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Industry Profile

Introduction to Market Segmentation The Nature of Market Segmentation

Criteria for Effective Segmentation

Segmentation Variables Geographic Variables

Demographic Variables

Psychographic Variables

Behavioral Variables

Benefits Sought

Market Segmentation Decisions Identify Segmentation Bases

Develop Profiles for Each Market Segment

Forecast Performance for Each Market

Segment

Select the Best Market Segments

Market Segmentation Strategies Mass-Market Strategy

Differentiated Strategy

Concentrated Strategy

Chapter Objectives

After studying this chapter, you should be able to:

1. Define the term market segmentation.

2. List variables that are commonly used to segment markets.

3. Outline the four-step process used to segment

potential markets.

4. Explain the relationship between market segmentation

and the development of marketing strategies.

5. Define positioning and describe its role in gaining a

competitive advantage.

Market Segmentation and Positioning

Chapter Outline

(continues)

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EBSCO Publishing : eBook Academic Collection (EBSCOhost) - printed on 7/23/2018 3:07 AM via LOUISIANA STATE UNIV AT SHREVEPORT AN: 492766 ; Reid, Robert D., Bojanic, David C..; Hospitality Marketing Management Account: s3563253

Positioning the Product–Service Mix Determine the Ideal Mix for Consumers

Measure Consumer Perceptions of

Available Services

Look for Gaps in Coverage and Select a

Desired Position

Develop a Strategy for Obtaining the

Desired Position

Summary of Chapter Objectives

Key Terms and Concepts

Questions for Review and Discussion

Case Study: Segmenting and Positioning in the Cruise Industry

Chapter Outline (continued)

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industry profile 125 in d u stry p

ro file

Tom Duca District Partner, Southeast and Mid Atlantic Bravo Development Inc. • Atlanta, Georgia

1. What are the major components or duties associated with my current position?

I am currently employed as District Partner for Bravo Development Inc. They

own and operate 70 fine casual dining restaurants named Brio Tuscan Grille

and Bravo Cuccinia Italiana. I oversee six locations in Atlanta, Birmingham,

Charlotte, Richmond, and Washington D.C. . . My regional duties will include

opening two more Brio restaurants this year. One will open in Raleigh and

one in Annapolis. My main functions are to ensure the fiscal success of the

properties, recruitment, and training of management teams, implementation

of corporate and property marketing and promotions, supervision of all food

and beverage operations, human resources, and legal issues and vendor

relations.

2. What brings the most satisfaction—most frustration? The satisfaction part is easy. I enjoy the ability to impact younger manager’s

careers and lives through leadership and mentoring.

The most frustrating part of my position is keeping talented young man-

agers on the correct career paths as opposed to fast track.

3. What are the most challenging aspects? The most challenging aspect of our work is our ability to create successful

financial business versus improving value to our guests. The prices for food

and beverage have continued to increase steadily. Weather and energy costs

impact our cost structures. Our segment requires pricing structures that main-

tain value. We are challenged to create better-quality products without con-

sistent price increases.

4. Major trends? The major trend I see is the deterioration of the casual dining segment. Credit

crunch issues, rising energy costs, housing issues have affected dining trends.

5. The role of marketing? The role of marketing at our locations is dependent on the specific market

location. New store openings require a different marketing strategy than does

a restaurant that has been open for four years. A consistent theme for stores

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126 chapter 4 market segmentation and positioning in

d u st

ry p

ro fi le

with ages of 18 months and more is to be very active in the community. Our

same-store sales are typically driven by well-operated properties that have cre-

ated a core group of repeat guests. Local charities, the fire and police, libraries,

are community partners who we focus on creating great relationships with by

supporting them and their causes.

6. Advice? My piece of advice would contain several elements:

• Use your academic advantage. I have managed over 400 food and bever-

age managers in my career. Eighty percent of these managers ended up

in this industry by being promoted through line level positions. Your

education is a huge advantage if used correctly.

• Choose your first company wisely. Stability is a very attractive quality

when recruiting. It shows commitment and loyalty. Do not take a posi-

tion to “get your foot in.” You will probably not last there.

• Decide what you want most out of your work. Is it financial reward? Is

it quality of life? Different jobs will have pros and cons (this is obvious);

however, there are no dream jobs. Typically, the jobs that pay more result

in less quality of life. You need to decide ahead of time what is important

to you.

• Invest into your career. Everybody works hard. Most upper-level man-

agers recognize those who work harder than their peers. These leaders

will also reward people who go above and beyond. I admire younger man-

agers who come to work early, stay late, and come in on their scheduled

days off to complete their work ahead of time. These are the personality

types who get promoted quicker.

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INTRODUCTION TO MARKET SEGMENTATION

Gaining and maintaining a competitive advantage in the broad consumer

market for hospitality and travel products is a very difficult task. It is much

easier to be successful if a firm tries to carve out a smaller niche or segment

of the market, in which the firm can establish a competitive uniqueness; hence,

the development of market segmentation. Marketing managers have long

used market segmentation to separate the market into smaller, relatively

homogeneous groups. Therefore, a simple definition for market segmentation

is pursuing a marketing strategy whereby the total potential market is divided

into homogeneous subsets of customers, each of which responds differently to

the marketing mix of the organization.

For many years, most hospitality and tourism organizations attempted to

serve the needs of a fairly wide variety of markets. These groups included

broad segments that cut across much of the spectrum of age, gender, income,

geography, ethnicity, and education. Today, many hospitality chains serve the

needs of markets in all 50 states and several foreign countries. Therefore, it

is imperative that they use some type of segmentation strategy. These firms

must take into consideration the differences between various consumer groups

that represent their target markets. For example, a national fast-food chain

should take into consideration the differences among individuals living in dif-

ferent regions of the United States. In addition to geographic location, firms

must also consider differences in lifestyle and consumer behavior, all of which

add special challenges to the marketing of the product–service mix for hos-

pitality and tourism organizations.

Segmentation can be used effectively in all facets of the hospitality and

tourism industry, even in areas that may appear to be less suitable for

segmentation. For example, airline travel may not appear to be well suited to

segmentation. Each year, millions of travelers will board aircraft to take them

to their destination. At first glance, one might assume that airline travel is a

fairly homogeneous product serving the same basic need for most travelers.

However, airlines have been successful at segmenting based on price sensi-

tivity and frequency of use. Within many aircraft today, you will find three

levels of service: first class, business class, and coach. Each level offers differ-

ences in seat size and comfort, the level of amenities, and the ratio of flight

attendants to passengers. The individual consumer is able to select the level

of service desired and is charged a different price for each. Airlines also

segment the market based on frequency of travel.

introduction to market segmentation 127

Competitive advantage

An advantage over competitors obtained through lowering prices or including additional benefits that justify higher prices. The end result for either technique offers consumers greater value.

Market segmentation

Market segmentation is pursuing a marketing strategy whereby the total potential market is divided into homogeneous subsets of customers, each of which responds differently to the marketing mix of the organization.

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128 chapter 4 market segmentation and positioning

The Nature of Market Segmentation

Why is it desirable to segment markets? Many owners and managers of hos-

pitality organizations ask this question. Often, they believe that they need to

appeal to all potential customers, and that by segmenting the market they will

weaken their competitive position and profits. They believe that if they seg-

ment the market and target their marketing and promotional efforts to just

a few selected segments, their sales volume will fall. This approach is short-

sighted and fails to consider the reasons underlying a market segmentation

approach. The basic premise of segmentation is to allocate limited resources

so that return on investment can be maximized.

Market segmentation, when done properly, can improve sales and profits

because it allows the organization to target specific market segments that are

much more likely to patronize the organization’s facilities. This approach per-

mits the organization to more effectively allocate scarce marketing resources

aimed at those market segments with the highest probability of purchasing the

organization’s products and services. Using market segmentation, companies

can identify those market segments that are heavy users of their products and

services. At the same time, segments that hold little potential for using a com-

pany’s products receive little or no attention, so the marketing resources that

are available are not wasted chasing after market segments with little sales

potential.

When the market is segmented, different product–service mixes can be

promoted to meet the needs of the different segments. For example, a

hotel’s bar and restaurant can be used to attract a variety of market seg-

ments by varying the type of entertainment offered. Management could try

to increase sales volume by establishing specific nights of the week, such as

“jazz night,” “oldies night,” “country night,” and “blues night.” Each of

these events offers a specific type of entertainment that appeals to a spe-

cific clientele. Within the lodging segment of the industry, hotels that cater

to the business traveler are usually busy on Monday through Thursday

nights and are often quite slow on the weekends. Therefore, one of the

marketing communications and promotional goals is to target those mar-

ket segments with the most potential for boosting weekend occupancy.

Each hotel chain attempts to present the total package of amenities, room,

and food and beverage in an appealing manner. By attempting to appeal

to those target segments seeking a getaway weekend or a mini vacation at

a good price, the hotel is able to boost occupancy and total revenue during

a time when the hotel would normally not be operating at full capacity (i.e.,

100 percent occupancy).

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Criteria for Effective Segmentation

As firms attempt to segment markets, they have many methods from which

to choose. However, it is important to know when to segment and how far

the segmentation efforts should go in targeting specific markets. There is a

point where a market can be segmented too much, with the resulting subset

being too small to be profitable. Or it may not be efficient to develop several

different marketing programs for the various market segments when one or

two could be used for the entire market. When any segmentation efforts are

undertaken, four criteria should be used to evaluate the effectiveness of the

market segmentation strategy:

1. Substantiality 2. Measurability 3. Accessibility

4. Actionability

First, consider substantiality—whether the market segment is large

enough. As the market is segmented, a hospitality manager manipulates the

elements of the marketing mix to meet the needs of the individual segments

and to achieve the marketing objectives of the firm. The size of each of these

segments must be large enough to warrant this special attention. For exam-

ple, two decades ago, very few restaurants had sections of their menus dedi-

cated to healthier foods because there weren’t enough customers to justify it.

Since then, even fast-food restaurants have added healthy menu items, and

today, many restaurants have items targeting a specific diet segment—such

as the Atkins diet. This demonstrates the importance of having a large enough

population to warrant targeting a specific market segment.

Second, each of the segments must pass the measurability test. Measura-

bility should be assessed from two perspectives: the overall size of the target

market segment and the projected total demand or purchasing power of the

target market. Minimum cutoff points should be established relative to the

size and projected demand of any target market segments. If the number of

consumers or projected total demand within a given segment falls below these

cutoff points, target market segments can simply be combined.

Third, look at accessibility. It must be possible to reach the large target

market segments through a variety of marketing communications efforts.

Marketing communication can include a wide variety of approaches, includ-

ing but not limited to advertising, promotion, direct marketing, telemarketing,

introduction to market segmentation 129

Substantiality

A criterion used to evaluate the effectiveness of market segmentation. The size of the segment must be large enough to warrant special attention to meet the needs of the segment and achieve the marketing objectives of the firm.

Measurability

A criterion used to evaluate the effectiveness of market segmentation. Measurability should be assessed from two perspectives: the overall size of the target market segment and the projected total demand or purchasing power of the target market.

Accessibility

A criterion used to evaluate the effectiveness of market segmentation. The large target markets must be reachable, or accessible, through a variety of marketing communication efforts.

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and personal selling. Without accessibility, there is very little reason for seg-

menting the target market. A major purpose for segmenting the market is to

isolate viable segments of potential business and to direct marketing commu-

nication efforts related to specific aspects of the product–service mix toward

these segments. Without accessibility, this is not possible, and segmenting the

target market is of little value.

Fourth, firms must be able to create marketing programs that are effec-

tive in attracting buyers from the market segment (i.e., getting them to act).

In other words, customers within a particular market segment should share

similar characteristics, while those in different segments should vary in terms

of their characteristics. For example, if a restaurant offers an early-bird spe-

cial, it should appeal to certain target segments and not others. Families and

senior citizens might be willing to eat earlier to save money and avoid crowds,

whereas consumers in other segments aren’t as price sensitive and aren’t will-

ing to compromise on convenience for a discount. If all consumers reacted the

same to a firm’s marketing program, then there wouldn’t be any need to seg-

ment the market.

SEGMENTATION VARIABLES

Marketing managers can use five basic types of variables when segmenting

consumer markets: geographic, demographic, psychographic, behavioral, and

benefits. These segmentation variables can be used alone or in combination with

one another, depending on the level of segmentation that is desired. Figures 4.1a

to 4.1d illustrate the basic concept of market segmentation. Figure 4.1a shows

a market that has not been segmented. In other words, no attempt has been

made to divide the large, heterogeneous market into smaller, homogeneous

subsets. Figures 4.1b and 4.1c illustrate markets that have been segmented using

one variable, and Figure 4.1d shows a market that has been segmented using

two variables. In practice, it is normally best to use at least two or more of the

following types of variables to segment markets.

Geographic Variables

A geographic variable, as the name implies, relates to the consumer’s geo-

graphic area of residence. Markets are often segmented by dividing the coun-

try into regions such as Northeast, Mid-Atlantic, North-Central, Southwest,

and Northwest. Segmentation is also accomplished by examining the

130 chapter 4 market segmentation and positioning

Geographic segmentation

This type of segmentation focuses on the consumer’s geographic area of residence.

Actionability

A criterion used to evaluate the effectiveness of market segmentation. Consumers in the same market segment should react similarly to the marketing program used to target them.

Demographic segmentation

This type of segmentation focuses on demographics such as income, age, gender, and ethnicity.

Psychographic segmentation

Psychographics refers to segmentation based on lifestyle, attitudes, and personality.

Behavioral segmentation

This type of segmentation focuses on the behaviors that consumers exhibit in the marketplace.

Benefit segmentation

This type of segmentation focuses on benefits that consumers are seeking when they purchase a product.

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population of a given area. Based on the U.S. Census (2000), the total popu-

lation is more than 270 million. However, this population is not evenly dis-

tributed; it is concentrated in major metropolitan areas. For example, in 2000,

80 percent of the U.S. population lived in metropolitan areas.1

In addition to population density, there are differing patterns of popula-

tion migration. According to the 2000 Census, the 1990s was the only decade

in the twentieth century without any state losses in population in the United

States. The non-California West (Arizona, Colorado, and Nevada, etc.) real-

ized the largest percentage increases, with figures over 30 percent. This was

followed by the Southeast, Northwest, and Southwest, with increases rang-

ing from 15 to 29 percent, especially in the New South (Georgia, North

Carolina, etc.). Finally, the Northeast and Midwest lagged behind, with

increases below 10 percent.

Several different terms are used to describe cities and metropolitan areas,

but the following designation is the most popular in marketing. The term

metropolitan statistical area (MSA) refers to the smallest urban area with an

urban center population of 50,000 and a total metropolitan population of more

than 100,000. Metropolitan statistical areas are normally urban areas that

are self-contained and surrounded by rural areas. Examples of MSAs include

Roanoke, Virginia, and Peoria, Illinois. The next category of urban area is

primary metropolitan statistical area (PMSA). A PMSA is an urbanized

segmentation variables 131

figure 4.1a • A nonsegmented market.

A B

figure 4.1b • A market segmented by age (A � 18�34, B � 35�49, C � above 49).

L figure 4.1c • A market segmented by income (H � high, M � moderate, L � low).

CMCH AM

BL AL

figure 4.1d • A market segmented by age and income.

Metropolitan statistical area (MSA)

The smallest urban area with an urban center population of 50,000 individuals and a total metropolitan population of more than 100,000. Metropolitan statistical areas are normally urban areas that are self- contained and surrounded by rural areas.

Primary metropolitan statistical area (PMSA)

An urbanized county or multicounty area with a population of more than 1 million individuals.

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county or multicounty area with a population of more than 1 million

individuals. Examples of PMSAs include Cook County in Illinois and Nassau

County in New York. Finally, the very largest cities such as New York,

Chicago, and Los Angeles are known as consolidated metropolitan statistical

areas (CMSAs). A CMSA must include at least two PMSAs.

Geographic variables are used extensively by the print and broadcast

media to define and describe their readers and audience. It is also vital to

know the geographic areas your business comes from. For example, nearly

50 percent of all room nights in the hotel industry are generated by the top

25 CMSAs, PSMAs, and MSAs. Segmenting a hotel’s market based on the

origin of the guests by using their zip codes is an effective way to identify

those areas that merit the heaviest concentration of advertising and promotion.

Demographic Variables

Markets are often segmented based on demographic variables such as age,

gender, income and expenditure patterns, family size, stage in the family life

cycle, educational level achieved, and occupation. When these variables are

used in defining consumers within the hospitality and tourism industry, cer-

tain trends emerge. For instance, as family size increases, the number of times

per week that a family dines outside the home tends to decrease. Also, when

families do dine out, their choice of restaurant changes as the family makeup

changes. This is important because the size of the average family has decreased

over the years. In 1995, the average family size was 3.15 persons, but this figure

is expected to decrease gradually to 3.05 by the year 2010.2 In fact, the tradi-

tional family (married couples with children, in which only the father works)

accounts for only 7 percent of U.S. households.3 This represents a trend toward

smaller families and people living alone, segments that could become target

markets for hospitality and tourism firms.

The family life cycle provides a good example of how variables can be

combined to create categories that can be used for segmentation. The family

life cycle uses age, marital status, and the number of children to create cate-

gories sharing common discretionary income levels and purchasing behaviors.

The traditional family life cycle proposes that as individuals become adults

and enter the workforce, they tend to be single and have lower incomes, result-

ing in lower levels of discretionary income—income available after covering

current expenses for necessity items like food and housing (see Figure 4.2a).

However, these young singles do not have many obligations or responsibili-

ties and so are able to spend money on items that are not necessities. Indi-

viduals begin to increase their incomes as they age, and young married couples

132 chapter 4 market segmentation and positioning

Consolidated metropolitan statistical area (CMSA)

A CSMA is the largest type of metropolitan statistical area and it includes at least two PMSAs (Primary Metropolitan Statistical Areas).

Family life cycle

The family life cycle uses age, marital status, and the number of children to create categories sharing common discretionary income levels and purchasing behaviors.

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without children will have increasing amounts of discretionary income.

However, once married couples have children, their discretionary incomes

begin to decrease, until the children are older and move out. At this point the

couples are said to have an “empty nest,” and discretionary income begins to

increase again. Finally, as individuals reach their golden years, they retire and

see their incomes start to decrease.

This traditional family life cycle has changed over time and now includes

several extensions. First, many people are waiting longer to get married and

extending the single stage. In addition, more people are choosing not to

marry, and some single adults adopt children. Second, the increase in the

divorce rate has resulted in more single parents and second marriages that

involve older parents with younger children. Third, there are more same-

sex couples, and organizations are beginning to recognize this partnership

for benefits and adoptions. Finally, people are living longer, resulting in a

higher percentage of solitary survivors, many of whom form relationships

later in life. Figure 4.2b provides an example of a modernized family life cycle.

Segmentation using demographic variables is very common. In fact, firms

should always collect demographic information on their customers so that they

can construct a basic profile of heavy users. Demographic information is easy

to collect and understand. Also, aggregate data collected by the government

segmentation variables 133

Residents of and visitors to Mobile, Alabama, can enjoy a scenic trip along the Mobile River in a stern-wheeler. Mobile is an example of a metropolitan statistical area (MSA). Courtesy of Mobile Bay CVB.

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134 chapter 4 market segmentation and positioning

at all levels can be used for comparisons in surveys and targeting potential

markets. Finally, demographic classifications are widely used by various media

to describe viewers, listeners, and readers. This allows firms to select media

vehicles that will reach individuals fitting the profile of a typical customer.

The senior market, often referred to as the “gray market,” is growing

faster than any other market in America. By the year 2050, it is expected that

one in three Americans will be 55 or older.4 The senior market has been

expanding and is becoming more attractive because older Americans have a

good deal of free time, they are healthier and live longer, and they have more

discretionary income than ever before. These trends make the senior market

particularly attractive to firms in the hospitality and tourism industry. How-

ever, although the age of 55 is a common cutoff used for describing this mar-

ket, the American Association for Retired Persons (AARP) accepts members

starting at 50 years of age, and many firms use a figure in the range of 60 to

65 when offering discounts to the senior market. For example, US Airways

offers a senior discount to those 62 and older, and American Airlines uses 65

as the qualifier. Regardless, this market is growing in size as well as clout

when it comes to influencing the government and marketers. AARP is quite

possibly the most influential association in Washington, D.C., and most hos-

pitality and tourism firms offer some type of discount to senior citizens.

Single Newly

married Full nest

Empty nest

Solitary survivor

figure 4.2a • Traditional family life cycle.

Single Newly

married

Unmarried couples

Full nest

Single parent

Empty nest

Solitary survivor

figure 4.2b • Modernized family life cycle.

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segmentation variables 135

The active senior market is an attractive target market for the hospitality and tourism industries. Courtesy of Corbis Digital Stock.

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If a firm chooses to target the senior market, it should determine the attri-

butes that are important to this market segment in purchasing its types of

products and services. Then products and services can be designed and mar-

keted specifically to seniors. For example, hotels should provide luggage carts

or bell service so seniors can get help with heavy luggage. In addition, rooms

should have wide aisles, telephones, and remote controls with larger numbers,

simple alarm clocks with large numbers, and easy-to-use facilities in the bath-

room, including bars near the toilet and in the bathtub that can be used for

getting up and down. Similarly, restaurants should provide menus with large

print, meals that are healthy and have smaller portions, and adequate light-

ing so that seniors can read the menus. Finally, hospitality and tourism firms

should realize that seniors like to travel in tour groups for the companionship

and security, they are very value-conscious, and they require frequent stops

for resting, eating, and using restroom facilities.

Psychographic Variables

Psychographic variables are also commonly used to segment markets. Psy-

chographics refers to segmentation based on lifestyle, attitudes, and personal-

ity. The development of psychographic segmentation is based on lifestyle

profiles normally derived from survey responses to AIO (attitudes, interests,

and opinions) statements. Psychographics has the following characteristics:

• Generally, psychographics may be viewed as the practical application of

the behavioral and social sciences to marketing research.

• More specifically, psychographics makes use of research procedures that

are indicated when demographic, socioeconomic, and user-nonuser analy-

ses are not sufficient to explain and predict consumer behavior.

• Most specifically, psychographics seeks to describe the human character-

istics of consumers that may have bearing on their response to products,

packaging, advertising, promotion, and public relations efforts. Such vari-

ables may range from self-concept and lifestyle to attitudes, interests, and

opinions, as well as perceptions of product attributes.

Psychographics is used primarily to segment markets, but it can be used

for other purposes as well. Psychographics is useful when selecting the

most effective advertising vehicles, in that the vehicle(s) selected can be

matched with the interests, attitudes, opinions, and personalities of the target

market segment. Psychographics is also helpful when designing advertis-

ing and promotion messages. Illustrations, pictures, and the actual copy

136 chapter 4 market segmentation and positioning

AIO statements

These statements refer to activities (e.g., hobbies and sports), interests (e.g., family), and opinions (e.g., politics).

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can be designed with the needs of a specific market segment in mind. By

pinpointing the target market in this manner, the advertising and promo-

tional messages and images are likely to be more effective, resulting in

increased sales and profits. Table 4.1 contains the framework for VALS™,

a marketing and consulting tool developed by SRI Consulting Business

Intelligence to segment the consumer marketplace based on personality

traits that drive consumer behavior. The first column lists the eight VALS

segments based on a consumers’ primary motivations and resources. The

second column lists the primary motivation of the consumers in each seg-

ment. The third column lists the characteristics that can be used to describe

each segment.

The basic tenet of VALS is that consumers’ purchasing behaviors are

expressions of their personalities. The VALS framework allows marketers to

identify meaningful market segments based on consumers’ personality traits

and provides a means to predict purchasing behaviors. For example, innova-

tors and achievers would be target market segments for upscale hotels and

restaurants, while thinkers, believers, and makers would be target market

segments for popular mid-scale chain hotels and casual dining restaurants.

Additionally, innovators and experiencers would be the segments most likely

to try new hotel and restaurant concepts, and makers would be the segment

most likely to be loyal to independent operators.

It should be evident at this point that the division of the market into seg-

ments should not be based solely on easily quantified demographic variables

such as age, sex, or income. Rather, the division should be based on less eas-

ily defined psychographic factors, such as lifestyle, attitudes, opinions, and per-

sonality as well. Individual firms can define their target markets and address

the needs of those markets with products and promotional campaigns. For

instance, tour operators could design various overseas tour packages that

would appeal to different social value groups.

Behavioral Variables

Another type of variable that can be used to segment markets is the behav-

ioral variable. Behavioral segmentation focuses on the behaviors that con-

sumers exhibit in the marketplace. For example, are consumers loyal or are

they easily persuaded by competitors’ marketing communications and pro-

motional efforts? How frequently do they dine out? Would they be consid-

ered light, medium, or heavy users of various types of hospitality products?

When they travel on business, at what types of lodging facilities do they stay?

When they travel for pleasure, do they stay at the same types of lodging

facilities as when they travel on business?

segmentation variables 137

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138 chapter 4 market segmentation and positioning

primary

vals segment motivation characteristics

Innovators Ideals, Successful, sophisticated,

Achievement, and high self-esteem; receptive to

Self-expression new ideas and technologies; purchase upscale

and niche products

Thinkers Ideals Mature, satisfied, comfortable, and reflective;

educated and seek information; conservative

and practical consumers looking for

functionality and value in products

Achievers Achievement Goal-oriented and committed to career and

family; value consensus, predictability, and

stability; active consumers who favor

established, prestige products for image and

status

Experiencers Self-expression Young, enthusiastic, and compulsive; seek

variety, excitement, and risk; purchases based

on looking good and having “cool” stuff

Believers Ideals Conservative and conventional, stressing

family values; predictable and loyal

consumers who prefer familiar products and

established brands

Strivers Achievement Trendy and fun-loving; impulsive shoppers

that favor stylish products for image and

status to emulate those with more wealth

Makers Self-expression Practical people with constructive skills who

value self-sufficiency; suspicious of new ideas

and purchase basic products that are practical

and functional

Survivors None Comfortable with familiar and focus on

meeting needs rather than fulfilling desires;

modest market loyal to favorite brands

table 4.1 • The VALS™ Segmentation Framework. Source: SRI Consulting Business Intelligence (SRIC-BI); www.sric-bi.com/VALS.

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One of the best uses of the behavioral variables is to identify those indi-

viduals who are heavy users, meaning that they dine out frequently, stay in

hotels many more nights per year than the average person, or account for a

large percentage of air travel. If these individuals can be identified, then a

marketing plan can be formulated to increase loyalty and frequency of use

even further. For example, most airlines offer a frequent traveler program

to encourage brand loyalty. Within each program are varying levels of mem-

bership. Anyone can join, but the rewards are commensurate with the level

of use. Airline miles can be redeemed for free flights or a variety of other

travel services. Many hotels and restaurants offer similar programs, and often,

hotels and airlines develop strategic alliances and combine their programs.

Each year, more and more research is undertaken to help companies

more fully understand consumer behavior. Behavioral variables represent

an excellent segmentation tool, for as data are collected concerning the manner

in which consumers actually behave in the marketplace, the information

will allow hospitality managers to gain a better understanding of consumer

behavior. As marketing managers gain a better understanding of what moti-

vates consumers to buy, it will facilitate the development of product–

service mixes that will better satisfy the needs of consumers.

Benefits Sought

Finally, market segmentation can be based on the benefits that consumers are

seeking when they purchase a product. Once a firm has determined the ben-

efits sought by consumers, it can use this information to design products and

services and to create promotional materials that focus on these benefits. Market

research can be used to identify the benefits that are important to various types

of consumers. This marketing information allows management to segment

the market based on benefits sought, as well as demographic, psychographic,

or behavioral variables.

For example, airlines segment based on the benefits sought by consumers.

Business travelers are most concerned about convenience when choosing

flights. They will make reservations at the last minute and want to travel at

a convenient time with short routes. Conversely, leisure travelers will book

further ahead and sacrifice some convenience to get a better price because it

is the most important benefit. Similarly, airlines offer first-class and business-

class seats with additional amenities for a higher price, and hotels offer a

concierge or business-level room for consumers who want additional amenities

at a higher price.

segmentation variables 139

Frequent traveler programs

Award programs that reward customers commensurate with their level of purchase and use.

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140 chapter 4 market segmentation and positioning

Another example involves the rental car industry. Rental car companies

carry several models of cars and trucks in order to accommodate the needs of

all types of travelers. Families are looking for larger cars or vans that are eco-

nomical, business travelers prefer larger cars with more options, and younger

travelers might prefer convertibles or sportier cars. Rental car companies have

a vehicle for any customer, no matter what benefit(s) the customer is seeking.

MARKET SEGMENTATION DECISIONS

When faced with market segmentation decisions, a hospitality and tourism

marketing manager should use a systematic approach that employs critical

thinking and careful analysis. Figure 4.3 presents a four-step process that can

be used by marketing managers in segmenting potential markets: (1) identify

segmentation bases, (2) develop profiles for each segment, (3) forecast perfor-

mance for each market segment, and (4) select the best market segments.

Identify Segmentation Bases

The first thing a marketing manager must do is to identify one or more char-

acteristics that can describe the target market segment. Any of the previously

discussed segmentation criteria can be used to accomplish this. In almost all

cases, several characteristics will be used. For example, a new restaurant might

elect to target a consumer market consisting of the following individuals:

25 to 40 years of age, living in cities with a population greater than 500,000,

who have annual incomes greater than $35,000.

The objective of identifying the segmentation bases is to develop a rela-

tively homogenous market segment made up of individual consumers who

will respond in a similar manner to the marketing strategies and marketing

communications efforts of the firm. It is also important that the members of

the selected target markets place a high value on the combination of attrib-

utes that the firm has used in the product–service mix. For example, the econ-

omy segment of the lodging industry has experienced exceptional growth in

recent years by offering basic amenities at a relatively low price, resulting in

Identify segmentation

bases

Develop profiles for each segment

Forecast segment

performance

Select specific target market

segments

figure 4.3 • Market segmentation decision process.

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a high level of perceived value to consumers. However, it would not make

sense for this type of lodging chain to target the midlevel and senior execu-

tives of Fortune 500 companies. These individuals, for both business and per-

sonal reasons, normally elect to use full-service hotels for their lodging and

meeting needs.

Develop Profiles for Each Market Segment

Once the target market has been identified, it is very important to compile as

much information about the target market consumers as possible. The over-

all goal is to match the stated wants and needs of the targeted segment with

the product–service mix offerings and marketing communications that the

firm uses. The importance of matching consumers’ wants and needs with the

marketing offerings and communication efforts of the firm cannot be overem-

phasized. It is also important to identify the similarities and differences among

and between various target markets. People within the same market segment

should share similar characteristics and react in a similar fashion to changes

in marketing programs. When developing a profile of the target markets, it

is necessary to use the various segmentation variables described earlier in this

chapter.

This can be illustrated using the popular early-bird concept from the

restaurant industry. The idea of the early-bird concept is to shift demand from

peak periods when the restaurant operates at full capacity to the earlier time

period (e.g., 4 to 6 P.M.) when there is less demand. This allows the restaurant

to avoid turning customers away during the peak time period and develop

another market for the people who are willing to dine at the less-demanded

earlier time period. The new market consists of various market segments,

including senior citizens, families with young children, and other people who

are price-sensitive. A lower price is the main benefit sought by all of these

segments, but restaurants offer smaller, healthier portions for seniors, kids

meals for families, and package deals including appetizers and/or desserts for

other price-sensitive consumers.

Forecast Performance for Each Market Segment

To forecast the sales potential of a given market segment or an entire market

for any given product–service mix is an extremely difficult task. Computer

models and statistical approaches have facilitated the process somewhat, but

market segmentation decisions 141

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it is still very difficult to account for all of the variables that can influence con-

sumer demand. Even the best forecasts may be subject to a margin of error

of several percentage points in either direction. However, marketing man-

agers must have some knowledge of the level of market demand in order to

plan for short- and long-term contingencies as well as day-to-day operations.

Without reasonably accurate forecasts, management must operate by the seat

of their pants. The demands of the competitive situation in the hospitality and

tourism industry today will not permit this casual approach.

Market demand can be defined as potential consumers having both pur-

chasing power and motivation. Many variables can affect the demand within

any given segment. Variables such as consumer motivation are often difficult

to quantify. Market demand for a product or service is the total volume that

would be bought by a clearly specified customer group in a defined geographic

area in a defined period. Only when clear definitions are available for each of

these variables can market demand be precisely calculated. Determining total

market demand is an important marketing function because so many other

assumptions are based on its forecast. Hospitality managers should be able to

examine forecasts for market demand and understand their uses and limita-

tions. Primary demand is the demand for the entire product class and sec-

ondary demand is the demand for a particular brand. For example, hotels in

the same area are normally members of the convention and visitors bureau

and work together to bring tourists and meetings to the local area. This will

benefit all of the hotels, which can then compete for the various market

segments based on their particular needs.

Projected demand for the product–service mix is calculated based on the

total market demand multiplied by the market share. or the percentage of the

market that the firm’s product–service mix will capture. Market share is

calculated by dividing the firm’s sales by the total industry sales. Determining

the projected market share is an imprecise science. It should be based on a thor-

ough and objective assessment of the firm’s capabilities, the relative competi-

tiveness of those also targeting the same consumers, and marketing strategies

used by all firms. Once decisions have been made about the specific market-

ing strategies and tactics that will be used, then resource needs can be deter-

mined to market the product–service mix to specific target market segments.

There is a more detailed discussion of sales forecasting in Chapter 5.

Select the Best Market Segments

Based on the steps previously discussed, those responsible for developing and

implementing the marketing plan must decide on the specific target market

142 chapter 4 market segmentation and positioning

Margin of error

The difference between forecasted value and actual value.

Market demand

Market demand for a product or service is the total volume that would be bought by a clearly specified customer group in a defined geographic area in a defined period.

Projected demand

The total market demand multiplied by the market share, or the percentage of the market that the firm’s product–service mix will capture.

Market share

The percentage of the market that the firm’s product–service mix will capture.

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segments that are selected. Although the use of data and factual information

is very important, the judgment, insight, and experience that a seasoned mar-

keting manager brings to the decision are also valuable. The overall goal is to

limit the uncertainty surrounding market segmentation decisions. Decisions

should be based on a careful analysis of the data and how the forecasts of pro-

jected demand and market share were determined. It is imperative that the

marketing manager examine the projected return on investment (ROI) that

the target market will provide. ROI is calculated by dividing return, or net

profit, by the amount of the investment. Firms will normally have target ROIs

for their investments, but the higher the ROI, the better the investment.

MARKET SEGMENTATION STRATEGIES

Once specific target markets have been identified, the marketing managers

must begin to develop broad marketing strategies. In general, there are three

segmentation strategies that can be applied: a mass-market strategy, a differen-

tiated strategy, and a concentrated strategy.

Mass-Market Strategy

A mass-market strategy calls on a firm to develop one product–service mix

that is marketed to all potential consumers in the target markets. This

approach considers the market to be one homogeneous market segment with

similar wants and needs. There is no reason to develop more than one mar-

keting program, since consumers are alike and react in a similar fashion to

the components of the marketing program. For example, when McDonald’s

first opened, the firm offered a very limited menu that was consistent across

the entire organization. It featured only a couple of hamburger choices, milk-

shakes, soft drinks, and french fries. No other choices were available, and all

stores offered the identical menu. This strategy was also used by hotel chains

(e.g., Holiday Inns), airlines (e.g., United Airlines), and tourism destinations

(e.g., cities and countries) in the early stages of their life cycles.

However, in reality, few products or services appeal to all segments of the

market. Since its inception, McDonald’s has changed this strategy in response

to trends in the demographic and social environments. The fast-food restau-

rant now offers chicken sandwiches, salads, and other menu items that appeal

market segmentation strategies 143

Return on investment (ROI)

Data calculated by dividing return, or net profit, by the amount of the investment.

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144 chapter 4 market segmentation and positioning

to a more health-conscious market segment. Hotels, airlines, and other hos-

pitality and travel firms have moved away from mass marketing as well. The

largest threat when using this strategy is that competitors will tailor their

product–service mix and take away market share because they are better able

to meet the needs of smaller target market segments of consumers.

Differentiated Strategy

When a firm elects to follow a differentiated strategy, it is following a strat-

egy that calls for the firm to appeal to more than one market segment with

a separate marketing program for each segment. The overall objective of

this approach is to increase sales and market share by capturing sales from

several smaller market segments. Each of the marketing programs, includ-

ing the product–service mix, is tailored to the specific needs of a market

segment.

Perhaps the best example of this approach within the hospitality and tourism

industry is the strategy followed by Choice Hotels International. The hotel chain

has developed numerous product–service mixes or brands, each targeting a dif-

ferent market. Among the brands offered by Choice Hotels are Clarion Hotels

Coca-Cola has expanded from its original single product to a variety of products to meet the needs of various market segments. Coca-Cola is a registered trademark of The Coca-Cola Company. Nestea is a registered trademark of Société des Produits Nestlé S.A. licensed to BPW or its subsidiary. All other trademarks are owned by The Coca-Cola Company.

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and Suites, Quality Inns and Suites, Comfort Inns and Suites, Sleep Inns, Econo

Lodge, and Travelodge. Each of the brands offers a different array of ameni-

ties at various price levels in an attempt to have at least one brand that will

appeal to any consumer in the economy or midpriced market segments.

A differentiated strategy can also be used at the unit or property level.

Consider a hotel that is targeting the following markets:

• Individual travelers, including those traveling for both pleasure and

business during the week

• Group meetings, representing corporations, associations, social, and other

smaller segments

• Tour and travel groups, including those traveling by motor coach

Each of these target markets has needs and wants that differ from the

other markets. Those responsible for the marketing efforts of the hotels will,

using a differentiated strategy, develop a product–service mix that meets the

needs of the individual market segments.

Most successful firms use some type of a differentiated marketing strat-

egy. Although the marketing costs associated with a differentiated strategy

are higher in most cases, the return on investment is also higher. Targeting

the needs and wants of specific target markets and communicating directly

to these target markets with separate marketing programs mean that overall

sales usually increase.

Concentrated Strategy

A concentrated, or focused, strategy calls on firms to develop modifications

of one or more product–service mixes that are marketed to one or relatively

few market segments with limited changes in the marketing program. This

strategy can be used successfully by smaller firms that don’t have the resources

to compete in a broader market. Consider that many firms in the lodging

industry have developed multiple product–service mixes and brands target-

ing many markets, while companies such as Hyatt Hotels and Resorts and

Renaissance Hotels have not taken this approach. Instead, these two hotel

chains concentrate marketing efforts on business travelers and those who need

full-service lodging. It is not a question of which company is correct. Rather,

it is a question of which strategy is the most appropriate in light of the firm’s

mission and long-term goals.

market segmentation strategies 145

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146 chapter 4 market segmentation and positioning

POSITIONING THE PRODUCT–SERVICE MIX

Once market segments have been selected, management must develop a posi-

tioning strategy for its products and services in each target market. Put sim-

ply, positioning is the process of determining how to differentiate a firm’s

product offerings from those of its competitors in the minds of consumers.

This requires the firm to know how important certain attributes are to con-

sumers in purchasing the firm’s product, and the consumers’ perceptions of

how well the firm and its competitors are doing with respect to these attrib-

utes.5 Marketers want to position their products so consumers purchase them

instead of competing products.

Generally, firms have choices on the positioning of their products, and it

is important to consider the alternatives. For example, car rental companies

have chosen different bases to position their products. Hertz stresses the ben-

efits of using the number-one rental car company to satisfy consumer needs,

emphasizing the employee ownership of the company, while Avis positions

itself against Hertz using the “We try harder” slogan. In addition, Enterprise

Rent-a-Car stresses pickup service, and Budget stresses a specific product fea-

ture (i.e., price). Other bases for positioning could be specific usage occasions

or user category. For instance, Marriott positions its Residence Inns for

extended stays and its Courtyard Hotels for business travelers. Also, firms

could base their positioning on intangibles such as the food or ambience.

Applebee’s uses the slogan “eating good in the neighborhood” to create a per-

sonal atmosphere, and Subway uses the slogan “eat fresh” to focus on food

quality. Finally, it is also possible to use more than one basis for positioning

when targeting a specific market.

Several factors will affect a firm’s decision regarding which positioning

bases it should use. First, a firm’s current market position and the positions

of its competitors are important. Second, a firm should consider the compat-

ibility of a desired position with the needs of consumers and the goals of the

firm. Third, a firm must have the resources necessary to communicate and

maintain the desired position. Figure 4.4 provides a four-step process that con-

siders these factors and can be used in positioning a firm’s products.

Positioning

The process of determining how to differentiate a firm’s product offerings from those of its competitors in the minds of consumers.

Determine the ideal mix

for consumers

Measure consumer

perceptions of available services

Look for gaps in coverage and select a

desired position

Develop a strategy for

obtaining the desired position

figure 4.4 • The Positioning Process

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Determine the Ideal Mix for Consumers

The first step in the process is to determine what consumers are looking for when

they purchase a specific product or service. Once a firm establishes this ideal mix

of attributes, it can begin to examine the ability of its product–service mix to meet

the needs of consumers. Normally, there are a few salient attributes that are

important to consumers in evaluating the alternative products or service offer-

ings. These attributes will differ by product or service, but Table 4.2 provides

some of the more important attributes for hospitality and tourism products.

As you can see, many of the attributes are important for all products and

services. Price is not always the most important attribute, but is almost always

one of the top three. Service quality is another attribute that is important to

consumers in choosing service providers, and it is commonly used to differ-

entiate between brands. Other attributes are more specific to a particular type

of firm. For example, food quality is very important to consumers in choos-

ing a restaurant, and room quality is important in choosing a hotel.

It is necessary for firms to obtain importance ratings from consumers using

some type of research method. These methods will be discussed in more detail

in Chapter 6, but the most common method is to conduct some type of survey.

Normally, individuals are asked to rate a list of attributes using an importance

positioning the product-service mix 147

Salient attributes

Attributes that are the most important to consumers in evaluating the alternative products or service offerings.

type of firm list of attributes

Restaurant Price, value, quality of food, type of food, service quality,

menu variety, employee friendliness, location, atmosphere,

speed of service, cleanliness, parking

Hotel Price, value, room quality, restaurant quality, location,

number and types of restaurants, other facilities (e.g., pool

and fitness center), cleanliness, atmosphere, employee

friendliness, speed of check-in and checkout, amenities

(e.g., valet parking and room service), service quality

Airline Price, value, service quality, employee friendliness, on-time

performance, baggage handling, direct routes, cities served,

scheduled flights, frequent flyer programs

Rental Car Price, value, service quality, convenience, location,

Company types of cars, condition of cars, speed of service, pickup and

drop-off policies

table 4.2 • Important attributes for hospitality and travel firms.

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148 chapter 4 market segmentation and positioning

scale. For example, a restaurant’s comment card may ask a customer to rate

the quality of food on a scale of 1 to 5, with 1 being “not important at all” and

5 being “very important.” The answers to these ratings are combined to pro-

vide an average rating for each desired target market. The averages for all of

the attributes can then be examined and used to construct an ideal mix for

the product. In other words, what are consumers looking for?

Measure Consumer Perceptions of Available Services

Once the ideal mix is determined, the next step is to examine the current offer-

ings of your firm and its competitors to evaluate their abilities to meet con-

sumer needs. More important, it is necessary to obtain consumer perceptions

of your service and your competitors’ services. Even if a firm believes its

product–service mix offers good value to consumers, it is only true if con-

sumers believe it to be true. In marketing, perceptions are everything. It would

be a critical mistake for a firm to assume that it knows what consumers want

and that its products are meeting consumers’ wants and needs. Once again, it

is essential for firms to evaluate consumer perceptions through the use of

consumer surveys and other research methods. Table 4.3 provides an example

of a competitive benefit matrix that can be used by restaurants to compile con-

sumer perceptions for the firm and its closest competitors.

At this point, it may be helpful for a firm to be able to visualize the infor-

mation in the competitive benefit matrix by using a perceptual map. Perceptual

Perceptual mapping

A technique used to construct a graphic representation of how consumers in a market perceive a competing set of products relative to each other.

potential benefits our operation competitor a competitor b

Value for price

Quality of food

Quality of service

Atmosphere

Location

Menu variety

table 4.3 • Competitive benefit matrix.

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mapping is a technique used to construct a graphic representation of how con-

sumers in a market perceive a competing set of products relative to each other.

Because of the difficulties associated with graphing and understanding multidi-

mensional presentations, in evaluating competing products managers must deter-

mine which two or three dimensions consumers consider most important, and

use these dimensions to construct the perceptual map. For example, Figure 4.5

provides a hypothetical perceptual map for hotel chains.

The perceptual map was constructed using perceived price and perceived

quality as the two dimensions. Assuming the ratings for the hotel chains on

these dimensions were collected using consumer research, the placement of the

firms in the perceptual space depicts their relative positions in the market. The

results of perceptual mapping can be used for the following purposes:

• To learn how consumers perceive the strengths, weaknesses, and similar-

ities of the alternative product–service mixes being offered

• To learn about consumers’ desires and how these are satisfied or not sat-

isfied by the current products and services in the market

• To integrate these findings strategically to determine the greatest oppor-

tunities for new product–service mixes and how a product or service’s

image should be modified to produce the greatest sales gain

Several methods can be used to construct a perceptual map. Similarity-

dissimilarity data involve asking consumers to make direct comparisons

between alternative brands. For example, consumers might be given the names

positioning the product-service mix 149

Low High

High

Low

Perceived price

Marriott

Hilton

Four Seasons

Hampton Inn

Holiday Inn

Days Inn

Motel 6

Perceived quality

Sheraton

Econolodge

figure 4.5 • Perceptual map for hotel service.

Similarity–dissimilarity data

Similarity–dissimilarity data involve asking consumers to make direct comparisons between alternative brands based on the degree of similarity.

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of restaurants and asked to select the ones that are most similar or the ones

that are least similar. Preference data involve asking consumers to indicate

their preferences for a list of alternative brands. For example, consumers might

be asked to rank-order a short list of restaurants or rate a specific restaurant

on a 1 to 5 scale, with 1 being “least preferred” and 5 being “most preferred.”

Attribute data involve asking consumers to rate the alternative brands on a

predetermined list of attributes. For example, consumers might be asked to

rate a given restaurant based on a series of attributes.

After the data are collected, sophisticated statistical techniques are used

to reduce the list of attributes into two or three dimensions for easier presen-

tation and interpretation. Then management can use these perceptual maps

to fine-tune current product–service mixes and uncover gaps in market

coverage between the ideal mix and the alternative offerings.

Look for Gaps in Coverage and Select a Desired Position

Once consumers’ perceptions are obtained, measured, and plotted on a per-

ceptual map, the third step in the process is to examine the map for gaps in

coverage. In other words, are there any areas on the map depicting ideal mixes

that are not being adequately served by the brands in the market? Or is there

a difference between the position sought by management and the position per-

ceived by consumers? For example, Subway entered the market in response

to a lack of variety (including healthier options) in foods being offered by fast-

food restaurants such as McDonald’s and Burger King. Similarly, extended-

stay hotels were created in response to consumers who had to travel for

extended periods and did not like staying in typical hotels. They wanted the

ability to cook, do laundry, avoid crowded lobbies, and stay in a more resi-

dential setting.

The results of the consumer research and perceptual mapping enable firms

to develop a positioning statement. The positioning statement should differ-

entiate the organization’s product–service mix from that of the competition.

For many years, hotels and restaurants have advertised and promoted “fine

food,” “prompt, courteous service,” “elegant atmosphere,” “first-class accom-

modations,” and “top-flight entertainment.” As might be expected, these pro-

motional approaches are not as effective as they could be. Consumers usually

do not believe these statements because they have heard them many times

before and have often been disappointed when they patronized the properties

that had made these promotional claims. Also, these statements do little to

separate the organization’s product–service mix from that of the competition.

150 chapter 4 market segmentation and positioning

Preference data

Data obtained by asking consumers to indicate their preferences for a list of alternative brands.

Attribute data

These data involve asking consumers to rate alternative brands on a predetermined list of attributes.

Positioning statement

Results from consumer research and perceptual mapping enable firms to develop a positioning statement. The positioning statement should differentiate the organization’s product–service mix from that of the competition.

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If other hospitality organizations are promoting “fine food” or similar bene-

fits, then all the promotion and advertising is basically the same.

The key to success in positioning is to establish some unique element of the

product–service mix and promote it. This allows management to differentiate

the product–service mix from that of the competition and thereby gain a com-

petitive advantage. This approach is known as establishing a unique selling

proposition (USP). With a USP, every effort should be made to link the ben-

efits with tangible aspects of the product–service mix. In this way, consumers

have something tangible with which to associate the hospitality operation.

Develop a Strategy for Obtaining the Desired Position

The final step in the positioning process is to develop strategies for obtaining

the desired position that results from the analyses performed in the first three

steps. As with any other discussions of strategy in this text, marketing man-

agers must use the components of the marketing mix to develop marketing

programs that can be used to achieve the firm’s objectives. In this case, deci-

sions regarding price, product–service mix, promotion, and distribution must

be made to help the firm achieve its desired position. It should be noted that

the easiest changes in the marketing mix involve price and promotion.

Changes to the product–service mix and distribution are more complicated

and often involve expensive changes in tangible elements.

One of the most effective ways to change consumer perceptions of the

product–service mix is through promotion and advertising. There are many

examples of how products have been positioned or repositioned using adver-

tising and promotional campaigns. For instance, Burger King attempted to

differentiate its product–service mix as superior to those of other hamburger

restaurants in the fast-food industry. The focus of Burger King’s advertising

is on charbroiling, its method of cooking hamburgers. The objective of the

advertising campaign is to promote the unique process as providing a better-

tasting burger of higher quality than its competitors.

A second example of using product–service mix positioning is the manner

in which Taco Bell used price and packaging to gain a competitive advantage.

At a time when the typical meal at a fast-food restaurant cost between $3.50

and $4.00, Taco Bell took a very different positioning strategy. It introduced

a line of value-priced products and meals at price points between 59 and

99 cents. The focus of all promotions and point-of-purchase displays was on

low price and value. As a result of these promotions, Taco Bell was able to

increase its market share, largely at the expense of other fast-food restaurants.

positioning the product-service mix 151

Unique selling proposition (USP)

Promoting a unique element of the product–service mix.

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152 chapter 4 market segmentation and positioning

Finally, Enterprise Rent-A-Car trailed market leaders Hertz and Avis

and needed to develop its own unique position in order to gain market share.

Enterprise analyzed the market and realized there was a gap for lower priced

rental cars in larger cities and surrounding communities at non-airport

locations. In response, the company decided to expand in more suburban and

rural areas and has since grown to be the largest car rental agency in North

America. In addition, the company was the first to offer customers a free

pick-up service as a facilitating service in the marketing exchange.

Al Ries and Jack Trout provide a useful set of guidelines to use in developing

positioning strategies in their text entitled Positioning: The Battle for Your Mind.6

The authors formulated six questions that should be used to guide your thinking:

1. What position do you own? It is critical that you look at the marketplace and your image from the consumer’s point of view. How do consumers

view your product? What image does your product have in their minds?

Keep in mind that you must be objective and look at your product from

the consumer’s perspective.

2. What position do you want? Remember that those who are most suc- cessful tend to carve out a niche of the broad market. Those who attempt

to be all things to all people often are not successful. Don’t think beyond

your organization’s capabilities. You must be able to “own” the position,

even if that means displacing a competitor’s brand. Not every firm can be

the leader, but firms can be successful with other strategies.

3. Whom must you outgun? No positioning statement is created in a vacuum. You must clearly visualize the positions held by the major competitors. Do

they have a firm lock on their positions, or are they vulnerable? If they are

strong, it’s wise to avoid a direct frontal attack and instead go around them.

4. Do you have enough money? Establishing and maintaining an image in consumers’ minds is no small task. Every day we are exposed to hundreds

of advertising images. If a change in positioning strategy is planned, then

the necessary marketing resources must be appropriated for the change to

be successful.

5. Can you stick it out? A key to successful positioning is the ability to defend that position. The most successful companies don’t change their position,

only the short-term tactics they use to communicate their position.

6. Do you match your position? It is critical that the exact positioning state- ment be communicated in the advertising and promotions that follow.

The desired position should be consistent with the image of the firm and

fit with the image of the firm’s other products and services.

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w Summary of Chapter Objectives

Market segmentation is defined as pursuing a marketing strategy whereby

the total potential market is divided into homogeneous subsets of customers,

each of which responds differently to the marketing mix of the organization.

Market segmentation involves considering several segmentation variables as

well as segmentation criteria. Criteria for effective segmentation are substan-

tiality, measurability, and accessibility to the selected target markets. Variables

that can be used to segment markets include geographic, demographic,

psychographic, behavioral, and benefits sought.

Once potential target markets have been identified, decisions must be

made concerning which market segments offer the best opportunity to suc-

ceed; once determined, these should be pursued. A four-step process was intro-

duced to accomplish this. Firms need to identify segmentation bases, develop

profiles for each segment, forecast potential demand, and select specific target

market segments.

The important link between target market segmentation and marketing

strategy was also introduced. The vast majority of firms follow one of three

broad strategies: a mass-market strategy, a differentiated strategy, or a con-

centrated strategy. The market segmentation strategies differ in the number

and type of marketing programs and target markets.

Positioning is a very important aspect of the marketing efforts of any

hospitality organization. The positioning statement, and thus the promo-

tional messages, should clearly reflect image, benefit package and support,

and differentiation of the product–service mix. Only when all three of these

elements are reflected in the hospitality organization’s advertising and pro-

motion does the organization realize its full potential. The positioning

statement should be supported with tangible clues, rather than the intan-

gible and ineffective “fine food” or “excellent service” slogans used by many

firms.

Hospitality and tourism firms should go through the positioning pro-

cess by (1) determining the ideal mix for consumers, (2) measuring con-

sumer perceptions of available services, (3) looking for gaps in coverage and

selecting a desired position, and (4) developing a strategy for obtaining the

desired position. Consumer research is vital in this process of collecting

information on consumer perceptions regarding the brands in the market.

Perceptual maps can be constructed that provide a graphical representa-

tion of the consumer preferences and resulting brand positions. Then firms

can select their desired positions and devise strategies for obtaining those

positions.

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Key Terms and Concepts

Accessibility

AIO (attitudes, interests, and opinions) statements

Attribute data

Behavioral variables

Benefit segmentation

Competitive advantage

Consolidated metropolitan statistical area (CMSA)

Demographic variables

Family life cycle

Frequent traveler program

Geographic variables

Margin of error

Market demand

Market segmentation

Market share

Measurability

Metropolitan statistical area (MSA)

Perceptual map

Positioning

Positioning statement

Preference data

Primary metropolitan statistical area (PMSA)

Projected demand

Psychographic variables

Return on investment (ROI)

Salient attributes

Similarity-dissimilarity data

Substantiality

Unique selling proposition (USP)

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w Questions for Review and Discussions

1. What is market segmentation?

2. Of what value is market segmentation to marketing managers?

3. What variables are used to segment target markets?

4. Which of the variables from question 3 do you see as most and least useful to a manager working in the hospitality and tourism industry?

5. Cite and discuss the criteria for effective segmentation.

6. Is it possible to oversegment a market? If so, provide an example.

7. What are the four steps in the market segmentation decision process?

8. Explain and give examples of each of the three market segmentation strategies.

9. What is positioning? Why is it important?

10. Describe the four steps in the positioning process.

11. What is perceptual mapping?

12. Internet Exercise: The VALS™ Survey is the instrument used to gather the data necessary to identify the various market segments used in the VALS

framework. Use the following link to find the Web site where you can

take the VALS survey and determine your VALS segment or type.

http://www.sric-bi.com/VALS/presurvey.shtml. Then, you can use the fol-

lowing link “The VALS™ Types” on the Web site to get a thorough descrip-

tion of each VALS type.

a. Do you think the VALS type determined by the survey is consistent with the way you perceive yourself?

b. Talk to your friends and relatives and see if they have a different perception of you regarding your personality traits and purchasing

behavior.

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Notes 1 United States Census Bureau: Census 2000. http://www.census.gov/

2 Ibid.

3 AmeriStat, Population Reference Bureau, “Traditional Families Account for Only 7 Percent of U.S.

Households,” March 2003, www.ameristat.org.

4 Anthony Marshall, “Common Complaints Often Arise from ‘Mature’ Travelers,” Hotel & Motel Management

24, 5 (March 15, 1999): 10.

5 James H. Martin and James M. Daley, “How to Develop a Customer-Driven Positioning Strategy,” Business 39

(October–December 1989): 11.

6 Al Ries and Jack Trout, Positioning: The Battle for Your Mind (New York: McGraw-Hill, 1981).

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Case Study Segmenting and Positioning in the Cruise Industry

T he cruise industry has increased in popularity over the past two

decades. This has led to higher volume, including more market seg-

ments than just affluent travelers. However, the cruise lines have

to be careful that they don’t try to mix too many different groups of cus-

tomers on the same ship. In response, the cruise lines have added more ships

and designed them to appeal to the varied customer segments. Also, there are

many outlets for purchasing cruise travel, including traditional travel agents,

online travel agents, airline agents and Web sites, and the cruise line agents

and Web sites.

The purpose of this exercise is to research the various distribution outlets

and determine the make-up of the cruise line industry. That is, identify the

popular cruise lines in the United States, how they are positioned, and what

market segments they serve. The following is a description of how you can

find this information through two of the more popular online travel agents,

but you can use other sources as well. You should limit your search to Bahamas

cruises of 3–6 nights/days. It doesn’t matter what month you use as long as it

is a popular cruising month for the Florida ports (i.e., Fort Lauderdale, Miami,

and Tampa).

First, you can go to www.expedia.com and click on “Cruises.” Put in the

criteria listed above (i.e., Bahamas, 3–5 nights, all lines) and choose a month.

Next, click on “Choose and Continue” for the various selections and scroll

down to “About the Ship.”

Next, you can go to www.travelocity.com and click on “Cruises.” Put in

the same criteria (except it is 3–6 nights) and choose the same month. Then,

click on “More Info” for each of the selections, followed by “Reviews.”

case study 157 ca se

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Case Study Questions and Issues

1. What cruise lines are available, and how are they positioned in the market? Explain your answer based on actual evidence and construct a

simple perceptual map based on price and quality.

2. What are the primary market segments for cruise lines based on your review of the Web sites? What ships are available within the Carnival

Cruise Line, and how are they targeted to each of these segments?

3. What other websites are available for obtaining useful information for how the cruise lines, and their ships, are segmented?

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