Marketing

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To achieve success in marketing a hospitality operation, a manager must closely examine and understand all of the components of the marketing mix. To be successful, these components must be combined into well-conceived marketing programs and managed properly. There is no magical formula that will guarantee success. If there were, no hospitality operation would ever fail or go out of business. Yet each year, many hospitality operations fail because they are not able to combine the elements of the marketing mix into effective marketing programs, or they fail to implement them properly.

The Hospitality Marketing Mix

Hospitality marketing mix

Hospitality marketing mix consists of five components: product-service mix, presentation mix, communication mix, pricing mix, and distribution mix.

Just as researchers have demonstrated distinct differences between goods and services, some researchers believe that the traditional four P's approach to the marketing mix does not apply to the hospitality industry. Rather, a modified marketing mix is more appropriate. This hospitality marketing mix consists of five components:3

1. Product—service mix

2. Presentation mix

3. Communication mix

4. Pricing mix

5. Distribution mix

6.

PRODUCT-SERVICE MIX. This is a combination of all the products and services offered by the hospitality operation, including both tangible and intangible elements. For example, it includes such things as the type of guest room, the amenities offered, and the broad array of elements offered to the consumer. Chapter 2 addresses further the unique nature of services. Keep in mind that once a hospitality consumer leaves the hotel or restaurant, there is nothing tangible to show. Because the consumer has purchased and consumed the service, the largest part of the hospitality industry product—service mix is indeed the intangible elements of service.

PRESENTATION MIX. This includes those elements that the marketing manager uses to increase the tangibility of the product-service mix as perceived by the consumer. This mix includes physical location, atmosphere (lighting, sound, and color), and personnel.

COMMUNICATION MIX. This involves all communication that takes place between the hospitality operation and the consumer. It includes advertising,

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marketing research, and feedback about consumer perceptions. The communication mix should be viewed as a two-way communication link, rather than as a simple one-way link with the hospitality operation communicating to the consumer. This two-way link allows for the traditional advertising and promotion that flow from the seller to the buyer, but it also allows for marketing research and other data collection vehicles. In these cases, the seller is seeking information and data from the consumer, thereby establishing open communication with the various market segments.

There are some similarities and differences between the traditional marketing mix and the hospitality marketing mix. In the hospitality version, the product component is expanded to include some aspects of distribution. People are part of the production process in services, and distribution occurs in the presence of the consumer. The communication mix is almost identical with the promotion component in the traditional marketing mix, although it does include some additional communications such as marketing research. Finally, the presentation mix represents the largest departure from the traditional marketing mix. It includes price and some of the aspects of the place component such as location, and it adds elements such as atmosphere and the personal contact between customers and employees.

PRICING MIX. In addition to the actual price a firm charges, the pricing mix encompasses the consumer's perception of value. The pricing mix includes such variables as volume discounts and bundling multiple products together for an overall discounted price. This bundling approach is used extensively by fast-food chains as a method to increase spending per customer.

DISTRIBUTION MIX. This includes all distribution channels available between the firm and the target market. Historically, distribution occurred at the point of production, such as the restaurant where the food was produced. This has changed since newer distribution channels, such as the Internet and e-Commerce have developed; the importance of the distribution mix has increased.

The marketing mix, whether designed in the traditional or modified hospitality services format, is an important concept for managers of marketing functions. Initially, the marketing mix is used to formulate a marketing strategy and plan (see Chapter 5), but it pervades all aspects of marketing management. Several external factors can reduce the effectiveness of the manager's efforts to successfully implement all the components of the hospitality marketing mix. These factors, which may have either direct or indirect influence, are consumer perceptions, attitudes, and behavior; industry practices and trends; local competition; broad national and international trends; and government policy and legislation.

( main category specific objectives Financial Maximize profit Target rate of return Increase cash flow Sales Increase or maximize sales revenues Increase volume (number of units sold) Increase or maximize market share Competitive Position against competitors Long-term survival Maintain competitive parity (market share or marketing expenditures) Customer Increase market awareness Increase customer satisfaction Improve or change perceived image Create goodwill table 5 .2 • Types of Objectives )problem with multiple objectives is that there could be a conflict between them. For example, consider the case of a firm that wants to increase market share and maximize profit. In the short run, increases in market share are accomplished by lowering price and/or increasing marketing expenditures on changes in the product-service mix and promotion. Either decreasing price or increasing marketing expenditures will result in a decrease in short-term profits. The firm must rethink its objectives or make a distinction between short-term and long-term profits.

Formulating Marketing Strategies and Action Plans

A strategy is the manner by which an organization attempts to link with, respond to, integrate with, and exploit its environment. In other words, a firm's strategies integrate its mission, goals, objectives, and action plans. When well formulated, strategies help firms maximize the use of their resources. This, in turn, puts them in a viable position within the competitive environment. Timing is everything. Managers must always look for a

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Strategic window

Limited periods of time when marketing opportunities present themselves and the firm is in a position to take advantage of those opportunities.

Market penetration strategy

A market penetration strategy focuses on selling the existing product-service mix to the existing target markets. Most firms will attempt to increase the quality and consistency of the product-service mix as a means of increasing customer satisfaction, promoting brand loyalty, and increasing sales and market share.

strategic window, or a limited period when marketing opportunities present themselves and the firm is in a position to take advantage of those opportunities. For example, imagine that your firm had stockpiled a large supply of frozen beef tenderloins and your major competitor had not. Due to weather conditions in the major growing areas, a beef shortage occurred. Prices escalated rapidly and supplies of beef tenderloins were low. This occurrence would offer your firm a strategic window in which to gain a competitive advantage. You could undercut competitors' prices for the product and run a promotion that your competition would be unable to match.

When developing a marketing strategy, a manager first selects the markets the firm will target and then blends the elements of the marketing mix, which includes the product-service mix, price, promotion, and distribution. Strategic options for each of the marketing mix areas will be discussed in more detail in later chapters. However, various frameworks can be used by firms to aid in general strategy formulation. One of the more popular frameworks provides four basic strategies for achieving growth based on whether the products are new or currently exist and whether the markets are new or are currently being served. These growth strategies appear in Table 5.3.

A market penetration strategy focuses on selling the existing product-service mix to the existing target markets. Most firms will attempt to increase the quality and consistency of the product—service mix as a means of increasing customer satisfaction, promoting brand loyalty, and increasing sales and market share. For example, if a McDonald's franchisee continued to expand by opening stores in a rural part of the country, this could represent a market penetration strategy.

In an effort to increase sales, management attempts to increase the rate of repeat patronage, building on a solid client base. Another part of this strategy is to increase initial patronage among members of existing markets who have not previously patronized the hospitality operation. Management can accomplish this by attracting patrons from competing operations, thereby increasing the market share. The overall goal is twofold: to increase sales and to increase market share. Managers frequently select this strategy during periods of economic uncertainty,

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existing product

new product

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Existing Market

Market Penetration

Product Development

New Market

Market Development

Product Diversification

table 5.3 • Product Development Strategy Options

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such as when the inflation rate is high. As it becomes more expensive to borrow capital for physical expansion, one of the best ways to grow is to increase sales within existing units. In this manner, a larger percentage of the increased sales will eventually become profits.

The basis of a product development strategy is the idea of developing new products for existing markets. As new elements of the product-service mix get introduced, management ensures the long-term financial viability of the firm by increasing sales. Examples of this strategy are common within the hospitality and tourism industry. For instance, noncommercial foodservice firms such as ARAMARK and Sodexho have long managed the foodservice operations for host firms, companies whose primary business is not providing a final food product (i.e., businesses, hospitals, colleges and universities, and other government and nonprofit organizations). Building on the successful relationship that has been established through running the foodservice aspects of the business, ARAMARK and Sodexho have expanded into facilities management (e.g., managing all aspects of stadiums and arenas for events). Another possible product development strategy for contract foodservice firms is to manage university housing and dining services.

No hospitality or tourism firm can remain unchanged for too long and expect to prosper. Markets change, consumer needs and wants change, and so, too, must the product-service mix of any hospitality and tourism firm. For example, consider the product development of any of the fast-food chains. New menu items have been added continually over the years to increase unit sales and expand the total market. McDonald's was the first to put breakfast

Product development strategy

The idea of developing new products for existing markets.

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( MM )Embassy Suites Hotel* know* just whet kids think ere the huppest. hottest end moil happening places- the best place to get a burger, p<-;a and ice cream in 34 US otic J and Z international destination*. We've expanded our program to our hotel* in Mexico City and Niagara Fans, a* well a* New Orleans and Waiktlti m Hawaii.

Created for kid* by kids, the program include* a specially designed green and gold Embassy Suite* Kids-Eye View Passport highlighting the coot, "lid approved* attractions in 3t cities. More than 100 embassy Suites Hotels across the North America are part of the fun-filled program.

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Hotels such as Hilton advertise special offers in an effort to penetrate specific markets. Courtesy of Hilton Hospitality, Inc.

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Market development strategy

A market development strategy focuses on developing new markets for existing products and services.

Diversification strategy

A diversification strategy involves introducing new products and services into new markets. This strategy offers the most long-term potential, but it is also the strategy with the greatest degree of risk.

items on its menu, adding significantly to total sales of the individual units and the total corporation. Later, it added drive-through service. Then it added soft-serve ice cream and salads in order to expand the product-service mix and total sales. While McDonald's is no longer as dominant as it once was in the fast-food market, the company has continually sought ways to expand its product-service mix and increase sales.

A market development strategy focuses on developing new markets for existing products and services. In the case of hotels and restaurants, this normally involves building new units and expanding into new markets. One of the most lucrative growth areas within the hospitality and tourism industry is outside the United States. As growth rates slow within the domestic market, large hospitality and tourism marketers look to grow internationally. Hyatt Hotels and Resorts has targeted many Asian countries for its expansion, while other hotel chains have focused on European countries. Foreign markets offer attractive growth prospects because many are virtually untapped. However, this potential for high return is counterbalanced by risks associated with the political and economic environments in foreign countries. Most local and regional hospitality firms still choose to add units in other regions within the United States before attempting overseas expansion. Or a hospitality firm may form a partnership or strategic alliance with another firm that has a stronger international presence. For example, when Marriott International acquired the Renaissance Hotels chain, it secured many international locations that enjoyed both a strong image and profitable hotels. In doing so, Marriott International did not have to establish a Marriott-branded hotel in these locations.

A diversification strategy involves introducing new products and services into new markets. This strategy offers the most long-term potential, but it is also the strategy with the greatest degree of risk. The upside potential is important because any sales generated will be new sales. They will not take sales away from existing products and services. When existing customers buy new products and services rather than existing products and services, this is called cannibalization. When a firm introduces new products and services into new markets, there is no potential for cannibalization. However, the risk, and potential downside, is that actual sales will lag the company's forecasted sales and not meet profit projections. In this case, a diversification strategy would fail.

Other popular frameworks offer baseline strategies based on the firm's competitive position, or business strengths, and the growth rate in the market, or industry attractiveness.3 In general, firms with weak competitive positions should look for ways to improve their status, either by concentrating on a single business or through mergers and acquisitions. Firms in markets with slow growth rates should look for new markets or form alliances with other

firms to strengthen their positions. This allows them to survive and prosper, while other firms find it necessary to divest or liquidate.

Many hospitality and tourism firms, particularly small organizations, often do not devote the human and monetary resources necessary to develop adequate strategic marketing plans. Without such plans, the marketing strategy can easily become reactionary; the organization merely reacts to each new competitive force and lacks an overall sense of direction and purpose. Conversely, an organization that develops well-defined strategic marketing plans has laid the groundwork necessary for a proactive marketing effort that takes the initiative instead of allowing competitors to control the environment.

Implementing Action Plans and Evaluating Performance

Once management selects the best strategic alternatives, it must develop action plans and a timetable for implementation. Action plans are developed, indicating the specifics of what will happen, when it will be done, and how the marketing plan will be implemented. This does not mean that it is inflexible, but a clear implementation plan remains important. Action plans should contain the following information:

· Who will assume primary responsibility for each part of the action plan?

· How will they proceed to implement the action plan?

· When should they have it completed?

· What resources will be necessary to fully implement the action plan?

· How will the results of the plan be evaluated?

· What specific metrics will be used to measure success?

Following the development of the action plans but before implementing them, managers must complete two activities. First, an implementation schedule must be developed. Since not all the action plans will be implemented at the same time, an orderly timetable or schedule will determine when the various actions should be carried out. Second, a set of performance criteria for evaluating the relative success of the action plans must be established. Performance criteria should be measurable. It is important to remember that marketing planning is a continuous process requiring monitoring and adapting based on actual performance. Four key control areas exist to evaluate performance: sales, costs,

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introduction 213

Within the food and beverage area, all sales should be recorded and broken down by menu group and menu item. Only when managers have access to records of previous sales are they able to make informed decisions concerning the product-service mix for the organization.

Requirements for a Successful Marketing Information System

The basic task of gathering data is important to an organization, but an effective marketing information system is one that is able to organize this task and supply the firm with useful information. To generate data that are useful for managers and decision makers, a marketing information system should fulfill three requirements:

1. It should be objective. Management should be able to quantify and analyze the information gathered. Management needs as much purely objective data as possible to make sound decisions. For example, which of these two statements seems to provide better information for decision-making purposes?

Statement A: "As the owner of this restaurant, I think we should modify our menu so that we can appeal to more family business." Statement B: "A recent study has indicated a 10 percent increase in the number of families with children under the age of ten in our area." Statement B would appear to be more objective and to offer quantitative data on which to base a decision. On the other hand, Statement A is merely an opinion and is not supported by any quantitative data. Too many hospitality managers rely heavily on subjective opinions for decision-making purposes, and their decisions are often incorrect. Decisions based on purely personal opinion are often less than successful when implemented. Decisions based on a combination of data and managerial insight and experience generally yield higher-quality decisions.

2. It should be systematic. The marketing information system is not an on-off process; it is a system that should be designed to provide a continuing continuous stream of information source for management. When information is collected in a systematic and continuous manner, the quality and quantity of data improve. For example, many conference hotels only receive feedback from meeting planners on an ad hoc basis, rather than develop a system requiring feedback from each meeting.

3. It should be useful. Many studies produce information that is of little value. This is obviously not the purpose of a marketing information system. One

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rule of thumb to follow is this: collect, compile, and store information only if it is used actively; do not collect information and then file it away without using it. This is a needless and expensive waste of time and effort, yet many hospitality operators, in an attempt to gather any quantitative information, maintain data that are never used and are truly useless. For example, many hotels still collect comment cards without inputting the results in the computer. Managers simply read over the comments and ratings and then manually file the cards. The advent of low-cost and increased-capacity hard disk storage within personal computers has made it easy to compile data to be examined using some type of analytical software (e.g., MS Excel, SPSS, etc.).

SOURCES OF MARKETING INFORMATION

Secondary data

Data that have already been collected by another source and made available to interested parties either for free or at a reasonable cost.

Primary data

Data that are collected for a current study or project and tailored to meet the specific information needs for that study or project.

A variety of sources can be used to obtain the information necessary to fuel a marketing information system. These information sources can be grouped into two main categories: secondary data and primary data. Secondary data were previously collected for another purpose. Primary data are generated for a specific purpose when the information is not available elsewhere. It is normally advisable to search for secondary data before engaging in a primary data collection process. The secondary data may provide the information necessary to make a decision, and even if they don't, they may be useful in developing the collection process for primary data. Figure 6.2 illustrates the possible sources of information for marketing decisions.

Secondary Data

As mentioned before, this type of data is already available from other sources and summarizes information about operations, marketing, human resource management, financial performance, and other topics of interest to management. A shrewd manager will make a thorough check of all available secondary data sources before undertaking primary data collection. Secondary data can save many personnel hours and a great deal of money. Here are the major advantages of using secondary data:

• Cost. It is much less expensive to obtain information from existing sources than to develop entirely new data. These existing sources may require a