Unit 4 Case Study

INTRODUCTION TO MARKET SEGMENTATION

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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 different 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 hospitality 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 sensitivity and frequency of use. Within many aircraft today, you will find three levels of service: first class, business class, and coach. Each level offers differences 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.

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.

The Nature of Market Segmentation

Why is it desirable to segment markets? Many owners and managers of hospitality 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 segment the market and target their marketing and promotional efforts to just a few selected segments, their sales volume will fall. This approach is shortsighted 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 permits 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 company'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 segments 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 specific 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 market 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

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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:

X. 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 example, two decades ago, very few restaurants had sections of their menus dedicated 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. 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. 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, including but not limited to advertising, promotion, direct marketing, telemarketing,

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.

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.

Geographic segmentation

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

and personal selling. Without accessibility, there is very \\tt\e reason for segmenting the target market. A major purpose for segmenting the market is to isolate viable segments of potential business and to direct marketing communication 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 effective 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 special, 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 willing 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 segment the market.

130 CHAPTER 4 MARKET SEGMENTATION AND POSITIONING

130 CHAPTER 4 MARKET SEGMENTATION AND POSITIONING

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.

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.Id 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.

Benefit segmentation

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

Geographic Variables

A geographic variable, as the name implies, relates to the consumer's geographic area of residence. Markets are often segmented by dividing the country into regions such as Northeast, Mid-Atlantic, North-Central, Southwest, and Northwest. Segmentation is also accomplished by examining the