfactorwhenmakinganydecision.Twoother
factorsalsocomeintoplaywhenmakingadecision:experienceandintuition.Ifall
decisionscouldbebasedsolelyoninformationproducedbymarketinginformation
systems,therewouldbenoneedformanagers.Instead,machinescouldbeusedto
tabulatetheinformationandpredictthecorrectanswer.Managers,however,havefartoo
manyuncontrollablevariablestocontendwithingatheringmarketinginformation.Forthis
reasonahospitalitymanagermustviewthesituationbyconsideringmarketinginformation,
previousexperienceinsimilarsituations,andintuitionastowhatthefutureholds.Basedon
thesethreefactors,adecisionmustbemade,andthehospitalitymanagermustacceptthe
finalresponsibilityforthedecision.
Ahospitalitymarketinginformationsystemisastructuredorganizationofpeopleand
proceduresdesignedtogenerateaflowofdatafrominsideandoutsidetheoperation.Itis
usedasabasisformarketingdecisions.Amarketinginformationsystemscansthree
subenvironments:themacroenvironment,thecompetitiveenvironment,andthe
organizationalenvironment.Marketinginformationsystemsinvolvebothinternallyand
externallygeneratedmarketinginformation,eachwithitsownsetofsourcesforinformation
anditsownmethodologyforobtainingnecessaryinformation.
Themarketingresearchprocessisusedtocollectdatatostoreinmarketinginformation
systemstobeusedinmakingmarketingdecisions.Thebasicsofconductingmarketing
researcharenotdifficult,butthespecificsofdesigning,implementing,analyzing,and
interpretingtheresultsofamarketingresearchprojectareverydemanding.Itrequires
greatskilltosuccessfullymanageamarketingresearchproject.Thischapterprovidedan
overviewoftheresearchprocess,whichinvolvesfivesteps:(1)definetheproblem,(2)plan
theresearch,(3)collectthedata,(4)analyzethedata,and(5)preparethefinalreport.
Managementproblemsmustbedefinedandconvertedtoresearchproblemsthatcanbe
evaluated.Aftertheresearchproblemsaredefined,researchobjectivesareestablished.
Researcherscanthenchoosethetypeofresearchtobeperformed:exploratory,
descriptive,orcausal.Thisdecisionisbasedonmanyfactors,includingtheclient's
understandingofthenatureoftheproblem,pastresearchandexperience,andtheoverall
goaloftheresearch.Next,thedecisionismadeastothemethodofdatacollection,and
datacollectionformsaredesigned.Thenasamplingplanisdevisedandimplementedto
ensurethereliabilityandvalidityoftheresearchresults.Finally,thedataareanalyzed
usingpredeterminedstatisticalmethods,andtheresultsaresummarizedinafinalreport.
Thegoalofmarketinginformationsystemsistocollectinformationthatcanbeusefulin
improvingthequalityofmarketingdecisions.Themarketingresearchprocessiscriticalin
thisendeavor.Therefore,itisimperativethatallpartiesinvolvedintheresearchprocess
adheretotheethicalstandardssetforthbysocietyandtheresearchindustry.Eachpartyto
theprocesshascertainrightsandobligationsthatarecrucialtotheoverallsuccessofthe
marketingresearchprocess.

Causalresearch
Census
Crosssectionalstudy
Descriptiveanalysis
Descriptiveresearch
Experiments
Exploratoryresearch
Focusgroup
Inferentialanalysis
Inputoutputmodel
Longitudinalstudy
Marketinginformationsystem(MIS)
Marketingresearchprocess
Multiplieranalysis
Observation
Population
Primarydata
Researchdesign
Researchethics
Sample
Samplingerror
Samplingunit
Satelliteaccountmethod
Secondarydata
Secondarydataanalysis
Surveys
Testmarketing

1.

Whywoulditbeusefulforahospitalityorganizationtoimplementamarketinginformation
system?
Whatdoyouconsiderthebestsourcesforinternalandexternalmarketing
information?Citesourcesanddiscusstheadvantagesanddisadvantagesofeach.
Howdoyoudifferentiatebetweenprimaryandsecondarydata,includingtheir
advantagesanddisadvantages?
Whatroleshouldamarketinginformationsystemplayinthemanagementofa
hospitalityestablishment?
Discussthethreetypesofresearch.Giveanexampleofasituationinwhichyou
woulduseeachone.Canyouusemorethanoneatatime?Explain.
Whatarethethreemethodsofcollectingdata?Giveanexampleofhoweachone
wouldbeusedinthehospitalityandtourismindustry?
Compareandcontrastthethreetypesofsurveys.
Whatarethetwomajortypesofdataanalysis?Whenshouldthedecisionbemadeas
towhichmethodswillbeusedforanalyzingthedata?
Whoarethepartiesinvolvedinthemarketingresearchprocess?Whataretherights
andobligationsofeachparty?
CASE STUDY
The Biggest Loser Resort
YouhavebeenhiredasthenewdevelopmentmanagerforTheBiggestLoserResort
(BLR)chainandyourfirsttaskistoperformalocationanalysisforthenextpropertyinthe
chain.Currently,therearefourresortsinthechain,locatedinChicago,IllinoisIvins,Utah
Malibu,CaliforniaandNiagra,NewYork.ThebasicmissionofBLRistoofferanaffordable
weightlossprogramthatinspiresandmotivatesparticipantstoachievetheirgoals,
resultinginalifechangingexperience(youcanviewtheentiremissionstatementat:
http://www.biggestloserresort.com/).
Thelocationmustfitthebrand,itsmission,andmakesensefromageographicperspective
(i.e.,fitwiththeotherfourproperties).YoucandoresearchontheInternet,startingwithan
indepthanalysisofthecurrentoperationsoftheBLRchaintogetanideaoftheconcept
andtheproductsandservicesofferedatthecurrentlocations.Then,youneedtochoosea
geographiclocationandanexistingfacilitythatwouldfitthebusinessmodel.Thepreferred
approachistolicenseanexistingbrandtochangetotheBLRbrandname,orcobrand
withanexistingbrand.Theapproachdependsonthestrengthoftheexistingbrandandthe
sizeoftheoperation.Itisimportanttorememberthatbothcompaniesneedtobenefitfrom
therelationship(e.g.,hotelsorspaswithstrongbrandimagescanofferfitnessfacilitiesand
programswithoutsharingrevenueswithBLR).

1.Whatgeographicareadidyouchoose,andwhy?
2.Whatresortorspadidyouchoose,andwhy?Howwilltheresortorspabenefitfromthe
BLRbrand?
3.HowwillBLRbenefitfromforminganalliancewiththeresortorspayouchose?
CASE STUDY
Bel Air Motel
BillSmithmovedfromPhiladelphia,Pennsylvania,totakeoverasthegeneralmanagerof
theBelAirMotelinCalifornia.Billhadbeentheassistantgeneralmanagerofalargechain
hotelinthedowntownareaofPhiladelphia.Heencounteredproblemswithsomeofthe
employeesandfeltitwouldbeagoodideatomovetoamorerelaxedatmosphere.Billhad
workedforthechainfor10years,startinginthemanagementtrainingprogramandworking
hiswayuptohispositionastheassistantgeneralmanager.
TheBelAirMotelisoneoftheoldestpropertiesinthearea,butithasbeenrenovated
periodicallyovertheyears.Themotelisownedbyagroupofindependentinvestorsand
has116roomswithbasicamenities.Thereisnorestaurantorpool,buttherearesome
restaurantsinthelocalarea.Themotel'sroomrateisatthelowendforthemarket,which
consistsmainlyofupscaleproperties.
Uponstartinghisnewpositionasgeneralmanager,Billrealizedthatthereweremajor
differencesbetweenworkingforalargechainandworkingatasmall,independentmotel.
Thechainhotelshadsophisticatedcomputersystemsforreservations,sales,catering,and
revenuemanagement.Inaddition,customerinformationwasgatheredthroughsurveysand
commentcards.Thisprovidedmanagerswithvaluableinformationthatcouldbeusedto
makeimportantdecisionsaboutratesandservices.Unfortunately,theBelAirMotelhada
verysimplereservationssystemandnoadditionalinformationexceptforsomehistorical
figuresonrateandoccupancy.Theaverageroomratewas$125andtheoccupancyrate
wasaround60percentbeforeBilltookover.
Billunderstoodthenecessityofgatheringmorecustomerinformationanddevelopeda
commentcardtobeplacedineveryroom.Customerswereaskedtocompletethe
commentcardandleaveitintheroomforhousekeepingtocollect.Thepurposeofthe
commentcardwastodeterminehowguestsstayingatthemotelfeltaboutthepropertyand
theservices.Billwantedtomakesuretheguestsweresatisfied.Attheendofthefirstyear,
hereceivedatotalof169completedcommentcards.Thefirstquestionhelookedatwas
theonedealingwithcustomersatisfaction:
WHICHOFTHEFOLLOWINGBESTDESCRIBESYOUREXPERIENCEATTHE
BELAIRMOTEL?
Themotelexceededmyexpectations. 19.9%
Themotelmetmyexpectations. 55.9%
Themotelfailedtomeetmyexpectations. 24.3%
Thepercentagesindicatetheguests'responsestothequestion.Thisyearcouldserveasa
benchmarkforfutureyears,butBillwasconcernedthatthemotelfailedtomeetthe
expectationsforapproximatelyonefourthoftheguests.Next,helookedattheguests'
ratingsofthemotel'sfacilitiesandservicesonafourpointscale(1=poor,2=fair,3=
good,and4=excellent).
HOTELSERVICES MEAN
Reservations 3.59
Frontdesk/checkin 3.55
Frontdesk/checkout 3.69
Frontdesk/guestservice 3.41
GUESTROOM
Comfort 3.20
Bedroomlighting 2.88
Cleanliness 3.41
Furnishings 3.07
Adequacyofsupplies 3.11
Heating/airconditioning 3.12
Overallquality 3.07
Price/roomrate 3.01
Case Questions and Issues

1.Istheresponseratelargeenoughforthecommentcardstoberepresentativeofallthe
guests?Howcouldtheresponseratebeimproved?
2.Arecustomerssatisfied?
3.Whatarethemajorareasofconcern,andhowcantheybeimproved?
4.Whatotherinformationisnecessary?Howcouldyougoaboutcollectingthat
information?
APPENDIX
Data Collection and Sampling
DESIGNINGDATACOLLECTIONFORMS.Datacollectionformsarenecessarywhether
theresearchplaninvolvesobservation,surveys,orexperiments.Surveysaremost
commonlyusedbecausemuchoftheresearchbeingconductedisdescriptive.Therefore,
thissectionwillfocusondesigningquestionnairestobeusedinsurveys.
Questionnairesconsistofquestionsdesignedtoaddresstheresearchobjectives.Thegoal
ofthequestionnaireistostandardizedatacollectionbyusingquestionsthatwillelicita
consistentresponsefromrespondents.Thisisaccomplishedthroughtheuseofopen
endedandclosedendedquestions.Anopenendedquestiondoesnotprovidethe
respondentwithanyoptions,categories,orscalestouseinansweringthequestion.These
questionsarevaluableforobtaininginformationforexploratoryresearch,orininstances
whentheresearcherisnotsurewhattheresponsemightbe.Forexample,ahotelchain
couldmerelyaskwhatdidyoulikeleastaboutyourstayatourhotel?Conversely,a
closedendedquestionprovidestherespondentwithoptionsfromwhichtoselecta
response.Forexample,arestaurantcouldaskadinertoratethequalityofthefoodona4
pointscalerangingfrompoor,tofair,togood,toexcellent.Itismucheasiertocollectand
analyzeinformationthatisintheformofclosedendedquestions.Therespondents'
answersareconsistent,andthedataareinaformthatissimpletorecord.
Openendedquestion
Doesnotprovidetherespondentwithanyoptions,categories,orscalestousein
answeringthequestion.
Closedendedquestion
Providestherespondentwithoptionsfromwhichtoselectaresponse.Itismuch
easiertocollectandanalyzeinformationinthistypeofquestion.Therespondents'
answersareconsistentandthedataareinaformthatissimpletorecord.
Openendedquestionsareintheformofabasicquestion,butclosedendedquestionscan
beinthreedifferentforms.Thesimplestformofclosedendedquestionisadichotomous
question,whichcontainstwopossibleoptions.Examplesofdichotomousquestionswould
bequestionswithyesornoanswers,oracategoricalquestionsuchasgenderwithtwo
possibleresponses,suchasmaleandfemale.
Dichotomousquestion
Thesimplestformofaclosedendedquestionisadichotomousquestion,which
containstwopossibleoptions.Examplesincludequestionswithyesornoanswers
oracategoricalquestionsuchasgenderwithtwopossibleresponses,maleand
female.
Anothertypeofclosedendedquestionisthemultiplecategoryquestion,whichcontains
morethantwooptionsfortherespondent.Demographicinformation,suchaseducation
andincome,isoftenobtainedusingmultiplecategoryquestions.Whenframingtheoptions
formultiplecategoryquestions,itisimportantfortheresearchertomakesuretheoptions
aremutuallyexclusiveandcollectivelyexhaustive.Optionsaresaidtobemutually
exclusiveifthereisonlyonepossibleoptionforeachrespondent,andcollectively
exhaustiveifthereisatleastoneoptionthatpertainstoeachrespondent.
Multiplecategoryquestion
Amultiplecategoryquestioncontainsmorethantwooptionsfortherespondent.
Demographicinformation,suchaseducationandincome,isoftenobtainedusingthis
typeofquestion.
Thefinalformofclosedendedquestionisthescaledresponsequestion.Thistypeof
questioninvolvesastatementorquestionfollowedbyaratingscale.Oneofthemore
popularscaledresponsequestionsistheLikertscale,whichhasrespondentsindicatetheir
levelofagreementwithastatementonafivepointscale,with1beingstronglydisagree
and5beingstronglyagree.
Scaledresponsequestion
Thisformofaclosedendedquestioninvolvesastatementorquestionfollowedbya
ratingscale.OneofthemorepopularscaledresponsequestionsistheLikertscale,
whichhasrespondentsindicatetheirlevelofagreementwithastatementonafive
pointscale,with1beingstronglydisagreeand5beingstronglyagree.
Surveysareusedforamultitudeofreasons,anditisdifficulttoestablishrulesthatwill
applyinallsituations.However,thefollowinggeneralguidelinesapplytotheconstructionof
allsurveyinstruments:
Avoidtalkingdowntotherespondentorusingtechnicallanguage.Askthequestions
usinglanguagethatisfamiliartoandunderstandablebytherespondent.
Avoidlongandwordyquestions.Thesewilltendtodiscouragetherespondentandmay
reducethenumberofrespondentstoawrittensurvey.
Avoidincludingmorethanoneideaperquestion.
Makecertainthatthereisalegitimatereasonforaskingeachquestion.
Avoidputtinganypersonalbiasintothequestionsbyusingleadingorloaded
language.
Inclosedendedquestions,provideadon'tknowornoopinionresponsewhere
appropriate.
Allresponsesinaclosedendedquestionshouldbecollectivelyexhaustive(i.e.,all
possibilitiesareincluded)andmutuallyexclusive(i.e.,theanswersdon'toverlap).
Indicateveryclearlyinthedirectionsthenumberofchoicesarespondentshouldcheck.
Watchforwordsandphrasesthathavemorethanonemeaning,asthiscanconfusethe
respondent.
Thequestionnaireshouldincludethreebasicsections:openingquestions,research
questions,backgroundquestions.Theopeningquestionsareusedtobuildarapportand
obtaininformationthatiseasyfortherespondenttoprovide.Thiswouldincludescreening
questions(e.g.,Haveyoueverdinedatthisrestaurant?)andpurchasebehaviorquestions
(e.g.,Howoftendoyoudineout?Howmuchdoyounormallyspend?).Theresearch
questionsaremoredifficulttoanswerandnormallyrequiretherespondenttorankorratea
brand.Theseprovidetheresearcherwithinformationformodelinganddeterminingcause
andeffectrelationships.Finally,thebackgroundquestionsareusedforclassifyingthe
respondentsandnormallyconsistofdemographicandpsychographicvariables.These
tendtobemorepersonalandshouldalwayscomeattheendofthequestionnairewhenthe
respondentisalreadyhighlyinvolvedintheprocess.
SAMPLING.Therearetwobasictypesofsamples:probabilityandnonprobability.A
probabilitysampleismorescientific,andapopulationmember'schanceofbeingselected
canbecalculated.Thistypeofsampletendstobefavoredwhenthefirmhassome
understandingoftheproblem,samplingerrorsarelarger,andthereisahighdegreeof
variabilityinthepopulation(i.e.,itisheterogeneous).Themostcommonprobability
samplingmethodisthesimplerandomsample,wheretheprocessistotallyrandomand
eachpopulationmemberhasanequalchanceofbeingselected.Withthismethod,thereis
littlechanceofselectionbiasorsamplingerror.Anotherpopularprobabilitymethodisthe
systematicsample,whereastartingpointischosenarbitrarilyandtheneverynthmember
isselectedforthesample.Thismethodiseasierthanrandomsampling,anditisoften
usedwithlistscontainingaddressesand/ortelephonenumbers(e.g.,thetelephone
directory).Normally,thereisnoreasontobelievethatanybiaswouldoccurduetothe
orderingofmembersinthelist.Forexample,itwouldbe
unusualforevery100thnameonalisttosharecommoncharacteristicssuchasageand
income.Astratifiedsampleisoneinwhichthepopulationisseparatedintodifferentstrata
basedonanimportantpopulationcharacteristic,andasampleistakenfromeachstratum
usingarandomorsystematicprocess.Forexample,manyfirmswanttoincludeboth
customersandnoncustomersintheirsamplesbutplacemoreweightoncustomers'
responses.
Probabilitysample
Asamplechosenusingascientificallyrandommethod,wherethechanceofselecting
anygivenpopulationmembercanbecalculated.
Simplerandomsample
Atotallyrandomprocesswhereeachpopulationmemberhasanequalchanceof
beingselected.
Systematicsample
Astartingpointisrandomlychosenandtheneverynthmemberisselectedforthe
sample.
Stratifiedsample
Thepopulationisseparatedintodifferentstratabasedonanimportantpopulation
characteristicandasampleistakenfromeachstratumusingarandomorsystematic
process.
Anonprobabilitysampleisbasedonjudgment,andtheselectionprocessisvery
subjective.Thechanceofamemberbeingselectedcannotbecalculated,butthatdoesnot
meanthatthesamplewon'tberepresentativeofthepopulation.Therepresentativenessof
thesamplewilldependgreatlyonthejudgmentoftheresearcher.Nonprobabilitysamples
tendtobefavoredwhentheresearchisexploratory,thereismorepotentialfor
nonsamplingerrors,andthepopulationishomogeneous.Themostbasicmethodof
nonprobabilitysamplingistheconveniencesamplebecausetheresearcherchoosesa
sampleofpopulationmemberswho,inhisorheropinion,representthetargetpopulation.
Often,professorsuseaclassofstudents,orresearchfirmsinterceptpeopleatshopping
malls.Ajudgmentsampleisslightlydifferentinthattheresearchermakesadetermination
astoasubsetofpopulationmembersthatwillrepresentthepopulation.Thisprocessis
similartotheoneusedinchoosingthemembersforafocusgroup.Aquotasampleisone
ofthemostpopularsamplingmethods.Thesampleischosentofillcertainquotasthatare
predeterminedbytheresearcher.Thismethodissimilartostratifiedsampling,exceptthata
conveniencesampleisusedtofillthequotasandaprobabilitytechniqueisusedtofilleach
stratum.
Nonprobabilitysample
Nonprobabilitysamplesarebasedonjudgmentandtheselectionprocessis
subjective.
Conveniencesample
Themostbasicmethodofnonprobabilitysamplingbecausetheresearcherchoosesa
sampleofpopulationmembersthat,inhisorheropinion,representthetarget
population(e.g.,professorsuseaclassofstudents,orresearchfirmsinterceptpeople
atshoppingmalls).
Judgmentsample
Theresearchermakesadeterminationastoasubsetofpopulationmembersthatwill
representthepopulation.Thisprocessissimilartotheoneusedinchoosingthe
membersforafocusgroup.
Quotasample
Chosentofillcertainquotasthatarepredeterminedbytheresearcher.
APPENDIX KEY TERMS

Closedendedquestion
Conveniencesample
Dichotomousquestion
Judgmentsample
Multiplecategoryquestion
Nonprobabilitysample
Openendedquestion
Probabilitysample
Quotasample
Scaledresponsequestion
Simplerandomsample
Stratifiedsample
Systematicsample
APPENDIX QUESTIONS FOR REVIEW AND DISCUSSION

1.
Howarequestionnairesorganized?Whataresomeoftheguidelinesthatshouldbe
followedindevelopingquestions?
2.Whatisthedifferencebetweenaprobabilitysampleandanonprobabilitysample?
Whichoneisbest?Explainyouranswer.
NOTES
1AlvinC.BurnsandRonaldF.Bush,MarketingResearch,2nded.(EnglewoodCliffs,NJ:
PrenticeHall,1998).
2DavidA.Aaker,J.Kumer,andGeorgeS.Day,MarketingResearch,8thed.(NewYork:John
Wiley&Sons,2003)CarlMcDanielJr.andRogerGates,MarketingResearchEssentials,
4thed.(NewYork:JohnWiley&Sons,2003).

7
PRICING STRATEGY
CourtesyTheMeltingPot.
Chapter Objectives
1.Describethetraditionalroleofpriceinthemarketingmix.
2.Explaintheimpactofpricingobjectives,consumerpricesensitivity,andenvironmental
factorsonpricingdecisions.
3.Discussthebroadpricingstrategiesthatcanbeusedinhospitalityandtourism.
4.Describethevariouspricingtechniquesandprocedures.
5.Explaintheuseofpricetosegmentconsumermarkets.
6.Outlinetheroleofpriceinrevenuemanagement.
7.Discusslegalandethicalissuessurroundingpricingpractices.
7.1 INTRODUCTION
Priceisacomponentofthemarketingmixandthevehicleusedinfreeenterprisetoallocate
limitedresources.Theotherthreecomponentsofthemarketingmixpromotion,product,and
distributioncreatevalueandappearonthefirm'sincomestatementasexpenses.Conversely,
priceisthefirm'stoolforcapturingvalue,anditaffectstherevenuesectionoftheincome
statement.Priceistheeasiestofthemarketingmixcomponentstochange,anditdirectly
affectsrevenue.Therefore,firmsshouldputagreatdealofeffortintoformulatingtheirpricing
strategies.Pricecanbedefinedasthevaluegiventoaproductorservicebyconsumers.
Variousnamesareassociatedwithprice,suchasfee,tuition,andpremium.Theimportantthing
torememberistheconceptofexchange.Inotherwords,thebuyerandthesellerhavetobe
mutuallysatisfiedforanexchangetotakeplace,andthisexchangedoesnothavetoincludea
monetaryunit.Theearlysystemofexchangewasreferredtoasbartering,whereindividualsor
organizationsexchangedgoodsandserviceswithoneanother.Evennonprofitorganizationsare
inthebusinessofsellingasenseofgoodwillorcharityinexchangefordonors'contributions.
Bartering
Individualsororganizationsexchangegoodsandserviceswithoneanotherwithouttheuse
ofmoney.
Pricingstrategyintegratesmarketingandfinanceinanattempttocreateanatmosphereof
mutualsatisfaction.Theproductorserviceattributesarecombinedwithpricetoprovideenough
valuetosatisfycustomers,whileenablingthefirmtocovercostsandmakeanadequateprofit.
Therestofthischaptercoverstheprocessofstrategicpricing,includingthefactorsthat
influencepricingdecisions.
7.2 FACTORS THAT AFFECT PRICING DECISIONS

Thepricingdecisionremainsacriticalcomponentofthemarketingmixandthepositioningofa
productorservice.Pricingisacontinualprocessthatrequiresafirmunderstandingofthe
marketanditsenvironments.Thedynamicnatureofthemarketanditsenvironmentscreatesa
formidablechallengeforeventhemostexperiencedmanagers.Therefore,itisbesttotakea
systematicapproachtopricingthatincludesestablishingpricingobjectivesconsistentwiththe
overallobjectivesofthefirm,assessingconsumerpricesensitivity,andmonitoringtheexternal
environment.
7.2.1 Pricing Objectives

Mostofthepossiblepricingobjectivescanbegroupedintofourmajorcategoriesbasedon
goalsrelatedtofinancialperformance,volume,competition,andimage.Theseobjectivesare
consistentwiththeorganizationalobjectivesdiscussedinChapter5andmustbeconsidered
whensettingprices.Abriefsummaryofthecategoriesfollows:
Pricingobjectives
Organizationalobjectivesfocusedonfinancialperformance,volume,competition,and
imagethataredirectlyrelatedtopricingdecisions.
Financialperformanceobjectivesfocusonareassuchasthefirm'slevelofprofitability,rates
ofreturnonsalesandequity,andcashflow.Mostlargecompaniescontinuallymonitorthese
performancemeasuresandfinditeasytousethesemeasuresasbenchmarksorobjectives.
Itbecomesrelativelyeasytoseetheroleofpriceinthesemeasuresoffirmperformance.
Volumeobjectivesfocusonsalesandmarketshare.Thesemeasurescanbebasedeither
onthenumberofunitssoldoronthedollaramountofunitssold.Thesalesmeasurelooksat
thefirmindividually,whereasthemarketsharemeasureviewsthefirmrelativetothe
competition.Volumeobjectivesareparticularlycommonintheearlystagesoftheproductlife
cycle,whenfirmsarewillingtoforgoprofitsinexchangeforbuildinglongtermsalesand
marketshare.Inaddition,pricecompetitionstaysstronginthematuritystageinanattempt
toholdmarketshare.
Competitionobjectivesfocusonthenatureofthecompetitiveenvironment.Afirmmaywant
tomaintaincompetitiveparitywiththemarketleader,widenthegapbetweenitselfand
marketfollowers,orsimplysurvive.Thereisagooddealofheadtoheadcompetitioninthe
hospitalityandtourismindustry.Forexample,airlinecompaniesmatcheachother'sprice
changessocloselythattheindustryisoftenunderinvestigationforpricecollusion.


Imageobjectivesfocusonthefirm'soverallpositioningstrategy.Afirm'spositioninthemarketis
adirectresultofitspricequalityrelationshipasperceivedbyconsumers.Thehotelmarketcan
besegmentedbypriceintoeconomy,midmarket,andpremiumcategories.Also,airline
companiesofferbereavementfaresforemergencytravel,andhotelsofferdiscountsforguests
withfamilymembersinthehospital.Thesediscountsenhancetheimageofthefirm.
7.2.2 Consumer Price Sensitivity

Animportantfactorinsettingpriceisconsumerpricesensitivity,orhowconsumersreactto
changesinprice.Manysituationalfactorsaffectaconsumer'spricesensitivity,andthesefactors
canactuallyvaryfromonepurchasedecisiontoanother.Forexample,amarriedcouplemaybe
lesspricesensitivewhenchoosingarestaurantforaspecialoccasionthantheywouldbeifthey
werehavinganormalmealafterwork.Thefollowingsectionssummarizethemostcommon
effectsonconsumerpricesensitivity.1
Consumerpricesensitivity
Thedegreetowhichachangeinpricewillaffectaconsumerspurchasedecision.
7.2.2.1 PRICEQUALITY EFFECT.

Inmanysituations,consumersusepriceasanindicatorofaproduct'squality,especiallywhen
theydonothavemuchexperiencewiththeproductcategory.Inthiscase,consumerswillbe
lesssensitivetoaproduct'spricetotheextentthattheybelievehigherpricessignifyhigher
quality.Forexample,overseastravelersoftenusepriceasagaugeofqualitybecausetheylack
familiaritywiththetravelproductsinforeigncountries.Thispertainstoallcomponentsofthe
travelproduct,suchashotels,restaurants,carrentals,andtouristattractions.Thislackof
informationisoneofthemainreasonsthatconsumerswouldusepriceasasignalofquality,
alongwiththeperceivedriskofmakingabadchoiceandthebeliefthatqualitydifferencesexist
betweenbrands.
7.2.2.2 UNIQUE VALUE EFFECT.

Consumerswillbelesspricesensitivewhenaproductisuniqueanddoesnothaveclose
substitutes.Ifafirmsuccessfullydifferentiatesitsproductfromthoseofitscompetitors,itcan
chargeahigherprice.Consumersmustremainawareofthedifferentiationandconvincedofits
valueinordertopaythehigherprice.Inessence,thefirm'sstrategyistoreducetheeffectof
substitutes,therebyeliminatingtheconsumer'sreferencevaluefortheproduct.Resortsand
healthspasusethisstrategybymarketingthemselvesasoneofakindproperties.Similarly,
manyfinediningrestaurantsusethisapproachanddifferentiatethemselvesonattributessuch
asthechef,theatmosphere,and/orthemenu.Airlineandcarrentalcompanieswouldhavea
moredifficulttimeusingthisstrategybecauseofthehomogeneityoftheproducts.
7.2.2.3 PERCEIVED-SUBSTITUTES EFFECT.

Consumersbecomemorepricesensitivewhencomparingaproduct'shigherpricewiththe
lowerpricesofperceivedsubstitutesfortheproduct.Consumersmustbeawareoftheother
productsandactuallyperceivethemassubstitutes.Thepricesforthesubstituteshelp
consumersformareferenceprice,orareasonablepricerange,fortheproduct.Therearemany
perceivedsubstitutesforproductssuchasfastfood,airlinetravel,carrentals,andhotelrooms.
Whenthereareanumberofsubstitutesthatconsumersareawareof,theretendstobea
downwardpressureonprice,resultinginarelativelynarrowacceptablerangeforprices.For
example,therearenosignificantpricedifferencesbetweenproductsinfastfoodrestaurantsor
airlineticketsforapopularroute(e.g.,NewYorktoChicago).
7.2.2.4 DIFFICULT-COMPARISON EFFECT.

Thedifficultcomparisoneffectiscloselyrelatedtotheperceivedsubstituteseffect.Consumers
maybeawareofsubstitutesforaproduct,buttheywilltendtobecomelesspricesensitiveasit
becomesmoredifficulttocomparebrands.Therefore,manyfirmstrytodifferentiatethemselves
fromthecompetitiononcertainattributesthataredifficulttocompare.Forexample,barsmay
servedrinksindifferentquantities,orresortsmaypackageproductsinanattempttomakedirect
comparisonsmoredifficult.However,ratherthanspendthetimeandefforttomake
comparisons,manyconsumersarecontentsimplytochooseabrandthattheyperceiveas
satisfactory.Franchisesbenefitfromthisphenomenonbecausetheyfocusonproviding
consistentproductsandservicesunderarecognizablebrandname.Even
thoughtheyhavenotmadedirectcomparisonsorfamiliarizedthemselveswithallofthe
alternatives,consumerswillfeelsafeinchoosingoneofthesewellknownbrands.
7.2.2.5 SHARED-COST EFFECT.

Consumerswillbelesssensitivetopriceifanotherorganizationorindividualissharinginthe
costofaproduct.Thesmallertheportionofthepricepaidbytheconsumer,thelesssensitive
theindividualistoprice.Thissharingcouldbeintheformofataxdeduction,abusiness
reimbursement,orsometypeofsalespromotion(e.g.,couponorrebate).Whenbusiness
travelersstayinhotels,eatatrestaurants,orrentcars,theytendtobelesssensitivetoprice
becausetheirfirmsnormallypayformostoftheirtravelexpenses.Hospitalityandtourismfirms
thattargetbusinesstravelersoftenchargehigherrelativepricesfortheirproducts.One
exceptionishotels,wherebusinesstravelersusuallypaylowerpricesthanindividualtravelers,
duetotheoverallvolumeofthebusinesssegment.
7.2.2.6 TOTAL EXPENDITURE EFFECT.

Thelargertheamountofthetotalexpenditure,themorepricesensitiveconsumerswilltendto
be.Thisamountcanbemeasuredeitherinabsolutetermsorasapercentageofincome.For
example,aconsumerbookingacruiseatapriceof$5,000willbemoresensitivetopricethanif
heorshewereeatingamealinarestaurant.Thecostofthecruiseisarelativelylargetravel
expenditure,whereasthecostofamealpalesincomparison.However,aconsumerwithan
incomeof$500,000ayearwouldnormallynotbeaspricesensitiveregardingthecruiseasone
withanincomeof$50,000ayear.Also,consumerswithhigherincomesplaceagreatervalue
ontheirtimeandmaydecidetoaccepthigherpriceswithoutevaluatingalternativeproducts.
7.2.2.7 END-BENEFIT EFFECT.

Aproductmayrepresentonlyonecomponentofthepurchasesnecessarytoattainadesired
benefit.Theendbenefiteffectconsistsoftwoparts:deriveddemandandtheshareoftotalcost.
Deriveddemandreferstotherelationshipbetweenthedesiredendbenefitandtheconsumer's
pricesensitivityforsomethingthatcontributestothatendbenefit.Thisismostpopularin
industrialmarketswherefirmspurchaseproductstoreselltootherconsumers.Themoreprice
sensitivethefirm'sconsumersare,themorepricesensitivethefirmwillbeinpurchasing
componentsoftheendbenefit.Forexample,touroperatorsdeterminethetypeofhotelorcar
rentaltobeincludedinapackagebasedonthepricesensitivityofthetargetsegment.
Consumersarewillingtopayhighpricesforspatreatmentsinluxuryhotelswhenthe
perceivedqualityishigh.
Intheretailmarket,consumerstendtobemorepricesensitivewhenthepriceofacomponent
representsalargerportionofthetotalcost.Consumerswouldbelesssensitivetobeverageor
dessertpricesatanupscalerestaurantwheredinnerfortwocancost$100ormore.Similarly,a
consumermaynotbeaspricesensitivetohotelparkingrateswhenspending$300anightina
downtownhotel.Theuseofpackages,orbundles,byresortsandtouristattractionsattemptsto
extractasmuchconsumersurplusaspossiblebybackingintotheconsumer'svalueforthe
endbenefit.
7.2.3 Environmental Factors

AsdiscussedindepthinChapter2,managementmustkeepabreastofthedevelopmentsinthe
externalenvironment.Eventhoughthesedevelopmentscannotbecontrolled,theycanaffect
pricingdecisionsbecausetheyaffectafirm'scosts,thedemandforitsproducts,andthe
competition.Thecomponentsoftheexternalenvironmentincludetheeconomicenvironment,
thesocialenvironment,thepoliticalenvironment,thetechnologicalenvironment,andthe
competitiveenvironment.
7.2.3.1 ECONOMIC ENVIRONMENT.

Constantchangesoccurinthestateoftheeconomyasmeasuredbyindicatorssuchas
businessgrowth,inflation,consumerspending,unemploymentrates,andinterestrates.Iffirms
aretocompeteandearnanacceptableprofit,theirpricingstrategiesshouldreflectchangesin
theeconomy.Firmsthatcompeteininternationalmarketsmustconsiderthestateofthe
economyintheforeignmarketsaswellasthedomesticmarket.Foreignexchangeratescan
affectafirm'sincomestatementdrasticallyandinfluencethefutureofthefirm.Pricesalterin
accordancewithchangesinincomeandconsumerspending,aswellaswithvariationsina
firm'scostsresultingfromchangesintheeconomy.
7.2.3.2 SOCIAL ENVIRONMENT.

Consumers'tastesoftenchangeovertime,andfirmsthatdonotadaptgooutofbusiness.
Changesinculturesandsubculturesthroughouttheworldareaffectingmanysocieties.Different
cultureshavedifferentspendingpatternsandsavingpractices.Forexample,manyAsianstend
tosavemoreoftheirincomesthanothernationalitiesdo,buttheyalsotendtopurchasename
brandsthatareassociatedwithhighquality.Therefore,theAsianmarketislesspricesensitive
thansomeofitscounterparts.Asculturesmesh,theyinfluenceeachother'seatinghabits.For
example,consumersintheUnitedStatesareeatingmoresushianddrinkingmoreteathanin
thepast.
7.2.3.3 POLITICAL ENVIRONMENT.

Alllevelsofgovernmenthaveatremendousimpactontheoperationofhospitalityandtourism
firmsthroughoutthecountry.Changesinminimumwagelawsaffectthecostsofrestaurants,
andchangesintaxlawsrelatedtobusinessexpensesaffectthedemandinrestaurants.
Managersmustconsiderbothoftheseareaswhensettingmenuprices.Similarly,hotelsmust
considertheimpactofhoteltaxesonconsumerswhensettingtheirprices.Forexample,hotels
inNewYorkCitywereveryconcernedabouttheimpactongroupandconventionbusiness
whenlocalhoteltaxeswereraised.Atonepoint,thetotaltaxesonguestroomsaddedupto
morethan21percent.Inresponse,thecityloweredhoteltaxestomakeNewYorkCityamore
attractivedestinationforgroupbusiness.Inaddition,governmentsimposemanyfeeson
businesses,andfirmsoperatingininternationalmarketsmustcontendwithadditionalfeesand
tariffs.
7.2.3.4 TECHNOLOGICAL ENVIRONMENT.

Anotherareaofconcernformanagersiskeepingupwithadvancesintechnology.Manyofthe
newtechnologiesinthehospitalityandtourismindustryareintendedtoimprovetheefficiencyof
firms,therebyreducingcosts.Forexample,whenfoodserversusehandheldterminalstoplace
orders,theynolongerhavetoenterthekitchenormovetoastationaryterminalinanother
location.Thesenewpointofsale(POS)systemsalsoenablefirmstotrackcostsanddemand
forparticularfooditems.Thisinformationisinvaluableinsettingprices.Similarly,hotelsand
airlinesusesophisticatedsystemstocapturecostsanddemandthathelpthemmaximize
revenuesthroughpricesetting.

7.2.3.5 COMPETITIVE ENVIRONMENT.

Finally,managersmustknowwhatoccursinthecompetitiveenvironment.Newfirmsentering
themarketwillchangeoverallsupply,therebychangingthemarketstructureandputting
downwardpressureonprices.Competitorsalsoengageinpromotionalcampaignsofferingprice
discountsorfreemerchandisethatwillaffectconsumers'perceptionsofvalue.Anexampleis
theairlineindustry,whichisnotoriousforitsshorttermpricewarsinabattleformarketshare.
7.3 BROAD PRICING STRATEGIES

Afterafirm'spricingobjectivesareset,managersmustidentifytherolethatpricewillservein
theproduct'soverallmarketingstrategy.Pricescanbe(1)sethightorestrictthefirm'smarketto
alimitedsegmentofbuyers,asinluxuryhotelsandfinediningrestaurants(skimpricing)(2)set
lowtoattractbuyers,asineconomyhotelsandfastfoodrestaurants(penetrationpricing)or(3)
keptneutraltoemphasizeotheraspectsofmarketing,asinmidscalehotelsandtheme
restaurants(neutralpricing).2Table7.1illustratesthesestrategiesbasedontherelationship
betweenpriceandeconomicvalueforthemiddlemarketofconsumers.Economicvaluecan
bedefinedasthesumofaproduct'sreferencevalue(i.e.,thecostofthecompetingproduct
thattheconsumerperceivesastheclosestsubstitute)andaproduct'sdifferentiationvalue
(i.e.,thevaluetotheconsumer,bothpositiveandnegative,ofanydifferencesbetweenafirm's
offeringandthereferenceproduct).
Economicvalue
Thesumofaproduct'sreferencevalueandaproduct'sdifferentiationvalue.
Referencevalue
Thecostofthecompetingproductthattheconsumerperceivesastheclosestsubstitute.
Differentiationvalue
Thevaluetotheconsumer(bothpositiveandnegative)ofanydifferencesbetweenafirm's
offeringandthereferenceproduct.
TABLE7.1
StrategiesBasedonPriceandEconomicValue
PERCEIVEDECONOMICVALUE RELATIVEPRICE
LOW HIGH
LOW NeutralPricing SkimPricing
HIGH PenetrationPricing Neutral
7.3.1 Skim Pricing
Askimpricingstrategyinvolvessettinghighpricesrelativetotheproductorservice's
economicvaluetocapturehighprofitmargins.Anexclusivesegmentofconsumersplacesa
highvalueonaproduct'sdifferentiatingattributes.Skimpricingisapreferredstrategywhen
sellingtotheexclusive,priceinsensitivemarket,anditresultsinhigherprofitsthansellingtothe
massmarketatalowerprice.Forexample,luxuryhotelsandresortsmarkethotelroomswith
manyamenitiessuchasvaletparking,laundryservice,andgolf.Mostconsumersarenotwilling
topaythehigherpricesassociatedwiththislevelofservice,butthereisasmallersegmentof
consumersthatplacesahighvalueontheadditionalamenitiesandwillpaythehigherprices.
Similarly,upscaleandfinediningrestaurantschargehigherpricesbasedonthemenu,the
ambience,thelocation,andtherestaurant'sreputation.Inaddition,manyoftherestaurantsin
thismarketsegmentoffervaletparking.
Skimpricing
Thepracticeofsettingahighpricerelativetoaproductsperceivedeconomicvalue.
Luxuryhotelsandresortscanadddifferentiationvaluethroughamenitiessuchasgolf
courses.
Manyservicefirmshavelimitedcapacity,anditmaybenecessarytomaximizeprofitsby
managingsupplyanddemandthroughhigherprices.Skimpricingalsotendstobeusedby
firmswhosevariablecostsrepresentalargeportionoftotalcostsandtheproduct'sprice.There
islittleincentivetodecreasecostperunitbyincreasingvolumeunderthiscoststructure.Froma
competitivestandpoint,skimpricingworksbestwhenafirm'sproductremainsuniqueoris
superiortocompetitiveproductsinperceivedquality.Onceagain,restaurantswithgood
reputations,exclusiveresorts,andairlineswithlimitedbusinessandfirstclassseating
(especiallyoninternationalflights)practiceskimpricing.
7.3.2 Penetration Pricing
Penetrationpricinginvolvessettinglowpricesrelativetotheproductseconomicvalue.This
strategyworksbestonpricesensitiveconsumerswhoarewillingtochangeproductorservice
providerstoobtainabetterprice.Firmsusingthisstrategychoosetohavelowerprofitmargins
inanattempttogainhighsalesvolumesandmarketshares.Penetrationpricingstayscommon
amongeconomyhotelsthatmarkettoconsumerswhoviewtheproductasmerelyaplaceto
sleepandhavenoneedforadditionalamenities.However,firmsmusthavethenecessary
capacitytoaccommodatethelargevolumeinordertousethispricingstrategy.
Penetrationpricing
Thepracticeofsettingalowpricerelativetoaproductsperceivedeconomicvalue.
Mostofthecostsofprovidingtheroomsineconomyhotelsarefixed.Normally,aneconomy
hoteldoesnothavearestaurantwithroomserviceoraconciergetohelpguestswithtravel
plans.Similarly,quickservicerestaurantsdonothavechefs,andfoodcostsarerelativelylow.In
bothcases,thefurnitureanddecorarefairlybasic.Thehighervolumegeneratedbythelower
pricesisexpectedtoresultineconomiesofscaleandalowercostperunitofprovidingthe
service.Fromacompetitivestandpoint,penetrationpricingworksbestwhenafirmhasa
significantcostadvantageoveritscompetitorsorwhenthefirmissmallandnotconsidereda
threatbyitscompetitors.Charterairlinesandsmallcommuterairlinesareexamplesoffirmsthat
canadoptapenetrationpricingstrategyandarenotconsideredathreatbylargerairline
companies.
7.3.3 Neutral Pricing

Aneutralpricingstrategyinvolvessettingpricesatamoderatelevelrelativetotheproducts
economicvalue.Inotherwords,thefirmmakesastrategicdecisiontouseattributesotherthan
pricetogainacompetitiveadvantage(i.e.,attributesrelatedtoproduct,promotion,and/or
distribution).Anotherreasonfirmsusethisstrategyistomaintainaproductlinethatincludes
productofferingsatdifferentpricelevels.Forexample,manyhotelchainshavebrandsacross
allpricecategoriessuchasbudget/economy,midpriced,upscale,andluxury.Therefore,oneor
moreoftheirofferingswilloccupytheaveragepricerangewiththebasicamenities(i.e.,low
economicvalue)forfullservicehotels.Franchisingandtheproliferationofchainsinthe
hospitalityindustryoftenleadtohomogeneousofferingswithlittledifferentiationandstandard
pricingacrosscompetitorsinthesamemarketsegment.
Neutralpricing
Thepracticeofsettingapriceconsistentwithaproductsperceivedeconomicvalue.
Aneutralstrategycanbeusedbydefault,whenafirmcannotuseskimpricingorpenetration
pricingbecauseofitscoststructureorthemarketconditions.However,thisstrategyhas
becomemorepopularwiththegrowthinthevaluesegmentofconsumers.Inthehotelindustry,
manyconsumersdonotwanttopayhighprices,buttheydowantsomeamenitiessuchas
restaurantsandpools.Also,theInternethassimplifiedtheinformationsearchprocessfor
consumersanditallowsthemtomakequickpricecomparisons.Forexample,onlinetravel
agentsobtaininventoryfromvariouscompaniesandmanageitbasedontheoverallsupplyand
demandfortheproductcategoryandthemarket.Finally,ahighpricecanactuallybeaneutral
pricewhenproductvaluejustifiesthepricetomostpotentialconsumers.
7.4 PRICING TECHNIQUES AND PROCEDURES

Whenmanagementestablishesprices,threeapproachescanbeused,eitherindividuallyorin
combinationwithoneanother:costorientedpricing,demandorientedpricing,andcompetitive
pricing.
7.4.1 Cost-Oriented Pricing

Asthenameimplies,costorientedpricingusesafirm'scosttoprovideaproductorserviceas
abasisforpricing.Ingeneral,firmswanttosetapricehighenoughtocovercostsandmakea
profit.Twotypesofcostscanbeconsidered:fixedcostsandvariablecosts.Fixedcostsare
thoseincurredbyacompanytoremaininbusiness,andtheydonotvarywithchangesinsales
volume.Forexample,restaurantsmustinvestinabuilding,kitchenequipment,andtables
beforetheybegintoservecustomers.Variablecostsarethecostsassociatedwithdoing
business,andtheyvarywithchangesinsalesvolume.Forexample,restaurantsincurcostsfor
food,labor,andcleaningthataredirectlyrelatedtothelevelofsales.
Costorientedpricing
Basingpricingdecisionsonthecostofprovidingaproductorservice.
Breakevenanalysiscanbeusedtoexaminetherelationshipsbetweencosts,sales,and
profits.Thebreakevenpoint(BEP)isthepointwheretotalrevenueandtotalcostareequal.In
otherwords,theBEPinunitswouldbethenumberofunitsthatmustbesoldatagiven
contributionmargin(pricevariablecost)tocoverthefirm'stotalfixedcosts:
Breakevenanalysis
Usesthebreakevenpoint(BEP)toexaminetherelationshipsbetweencosts,sales,and
profits.
Thebreakevenpointindollarscanbecalculatedbymultiplyingthebreakevenpointinunitsby
thesellingpriceperunit.Breakevenanalysisisaseeminglyeasymethodforanalyzing
potentialpricingstrategies,butonemustbecarefultouseonlycoststhatarerelevanttothe
decisionsothattheresultsareaccurate.
Figure7.1illustratestherelationshipsbetweencosts,sales,andprofits.Asmentionedbefore,
fixedcostsareincurredregardlessofsales.Therefore,theyremainconstantwithchangesin
salesvolumeandarerepresentedbyahorizontalline.Thetotalcostslineintersectsthefixed
costslinewhereitbeginsontheverticalaxisandincreaseswithvolumetoaccountforvariable
costs.Thetotalrevenuelinebeginsattheoriginandincreaseswithvolume.Thebreakeven
pointinunitsisthepointwherethetotalrevenuelineintersectsthetotalcostsline.Whenfirms
operateatvolumeslessthanthebreakevenpoint,lossesareincurredbecausetotalrevenueis
notenoughtocoverthetotalcostofproducingandmarketingtheproduct.Whenvolume
exceedsthebreakevenpoint,firmswillmakeaprofitbecausetotalrevenueexceedstotalcost.
FIGURE7.1Breakevenanalysis.
Forexample,supposeafamilypurchasesalargehomeandrenovatesitforuseasabedand
breakfast.Thetotalfixedcostswouldbethe$300,000purchasepriceplusthe$100,000spent
onrenovations,oratotalof$400,000.Theownersestimatethevariablecoststocleanthe
rooms,restocksupplies,andfeedtheguestsatapproximately$25perday.Iftheownerswere
tochargeguests$75pernighttostayatthebedandbreakfast,thebreakevenpointinunits
wouldbe8,000roomnights[400,000/(7525)].Iftherewereatotalof20roomsandthe
occupancyof
thoseroomsaveragedat50percentthroughouttheyear,itwouldtake800nights(alittleover
twoyears)torecouptheiroriginalinvestment.However,itismorelikelythatthepurchasewas
financedovertime,andtheownersreceivetaxcreditsontheinterest,expenses,and
depreciation.Therefore,assumingtheownersdidnottakesalariesorhireadditionalworkers,it
ismorelikelythattheyearlyfixedcostsareintheneighborhoodof$30,000.Thenewbreak
evenpointwouldbe600roomnights[30,000/(7525)],whichwouldrepresent60daysatan
averageoccupancyrateof50percent.
Thisexampleillustratesthebenefitofusingbreakevenanalysisforsettingthepricesfornew
products.However,breakevenanalysisdoesnotaccountforthepricesensitivityofconsumers
orthecompetition.Inaddition,itisveryimportantthatthecostsusedintheanalysisare
accurate.Anychangesinthecontributionmarginorfixedcostscanhaveasignificantimpacton
thebreakevenpoint.Forinstance,iftheownersoverestimatedtheprice,andconsumersare
onlywillingtopay$50anight,thenthebreakevenpointwouldchangeto1,200nights,or
doubletheoriginalestimate.Finally,thebreakevenformulacanbeeasilyadjustedtoaccount
foradesiredamountofprofit.Thedesiredamountofprofitwouldbeaddedtothenumerator
(totalfixedcosts)andwouldrepresenttheadditionalnumberofunitsthatwouldneedtobesold
atthecurrentcontributionmargintocoverthedesiredamount.
Costpluspricingisthemostwidelyusedapproachtopricingintheindustry.Thepricefora
productorserviceisdeterminedbyaddingadesiredmarkuptothecostofproducingand
marketingtheitem.Themarkupisintheformofapercentage,andthepriceissetusingthe
followingequation:
Costpluspricing
Determiningthepriceforaproductorservicebyaddingadesiredmarkuptothecostof
producingandmarketingtheitem.
where
Theaveragetotalcost(ATC)perunitiscalculatedbyaddingthevariablecostperunittothe
fixedcostperunit.Thefixedcostperunitissimplythetotalfixedcostsdividedbythenumberof
unitssold.Forexample,supposeahotelmanagerhasanATCof$35forturningaroomand
wouldliketohavea200percentmarkup,whichisreasonableforafullservicehotel.Theselling
price,orroomrate,wouldbecalculatedasfollows:
Thisapproachispopularbecauseitissimpleandfocusesoncoveringcostsandmakinga
profit.However,managementmusthaveagoodunderstandingofthefirm'scostsinorderto
price

effectively.Somecostsaretrulyfixed,butothercostsmaybesemifixed.Semifixedcostsare
fixedoveracertainrangeofsalesbutvarywhensalesgooutsidethatrange.Inadditiontothe
problemofdeterminingtherelevantcosts,thecostplusapproachignoresconsumerdemand
andthecompetition.Thismaycauseafirmtochargetoomuchortoolittle.
Targetreturnpricingisanotherformofcostorientedpricingthatsetsthepricetoyieldatarget
rateofreturnonafirm'sinvestment.Thisapproachismoresophisticatedthanthecostplus
approachbecauseitfocusesonanoverallrateofreturnforthebusinessratherthanadesired
profitperunit.Thetargetreturnpricecanbecalculatedusingthefollowingequation:
Targetreturnpricing
Settingapricetoyieldatargetrateofreturnonafirm'sinvestment.
Theaveragetotalcostperunitisdeterminedthesamewayasinthecostplusapproach,andit
isincreasedbythedollarreturnperunitnecessarytoprovidethetargetrateofreturn.This
approachisalsorelativelysimple,butitstillignorescompetitors'pricesandconsumerdemand.
Forexample,supposesomeonewantstosellsouvenirTshirtsinatouristareaofapopular
destinationsuchastheFrenchQuarterinNewOrleans.Ifthepersonwantstomake$30,000a
year,assumingtheaveragetotalcostis$6.00(costperunitofTshirts,cartrental,and
license/permit)andsheorhesellsanaverageof20shirtsperday,thepricewouldbecalculated
asfollows:
The20shirtsperdayisanaverage,assumingsomeseasonalityandvariationsduetoweather.
However,itisimportanttohaveaccurateestimatesforcostsandsalesinordertoprice
effectively.Inaddition,thepriceshouldbecomparedwiththecompetitors'pricesintheareato
makesureitisreasonable.
7.4.2 Demand-Oriented Pricing

Demandorientedpricingapproachesuseconsumerperceptionsofvalueasabasisforsetting
prices.Thegoalofthispricingapproachistosetpricestocapturemorevalue,nottomaximize
volume.Apriceischargedthatwillallowthefirmtoextractthemostconsumersurplusfromthe
marketbasedonthereservationprice,orthemaximumpricethataconsumeriswillingtopay
foraproductorservice.Thispricecanbedifficulttodetermineunlessmanagementhasafirm
graspofthepricesensitivityofconsumers.Economistsmeasurepricesensitivityusingtheprice
elasticityofdemand,orthepercentagechangeinquantitydemandeddividedbythe
percentagechangeinprice.AssuminganinitialpriceofP1andaninitialquantityofQ1,the
priceelasticityofdemand(p)forachangeinpricefromP1toP2canbecalculatedby:
Demandorientedpricing
Approachestopricingthatuseconsumerperceptionsofvalueasabasisforsettingprices.
Reservationprice
Themaximumpricethataconsumeriswillingtopayforaproductorservice.
changeinprice.
Thepriceelasticityofdemandisusuallynegativebecausepriceincreasestendtoresultin
decreasesinquantitydemanded.Thisinverserelationshipbetweenpriceandquantity
demanded,referredtoasthelawofdemand,isrepresentativeofmostproductsandservices.
However,thedemandforproductsandservicescandemonstratevaryingdegreesofelasticity
(seeFigure7.2).Thedemandforproductsissaidtobeelastic(p>1)ifapercentagechangein
priceresultsinagreaterpercentagechangeinquantitydemanded.Conversely,thedemandfor
productsissaidtobeinelastic(p<1)ifapercentagechangeinpriceresultsinasmaller
percentagechangeinquantitydemanded.Unitaryelasticity(p=1)occurswhenapercentage
changeinpriceresultsinanequalpercentagechangeinquantitydemanded.Theabsolute
valueofthepriceelasticityofdemandisusedtodeterminethetypeofdemand.
Lawofdemand
Theinverserelationshipbetweenpriceandquantitydemandedthatexistsformost
productsandservices.
FIGURE7.2Priceelasticityofdemand.
Inamarketwithelasticdemand,consumersarepricesensitive,andanychangesinpricewill
causetotalrevenuetochangeintheoppositedirection.Therefore,firmstendtofocusonways
to
decreasepriceinanattempttoincreasethequantitydemandedandtotalrevenue.Inamarket
withinelasticdemand,consumersarenotsensitivetopricechanges,andtotalrevenuewill
changeinthesamedirection.Inthissituation,firmstendtofocusonraisingpricesandtotal
revenues,evenwithadecreaseinquantitydemanded.Inmarketswithunitarydemand,price
changeshavenoeffectontotalrevenueandfirmsshouldbasepricingdecisionsonother
factors,suchascost.Forexample,supposeathemeparkdecreasesitspriceofadmissionfrom
$50to$45inanattempttoincreasethenumberofvisitors.Afterinitiatingthepricechange,the
parkobservesanincreaseintheaveragedailyattendanceattheparkfrom10,000to12,500
people.Thepriceelasticityofdemandforthisexamplewouldbecalculatedasfollows:
Thisindicatesthatthedemandforthemeparkvisitationiselastic.Inotherwords,themepark
visitorsarepricesensitiveandthepercentagechangeinquantitydemandedexceedsthe
percentagechangeinprice.Thetotalrevenuebeforethepricechangewas$500,000andafter
thechange$562,500,representinganincreaseof$62,500.
Somepopulardemandorientedpricingapproachesarebasedonconsumerperceptionsof
value.Thesepsychologicalpricingpracticeshavebeenproventobesuccessfulbasedon
theirabilitytoinfluenceconsumerperceptionsofprice.Prestigepricingisusedbyfirmsthat
haveproductswithstrongpricequalityrelationshipsinmarketswithinelasticdemand.These
firmssethighpricesandtrytobuildvaluethroughotherqualityrelatedattributessuchas
serviceandatmosphere.Thisapproachiscommonamongfivestarhotelsandfinedining
restaurants.Odd/evenpricinginvolvessettingpricesjustbelowevendollaramountstogive
theperceptionthattheproductislessexpensive.Forexample,carrentalagenciessetprices
suchas$79.95ratherthan$80,andhotelsusepricessuchas$99insteadof$100.Also,many
menuitemsarepricedwithoddendingssuchas$5.99or$10.95.Theoryhasitthatpeopleread
andprocesspricesfromlefttoright,roundingtothelowernumber.
Psychologicalpricing
Settingpricesbasedonconsumerperceptionsofvalue.
Prestigepricing
Settingrelativelyhighpricesbasedonqualityrelatedattributesvaluedbyaparticular
segmentofconsumers.
Odd/evenpricing
Settingpricesjustbelowevendollaramountstogivetheperceptionthattheproductisless
expensive.
Priceliningreferstothepracticeofhavingalimitednumberofproductsavailableatdifferent
pricelevelsbasedonquality.Demandateachpricepointisassumedtobeelastic,whereas
demandbetweenpricepointsisassumedtobeinelastic.Theproductsateachpricelevelare
targetingadifferentmarketsegment.Forexample,rentalcarcompanieshaveeconomy,
midsize,fullsize,andluxurycategories.
Pricelining
Referstothepracticeofhavingalimitednumberofproductsavailableatdifferentprice
levelsbasedonquality.
7.4.3 Competitive Pricing

Asthenameimplies,competitivepricingplacesemphasisonpriceinrelationtodirect
competition.Somefirmsallowotherstoestablishpricesandthenpositionthemselves
accordinglyat,below,orabovethecompetition.Thismethodensuresthatthepricecharged
forproductsandserviceswillbewithinthesamerangeaspricesforcompetitiveproducts.This
method,however,hasseveraldrawbacks.First,considerthecaseoftwosimilarfirms.Oneis
newandtheotherhasbeenoperatingforseveralyears.Ontheonehand,thenew
establishmentislikelytohavehigherfixedcostssuchasamortgagewithahighinterestrate
thatmustbepaideachmonth.Onthe
otherhand,theestablishedfirmmighthaveamuchlowermortgagepaymenteachmonthand
fewercosts.Becauseofthesedifferences,theestablishedfirmwouldhavelowerfixedoperating
expensesandcouldchargelowerprices,evenifallotherexpenseswereequal.Second,other
expensesmightalsovaryamongdifferentfirms.Laborcostsmightbehigherorlowerdepending
ontheskilllevelofthepersonnel,theirlengthofserviceintheoperation,andnumerousother
factorsthatmaycomeintoplay.Forthisreason,itisextremelyriskyformanagerstorelyonthe
pricesofadirectcompetitorwhensettingtheirownprices.Eachoperationisuniqueandhasits
ownuniquecostandprofitstructure.Althoughmanagementdoesneedtomonitorthe
competition,pricesshouldneverbebasedsolelyonpriceschargedbyacompetitor.
Competitivepricing
Settingpriceswithinthesamerangeaspricesforcompetitiveproductsintheimmediate
geographicarea.
7.5 SEGMENTED PRICING

Theimportanceofpricevariesamongconsumers,andfirmsoftenusesegmentedpricingasa
meansforsegmentingmarkets.Thenafirmcanchoosetotargetoneormoreofthesemarkets
withspecificmarketingstrategies(e.g.,discounts)tailoredtoeachmarketsegment.The
appropriatestrategydependsonthefirm'scosts,theconsumers'pricesensitivities,andthe
competition.Severaltacticscanbeusedtosegmentmarketsonthebasisofprice.3Table7.2
providesasummaryofsegmentedpricingexamplesacrossthemajorsegmentsofthe
hospitalityandtravelindustry.
Segmentedpricing
Varyingpricesacrossmarketsegmentsbasedoncertaincharacteristicsofconsumersor
thebuyingsituation.
TABLE7.2
SegmentedPricingExamplesacrossIndustrySegments
SEGMENTATION LODGING FOOD TRAVEL LEISURE
STRATEGY SERVICE
Buyer Businessvs. Seniorsand Seniors,students Golfmembershipsfor
Identification leisure children ladies,children,
seniors
Purchase City, Mall,airport, Onlinevs.callingor Themeparksonsite
Location suburban, corporate usingatravelagent vs.offsite
airport,resort dining
TimeofPurchase Weekendvs. Peakhours Peakbusinesstravel Themeparksandgolf
weekday vs.earlybird vs.leisure courseswithtwilight
(before6:00 discounts
P.M.)
PurchaseVolume Meetingsand Banquetsvs. Airlinesandrentalcar Golfcoursediscounts
corporate restaurantsin companiesthatoffer fortournaments
contractsvs. hotels corporaterates
transient
ProductDesign Conciergeor Corporate SouthwestAirlines Countryclubsoffer
business dining businessselectand socialmemberships
level facilitiesoften airlinefirstclassseats andfullmemberships
havefine
diningand
cafeterias
ProductBundling Overnight Valuemeals Cruiselinesoffer Groupingmuseum
staywith orcombos airlineticketsand admissions(e.g.,
champagne (e.g.,meal onlinetravelagents Ripley'sBelieveItOr
brunchand/or dealat packagehotels, NotandGuinness
theatertickets Subway) airlines,andrental WorldRecords)
cars
7.5.1 Segmenting by Buyer Identication

Onemethodthatcanbeusedtosegmentbypriceistobasethepriceonsomeformofbuyer
identification.Thatis,inordertoobtainadiscountedprice,consumersmustbelongtoagroup
ofpeoplethatsharesimilarcharacteristics.Forexample,hotelsandmotelshavemany
discountedratesavailableforconsumersbelongingtogroupssuchastheAmericanAutomobile
Association(AAA)ortheAmericanAssociationofRetiredPersons(AARP).Anothervariationis
forconsumerstosavecouponsthatcanbepresentedatalaterdateforadiscount.Many
restaurantsput

couponsinnewspapersordirectmailpiecesthatmustbesavedandbroughttothe
establishmenttogetadiscountwithinacertaintimeperiod.However,onlyaparticulartypeof
pricesensitiveconsumerwilltakethetimetosave,file,andredeemcouponsforprice
discounts.
7.5.2 Segmenting by Purchase Location

Itispossibletosegmentconsumersbasedonwheretheypurchaseaproductorservice.Some
restaurantchainswillvarytheirpricesindifferentgeographiclocationstoaccountfordifferences
inpurchasingpowerandstandardofliving.Forexample,fastfoodrestaurantsoftencharge
moreformenuitemsinlargecities,foodcourts,andmajorhighwaylocationsthaninsuburban
andrurallocations.Also,hotel,restaurant,andcarrentalchainschargedifferentpricesin
internationalmarketsbasedonacountry'sstandardofliving.Finally,ageneralpracticeby
themeparksistochargemoreforticketspurchasedatthegateandlessforticketspurchased
atnearbylocations(e.g.,hotelsandsupermarkets)orthroughvariousorganizations(e.g.,
governmentagenciesandAAA).
7.5.3 Segmenting by Time of Purchase

Servicefirmstendtonoticecertainpurchasingpatternsbasedonthetimeofday,week,month,
oryear.Unfortunately,itisnotalwayspossibletomeetthedemandduringthesepeakperiods.
Onewaytosmooththedemandistoofferdiscountedpricesatoffpeaktimes.Restaurantsoffer
earlybirdspecialsforpatronswhoarewillingtoeatearlierintheevening,airlinesoffer
supersaverratesforconsumerswhoarewillingtotravelatoffpeaktimes,andhotelsofferlower
ratesforweekendsandslowerseasonsthroughouttheyear.Thisresultsinashiftindemand
frompeaktimestooffpeaktimesbythemostpricesensitiveconsumers.Dynamicpricingis
themostrecenttermusedtodescribethepracticeofcontinuallychangingpricesbasedon
marketconditions(e.g.,supplyanddemand).Intheory,eachcustomerwillbechargedtheprice
heorsheiswillingtopay.
Dynamicpricing
Continuallychangingpricesbasedonmarketconditions.
7.5.4 Segmenting by Purchase Volume

Oneofthemostcommonformsofpricesegmentationistovarypricebasedonthequantity
purchased,offeringdiscountsforlargerorders.Themajorityoffirms,bothsmallandlarge,will
negotiatepricediscountsforlargervolumeorders.Hospitalityandtourismfirmswillnormally
startdiscountingpricesforgroupsof10ormorepeople.Inparticular,hotelsalespeopleare
responsibleforfillingthehotelwithgroupsbyofferingdiscountsthattendtoincreasewiththe
sizeofthegroup.Hotelsandrestaurantsusethesametacticstosellcateringfunctionssuchas
weddingsandbanquets.
7.5.5 Segmenting by Product Design

Anotherformofpricesegmentationisbasedontheactualproductorservice.Itmaybepossible
tosegmentconsumersbyofferingsimplevariationsofafirm'sproductorservicethatappealto
thedifferentsegments.Forexample,airlinesfoundthattheycouldchargesubstantiallymorefor
firstclassseatingbywideningtheseatsslightlyandprovidingalittlemoreservice.Similarly,
hotelsoffersuitesandconciergefloorsthatareslightlylargerand/orprovidesomeadditional
services.Noneofthesevariationsbyairlinesorhotelshasasignificantimpactonthecostof
providingtheservice,butthefirmsareabletochargesignificantlyhigherpricestoasmall
segmentofthemarketthatvaluestheadditionalamenitiesandservices.
7.5.6 Segmenting by Product Bundling

Thelastformofpricesegmentationinvolvespackagingproductsandservicesintoprice
bundles.Firmsofferseveralproductstoconsumersatapackagedpricethatislowerthanthe
costofpurchasingtheproductsseparately.Fastfoodrestaurantsofferbundledmealsthat
includeasandwich,anorderoffrenchfries,andasoftdrink.Theyalsoallowconsumersto
increasethesizeofthecomponentsforasmallamountmore.Analternativeformofproduct
bundlingistoofferpremiums,orfreemerchandise,withthepurchase.Manyfastfood
restaurantsputfreegamepiecesandpulltabsontheirpackagingandgivechildrenfreetoys
withachild'smeal.
Somehotelsandmotelsofferdiscountedratestoconsumersbelongingtogroups
suchastheAmericanAutomobileAssociation.
Thesearesomeofthebasictacticsthatcanbeusedtosegmentmarketsonthebasisofprice.
Thevarioustacticscanbeusedaloneorincombinationwithoneanothertoachieveafirm's
desiredgoals.Today'sconsumerscanobtaininformationaboutcompetitiveproductsand
servicesveryeasily,resultinginalarge,valueconsciousmarket.Firmswillneedtofindwaysto
segmentthepricesensitiveconsumersfromthequalityorientedconsumerssothattheycan
extractthemostconsumersurplusandrevenuefromthemarketplace.
7.6 REVENUE MANAGEMENT
Revenuemanagementinvolvescombiningpeopleandsystemsinanattempttomaximize
revenuebycoordinatingtheprocessesofpricingandinventorymanagement.Pricingisthe
processofdeterminingthevalueofproductsandservicesthatwillresultinthemaximumtotal
revenueforthefirm.Inreality,hospitalityandtourismfirmsoffermanydifferentproductsand
mustdeterminetheappropriatepricepointsbasedoncustomerdemandandcompetition.
Inventorymanagementistheprocessofdetermininghowmuchofaproductorserviceshould
beofferedateachpricepoint.Forexample,hotelsallocateacertainnumberofguestroomsfor
groupsandtrytofillthequotabysettingapricethatwillextractthemostrevenuefromthe
market.
Revenuemanagement
Involvescombiningpeopleandsystemsinanattempttomaximizerevenuebycoordinating
theprocessesofpricingandinventorymanagement.
Oneofthechallengesofrevenuemanagementisthatpricesensitivityvariesfromcustomerto
customer.Marketsegmentationallowshospitalityandtourismfirmstogroupcustomersinto
marketsegmentsthatsharecertaincharacteristicssuchaspricesensitivity.Inaperfectworld,a
firmwouldmaximizeitsrevenuebysellingitsproductsandservicestocustomersatthehighest
priceeachcustomeriswillingtopayfortheproductorservice.Therefore,thegoalofrevenue
managementistoselltherightproducttotherightcustomerattherighttimefortherightprice.
Thisconceptofrevenuemanagementisparticularlyimportantinserviceindustriesbecauseof
theintangiblenatureoftheproduct.Hospitalityandtourismfirmssuchashotelsandairlines
havelimitedcapacitiesandresources.Thissituation,combinedwiththefactthattheproductis
perishableandrevenuecannotbeinventoried,leavesfirmsinadifficultposition.Unused
capacityforservicefirmsislostforever.Forexample,airlinescannotrecouptherevenuelostby
havingunoccupiedseatsonaflight,hotelscannotmakeupforunsoldrooms,andcarrental
companiescannotcompensateforcarssittingonthelot.
Thisphenomenonoftenleadstooverbookingbyhotelsandairlines,becausethefirmsdonot
wanttohaveunusedcapacityduetocancellationsornoshows.Insomecases,revenuecanbe
recoupedthroughrequiringdepositsorchargingpenalties,buttherearelimitstothe
effectivenessofthesepractices.Forexample,chargingagroupapenaltyfornotpickingupits
entireroomblockcouldcausethegrouptodiscontinueusingyourhotelorbrandinthefuture.
7.6.1 Establishing a Pricing Structure

Revenueperavailableroom(REVPAR)providesabetterindicationofahotel'scapacity
utilizationthanaveragedailyrate(ADR).TheADRiscalculatedusingtotalrevenue,occupancy
rate,andthenumberofavailablerooms.
TheADRandtheaverageoccupancyratecanbeusedtoestimatelongtermrevenues
(monthly,quarterly,orannually)forhotelsandotherlodgingfacilities.Airlinesperformthesame
typeofanalysisusingrevenueperavailableseatandaveragefarebasedonthenumberof
seatssold.However,therearemanyfactorssuchasseasonality,businesscycles,and
economictrendsthatcanaffectfutureperformance.Thismakesitdifficulttogetaccurate
estimatesforuseinstrategicpricing,butfirmsneedtodeterminehowmuchinventorytomake
availableateachpricepointinanefforttomaximizerevenue.
Thefollowingisasimplifiedexampletoillustratethedecisionfacinganairlinetryingtomaximize
revenue.Onlytwopossiblepricesexist:adiscountedfareandthefullfare.Theairlinemust
decidewhethertosellaseatatthediscountedfare($200)ortakethechancethattheseatcan
besoldatalaterdateatfullfare($500).ThedecisiontreethatappearsinFigure7.3outlines
theoptionsfacingtheairline.
FIGURE7.3Decisiontreeforairlinerevenue.
Iftheairlinesellsnowatthediscountedfare,thereisguaranteedrevenueof$200.Iftheairline
decidesnottosellatthediscountedfare,thetwopossibleoutcomesaretosellatthefullfareor
tohavetheseatremainempty.Iftheseatdoesnotgetsold,thereiszerorevenue.Therefore,
thefinaldecisionisbasedontheexpectedvalueofeachoptionbasedontheprobabilitythatthe
seatwillbesoldatalaterdateforfullfare.Ifthereisa50percentchanceofsellingtheseatfor
fullfare,theexpectedvalueofwaitingwouldbe:
Becausetheexpectedvalueofwaiting($250)exceedstheexpectedvalueofsellingatthe
discountedfare(1.0$200=$200),thentheairlineshouldwait.Inthiscase,aslongasthe
probabilityofsellingatalaterdateforfullfareisgreaterthan40percent(200/500),theairlineis
betteroffwaiting.Theestimatedprobabilityisbasedonpastexperience.Inreality,thisdecision
ismuchmorecomplicated.
Afirm'spricingstructuregetsestablishedbasedonacarefulanalysisofcustomers,thefirm's
business,andthemarketforitsproductsandservices.First,thecustomeranalysisshould
includeanexaminationofcustomermarketsegmentsandtheirsharedcharacteristics.Itis
importanttoknowwhatattributesareusedbythecustomerstomakedecisions(e.g.,rate/price,
location,convenience,servicequality).Inaddition,itisusefultoknowthepricesensitivityofthe
marketsegmentandwhatdistributionchannelsareusedtobuythefirm'sservices.Second,the
firmshouldtakeanobjectivelookatthequalityofitsproductservicemix,itsmarketing
programs,andtheresultsofpastpricingactions.Finally,thefirmshouldexaminethedemand
foritsproductanditscompetitiveposition(i.e.,strengthsandweaknessesrelativetothe
competition).
7.6.2 Yield Management

Yieldmanagementisatechniqueusedtomaximizetherevenue,oryield,obtainedfroma
serviceoperation,givenlimitedcapacityandunevendemand.Thistechniquewasfirstusedby
airlinecompaniesandthenadoptedbylodgingandcruisefirms.Withinthehospitalityand
tourismindustry,yieldmanagementhascomeintomorewidespreadusewiththeexpansionof
computerizedpropertymanagementsystems.Initsmostbasicform,yieldmanagementusesa
firm'shistoricaldatatopredictthedemandforfuturereservations,withthegoalofsettingprices
thatwillmaximizethefirm'srevenueandprofit.Whereasyieldmanagementisfocusedmoreon
maximizingincomefromcustomerswhoaremorepriceinelastic(i.e.,lesspricesensitive),
revenuemanagementfocusesonmaximizingoccupancy(seatssold)aswell.Therefore,yield
managementanddynamicpricingarepracticescoveredundertheumbrellaofrevenue
management.Infact,manypeopleusethetermsinterchangeablybecauseofthesubtle
differencesbetweenthem.Dynamicpricingisthemorerecenttermbeingused,especiallyinthe
contextofsellingticketsforsportingevents.
YieldManagement
Usingamodeltomaximizetherevenue,oryield,obtainedfromaserviceoperation,given
limitedcapacityandunevendemand.
Yieldmanagementiswidelyusedwithinthehospitalityandtourismindustryforseveralreasons:
Perishableinventory.AsdiscussedinChapter2,hospitalityandtourismservicesarehighly
perishable.Ifahotelroomisnotoccupiedoneeveningoranairlineflieswithemptyseats,
thepotentialrevenueforthoseservicescannotbecapturedatalaterdate.Inotherwords,
therearenoinventoriesforservices.
Fluctuatingdemand.Mosthospitalityandtourismfirmsexperiencedemandthatrisesand
fallswithinaday,week,month,oryear.Duringhighdemandperiods,servicesaresoldator
nearfullprice.Duringthelowdemandornonpeakperiods,capacityremainsunused.

Abilitytosegmentcustomers.Firmsmustsegmentcustomersbasedonprice,as
discussedearlierinthischapter,andofferadiscountedpricetoaselectivegroupof
customers.
Lowvariablecosts.Hospitalityandtourismfirmsoftenhavealargeratiooffixedtovariable
costs,whichwouldfavorahighvolumestrategy.Themarginalcostofservinganadditional
customerisminimalaslongasthereisexcesscapacity.
7.6.3 Selective Discounting

Oneofthecornerstonesofyieldmanagementistheabilitytoofferdiscountstoonlyaselected
groupofcustomers.Ratherthanofferonepriceforagiventimeperiod,eitherpeakornonpeak,
firmscandistinguishbetweenconsumers.Thisminimizestheeffectoflostrevenueresulting
fromconsumerswhoarewillingtopayfullpricebeingabletopaythediscountedprice.To
accomplishthis,servicefirmsnormallyplacerestrictionsonthediscountedpricesothat
consumersmustsacrificesomethinginreturnforthediscount.Forexample,airlinecompanies
requirepassengerstobookinadvance(upto21days),stayoverSaturdaynight,andaccepta
nocancellationpolicytoobtainthediscountedfare.Similarly,hotelsrequiregueststostayover
weekends,duringnonpeakseasons,orforaminimumnumberofnights.
7.6.4 Historical Booking Analysis

Oneofthemajorproblemsfacingservicefirmsusingyieldmanagementsystemsisthe
determinationoftheamountofcapacitytomakeavailableatthediscountedrate.Asmentioned
earlier,yieldmanagementmakesuseofhistoricaldatainpredictingfuturetrends.Acurveis
constructedusingdatafromthesameperiodthepreviousyear,andadjustingforrecenttrends
seeninthemostrecentperiods.Figure7.4illustratesatypicalpatternforalargeconference
hotel.Thesolidlinerepresentsthehistoricalpatternforroomsalespriortothedateinquestion.
Ingeneral,thehotelwoulddetermineacomfortzoneorconstructaconfidenceintervalaround
theactualoccupancyrate.Ifpriorsalesarewithinthisinterval,thenthehotelcontinuestouse
itscurrentdiscountingpolicy.Iftheoccupancyrateexceedstheupperlevel,thenthehotelwill
temporarilyreducethenumberofdiscountedroomsandrates.Iftheoccupancyratefallsbelow
thelowerlevel,thenthehotelwilloffermorediscountedroomsandratesuntiltheoccupancy
rateisbroughtbackwithinthepredictedinterval.
FIGURE7.4Bookingpatterncurveforaconferencehotel.
7.6.5 Yield Management Equation

Asstatedearlier,thegoalofyieldmanagementistomaximizetherevenue,oryield,froma
serviceoperation.Thefollowingequationisasimplifiedversionofthecalculationusedinactual
programs.
Thepotentialrevenueforahotelwouldbethenumberoftotalroomsavailableforsale
multipliedbytherackrate(publishedprice)forthoserooms.Forinstance,ifahotelhad200
roomsthatallhadarackrateof$100,thepotentialroomrevenueforthathotelwouldbe
$20,000pernight.However,ifthehotelhadanoccupancyrateof70percentandanaverage
roomrateof$80,thentheactualrevenuewouldbe$11,200[(0.7200)80].Theyieldinthis
casewouldbe0.56(11,200/20,000).Thegoalistomaximizethisfigureortogetitascloseto
1.0aspossible.Whatifthishotelofferedmorediscountsandhadanoccupancyrateof80
percentandanaverageroomrateof$75?Theactualrevenuewouldhavebeen$12,000[(0.8
200)75],orayieldof0.6(12,000/20,000).Asyoucansee,thepotentialrevenueremainsthe
same,buttheactualrevenuewillchange,dependingonthelevelofdiscountsandtheprice
sensitivityofconsumers.
Thisexampleissimplifiedtodemonstratethebasicuseofyieldmanagement.Inreality,hotels
havedifferentroomswithdifferentrackrates,andmanydifferentmarketsegments,including
business,pleasure,ortransient,andvariousgroupmarkets.Eachofthesemajorsegmentscan
bedividedintosmallersubsets.Forinstance,thegroupmarketcanbesegmentedinto
association,corporate,andincentivetravel.Hotelshavecreatedpositionsand,insomecases,
departmentsthatareresponsibleforrevenuemanagement.Theseindividualsperformhistorical
bookinganalysisandconferwiththehotel'sexecutivecommitteetodeterminediscounting
policies.
Anotherareathatneedstobeconsideredindeterminingahotel'sdiscountingpolicyisthe
additionalrevenue,otherthanroomrevenue,thatisgeneratedfromguests.Forexample,hotels
canearnadditionalrevenuefromtherestaurant,bar,fitnesscenter,parking,laundryservices,
roomservice,corporateservicessuchasfaxingandshipping,andcateringforgroups.Rather
thananalyzeeachguest,hotelslookatthemajormarketsegmentsandcalculateamultiplier
thatcanbeusedtoadjustroomrevenueforadditionalrevenuepotential.Thisisimportant
becausehotelsmustmaximizetherevenuetheyreceivefromallsources.Forinstance,itwould
beamistaketo
selltheroomtoatransientguestwhopaid$10moreanightthanabusinesstravelerifthe
businesstravelerislikelytospendmorethan$10adayforadditionalservices.Similarly,turning
downagroupbecauseofhighdemandamongtransientcustomersmayresultinalossof
revenuefromcateringservicesthatwouldhavebeenpurchasedbythegroup.However,inpeak
demandseasons,suchasfallinNewEngland,hotelscanchargeconsiderablymoretotransient
customersthantogroups,anditwouldbeamistaketobookagroupwellinadvanceandforgo
thisadditionalrevenue.
Hotelsearnadditionalrevenuethroughvariousonsiteservices,includingthebar.
Yieldmanagementhashadamajorimpactonthehospitalityandtourismindustry.Advancesin
computertechnologyhaveimprovedtheabilitytoestimatedemandandrevenue.Inaddition,it
hasbecomeeasiertosegmentmarketsandemployselectivediscountingthroughvehiclessuch
astheInternet.Inthefuture,yieldmanagementprogramswillbecomemoreaffordablefor
smalleroperations.Infact,yieldmanagementsystemscanbedevelopedusingordinary
spreadsheetsoftware.Finally,companiesareworkingonresourcemanagementmodelsthatwill
analyzetherevenuecontributionfromallsourcesinthehotel,ratherthanfocusingonlyonguest
rooms.
7.7 PRICING LAW AND ETHICS

Pricingpracticesarenormallyillegaliftheyarefoundtobeanticompetitiveoriftheytakeunfair
advantageofconsumers.However,ethicalstandardsarenotasclearaslegalstandards
developedthroughcaselaw.Manypeoplefeelthatalthoughitislegaltomaximizeprofits
throughpricing,itmaynotalwaysbeethical.First,wewilldiscussthelegalissuessurrounding
pricingdecisions,andthenwewillpresentatypologythatcanbeusedforconsideringthe
ethicalconstraintsonpricing.
7.7.1 Legal Issues in Pricing

Thefederalgovernmenthassoughttoensurefairpricecompetitionsinceitpassedthe
ShermanActin1890,followedbytheClaytonActin1914.Thesetwopiecesofantitrust
legislationwereenactedinresponsetogrowingconcernsforsmallbusinesseswiththeadvent
oflargecorporationscompetingonanationallevel.Mostofthelawsareopentointerpretation
andoftendifficulttoenforce,especiallyinregardtoservices.TheRobinsonPatmanAct,passed
in1936tostrengthentheClaytonAct,targetedunfairpricingpractices.Mostlawsfocuson
goodsorcommodities,forwhichgradeandqualitycanbeeasilydetermined,whereasservices
varygreatly.Therefore,thegovernmenthasdevotedmostofitsresourcestomonitoringthe
pricingoftangibleproducts.Pricingpracticesthatarepotentiallyillegalfallintofourgroups:
explicitagreements,nonexplicitagreements,pricediscrimination,andtieinsales.4
7.7.1.1 EXPLICIT AGREEMENTS.

Explicitagreementsareformalagreementsamongfirmstosetthesamepricesortousethe
sameformulainsettingprices.Thispracticeofpricefixingisgenerallyregardedasillegaland
willbeenforced.Itisillegalforcompetitivehotelstodiscussprices,eveniftheyare
accommodatingguestsforthesameconference.Forexample,aMarriottandaSheratonhave
formedahotelconnectioninSpringfield,Massachusetts,tocompeteformeetingsrequiring
moreroomsthaneitherhotelcontains.Thetwohotelsarephysicallyconnected,andthey
operateastwowingsofonehotelforlargerconferences.Guestscanchargemealsandother
servicesfromeitherhoteltotheirrooms.However,eachhotelmustnegotiatepriceseparately
withthemeetingplannerwithoutanycontact,oritwouldbeillegal.
7.7.1.2 NONEXPLICIT AGREEMENTS.

Nonexplicitagreementstaketheformofconcertedactionsbycompetitorsthatarenotformal
butrepresentsomelevelofcollusion.Thecourtslookforapatternofuniformbusinessconduct,
orconsciousparallelism.Itisnotenoughforcompetitivefirmstoexhibitparallelbehaviorthey
mustalsobefoundguiltyofmakingaconsciousefforttoengageinthatbehavior.Airline
companieshavebeeninvestigated,andprosecuted,forthisbehaviorinthepast.Eventoday,it
isnotuncommontobequotedidenticalfaresoncompetitiveairlines
forthesameroutes.Aswithexplicitagreements,itisunlawfulforfirmstoexchangeprice
informationifitisintendedtoaffectpricesorifitidentifiesspecificcustomers.Conventionand
visitorsbureausareabletoprovideaggregatepriceinformationonhotelratesintheirregions,
solongastheydonotidentifytheratesforspecificcustomers,includinggroupsformeetings
andconventions.
7.7.1.3 PRICE DISCRIMINATION.

Firmsareforbiddenfromchargingpurchasersdifferentpricesforcommoditiesoflikegradeand
qualityinanattempttosubstantiallylessencompetition.Twolegaldefensesexistfor
discriminatoryprices:costjustificationandmeetingcompetition.Thecostjustificationdefense
allowsfirmstochargedifferentpriceswhenthecostsofprovidingtheproductdifferbetween
purchasers.Themeetingcompetitiondefenseallowsfirmstochargedifferentpricestomeetthe
lowerpriceofacompetitor.Asmentionedearlier,itisdifficulttousethesecriteriatoevaluatethe
pricingpracticesofservicefirms.Everyserviceexperienceisdifferentand,withtheconsumer
beingpartoftheproductionprocess,firmscouldarguethatthecostofprovidingtheservice
differsbetweenpurchasers.Thereisafinelinewhenitcomestothepricesegmentation
techniquesappliedintheyieldmanagementprogramsusedbyhotelsandairlinecompanies,
butserviceshaveremainedlargelyuntouchedbythepricediscriminationlaws,asstatedinthe
RobinsonPatmanAct.
7.7.1.4 TIE-IN SALES.

Thisisthepracticeofsellersrequiringthat,asaconditionofpurchasingoneproduct,customers
mustbuyotherproductsexclusivelyfromtheseller.Tyingarrangementsweredeemedunlawful
accordingtotheClaytonActifthearrangementsweremeanttosubstantiallylessen
competition.Thecourtshavebeenlenientinallowingtyingarrangementsthatarevoluntaryor
resultinprocompetitivebenefits.Forinstance,courtshaveallowedfranchisors,suchas
McDonald's,torequirefranchiseestopurchaseproductsfromthemthatarenecessaryto
maintainstandardsofperformanceandaconsistentimage.
7.7.2 Ethical Issues in Pricing

Ethicalstandardsaremuchmoredifficulttoevaluateandupholdthanlegalstandardsinthe
areaofpricing.People'sviewsregardingethicscanbeasdiverseastheirculturalor
socioeconomicbackgrounds.Atoneendofthecontinuum,thereisaviewthatsolongasa
practiceislegal,itisethicaltochargeapricethatwillresultinmaximalprofit.Attheotherend,
thereisaviewthatindividualsandfirmsshouldnotexploitoneanotherforpersonalgainand
thatsocietalbenefitsshouldbestressedoverthoseofanyoneentity.Table7.3illustratesthe
levelsconstitutingthecontinuum,fromthelegalperspectivetothesocietalperspective.
TABLE7.3
PricingEthics
PRICINGPOLICY LEVELOFETHICALRESTRAINT
LOWHIGH
LEVEL LEVEL LEVEL LEVEL LEVEL
1 2 3 4 5
Priceispaidvoluntarily X X X X X
Priceisbasedonequalinformation X X X X
Priceisnotexploitingbuyers'essentialneeds X X X
Priceisjustifiedbycosts X X
Priceprovidesequalaccesstogoodsregardlessof X
one'sabilitytocovercosts
Level1assumesthatallexchangesarevoluntaryanditistheresponsibilityofthebuyerto
obtainasmuchinformationasnecessarytomakeagooddecision.Thelegalprincipleofcaveat
emptor,orletthebuyerbeware,isthecornerstoneofacapitalisteconomy.Thisprinciple
enablesfirmstocompeteandresultsinalargervarietyofproductsofferedatlowerprices.
However,servicescannotbephysicallyheldorevaluateduntilaftertheyarepurchasedand
consumed.This,alongwiththehighlevelofvariabilityassociatedwithservices,providesahigh
degreeofriskanduncertaintyforconsumersinpurchasinghospitalityandtourismproducts.
Level2suggeststhatconsumersshouldnotbeexposedtomakingpurchasesunderconditions
ofasymmetricinformation.Thatis,thesellershouldberequiredtodisclosepertinentinformation
tobuyerssothattheyarenotatadisadvantage.Forexample,airlinecompaniesarerequiredto
discloseanyrestrictionsplacedonticketsforairtravel,suchasthefactthatsupersaverrates
arenonrefundable.Similarly,hotelsmustdiscloseroomcancellationpoliciestowouldbeguests.
Level3imposesanadditionalrestrictionthatsellerscannotearnexcessiveprofitsbycharging
artificiallyhighpricesforessentialproducts.Thebestexampleofthispracticewouldbewhen
pharmaceuticalcompanieschargehighpricesforlifesavingdrugsthatareunaffordablefor
thosewithoutinsuranceorpeoplewithlowerincomes.Forexample,airlinecompaniesand
hotelsofferdiscountedpricesforcertainconsumerswhomusttravelandfindlodgingawayfrom
homebecauseofemergencies(e.g.,funerals,familyillnesses,accidents).
Level4condemnsthepracticeofsegmentedpricingevenwhentheproductisnonessential.It
statesthatpricesshouldnotbesegmentedbasedonvalue,andfirmsshouldnottake
advantageofconsumersduringperiodswherethereareshortages,evenfornonessential
products.Hotelsengageinquestionablepracticeswhentheychargehigherthannormalrates
duringperiodsofhighdemandsuchascollegegraduationsandspecialevents.Theyoften
requireminimumstaysandchargeapriceabovethepublishedrate(rackrate).Additionally,
somerestaurantsusedifferentmenuswithhigherpricesforholidaysandotherspecialevents.
Level5wouldseemextremetomostpeoplebecauseitisnotconsistentwithfreemarketsina
capitalisteconomy.Instead,thisethicalrestraintresemblesastandardthatonewouldfindina
socialistsociety.Itsuggeststhateverymemberofthecommunityorsocietyshouldsharewith
otherstoensureaminimumstandardofliving.Thisstandardwouldbemoreapplicableto
underdevelopedcountriesortocommunitieswherethemembersarecommittedtoasocietal
goal(suchasreligiouscommunities).Thisethicalrestraintwouldnormallyresultinlessvariety
ofproductsandservicesoflowerquality.Forexample,institutionalfoodserviceoperationsinK
12schoolsoftenoffersubsidiesforchildrenfromlowerincomefamilies.
Inclosing,one'sapproachtotheworldwouldcertainlyaffectone'sbeliefabouttheappropriate
levelofethicalrestraint.Obviously,atradeoffexistsbetweenwhatisbestforanindividualand
whatisbestforsociety.Themorelevelsofrestraintimposed,thesmallerthegapbetweenthe
higherandlowerincomesinasociety.Thereisnotasmuchincentiveforpeopletoinvest,
resultinginaloweroverallstandardofliving.Therefore,thecorrectlevelofrestraintisprobably
somewherebetweenlevels1and5asdeterminedbytherespectivesociety.
CHAPTER REVIEW
Priceremainsanimportantcomponentofthemarketingmixbecauseitdirectlyaffectsthe
revenueofafirm.Priceisalsoacriticalelementinsegmentingmarketsandpositioninga
firm'sproductsandservices.Assuch,firmsmustconsiderallthefactorsthataffectprice,
suchastheobjectivesofthefirm,theconsumers'pricesensitivity,andtheexternal
environment.Governmentregulations,trendsindemographicsandpurchasingpatterns,
economicconditions,technologicaladvances,andchangesinthecompetitiveenvironment
allhaveanimpactonprices.
Consumers'perceptionsofvaluearethebasisformakingpricingdecisions.Afterall,price
mustbeanaccuraterepresentationofthevaluethataconsumerplacesonaproductor
service,oranexchangewouldnotoccur.Thethreebroadpricingstrategiesprice
skimming,pricepenetration,andneutralpricingarebasedontherelationshipbetween
priceandeconomicvalue.Firmsattempttodifferentiatetheirproductsfromoneanother,
andthenfocusonthosesegmentsofthepopulationthatvaluetheirproductservicemixes.
Pricesegmentationshouldconcentrateonthoseattributesthatarevalueddifferentlyby
varioussegmentsofthepopulation.
Themostcommonpricingtechniquesarethecostoriented,demandoriented,and
competitivepricingapproaches.Costorientedapproachesbasepricingdecisionsonthe
costofprovidingtheproduct,startingwiththebreakevenpointandthenaddingamarkup
ortargetreturn.Demandorientedapproachesfocusonconsumerpricesensitivityand
marketdemand,includingcertainpsychologicaltactics.Competitivepricinginvolvessetting
pricesinrelationtoafirm'scompetition.Thefirmmustchoosetopriceat,below,orabove
thecompetition.Revenuemanagementisthepracticeofchangingpricesbasedonmarket
conditionsandthepriceconsumersarewillingtopay.
Finally,legalandethicalissuessurroundproductpricing.Lawsexisttoprotectconsumers
andensurefaircompetition.Firmscannotcolludetofixpricesandtakeadvantageof
consumersandothercompetitors.Inadditiontothelegalstandards,firmsmustoftendeal
withethicalstandardsimposedbysociety.Thesestandardswillvarysomewherebetween
letthebuyerbewareinapurecapitalisteconomyandasocialisteconomy,whichrestricts
profitsforpersonalgain.

Bartering
Breakevenanalysis
Competitivepricing
Consumerpricesensitivity
Costorientedpricing
Costpluspricing
Demandorientedpricing
Differentiationvalue
Dynamicpricing
Economicvalue
Lawofdemand
Neutralpricing
Odd/evenpricing
Penetrationpricing
Prestigepricing
Pricelining
Pricingobjectives
Psychologicalpricing
Referencevalue
Reservationprice
Revenuemanagement
Segmentedpricing
Skimpricing
Targetreturnpricing
YieldManagement

1.Whatisprice?Whataresomeofthemajorfactorsthataffectpricingdecisions?
2.Whatarethemajorpricingobjectivesdiscussedinthischapter?
3.Whatarethemostcommoneffectsonconsumerpricesensitivity?
4.

Whatarethethreebroadpricingstrategies?Whenisitappropriatetouseeachstrategy?
Whataretheadvantagesanddisadvantagesofusingbreakevenanalysis?
Whatiseconomicvalue?Giveanexampleofhowyouwoulddeterminetheeconomic
valueforaparticularhospitalityservice.
Discusssomeofthepricesegmentationstrategiesthatcanbeusedbyhospitality
andtourismfirms.
Whatarethethreemajorpricingtechniques?Canyouusemorethanone?Explain.
Whatisrevenuemanagement?Howaredynamicpricing,yieldmanagement,and
revenuemanagementrelated?
Whataresomeofthelegalandethicalissuessurroundingpricingdecisions?
Internetexercise:Onlinetravelagentsnormallyhaveaccesstothesamehoteland
airlinerates.Thepurposeofthisexerciseistocomparethepricesbetweentwoonline
travelagentsforthesameproducts,anddetermineifthereisadiscountrelativeto
purchasingtheproductsdirectlyfromthesuppliers.
a.GotoExpedia.comandTravelocity.comandcomparetheratesforatripfromyour
airporttoOrlando,Florida.Lookatthesamehotelandairline,bothseparately(hotel
onlyandflightonly)fora5nighttripthatisapproximately6monthsaway(usethe
samedatesforbothonlinetravelagents).Isthereadifferenceintheprices?
b.Gototheindividualsuppliers(e.g.,SheratonHotelsandDeltaAirlines)andgetthe
pricesforthesamedates.Isthereadifferencebetweentheonlinetravelagentsand
thesuppliers?
c.Comparethepackageprice(Flight+Hotel)forthesametripbetweentheonlinetravel
agents.Isthereadifference?Isthesavingssignificantcomparedtopurchasingthe
productsseparatelyfromthetravelagentorthesuppliers?
d.Whatconceptsinthechaptercanbeusedtodescribethepricingstrategiesforthe
onlinetravelagents?
INTERNET CASE STUDY
Airline Pricing
Thepracticeofyieldmanagementusedbyhospitalityfirmsandsportsoperationswas
startedintheairlineindustry.Allindustriesusethesamebasicpremise.However,giventhe
natureoftheairlineindustry,itiseasiesttoseetheconceptbeingusedasanoutside
observer.OnlinetravelsitessuchasExpedia,Travelocity,Orbitz,andKayakprovide
instantcomparisonsformostofthemajorairlinesfordomesticandinternationalrouteson
givendates.
ChooseapairofcitiesintheUnitedStatesandcomparetheonewayandroundtrip
airfaresusingKayak.comforasetofdatesoriginatingatthefollowingtimes:1month
ahead,10daysahead,5daysahead,and1dayahead.Compareanovernightstay,a5
daystay,anda10daystayfortheroundtripticket.Constructasimplebookingcurvefor
theonewayandroundtrippricesusingtheleadtime(i.e.,howfarinadvancetheticketis
booked)andthepriceforthreedifferentairlinesineachchart.

1.Isthereanynoticeablepatternbasedonhowfarinadvancetheticketisbooked?Does
theroundtrippricechangebasedonthelengthofstay?
2.Arethereanydifferencesbetweentheairlines?Ifso,whataresomepossible
explanations?Arethedifferencesconsistentoverthedifferenttimeperiods?
3.Doyouthinktheresultswouldbesimilarforanygivencombinationofcities(e.g.,large
orsmall,domesticorinternational,distancebetween,etc.)?Explainyouranswer.
4.NowcompareyourresultsfromKayak.comwithoneothertravelsitethatwas
previouslygiven(i.e.,Expedia,Travelocity,Orbitz).Isthereanydifference?Howwould
youexplainit?
5.Isitfairforairlinestochargedifferentcustomersdifferentpricesforairtravelonthe
sameairline,inthesameclassseat,onthesamedateandtime(i.e.,thesameflight)?
Whyorwhynot?
CASE STUDY
The Pasta Shack

ThePastaShack,anItalianrestaurantinOrlando,Florida,nearthemajortourist
attractions,hasnoticedarecentdeclineinsales.Theownerandhismanagersdecidedto
haveameetingtocomeupwithsomestrategiestoreversethistrend.Oneofthe
managersusedtoworkforanindependentrestaurantinasuburbanneighborhoodin
Chicagoandsuggestedastrategyusedsuccessfullybyhisformerrestaurant:offeringan
earlybirdmenutocustomerswhoorderbefore6:00P.M.Theideaistoprovidealimited
numberofentreesatadiscountedprice.
Theregularpriceoftheentreesplacedontheearlybirdmenuwas$10.95andincludeda
salad.Thenewpriceforthespecialswouldbe$8.95.Afterthefirsttwoweeksofoffering
thespecials,thedailyaveragenumberofcoversincreasedfrom50to58duringthe4to6
P.M.timeperiod.However,thedailyaveragenumberofcoversafter6P.M.decreasedfrom
75to70,duetosomecannibalizationofcurrentcustomers.Assumethat$8.95isthe
averagepriceperpersonfrom4to6P.M.and$10.95istheaveragepriceperpersonafter
6P.M.whenansweringthefollowingquestions.

1.Whatwastheeffectofthepricechangeontotalrevenuesduringtheearlybirdtime
period?
2.Usingtheconceptspresentedinthechapter,howwouldyouexplainthischange?
3.Isthenewstrategysuccessful?Explainyouranswer.
4.Whatcouldbethecausefortheinitialdeclineinsales?
5.Arethereanyadditionalcostsassociatedwiththenewstrategy?
6.Howcouldyouincreasetheprofitabilityassociatedwiththeearlybirdstrategy?
NOTES
1ThomasT.NagleandReedK.Holden,TheStrategyandTacticsofPricing:AGuideto
ProfitableDecisionMaking,3rded.(EnglewoodCliffs,NJ:PrenticeHall,1995),pp.7794.
2Ibid.,pp.15261.
3ThomasT.Nagle,EconomicFoundationsforPricing,JournalofBusiness57,1,Part2
(1984),pp.S3S26.
4NagleandHolden,pp.366381.

8
DEVELOPING NEW PRODUCTS AND SERVICES
CourtesyofPacificEdgeHotel,AJoiedeVivreHotel,LagunaBeach,California.
Chapter Objectives
1.Explaintheimportanceofdevelopingproductlines.
2.Describethetwotypesofplanningstrategiesfordevelopingnewproductsandservices.
3.Outlinetherolesofnewproductcommittees,newproductdepartments,productmanagers,
andventureteams.
4.Describethenewproductdevelopmentprocess.
5.Explainthemarketingrolesofbrands,brandnames,andtrademarks.
6.Applyproductdevelopmentandbrandingconceptstotourismdestinations.
8.1 INTRODUCTION
Nomatterhowsuccessfulahospitalityortourismconceptis,ifthecompanyassociatedwiththe
conceptdoesnotevolveandchange,thenitwillbeleftbehind.Ifweweretoconsiderthetop
100companiesinthelodgingandfoodservicesectors,wewouldfindthateachyear,some
companiesdropoffthelistandgetreplacedbynewones.CorporationssuchasMarriott
International,CarnivalCruiseLines,Hilton,Starbucks,andDisneycontinuetoleadtheindustry
becausetheyhavebeenverysuccessfulindevelopingproductsandservicesthatenhancetheir
marketposition.However,ithasbecomeincreasinglydifficultforhospitalityfirmstoexpand
salesandmarketsharesimplybyaddingnewunits.Today,growthmustbeaccomplishedwithin
existingunitsbydevelopingandimplementingasuperiorproductservicemixorbyopening
newunitsinuntappedmarketsthatmayrequireagooddealofresearchandeffort.For
example,manyfirmshaveexpandedtheirproductservicemixofferingsintointernational
markets.
Tofurtherillustratethispoint,considerthefollowingexamples.Becausethenumberofgreat
potentiallocationsforrestaurantshasbeenreducedthroughmarketsaturation,theleading
companieshavetakeninnovativestepstoincreasesalesandgrowtheirrespectivecompanies.
First,theyhavesoughtnewlocationsandvenuestoselltheirproductservicemix.Forexample,
PizzaHut,throughanagreementwithMarriottInternational,begansellingascaleddown
versionofitsproductservicemixinselectedMarriotthotels.Thisscaleddownversion,orkiosk
styleofoperation,offersalimitedmenuwithnoseatingwithintheimmediatekioskfacility.In
addition,PizzaHutparticipatesinsomeofthenoncommercialfoodserviceaccountsoperated
bycontractfoodservicecompaniessuchasAramark.ThisallowedPizzaHuttoreachnew
marketsonesthatithadnotpreviouslyreached.Theresulthasbeenincreasedsalesand
increasedconsumersatisfaction.ThisisawinwinrelationshipforbothPizzaHutandits
partners.Winwinrelationshipsaredefinedassituationsinwhichbothpartiesbenefit,without
onebeingawinnerandtheotheraloser.Whencompaniesattempttonegotiatewinwin
agreements,theyseeklongtermrelationshipsthatovertimebenefitbothorganizations.
Winwinrelationship
Asituationthatresultswhenbothpartiesaresatisfiedattheendofanegotiation.
Asecondexampleofusingproductservicemixdevelopmenttoincreasesaleswouldbefast
foodrestaurantsthatintroducenewproductsonaregularbasis.Thesecompaniesroutinely
introducenewproductsorabundleofproductsthatareavailableforalimitedtime.Thegoalis
toincreasepatronageandmarketsharebytakingcustomersawayfromthecompetition.A
secondgoalistoincreasebrandloyalty,ortherepeatedpurchasingofafirm'sbrandovertime.
Theselimitedtimeofferingsareoftenabundlingofseveralproductswithareducedpriceand/or
increasedportionsizetoconveyahighlevelofperceivedvaluetotheconsumer.Companies
oftencallsuchbundlingvaluemeals,mealdeals,orasimilartermtoconveybettervalue.
Thethirdexampleisbestillustratedbythemannerinwhichthemeparksextendthelifeoftheir
productservicemixlifecyclebyengaginginproductservicemixdevelopment.Eachyear,thrill
seekerswanttotrythenewestandgreatestridesatthemanythemeparksaroundthecountry.
AmongtheleadersinthismarketareDisney,SixFlags,andParamount.Eachofthese
companiesdevelopsnewrideseachyearinanefforttoattractconsumerstotheirrespective
parks.Havingthelatest,largest,orgreatestofthesethrilltyperidescanhaveaverypositive
impactonthemeparkattendance,sales,andprofitability.
Finally,productservicemixdevelopmentincludesadditionstoandenhancementsoftheservice
elements.Forexample,severalrestaurantchains,suchasOutbackandChili's,have
increasedsalesbyencouragingcustomerstopurchasemealsviaadriveuportakeaway
service.Thisaddedserviceallowsthemtoincreaseunitsaleswithoutaddingseatsintheir
restaurants.Slightadditionstostaffinglevelsallowthemtoprovidethisserviceprofitably.
Therearetwobasicapproachestoproductdevelopment:innovationandfollowtheleader.
Withtheinnovationapproach,theproductdevelopersaretherisktakers,alwaysseekingtobe
thefirstinthemarketwithanewproductorservice.Theleader,orinnovator,willbenefitfrom
beingthefirsttomarketwithanewproductorconcept.Customersmayassociatetheinnovation
withtheleaderorbecomeloyaltothatbrand.Forexample,itisnotunusualtohearcustomers
atBurgerKingorderaHappyMeal(aMcDonald'sproduct).1However,giventheeasewith
whichhospitalityproductsandservicescanbeduplicated,thosewhosubscribetothefollow
theleaderapproachcanintroducetheircompetingproductsandservicessoonafterthemarket
leaderintroducesitsownproductsandservices.
Innovation
Theprocessofconvertingnewideasintoproductsandservicesthatoffervalueto
consumers.
8.1.1 The Importance of Product Lines

Forthecontinuedsuccessofahospitalityortourismfirm,itisimportanttohaveaproductline,
orportfolioofproductsandservices.Fewfirmscansurviveandsustainlongtermgrowthwith
onlyoneortwoproductsorservices,becauseofthehighriskassociatedwiththelackof
diversification.Inadditiontodiversifyingafirm'soperatingrisk,thereareseveralotherreasons
fordevelopingnewproductlines,discussedinthefollowingsections.
Productline
Afirm'sportfolioofproductsandservices.
8.1.1.1 GROWTH OPPORTUNITIES FOR THE BUSINESS.

Whenacompanylimitsitselftooneproductoralimitednumberofproducts,itholdsbackthe
firm'sgrowthpotential.ConsiderafirmsuchasBaskinRobbins.Itwasquitesuccessfulselling
icecream,butwhenconsumertastesshiftedtowardlowerfatandhealthieritems,thefirm
developedandofferednewproductssuchasfrozenyogurtthatmetthisdemand.2Thisallowed
BaskinRobbinstoappealtomoreconsumersandincreasesales.McDonald'sisanothergood
exampleofafirmthatexpandeditsproductlinetoattractadditionalbusiness.Inadditiontothe
hamburgers,frenchfries,andchildren'sfare,itaddedsaladsandothermenuitemsthatare
targetedtowardadults.Inrecentyears,McDonald'shasenhanceditscoffeeproductsinan
attempttocompetesuccessfullyagainstStarbucksandDunkin'Donuts.
8.1.1.2 EFFICIENT AND EFFECTIVE USE OF COMPANY RESOURCES.

Asmoreproductsaredevelopedorasafirmworksonadditionalbrands,itcanmakebetteruse
ofcorporateresources.Forexample,ChoiceHotelsInternationaloperatesandfranchises
severalbrandsoflodgingproducts,includingsuchbrandsasClarionHotelsandSuites,Clarion,
QualityInnsandSuites,ComfortInnsandSuites,Cambria,MainStaySuites,andSleepInns.
MarriottInternationalusesasimilarstrategy,offeringtraditionalMarriottHotelsandResorts,as
wellasJ.W.MarriottHotelsandResorts,Courtyard,ResidenceInns,FairfieldInns,
RenaissanceHotelsandResorts,TownPlaceSuites,SpringHillSuites,andMarriottVacation
Club.OperatingmultiplebrandsallowsChoiceHotelsInternationalandMarriottInternationalto
makebetteruseofcorporateresourcesbysegmentingthemarketandtailoringtheirofferingsto
thevarioussegmentsusingseparatemarketingprograms.
8.1.1.3 INCREASING COMPANY MARKET SHARE AND IMPORTANCE OF THE COMPANY

WITHIN THE OVERALL MARKET.
Whenmultipleproductsorbrandsaremadeavailabletothepublic,saleswillincreaseand
overallmarketsharewillalsoincrease.Thisaffordsthefirmastrongerpositioninthemarket
andincreasestheimportanceofthefirm.
8.1.1.4 DIVERSIFYING A FIRM'S BUSINESS RISK.

Withoutasteadyflowofnewproductsandservices,ahospitalityortourismfirmcouldhave
seriousproblemsifthesalesofexisting
productservicemixstarttodecline.However,increasedsalesfromnewproductsandservices
cancounteractpoorsalesfromthecurrentones.Thelargertheportfolioofproductsand
productlines,thesmallerthefirm'sbusinessrisk.
ThesunburstlogoisconsistentacrossallofthebrandsintheDaysInnproductline.
8.2 PLANNING FOR NEW PRODUCTS

Itiscriticalforfirmstotakeasystematicapproachtodevelopingandmarketingnewproducts
andservices.Thepotentialrewardsarehighforsuccessfulnewproductsorservices,butthe
potentialrisksoffailureareequallyhigh.Afirmmustdoathoroughanalysisofanewproduct
ideatodetermineifitiscompatiblewiththefirm'sgoals,ifthefirmhasthenecessaryresources,
andiftheenvironmentisfavorable.Marketingplansshouldcontaininformationregardingnew
productdevelopment,aswellasthegoalsandstrategiesforexistingproducts.Aswith
strategiesforexistingproducts,strategiesfornewproductscanbeeitherreactivestrategiesor
proactivestrategies.3Reactivestrategiesaredevelopedasaresponsetoacompetitor's
action,whereasproactivestrategiesareinitiatedasapreemptiveefforttogainacompetitive
advantage.
Reactivestrategies
Strategiesthatrespondtochangesinthemarketplace.
Proactivestrategies
Strategiesthatanticipatechangesinthemarketplace.
8.2.1 Reactive Strategies for New Product Development

Adefensivestrategyisusedtocountertheeffectsonanexistingproductfromacompetitor's
newproduct.Initially,thisstrategyinvolvesminorchangesinafirm'smarketingmixsuchas
advertising,packaging,and/orpricing.Thiswillnegatesomeoftheimpactfromthecompetitive
productuntilmoreinformationcanbeobtainedandsubstantivechangesmade,ifnecessary.
Thesechangescouldinvolvethedevelopmentofanewproductorservice,orsomemajor
modificationstothecurrentproductservicemix.Normally,whennewrestaurantsopen,the
otherlocalrestaurantscounterwithincreasedpromotionsand/ordiscounts.Similarly,when
smallairlineshavetriedtostartanewserviceinnichemarkets,thelargerairlinesservingthose
samemarketshaveretaliatedwithpricecutsandpromotionsfortheirroutesinthosemarkets.
Thegoalofthelargerairlinesistopreventthesmallerairlinefromgainingmarketshareand
profitability.
Defensivestrategy
Areactivestrategythatisusedtocountertheeffectsonanexistingproductfroma
competitor'snewproduct.

Animitativestrategyinvolvescopyinganewproductorservicebeforeitcanhavealarge
impactinthemarket.Thisstrategyisparticularlyappealingwhentheproductorserviceisnot
uniqueorwhenitcanbeeasilyduplicated.Thisstrategyisheavilyreliedoninthefastfood
industry.EverytimeMcDonald'slaunchesasuccessfulnewproduct,BurgerKingandsomeof
theothercompetitorsarequicktorespondwithsimilarofferingsandprices.Thispracticeisalso
popularforotherhospitalityandtravelproducts.Forexample,theairlineindustrysawthis
happenafterAmericanAirlinesintroducedthefirstloyaltyprogramin1981.Itwasquicklycopied
bymostoftheothermajorairlinesafteritwasmetwithsuccess.Morerecently,mostmajor
airlinesintheUnitedStatesdecidedtooffereconomyplusseatingwithextralegroomatan
additionalpriceaconceptfirststartedin1991byEVAAirfromTaiwan.
Imitativestrategy
Areactivestrategythatinvolvescopyinganewproductorservicebeforeitcanhavea
largeimpactinthemarket.
Anadaptedversionoftheimitativestrategyisthesecondbutbetterstrategy.Onceagain,
firmsrespondtocompetitors'newproductshowever,thefirm'sprimarygoalinthiscaseisto
improveontheinitialproduct.MarriottInternational'sintroductionofitsCourtyarddivisionand
extendedstaypropertieswaseventuallyfollowedbycompetitorswithsimilarproducts.For
example,bothWyndhamHotelsandHiltonintroducedalineofgardenhotelsthataretargeted
atbusinesstravelerswithmodestbudgetsandadislikeforlargehotels.Thesenewproduct
linesorbrandswillcompetedirectlywithMarriottInternational'sCourtyardbrand,buttheir
ultimategoalistobebetter.Thisstrategyismorecommonforproductsorservicesthatrequire
alargeinvestmentandalongerperiodoftimetodevelop.Forexample,Avisrentalcarcompany
usedthesloganWetryharderfor50years.Thesloganwasfirstintroducedin1962to
highlightitspositionasnumber2intherentalcarindustryandthefactthatitofferedsuperior
customerservicethanitsnumber1competitor,Hertz.
Secondbutbetterstrategy
Anadaptedversionoftheimitativestrategywherethefirm'sprimarygoalistoimproveon
thecompetitor'sproduct.
Thefinalreactivestrategyisreferredtoasaresponsivestrategy.Firmsareresponsiveinthat
theyreacttothedemandsofcustomers.Thesenewproductsaretrulymarketdriven.Hotels
oftenmodifytheirofferingsanddesignnewpropertiesbasedontheobservedbehavioroftheir
guests.Thewaygueststendtorearrangearoom,commoncomplaints,andfrequencyofuseof
amenitiesandservicesareallfactorsthataffectthedesignofhotelproducts.Arecentresponse
toguests'changingdemandshasbeentheadditionofspaservicesatmanyhotels.Previously,
spaserviceswerenormallyofferedonlyatresorts.
Responsivestrategy
Areactivestrategywherefirmsadapttothedemandsofcustomers.
Hotelsdesigntheirfacilitiestoappealtotheirspecifictargetmarkets.
8.2.2 Proactive Strategies for New Product Development

Anotherapproachtodevelopingnewproductsistobeproactiveandinitiatechange,ratherthan
reacttoit.Apopularproactivestrategyusedbymanufacturingfirmsisaresearchand
developmentstrategy.Servicefirmsalsodoresearchinanattempttodesignanddevelopnew
serviceconcepts.Hospitalityandtourismfirmsarecontinuallysearchingfornewwaysto
improvefacilitydesignsandcomputersystemsforreservationsandresourcemanagement.
MarriottInternationaldevelopedproprietarycomputersystemsforconductingbusiness,
whereasmanyotherfirmschoosetousesystemsdevelopedbyoutsidevendors.
Researchanddevelopmentstrategy
Aproactivestrategywherefirmsconductresearchtoaidinthedesignanddevelopmentof
newproductsorservices.
Anotherproactivetacticusedbyservicefirmsisacustomerorientedstrategy.Thisstrategy
embracesthemarketingconceptandthenotionthatitisimportanttodeterminecustomerwants
andneedsandthendesignproductsandservicestomeetthoseneeds.Mosthotelsand
restaurantsusemarketingresearch,commentcards,andothermethodstogatherinformation
fromconsumers.Firms
suchasRitzCarltonHotelstakeacomprehensiveapproachtogatherinformationonservice
qualityandsatisfaction.RitzCarltonhasreceivedtheMalcolmBaldrigeNationalQualityAward
asaresultofitseffortstomeetcustomerneeds.Thehotelfirmobtainedfeedbackfrom
customers,employees,andsuppliersinanattempttocompletelyunderstandtheprocessof
deliveringhighqualityservicetoitscustomers.
Customerorientedstrategy
Aproactivestrategythatfocusesonthewantsandneedsofcurrentandprospective
customers.
Firmsthatareinnovativeandtendtobeleadersintheirrespectiveindustriestrytocreatean
entrepreneurialstrategyfortheiremployees.Thesefirmsarelookingfornewideasthatare
generatedinternallythroughmeansotherthanresearchanddevelopment.Employeesarea
greatsourceforideasonimprovingexistingproductsandservicesanddevelopingnewones.
Afterall,whatemployeedoesnothaveanopinionabouthowtoimprovehisorherfirm's
productsorservices?Ratherthanhavethisbeanegativeinfluenceontheorganization,some
firmschoosetoencourageemployeestosharetheirideasandopinions.Asaresult,someof
thenewserviceconceptsbecomeseparateoperatingdivisionsorseparatecomponentsof
currentoperations.
Entrepreneurialstrategy
Aproactivestrategywherefirmsgeneratenewideasinternallythroughmeansotherthan
researchanddevelopment.
Anotherwaytoaddproductsorservicestoafirm'sportfolioisthroughmergersoracquisitions.
Afirmcanacquiretherightstonewproductsorservicesbyenteringintoalegalarrangement
withanotherfirm,therebycombiningthetwofirms'productsandservices.Acquisitionsare
plentifulinthehospitalityandtourismindustry.Atonetime,PepsiCodevelopedamajor
presenceinthehospitalityindustrythroughitsacquisitionsofbrandssuchasPizzaHut,Taco
Bell,andKFC.Theadvantageisthattheindividualfirmsdonothavetodiversifytheirofferings
becausethediversificationhasoccurredatthecorporatelevel.Later,PepsiCoreassessedthis
strategyanddivesteditselfofthesebrands,whichwereacquiredbyYum!Brands.
Acquisitions
Afirmcanacquiretherightstonewproductsorservicesbyenteringintoalegal
arrangementwithanotherfirm,therebycombiningthetwofirms'productsandservices.
Finally,somefirmschoosetoformalliancesforaspecificgoalorpurposeinsteadofcombining
ownership.Alliancesaredesignedtotakeadvantageofsynergiesthatexistbetweencompanies
bypoolingresourcessuchasmarketing,research,anddistribution.Manyairlines,hotels,and
carrentalagencieshaveformedstrategicalliancestohelppromoteandselltheirproductsand
services.Thefirmsbenefitfromcooperativeadvertisingandshareddatabases,amongmany
otherareas.Forexample,UnitedAirlinesMileagePlusmembersearnfreemilesthatcanbe
redeemedwithlodgingcompaniesMarriott,CarlsonHotelsWorldwide,Starwood,Hilton,Omni,
Wyndham,andChoiceHotels,aswellasrentalcarpartnersHertz,Alamo,Budget,Avis,Dollar,
andNational.Allianceshavebeenusedmosteffectivelybyairlines.Oneofthebestknownof
thesealliancesistheStarAlliancethat,asofMarch2016includes28airlinesoperatinginmore
than190countries.Aimedprimarilyatbusinesstravelers,theStarAllianceallowsairlinesto
shareinformationabouttravelers,aswellasallowingtravelerstohavebetteraccesstoroute
informationandreservationsamongtheairlinesthataremembersofthealliance.Product
developmentisahighlycomplexissue.Itrequirescriticalthinkingandcarefulplanning.The
nextsectionaddressesissuesrelatedtohowcompaniesorganizeforproductdevelopmentand
howitisconducted.
Alliances
Firmspoolresourcesforaspecificgoalorpurposeinsteadofcombiningownership.
8.3 ORGANIZING FOR NEW PRODUCT PLANNING

Firmsuseavarietyoforganizationalstructurestodevelopnewproductsandservices.Noone
wayisbest,andeachhasinherentadvantagesanddisadvantages.Theprimaryorganizational
structuresarenewproductcommittees,newproductdepartments,productmanagers,and
ventureteams.Eachofthesestructuresisexplainedinthefollowingparagraphs.
8.3.1 New Product Committees

Anewproductcommitteeconsistsofindividualsrepresentingcrossfunctionalareasofthefirm.
Usually,representativesprovideinputfromoperations,marketing,finance,andaccounting.
Committeemembersarechargedwiththeresponsibilityofreviewingnewproductideasand
withdeterminingtheimpactthatnewproductswillhaveoneachoftheirrespectiveareas.The
processofusingnewproductcommitteesisoftenslow,andmembersnormallyhavetheirown
daytodayresponsibilitieswithintheirrespectivefunctionalareasofthefirm.Althoughthese
committeestypicallymakedecisionsaboutwhichnewproductsorservicestooffer,theydonot
developtheactualproductsorservices.
8.3.2 New Product Departments

Somefirmsestablishafulltimenewproductdepartment.Thisaddressestheproblemofproduct
developmentbeingaparttimeresponsibilityofmembersoftheproductdevelopment
department.Itisstillveryimportantformembersoftheproductdevelopmentdepartmentto
solicitinputfromallcrossfunctionalareasofthefirm.
8.3.3 Product Managers

Somefirmsappointproductmanagers,orbrandmanagers,toassumecompleteresponsibility
fordeterminingmarketingobjectivesandmarketingstrategiesforaspecificbrand.Includedin
theseresponsibilitiesisproductdevelopmentasitrelatestothatbrand.Forexample,suppose
thatsomeonewasresponsibleforthebrandHolidayInnExpress.Intheroleofamarketing
manager,theindividualwouldberesponsibleforallelementsofthemarketingmix:theproduct
servicemix,thepresentationmix,thecommunicationsmix,andthedistributionmix.The
marketingmanagerwouldalsohavetheresponsibilityofestablishingandimplementing
marketingstrategiesforthebrand.Amongtheadditionalresponsibilitiesofthisroleisbeing
involvedinproductdevelopment.
8.3.4 Venture Teams

Ventureteamsaresimilartonewproductcommittees,buttheyareformedtocompletea
specificproductassignment.Ventureteamsbringtogetherexpertisefromoperations,marketing,
accountingandfinance,and,ifnecessary,architectureandconstruction.Theventureteamis
chargedwithnewproductplanning,development,andimplementation.Unlikenewproduct
committees,whichnormallyonlyreviewandmakedecisionsaboutwhethernewproducts
shouldbedevelopedfurther,theventureteamisexpectedtostayontheprojectthroughthe
entirenewproductdevelopmentprocess.
8.4 NEW PRODUCT DEVELOPMENT PROCESS

Developingnewproductsandservicesistimeconsumingandrisky,butitisessentialtothe
continuedlongtermsuccessofafirm.Manymethodologiescanbeusedtodevelopproducts
andservices.Inthissection,wewillexplorethestepsinnewproductdevelopmentwithinthe
hospitalityandtourismindustry(seeFigure8.1).Manyfirms,especiallyfoodservicefirms,use
thisprocesswhendevelopingnewproductsandservices.Theexamplesusedinthissection
relatetohownewmenuitemsaredevelopedbyfoodservicefirms.Comparableproduct
developmentprocessesareusedinthedevelopmentoflodgingproductsandothertypesof
productsandserviceswithinthehospitalityandtourismindustry.Similartechniquesareusedto
developnewservicesandelementsofthetotalcustomerexperience.Thestagesoftheproduct
developmentprocessare(1)ideageneration,(2)productscreening,(3)concepttesting,(4)
businessanalysisandtestmarketing,and(5)marketintroduction.
FIGURE8.1Newproductdevelopmentprocess.
8.4.1 Idea Generation

Newproductideasshouldtakeadvantageofopportunitiesandtrendsinthedynamic
marketplace,whilematchingthefirm'sstrengthsandoverallmission.Ideasfornewproducts
canbegeneratedinternallyasanassignedfunctionforresearchanddevelopmentgroups,oras
aresultofbrainstormingbythestructurescoveredintheprevioussectionaprocesscalled
ideageneration.
Ideageneration
Theprocessofgeneratingnewideasforproductsandservicesfrominternalandexternal
sources.

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1.1.1 Marketing Dened

1.1.2 The Marketing Process

1.1.3 The Emergence of the Marketing Concept

1.2 THE MARKETING MIX

1.2.1 The Traditional Marketing Mix

1.2.2 The Hospitality Marketing Mix

1.2.2.1 PRODUCTSERVICE MIX.

1.2.2.2 PRESENTATION MIX.

1.2.2.3 COMMUNICATION MIX.

1.2.2.4 PRICING MIX.

1.2.2.5 DISTRIBUTION MIX.

1.3 SERVICES MARKETING

1.3.1 Services Dened

1.3.2 The Nature of Services: Differences between Goods and Services

1.4 DESTINATION MARKETING

1.5 SERVICE TRENDS AFFECTING THE HOSPITALITY AND TOURISM

1.5.1 Shrinking Customer Loyalty

1.5.2 Increasing Consumer Sophistication

1.5.3 Increased Emphasis on the Needs of Individual Customers

KEY TERMS AND CONCEPTS

QUESTIONS FOR REVIEW AND DISCUSSION

Case Study Questions and Issues

Case Study Questions and Issues

2.2 THE EXTERNAL ENVIRONMENT

2.2.1 The Economic Environment

2.2.2 The Social Environment

2.2.3 The Competitive Environment

Hyatt Brands and Afliates in Addition to Hyatt Hotels

2.2.4 The Political and Legal Environment

2.2.5 The Technological Environment

2.3 SUSTAINABLE DEVELOPMENT

2.3.1 Environmental Sustainability

2.3.1.1 ENERGY MANAGEMENT.

2.3.1.2 WASTE MANAGEMENT.

2.3.1.3 WATER CONSERVATION.

2.3.1.4 MANAGING POLLUTION.

2.3.2 Economic Sustainability

2.3.3 Social Sustainability

2.3.3.1 CORPORATE SOCIAL RESPONSIBILITY.

2.4 MANAGING FOR SUSTAINABILITY

Environmental Greenhouseemissions Airandwaterquality

Economic Revenuesandprofits Personalincomeandlevelofpoverty

Social Workforcediversity Lifeexpectancy

2.4.1 Communicating Sustainability Initiatives

2.4.2 Sustainability Programs and Certications

KEY TERMS AND CONCEPTS

QUESTIONS FOR REVIEW AND DISCUSSION

Case Study Questions and Issues

Case Study Questions and Issues

2.2 THE EXTERNAL ENVIRONMENT

2.2.1 The Economic Environment

2.2.2 The Social Environment

2.2.3 The Competitive Environment

Hyatt Brands and Afliates in Addition to Hyatt Hotels

2.2.4 The Political and Legal Environment

2.2.5 The Technological Environment

2.3 SUSTAINABLE DEVELOPMENT

2.3.1 Environmental Sustainability

2.3.1.1 ENERGY MANAGEMENT.

2.3.1.2 WASTE MANAGEMENT.

2.3.1.3 WATER CONSERVATION.

2.3.1.4 MANAGING POLLUTION.