CHAPTER 1 Introduction: Marketing for Hospitality and Tourism

CHAPTER OVERVIEW This chapter begins by explaining the business philosophy of marketing. Marketing is not a function that is only carried out by the marketing department, but rather a way of doing business. The main focus of marketing is the customer; this customer orientation must be integrated throughout the organization. Next is a discussion of how customer satisfaction leading to profits is the central goal of hospitality and tourism marketing. It is wise to assess the customers long-term value and take appropriate actions to ensure a customers long-term support. Finally, the chapter introduces the various components of the marketing mix: promotion, product, price, and distribution. Distribution is sometimes called place and the marketing mix is called the 4 Ps. Marketing also includes research, information systems, and planning. If marketers do a good job of choosing the appropriate target markets and presenting an effective promotion mix, the result will be attractive products and satisfied customers. This would include identifying consumer needs, developing a good product, and pricing, distributing, and promoting it effectively. This chapter introduces all of these terms and gives an overview of their place in the marketing world. CHAPTER OBJECTIVES Students should be able to: 1. Understand the relationships between the worlds hospitality and travel industry. 2. Define the role of marketing and discuss its core concepts. 3. Explain the relationship between customer value, satisfaction, and quality. 4. Discuss how marketing managers go about developing profitable customer relationships. 5. Understand how the marketing concepts call for a customer orientation. Supportive PowerPoint Slides: 1-1 to 1-5. TEACHING SUGGESTIONS: Teaching suggestions are provided in two formats. The first format guides the instructor through the chapter objectives. The second format is a chapter outline and provides more detail than the chapter objective format. OBJECTIVES: Objective: 1. Understand the relationship between hospitality and travel industry.

Recommended Ideas: The hospitality industry is one of the worlds largest industries. The hospitality and travel industry combine to form the foundation for tourism. The Hong Kong airport alone will eventually be able to handle 87 million visitors per year. All will be traveling to and from Hong Kong for business and personal reasons that will involve many hospitality related businesses worldwide. Examples: hotels, restaurants, timeshare, casinos, airlines, cruise lines, car rental. Objective: 2. Define the role of marketing and discuss its core concepts. Recommended Ideas: Many students think of marketing as advertising or sales. At the start of the course it is important that marketing is presented as a way of doing business. Marketing is making business decisions with the customer in mind. It evolves from creating a customer service attitude among all employees. Thus, all managers need to understand marketing. It is not a function that can be left up to a few people in the marketing department. Getting this idea across can create interest in the class and is one of the keys to a successful course. Explain to the students that the marketing mix is composed of the marketing variables managers can control. They are called a mix because they must support each other. The four-P framework calls upon markets to decide on the products features, set the price, decide how to distribute their product, and choose methods for promoting their product. Examples: Explain how room reservation or accounting departments are part of marketing. Use McDonalds example to explain the 4-P framework. See what is hospitality marketing. Supportive PowerPoint Slides: 1-1 to1-9. Objective: 3. Explain the relationships between customer value, satisfaction, and quality. Recommended Ideas: Value is the consumers estimate of the products overall capacity to satisfy his or her needs. Satisfaction is determined by how well the product meets the customers expectations for that product. Quality is the totality of features and characteristics of a product that bear on its ability to meet customer needs. Examples: Use Ritz Carlton, Dominos and Hampton Inn to illustrate value. Use Satisfaction and Customer behavior chart to illustrate satisfaction. Use examples of TQM and ROQ to illustrate quality. See Value, Satisfaction, and Quality. Supportive PowerPoint Slides: 1-7 to 1-11, 1-14. Objective: 4. Discuss how marketing managers go about developing profitable customer relationships. Recommended Ideas: In order to make business decisions with customers in mind, it is important to understand their needs, wants, and demands. It is important that products are designed to offer value, satisfaction, and quality in order to create and retain customers and maintain or increase profitability. Examples: Use examples on textbook great leaders section, such as Buffalo Statler, which was the first middle class hotel to have a bath in every room and was one of the

first hotels to have a phone in every room. McDonalds formula, QSC & V: quality, service, cleanliness, and value. Ralph Hitz was first to develop a customer database which facilitates maintaining long-term relationship with customers and developing customer loyalty. Supportive PowerPoint slides: 1-1, 1-11 to 1-17. Objective: 5. Understand how the marketing concept calls for a customer orientation. Recommended Ideas: Discussing the success and failure of companies adopting the different marketing management philosophies helps students realize how many business decisions are actually marketing decisions and how these decisions affect the overall business operation. Examples: Successful examples: Four Seasons, Accor, McDonalds. See marketing concept. Failure example: Swiss Alps and Train crews in New Zealand. See manufacturing concept. Victoria Station. See product concept. Restaurant example. See selling concept. Supportive PowerPoint slides: 1-7 to 1-8, 1-18 to 1-28. CHAPTER OUTLINE I. Customer Orientation: The purpose of a business is to create and maintain profitable customers. A. Customer satisfaction leading to profit is the central goal of hospitality and tourism marketing. B. The long-term value of the customer must be assessed in order to take appropriate actions and ensure a customers long-term support. Statistical evidence supports the idea that it is much more efficient to maintain customer relationships than to create new customers. Indeed, it is difficult to regain a customer which has been lost to the competition. This is a fundamental idea in marketing today. Supportive PowerPoint Slides: 1-1. II. Marketing in the Hospitality Industry Importance of Marketing: Only those companies that understand their customers can survive in the highly competitive environment. A. The entrance of corporate giants into the hospitality industry and the marketing skills these companies bring with them have produced a much higher level of competition. B. There are some who predict that the hotel industry will consolidate in much the same way as the airline industry has with five or six major chains dominating the market. If true, this will produce a highly competitive industry with only those companies that understand their customers, surviving.

With this increase in competitive pressure, the marketing director is becoming of great importance. It is the marketing director who will focus the company and its employees on the customers and appropriate priorities. Supportive PowerPoint Slides: 1-2 to 1-3. Travel Industry (Tourism) Marketing: Hospitality and travel marketing is very interdependent, cooperative, and complex in nature. A. The success of the hospitality marketing industry is highly dependent on the entire travel industry. It is very interdependent, cooperative, and complex in nature. Examples include: 1. Wholesale packages including travel, accommodations, ground transportation, and entertainment. 2. Airline and car rental cooperative arrangements. 3. Cruise packages with airline deals and car rental discounts. B. Government or quasi-government agencies play an important role in travel industry marketing through legislation aimed at enhancing the industry and through promotion of regions, states, and nations. C. The Marketing Mix is the set of tools that work together to produce satisfied customers, providing that the appropriate target markets and their needs are identified. Supportive PowerPoint Slides: 1-4 to 1-6. III. Marketing: A social and managerial process by which individual and groups obtain what they need and want through creating and exchanging products and value with others. Needs: Human needs are complex; we classify them into categories: basic physical needs such as food and housing; social needs for belonging, affection, fun, and relaxation; esteem needs for prestige, recognition, and fame; and individual needs for knowledge and self-expression. When a need is not satisfied, a void exists. Wants: Human wants are how people communicate their needs and are shaped by culture and personality. A hungry Aboriginal wants witchery grubs, lizard eggs, and bush onions. A hungry person in the United States may want a hamburger, french fries, and a Diet Coke. Wants are described in terms of objects (or actions) that satisfy needs. See: Macaroni Grill having jug wine on the tables. Demands: Demands are wants backed by buying power. People have almost unlimited wants, but limited resources. They choose product that produces the

most benefit for their money. In times of recession or higher gas prices, people still travel but may shorten their stay or substitute destinations that are closer and therefore, more cost effective. Products: A product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a need or want. As in the case of Colorado Preservation, Inc. historical sites can be restored in such a way that an area can become a destination attraction. Value: Value is the consumers perception of the products overall capacity to satisfy his or her needs. Value is different things to different people. For example, value can be the best price, or what I get for what I give, or how fast and conveniently the product is delivered, or what I want, regardless of cost. Satisfaction: Satisfaction is determined by how well the product meets the customers expectations for that product. Satisfaction is often a measure of the consumers perception of that product. A customer centered company must generate customer satisfaction while meeting company objectives both profitability and image. Quality: Quality is the totality of features and characteristics of a product that bear on its ability to meet customer needs. Many companies seek to maximize ROQ (Return On Quality). When they offer the quality the customer wants, they often enjoy improved sales and profitability. Exchanges: Exchange is the act of obtaining a desired object from someone by offering something in return; it has legal overtones. An exchange requires two willing parties, with free capacity to accept or reject the others offer. Transactions: Transactions are marketings unit of measurement consisting of a trade of values between two parties. Not all transactions involve money. For example, restaurants may trade meals for advertising. Relationship Marketing: Relationship marketing focuses on building a relationship with a companys profitable customers. Usually, repeat customers provide a company with more profitable business with less expenses than new customers who require a courtship of sorts to purchase. Relationships include customers, distributors and suppliers.

Supportive PowerPoint Slides: 1-7 to 1-17. IV. Marketing Management: Demand management. Marketing management is the analysis, planning, implementation, and control of programs designed to create, build, and maintain beneficial exchanges with target buyers for the purpose of achieving organizational objectives. The effective marketing manager is interested in shaping the level, timing and composition of demand for his/her companys products. Five Marketing Management Philosophies Manufacturing ConceptThis concept holds that customers will favor products simply because they are affordable, encouraging management to focus on creating efficiencies in production and distribution. As mentioned in the text, this approach often leads to neglect of the customers. Examples: Swiss Alps. Product ConceptThe product concept holds that customers prefer existing products and product forms, and the job of management is to develop good versions of these products. The fault here is that without environmental scanning and trend analysis, the company will miss crucial changes in the markets perceptions and expectations. Indeed, the customer will always know what s/he needs, but not necessarily how the product or service can fulfill the need. This is the business of the marketer. Example: Victoria Station. Selling ConceptThis concept holds that the consumer will respond only to the efforts of the company to market and sell the products. Here, the focus of the company is to sell, sell, and sell. Again, the missing element in this approach is the customer and his or her satisfaction with the product or service. Rather than find the true cause for a slowing of business, firms often advertise to reverse a sales decline or fill gaps created by overcapacity. Example: Restaurant Wine. Marketing Concept This concept holds that achieving organizational goals depends on determining the needs and wants of target markets and delivering the desired satisfaction more effectively and efficiently than competitors. The concept of relationship marketing is clearly prevalent in this approach. The company makes it profits by creating and maintaining customer satisfaction. Examples: Four Seasons, Accor, McDonalds and Southwest Airlines.

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Societal Marketing ConceptThe underlying concept of the societal marketing approach is responsibility. There is growing faction of corporate America that is recognizing the necessity to operate in an environmentally and ethically responsible manner. Examples: Fast-food restaurants provide food with more nutritional value, resort developers consider the disposal of waste products and use of water. Hotels consider energy conservation, landscaping, preventive maintenance, water-saving plumbing fixtures, and responsible alcohol service training for employees. Supportive PowerPoint Slides: 1-18 to 1-28. DISCUSSION QUESTIONS 1. The instructor can inspire students to answer this by asking some simple leading questions. For example, asking students If you are called on by your manager to address sagging sales in your restaurant, what steps can you take to reverse the trend and improve business? You would need to find out what customer needs are not being met, what revisions to your product or service are needed, analyze the price/value proposition. Establish the following scenario. A restaurant may cut back on portions to make its food cost for the month or cut back on staff. Both of these moves will result in short-term profits. But they also might result in dissatisfied customers. These customers will not return and future profits will drop. * Profit is a requisite for any for profit business, but it should not be the purpose of the business. When profit becomes the purpose of the business, managers tend to take a short-term view and try to maximize profits in the short term. For example, when a hotel can sell out, managers might deny travel agent business. But the business from these travel agents may be needed in the future and such action can alienate the agents. A business should target customers that will create value for the business, customers that the business can profitability serve. If it concentrates on serving these customers well and provides a product that is profitable to the company, profits will flow. It is not essential to make a profit on every transaction. Customer satisfaction and maintaining a customers long-term value is often more important. This is the philosophy of business when one views the purpose of a business as creating and maintaining customers. However, this view is taken with the understanding that profits are a requisite. The instructor can inspire students to answer this question by some leading sentences. For example, asking students If you were the manager, which alternatives would you have regarding reconciling the problems? Empathetically listen to customers problem? Automatically apologize to customers? Refund the room rate? Upgrade the guest room? *Individually, we all handle situations differently. There are, however, several

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steps that should be discussed. First of all, listen to the customers whole story empathetically. They should feel that you genuinely care and that their problem is worth your time. Next, the manager might send someone to the room to check the problem. Customers like to see that immediate action is being taken. Is the air conditioning actually not working? Hotels have different policies regarding this type of problem. The primary goal is to reconcile the problem immediately and to the guests satisfaction. Hotels with outstanding service will automatically apologize and immediately refund the room rate, or upgrade the guest, or any number of alternatives. It is the duty of the manager to ensure that the guest leaves feeling satisfied. Some guests will need more than others. One might also suggest to the guest that next time, he or she phone the front desk and inform them of the problem as soon as possible. Sometimes it may be fixed immediately with little or no problem. If not, a room change is easily arranged if the guest so desirespresuming there is availability. Last, the manager should ensure the guests satisfaction and thank the guest for everythingfor being patient, for bringing the problem to the attention of the hotel, for being a customer of the company. 4. The instructor can inspire students to answer this question by providing some examples: Car rental companies working with airlines and hotels. There are many examples of cooperative efforts in the industry. Car rental companies work with several different tourism providers. Students might suggest unions like car rental agencies and cruise lines, or airlines, or hotel chains. Hotels may work with local area attractions--like water parks and golf courses--and offer specials. Certain moped companies in Hawaii, for example, may offer special prices to guests of certain hotels, or maybe certain attractions will offer special moped companies discounts for their customers. The instructor can inspire students to answer this question by some leading sentences. For example, reminding students that this restaurant may not do advertising and coupons, but it may implement a customer-based philosophy of identifying customers needs and wants. *On a conscious level, the management of the restaurant may not be marketing to the public. They are, though. They are implementing a customer-based philosophy of identifying the customers wants and needs and then supplying them with what they want. In this case, the restaurant is supplying a good product, at the right price, in an accessible location, and its primary type of promotion appears to be word of mouth. Marketing goes beyond advertising or coupon offers. The instructor can inspire students to answer this question by asking students to think about the differences of level of satisfaction perceived by customers who gave 6 and customers who gave 7. According to Kotler (1994), it is easy for the customers who are just satisfied to switch to the better offers, and only customers who are completely satisfied are less likely to switch (Nowak, 1998). Because the complete satisfaction factor

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creates an emotional affinity with the brand it leads to high customer loyalty. Maybe customers who gave 6 are just satisfied with the services, but customers who gave 7 are completely satisfied and thus are more likely to return. There are many service providers which receive a 5 or 6 on level of satisfaction, but not many of them receive a 7. For example, when customers said: It is a great restaurant. I have not had this kind of dining experience for a long time, it indicated that the customers are completely satisfied and their level of satisfaction is a 7 and they are more likely to return to the restaurant. On the other hand, when customers said: This restaurant is good, it indicated that the customers are just satisfied and their level of satisfaction is a 6 or a 5 and they are less likely to return to the restaurant. 7. The instructor can lead students to answer this question by asking students to think about the underlying concept of the societal marketing approach being responsibility. On textbook page 18, fast-food restaurants provide food with more nutritional value, resort developers consider the disposal of waste products and use of water. Hotels consider energy conservation, landscaping, preventive maintenance, and water-saving plumbing fixtures. At the same time, being environmentally conscious can produce positive publicity and reduce costs, which are beneficial to the companies.

EXPERIENTIAL EXERCISE 1. The instructor can suggest students make a table listing the results of their observation for each of the two restaurants. The instructor can recommend students look at the employees attitudes (i.e., how the host person greeted and seated the customers), cleanliness (i.e., the table cloths or employees uniforms), in-house signage (accurate, clear and obvious), and quality of food (i.e., variety and freshness of the food). An example is given as follows. Item Employees attitudes Plus *The host person greeted the customers and seated customers immediately. *The busboy gave coloring books and crayons to the kids. * The waitress explained todays specials to customers in a great detail. Minus Remarks

Cleanliness of the restaurants

The tablecloths were kind of dusty. 9

In-house signage

The signs for restroom were placed at obvious spots and the direction was easy to follow.

Other physical features Quality of the food

The breakfast special for $3.99 was no longer available. However, the signage still stated $3.99 breakfast special and was not updated with current information. Employees did not wear uniforms.

The seafood was very fresh. Conclusion: This restaurant is more customer-oriented because the employees were very helpful and friendly. In addition, the signage was easy to find and easy to follow. However, the managers need to update the signage with current information.

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The instructor can suggest students make a table listing the results of their information inquiry for each hotel. The instructor can suggest students pay attention to the length of waiting for the phone to be answered, the courtesy, helpfulness, professionalism, and empathy of the employees, types of information provided by employees. An example is given as follows. Plus Minus Remarks The call was answered after 10 rings * The employees did not volunteer the necessary information. Customers needed to dig out the information regarding types of rooms, dates when discounted rate available. * Additionally, the employees were reluctant to help customers to find the nonsmoking room with ocean view on weekend at discounted price. The employees were very impatient on answering customers questions.

Item How quickly the phone was answered The customer orientation of information provided

The friendliness of the employees

Others Conclusion: This hotel was less customer oriented because this hotel would rather let customers wait on the phone than hiring more employees to answer customers phone calls more quickly. Moreover, maybe due to the shortage of employees, employees didnt have enough time to answer customers questions or help customers to find the best combination for their hotel stayetc.

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The instructor can suggest students either call two tourism bureaus to request information or to go to their web sites for more information. Then, students can make a table listing the results of their information inquiry for each tourism bureau. For example, students can go to the web sites of Hawaii tourism bureau and Las Vegas tourism bureau to compare which web site is more customeroriented. The criteria students can use are as follows: the speed of accessing the web sites, the friendliness of using the web sites, the usefulness of the information provided by the web sites. Plus Minus Remarks It took 3 minutes to access the web site.

Item The speed of accessing the web site The friendliness of using the web site

The usefulness of the information

* It was very easy to navigate on the web site. * Each direct external link worked well. *Various information was provided, such as directions, places to stay, getting around, things to do, where to eat, wedding planning, golf, shopping, travel planner, virtual tours, travel tips, and event calendar. * The business hours and phone numbers on the web sites were accurate.

Others Conclusion: This web site was easy to surf and the information was very helpful.

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INTERNET EXERCISE 1. The instructor can assign students to groups. Each group accesses the web sites provided by the textbook. Then, each group presents their findings. The instructor can recommend students look for the amenities, facilities, and frequent stayer program features in the hotel web site. For example, a work desk with modem jack in telephone might be an important feature for business hotels. On the other hand, swimming pools and spas might be important features for resort hotels. The example is provided as follows: A. A mid-class business hotel was chosen. This hotel tries to satisfy customers wants by providing the amenities customers need for conducting their business inside the hotel rooms. Standard rooms: spacious room with contemporary decor, work desk with modem jack in telephone, coffeemaker, French balcony, voice mail. Executive room with welcome amenity, access to Executive Lounge, 2 phone lines, hair dryer, bathrobe, iron/board, turndown service, serving continental breakfast and evening snacks, USA Today, French balcony. This hotel also provides Concierge Desk to assist customers with any other needs and wants. B. The hotel creates value for customers by providing the facilities and service which assist business customers conducting their business. For example, Audio/Visual Equipment Rental, Business Center, Business Phone Service, Cellular Phone Rental, Express Mail, Fax, Meeting Rooms, Modem, Notary Public, Office Rental, Paging Equipment Rental, Photo Copying Service, Printer, Secretarial Service, Typewriter. This hotel also provides recreation utility and fitness center for customers. The hotel also offer frequent stayer program so that customers can get room accommodations. C. The instructor can suggest students look for the ways meeting planners contact with the hotel and the special rates and dates available for the discounts. An example is given as follows: The hotel provides a whole section for groups and meeting planner. This web site provides a direct phone line for meeting planners to contact the professional group and meeting planners in the hotel. In addition, customers can request a proposal and contact the meeting experts online. Furthermore, this hotel provides a FREE meeting planning software regarding designing a custom seating setup for customers to download online. This web site provides the Group Value Dates* list special offers discounted 13

from 10%30% (and sometimes more) based upon the average group rooms rates for group/meeting functions quoted during the time period that the discounts are offered. D. I will choose this hotel because it provides the in-room business amenities so I can work in my room. Additionally, the ancillary facilities and services will bring a lot of convenience for my stay in the hotel. Moreover, the recreation room and fitness center add the value to my stay at this hotel. The instructor can recommend students to the web site provided by the textbook for brief notes on some of the great hospitality marketers. Great Leaders in the Hospitality Industry A. Ellsworth Statler 18631928 1. He opened the Buffalo Statler in 1908; notable for individual bathrooms and a phone in every sleeping room. 2. His internal marketing techniques created an environment enabling his employees to put the customer first. A copy of the Statler Service Code is in the chapter text. He was, and continues to be regarded as a visionary in customer service and employee satisfaction. B. Ralph Hitz 18911940 1. Headed the largest hotel organization in the 1930s called the National Hotel Company. 2. Developed one of the first customer databases and guest history files. 3. His specialty was merchandising hotel services. 4. Hitzs philosophy--give the customer value and you will get volume in return. 5. Furthermore, his recognition derives from a unique view of the importance of employee satisfaction. C. J. Willard Marriott 19001985 1. This corporate giant of the hotel chain with the same name was esteemed for, among other things, his empathetic and compassionate nature towards his employees. His philosophy was to have happy employees and make happy customers. 2. He was a visionary for his industry. His recognition of trends and developments such as the automobile and air travel enabled Marriott to formulate strategies that allowed Marriott to capitalize on these trends. D. Ray Kroc 19021984 1. Began franchising McDonalds in 1955 to create a demand for the multi-mixer, a milk shake machine. 2. A substantial part of the success of McDonalds is attributed to the consistency of the product and service. QSC&V Always quality, service, cleanliness and value from Tulsa to Hong Kong. 3. His use of public relations was also a deliberate strategic device. Community involvement also increased the company credibility and community loyalty much the same way.

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*Questions that are useful for in-class discussions. They require the student to think, but require little outside preparation.

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CHAPTER 2 Service Characteristics of Hospitality and Tourism Marketing

CHAPTER OVERVIEW The chapter begins with a discussion of the four distinguishing characteristics of services: intangibility, inseparability, variability, and perishability. Next, the chapter presents several opportunities for management of service firms to increase the effectiveness of their business. These service management strategies include tangiblizing the product, managing employees, managing perceived risk, managing capacity and demand, and managing consistency. CHAPTER OBJECTIVES Students should be able to: 1. Describe a service culture. 2. Identify four service characteristics that affect the marketing of a hospitality or travel product. 3. Explain marketing strategies that are useful in the hospitality and travel industries. Supportive PowerPoint Slides: 2-1 to 2-3 TEACHING SUGGESTIONS: Teaching suggestions are provided in two formats. The first format guides the instructor through the chapter objectives. The second format is a chapter outline and provides more detail than the chapter objective format. OBJECTIVES: Objective: 1. Describe a service culture. Recommended Ideas: The service culture focuses on serving the customer and satisfying their needs. The service culture must begin with top management and flow down. Examples: Four Seasons Hotel. See The Service Culture. Objective: 2. Identify four service characteristics that affect the marketing of a hospitality or travel product. Recommended Ideas: Intangibility: Purchasers of hospitality and tourism product usually have nothing physical to show at the end of their experience. Because the product is not tangible it is difficult to evaluate the product before purchase. You can discuss that most products are a mix of tangible products and intangible products. In a restaurant, the

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meal is tangible. In a fast food restaurant, it is a large portion of the overall product. In an upscale restaurant, the service of the food or intangible portion of the service becomes more important. Inseparability means all customer-contact employees become part of the product. It also means customers become part of the product and we have to manage our customer. You can ask students to give examples of when customers influenced the satisfaction of other customers. For example, drunken conventioneers in a romantic restaurant, or someone smoking next to a non-smoker, influence the satisfaction of other guests. See Ting Tai Fung restaurant in text. Variability: Lack of consistency. Ask students how many think McDonalds makes an excellent hamburger. Then ask them how many have been to McDonalds in the last year. More hands will pop up for the second question. One of the reasons for McDonalds success is they have been able to master variability. When you stop at McDonalds you know what you will receive. Perishability: A restaurant which has a capacity of serving 400 customers and only serves 100 on Monday night has lost the ability to serve those customers. They cannot inventory the unserved 300 covers. A manufacturing company producing tangible goods can inventory goods, thus they do not have to match capacity and demand in the short term. Most students understand perishability in a hotel or airplane, but some do not understand it in a restaurant. Thus, this is a good example to bring up in class. Examples: Intangibility: Marriott example. See Intangibility. Inseparability: Fast food restaurant, hotel, airlines and car rental companies. See Inseparability. Variability: See Ting Tai Fung Restaurant example. See Variability. Perishability: Hotels and Club Meds example. See Perishability. Supportive PowerPoint Slides: 2-1 to 2-6. Objective: 3. Explain marketing strategies that are useful in the hospitality and travel industries. Recommended Ideas: Positioning strongly in the chosen target markets, effective interaction between customers and employees, managing differentiation, managing service quality, tangibilizing the product, managing the physical surroundings, managing employees, managing perceived risk, managing capacity and demand, managing consistency, and managing the customer relationship (CRM). Examples: Positioning strongly in the chosen target markets: Southwest Airlines and RitzCarlton Hotel. See Management Strategies for Service Businesses. Effective interaction between customers and employees: ARAMARK technology example. See Management Strategies for Service Businesses. Managing differentiation: British Airways and Hyatt examples. Managing service quality: Marriott, Disney and Ritz-Carlton examples. 17

Tangibilizing the product: BMI Airlines, T.G. I. Friday & Hampton Inn examples. Managing the physical surroundings: employees uniform, signage, parking lots examples. Managing employees: fast-food restaurant example and internal marketing concept. See Managing employees as part of the product. Managing perceived risk: FAM trips, IBM phenomena and complimentary airline tickets examples. Managing capacity and demand: Boomerangs restaurants and K&W cafeteria examples. Managing consistency: Sheraton Hotel example. Managing the customer relationship (CRM): Ritz-Carlton and database management.

Supportive PowerPoint Slides: 2-7 to 2-20. CHAPTER OUTLINE I. The service culture focuses on serving the customer and satisfying their needs. Creation of a service culture must begin with top management and flow down. Service Marketing Characteristics A. Intangibility Unlike physical products, services cannot be touched, tasted, or experienced prior to consumption. For example: A service transaction is merely a promise for a meal, or the use of a room. This creates a heightened level of anxiety in buyers, hence credible references such as word of mouth or impartial publicity work to enhance the image of the service provider. B. Inseparability In most hospitality services, all parties must usually be present for the transaction to take place. 1. In the service industry, both the service provider and the customer must be present for the transaction to occur. 2. The customer is part of the service. Here, the implication is that not only the customer, but also other customers are present during the process. For example: noisy children may be completely appropriate in the themed restaurant, but not in the fine dining establishment. 3. Customers and employees must understand the service delivery system. Some hotel guests leave without ever knowing the extent of the hotels food and beverage facilities. The hotel did not do a good job of communicating what they had to offer; they left it up to the guest to find out. In some cases, the failure of the guest to understand the delivery leads to dissatisfaction. See Tin Tai Fung example in text. 4. Customers become employees. This means hospitality and travel organization have to train customers just as they train employees. For example: fast food restaurants train customers to get their own drinks. This 18

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gives the customers something to do while they are waiting and reduces the need for employees to fill drink orders themselves. C. Variability Each service encounter may be different. 1. Service quality depends on who provides services and when and where they are provided. The food server or room clerk may be in a particularly good (or bad) mood, affecting the service and the perceived service. 2. Fluctuating demand makes it difficult to deliver consistent service (or products) during peak periods. 3. Heavy interpersonal contact between the service provider and the guest means that product consistency depends on the service providers skills and performance at the time of the transaction. See McDonalds in text. D. Perishability The element of time is explicit here; services cannot be stored. For example: a seat on a plane cannot be sold once the plane takes off. Likewise, a guest room cannot be sold for last Tuesday. If service providers are to maximize revenue, they must manage capacity and demand since they cannot carry forward unsold inventory. Supportive PowerPoint Slides: 2-1 to 2-5. III. Management Strategies for Service Businesses A. Positioning strongly in chosen target market: strong position can increase service effectiveness. For example, Southwest Airlines positions itself as Just Plane Smart for commuter flyersas a no-frills, short-haul airline charging very low fares. Ritz-Carlton Hotel positions itself as offering a memorable experience that enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests. B. Effective interaction between customers and employees: customers judge service quality on both the service deliverer and the quality of the delivery. ARAMARK example illustrates how to satisfy customers on both technical quality (the quality of the food) and functional quality (the service provided in the restaurant). C. Managing differentiation: The solution to price competition is to develop a differentiated offer, delivery, and image. They can differentiate their service delivery through people, the physical environment and the process. For example, British Airways offers international travelers a sleeping compartment, hot showers, and cooked-to-order breakfast. McDonald differentiates its image through the golden arches symbol. D. Managing service quality: Service firm can differentiate itself by delivering consistently higher quality than its competitors do. The key is to exceed the customers service-quality expectations. Promise only what you

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can deliver and deliver more than you promise! For example, Marriott authorized its employees to do whatever it takes, on the spot, to keep guests happy. Marriott, Disney and McDonalds look not only at financial performance, but also at service performance. A service providers goal is zero customer defections. Many destinations promote tourism through the Chambers of Commerce and often tax supported visitor bureaus. They often need to take a proactive approach to insuring a high level of quality of services offered. E. Tangiblizing the service product means taking elements outside of the service itself to manifest the quality of service. Promotional material, advertising, uniforms and the physical environment all combine to create a tangible impression for the guest. White linen table cloths and black and white uniforms with bow ties convey an elevated level of food service. If the food product is worthy of a hefty price, the tangible atmosphere will reinforce the perception that this is a fine establishment and deserving of higher pricing. 1. Trade Dress This is the distinctive nature of a hospitality industrys total visual image and overall appearance. In other words, this is the visual appearance of the whole establishment. McDonalds and Holiday Inn all have very distinctive appearances. 2. Employee Uniform and Costumes Uniforms have a legitimate and useful role in differentiating one hospitality form from another and for instilling pride in the employees. At T. G. I. Fridays, for example, the uniforms compliment the casual, fun atmosphere that the distinctive outside (trade dress) establishes prior to entering. McDonalds uniforms are consistent with their image. Black and white uniforms with black bow ties would be inconsistent with the image that McDonalds portrays. F. Managing the Physical Surroundings The front-desk staff in a luxury hotel should dress in professional apparel The atmosphere and physical surroundings of McDonalds are just as acceptable but entirely different. In each of these environments a different approach is used to convey the quality of the product/service/price. G. Managing Employees is part of the product. In a well-run hospitality organization, there are two customers, the paying customers and the employees. Internal marketing is the process of training and motivating employees to provide good customer service. This element cannot be overly stressed. Employees who are happy at their job, do a better job and create happy customers. H. Managing Perceived Risk The nature of the hospitality service industry inevitably leads to perceived risk on the part of the customer. Nevertheless, it does give rise to higher loyalty among customers when service is consistent over time. Customers are less likely to change to service providers with which they have less or no experience if they are happy with service they are

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currently receiving. One way of combating concern is to encourage the client to try the hotel or restaurant in a low-risk situation. For example, hotels and resorts offer familiarization (FAM) trips to meeting planners and travel agents. FAM trips reduce a products intangibility by letting the intermediary customer experience the hotel beforehand. Meeting planners sometimes select a higher rated property feeling there is less personal risk in that recommendation (IBM phenomena). I. Managing Capacity and Demand From the perishable nature of services, managing capacity and demand becomes a more important aspect of managing. A hotel, for instance, cannot just add or delete rooms for upcoming high or low demand periods. 1. Services must adjust their operating systems to enable the business to operate at maximum capacity. For example, restaurants offer buffet to increase capacity. Customers provide their own service, with the service staff providing the beverage and check, which frees the staff to wait on more customers. Furthermore, food is available when customers arrive, allowing them to start eating almost immediately. This increases turnover of tables, further increasing the capacity. J. Managing Consistency Consistency means that customers will receive the expected product or level of service without unwanted surprises. K. Managing the Customer Relationship (CRM) CRM is a managerial philosophy and practice that combines marketing, business strategy and information technology to better understand customers. CRM calls for developing unique and lasting relationships with customers. Not common to many hospitality companies, companies like the Ritz-Carlton make intensive use of their customer database. L. Service Failure Despite the best efforts of management, sometimes service efforts fail. Studies show that the best way to deal with customers is to provide forthright and timely information regarding service failures. Supportive PowerPoint Slides: 2-6 to 2-20. IV. The Servuction Model Using the servuction model (Figure 2.3), explain the interaction between customers, contact personnel, inanimate environment, and invisible organization and system. Interaction between customer A and customer B: The interaction of customers will directly influence customer satisfaction. Therefore, in some cases, managers need to manage the interaction of customers (i.e., exclusive restaurants may discourage children by not having childrens menus).

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 Contact personnel: contact personnel will have a direct impact on the satisfaction of customers (i.e. when employees perform well, it will positively influence customer satisfaction). Inanimate environment: consists of all the physical elements other than employees and customers that are present during the service encounter. McDonalds make sure that all of its restaurants are clean, helping to tangibilizing that it is a well-run restaurant chain. Ritz-Carlton hotels use original artwork to tangibilize that it is an upscale hotel chain. All Star Caf, Hard Rock Caf, and Planet Hollywood create a unique atmosphere that differentiates themselves from competitors. Hyatt Regency originally used atrium lobbies as a point of differentiation. The invisible organization and system: the physical environment, the customers, and the employees will be visible to customers. Managers need to decide what the customer should see and what the customers should not see (i.e., visible kitchen). Supportive PowerPoint Slides: 2-22 to 2-25.

DISCUSSION QUESTIONS 1.* The instructor can assign students to 4 groups and each group takes care of one service characteristic. Ask students to discuss their own interpretation of assigned service characteristic and examples. Intangibility: A fine restaurant will generally charge higher prices for meals. A customer will be looking for the tangible qualities to relieve any anxiety. How is the outside of the building? Are the parking lot and grounds well-kept? What is the first impression when entering? How are the employees dressed? How are the customers approached? What is the lighting in the restaurant? What is the ambiance? How are the tables dressed? Are there fresh flowers or tacky fake ones? Inseparability infers the interaction between customers and employees. Students may bring up the appearance of other customersare they appropriately dressed? Inseparability also means that customers are part of product. Therefore, students may talk about whether there were children running in the aisles or seated quietly. If there is an attached lounge area, what does the clientele look like in it? Are the servers attentive or do they need to be flagged? Variability implies the level of consistency. If this is not the first time at the restaurant, is everything as expected based on previous experiences? Was a reservation honored promptly? Is the product as expected? If it is a peak service time, are the servers as attentive? Are there bussers to clear the tables? Is the 22

food promptly served or is there a wait? Perishability is the time aspect. An unused table cannot be sold at another time. The restaurant must manage its demand in terms of its capacity. If service is slow, patrons are turned away; if service is rushed, patrons may be turned off. Reservations must be managed to ensure maximum usage. 2.* The instructor can lead students to answer this question by the yield management concept taught in management of capacity and demand section. Airlines solve the problem of perishability of unsold seats by utilizing yield management. When the demand is lower, the price will be adjusted to reflect the demand. Additionally, the airlines can give the unsold seats to meeting planners and travel agents for free to promote the airlines. The other example: bars have happy hours or offer free hors doeuvres during certain periods. The instructor can lead students to answer this question by thinking about not only the technical quality (the quality of the food) but also functional quality (the service provided in the restaurant) of the service. The service person virtually is the service. They provide the food product to the customer and aid in the money transaction. If there is a problem, they must solve it. If there is a need, they must try to fulfill it. In this respect, the service person is integral to the process. This is illustrated by the inseparability and variability of the industry. This service person becomes part of the product. The evaluation of the service by the customer will be, in large part, due to the wait staffs performance. If the person is not attentive, or is obnoxiously so, this will be reflected in the customers perception of the experience. In the hospitality and travel industries, the employee is the product. The guest may buy the option to sleep in a hotel room, but the overall experience will be that of the encounter points along the way. The room may be beautiful but the guest room attendant was terrific. The employees, atmosphere, and delivery of the service all have to be delivered to the guests satisfaction. 4.* The instructor can lead students to answer this question by thinking about service delivery system and how manager can standardize the service delivery process to maintain the consistency. Or managers should work on making sure the companys polices and procedures wont create service inconsistency. A restaurant manager has any number of tools that can help provide a consistent product. It may standardize the service delivery process. The managers can train server staff on the mechanics of serving food or suggesting wines. Maintaining trained kitchen staff and consistently training new ones on the specifics of menu preparation and presentation are other ways.

3.*

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The consistency of the uniforms may be discussed. Houstons restaurants require pressed and pleated white shirts on their servers. Promotional caps may be worn at all regional Wendys restaurants. Standardized color schemes and trade dress are physical features that assure the customer of his or her perception. Pricing tactics may be reinforced by advertising campaigns. The customer should have a consistent perception of the expected experience and the actual service. Beginning with the phone courtesy and ending with the service itself, the customer should be reassured that the product is consistent at all levels. 5. The instructor can lead students to answer this question by thinking of the concept of empowerment for internal marketing and the concept of interaction between employees and customers for interactive marketing. Internal marketing example: Ritz-Carlton empowered its employees to handle problems on the spot, without consulting higher-ups. Each employee can spend up to $2000 to redress a guest grievance, and each is allowed to break from his or her routine for as long as needed to make a guest happy. At the same time, Ritz-Carlton rewards and motivates its employees with events such as Super Sports Day, an employee talent show, luncheons celebrating employee anniversaries, a family picnic, and special themes in employee dining rooms. Furthermore, Ritz-Carlton also recognizes and rewards employees who perform outstanding feats. For example, the winners of its Five-Star Awards program receive plaques at dinners celebrating their achievements. The winners of on-the-spot recognition receive Gold Standard Coupons which can be redeemed for items in the gift shop and free weekend stays at the hotel. Interactive marketing example: Ritz-Carlton trained its customer-contact people to greet guests by their names warmly and sincerely. The contact employees are trained to use proper language when speaking to guestswords like Good morning, Certainly, Ill be happy to, and My pleasure, never Hi or Hows it going? In addition, Ritz-Carlton urges employees to escort guest to another area of the hotel rather than pointing out direction, to answer the phone within three rings and with a smile, and to take pride and care in their personal appearance. Ritz Carlton differentiates itself from its competitors by delivering consistently higher quality in every service encounter. Ritz-Carlton has become almost legendary for its high-quality service. This outstanding service quality gives it a potent competitive advantage that leads to superior sales and profit performance. EXPERIENTIAL EXERCISE 1. (A) The instructor can suggest students make a table listing the airfares they get

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and answer the question based on the airfare table. The students should check the relationship between airfares and reservation time. Is it the more advance the reservation, the lower the airfare or is it the closer the reservation, the lower the airfare? Or, there is no difference between the airfares no matter when the reservation was made. An example is given as follows. Destinations: Las Vegas and Philadelphia. Days of stay: 8 days Airline: National Airlines Citation date 1 day in advance 7 days in advance 14 days in advance 60 days in advance Price $411 plus fees and taxes $271.50 plus fees and taxes $254.50 plus fees and taxes $236 plus fees and tax

Yes, there is a clear pattern of the fares. The further advance the reservation, the cheaper the fares. Generally speaking, the advance fares are cheaper, however, if the seats do not fill as expected, managers will lower the fares within a week. (B) The instructor can lead students to answer this question by the concept of Yield Management. Balance between demand and supply is the key. That means maximizing the revenues by selling the product at the right price at the right time for the right customers. Why are tomorrows fares often higher? The assumption is that tomorrows seats are less (more seats are already reserved) and demand will be higher to compete for the left seats. In addition, people who wait until the last minute to purchase the tickets are usually the business travelers who have to pay a premium price for flying to take care of their businesses. Thus, business travelers who book tomorrows tickets usually pay a relatively higher price for the same route and same seat in the plane. 2. The instructor can suggest students make a table listing the results of their observation for the chosen restaurant or hotel. A hotel-casino was chosen as an example in this question. The instructor can recommend student to look for the check-in lines, waiting line, and signage. Plus Multiple Queuing Lines. Five out of the eight check-in windows are open. There are around 2 parties waiting in each line. The waiting time is short. It takes a long time for customers who self 25 Minus Remarks

Incidents Check-in

park their cars to check in. The guest selfparking lot is located on the 3rd floor of the hotel. Customers need to walk across a bridge, take the escalators down to the first floor, and walk through several shops and stores to reach the front desk. Nevertheless, the signs are very clear and are placed at obvious spots at every turn. The signs are easy to follow. Waiting in the lines for restaurants There are many TV sets near the waiting line and customers can watch TV while waiting in the line.

I think the hotel does well in posting the signs in every necessary place so customers can easily follow to check in the hotel. Additionally, its good that the hotel puts many TV sets for customers who wait for the restaurant. 3. The instructor can suggest students look at the theme of the restaurant and look whether the exterior appearance, interior decoration, signage, and employees uniform tangiblize the theme of the restaurant. For example, the employees in an elegant high-end restaurant may dress in professional apparel wool or wool-blend conservative clothes. The employees in a causal restaurant may dress in vivacious, bright colored uniforms. The restaurant chosen as an example for this question is a western-style bar and grill restaurant. The exterior of the restaurant has a log cabin look. There were two horse carriages at the entrance. The interior of the restaurant was decorated like a desert with cactus, cowboy boots, cowboy hats, and horseshoes. The hostess, waiters, and waitresses all wear cowboy shirts, jeans and cowboy boots. The dinning tables and chairs are built with unfinished wood. The light for each table is a gas lamp. I think the restaurant does a wonderful job. The exterior and interior of the restaurant vividly tangibilize its western theme. The signage and employees uniforms reinforce this image. 4. The instructor can suggest an exercise in Customer Relationship Management(CRM) by asking what kind of information would be best to collect about current customers to increase their loyalty to visiting your property. Have the students form several groups. Either on paper or using a database program such as Microsoft Access, have each group develop a customer service response/suggestion card. Their responses should include collecting data such as customer name, address, contact information, e-mail, suggested time of day to contact, when the customer visited the property. They may also suggest forms of future contact such as 26

surveys, coupons, discounts, property amenity improvements brochure, special events. INTERNET EXERCISES The instructor can assign students to groups. Each group accesses the web sites provided by the textbook. Then, each group presents their findings. The instructor can recommend students look for the pictures of exterior and interior of the hotel, hotel rooms, facilities, and amenities; information regarding the open hours of the recreation room and business center; and description of hotel services, facilities, equipments and policies. The example is provided as follows: 1. A mid-class business hotel chain was chosen. Tangibilizing product: The web site provides the pictures of the exterior and interior of the hotel. The web site also provides pictures and detailed descriptions of each type of rooms. Additionally, pictures, descriptions and open hours for amenities and facilities were offered. The web site provides the map, capacity, dimension and square feet for each meeting room. Also, the pictures and descriptions of the meeting rooms, facilities and equipments are listed. Moreover, pictures of employees were provided as well. Managing perishability: This web site provides an Ice hotel package which is available for hotels only in Quebec and limited time period from January 01, 2002 to March 31, 2002. 2. The web site of Hawaii Tourism Bureau was chosen. The web site has pictures for the scenery of Hawaii, such beaches and mountains. Also the pictures of local Hawaiians wearing hulas were provided. At the same time, the pictures and detail description of different activities are offered, such as sunset cruises, submarines, scuba diving, parasailing, spas, luaus, and horseback riding. Finally, this web site provides virtual tour of Hawaii to help visitors to visualize the experience in Hawaii.

*Questions that are useful for in-class discussions. They require the student to think, but require little outside preparation.

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CHAPTER 3 The Role of Marketing in Strategic Planning

CHAPTER OVERVIEW This chapter begins with the four major organizational levels of strategic planning; the corporate level, the division level, the business level, and the product level. Then, it discusses the companys mission, goals and objectives, and addresses how to design a business portfolio. Next, the chapter gives an overview of the product/market expansion grid. Finally, it presents the specific steps in the strategic planning process. CHAPTER OBJECTIVES Students should be able to: 1. Explain companywide strategic planning. 2. Understand the concepts of stakeholders, processes, resources, and organization as they relate to a high-performing business. 3. Explain the four planning activities of corporate strategic planning. 4. Understand the processes involved in defining a company mission and setting goals and objectives. 5. Discuss how to design business portfolios and growth strategies. 6. Explain the steps involved in the business strategy planning process. Supportive PowerPoint Slides: 3-1 to 3-4. TEACHING SUGGESTIONS: Teaching suggestions are provided in two formats. The first format guides the instructor through the chapter objectives. The second format is a chapter outline and provides more detail than the chapter objective format. OBJECTIVES: Objective: 1. Explain companywide strategic planning. Recommended Ideas: The aim of strategic planning is to help a company select and organize its business in a way that keeps the company healthy despite unexpected upsets occurring in any of its specific businesses or product lines. One of the main ideas students should learn from this chapter is the strategy of the business unit must be consistent with that of the corporation. The director of marketing of a hotel chain that has a strategy of targeting the business traveler with a first class product cannot go after a leisure market with discounted rates. The strategy of going after the leisure traveler may be profitable but it is not compatible with the corporate strategy. The three ideas for strategic planning are: managing a companys business as an

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investment portfolio, assessing the future profit potential for each business by considering the markets growth rate and the companys position and fit, and developing a game plan for achieving a companys long-run objectives. Examples: Managing a companys businesses as an investment portfolio: PepsiCo Assessing the future profit potential for each business: Hyatt, Marriott, and Holiday Inns examples. See opening section of Ch 3. Developing a game plan: Jack-in-the-Box, McDonalds, Disney and Motel 6 are examples. See opening section of Ch 3. Supportive PowerPoint Slides: 3-1 to 3-6. Objective: 2. Understand the concepts of stakeholders, processes, resources, and organization as they relate to a high-performing business. Recommended Ideas: Stakeholders include stockholders, customers, employees, suppliers, and distributors. Figure 3-3 shows the dynamic relationship connecting the stakeholder groups and why each must be sufficiently satisfied in order for the operation to remain viable. Processes: Companies are increasingly refocusing their attention on the need to manage processes even more than department. Companies build crossfunctional teams that manage core business processes to be superior to competitors. Resources: Companies are commonly deciding to out-source less critical resources. They identify their core competencies and use them as the basis for their strategic planning. Organization: Companies align their organization's structure, policies, and culture to the changing requirements of business strategy. Examples: Stakeholders: Marriott. See Stakeholders. Processes: Las Vegas Hilton. See Processes. Organization: Rockresorts. See Organization. Supportive PowerPoint Slides: 3-7 to 3-10. Objective: 3. Explain the four planning activities of corporate strategic planning. Recommended Ideas: The four steps for corporate strategic planning are: defining the corporate mission, establishing strategic business units, assigning resources to each SBU, and developing growth strategies. Examples: Defining the corporate mission: Singapore Airlines and McDonalds examples. Dominos Pizza, Regent International Hotels, Ruths Chris Steak Houses, and Bucca di Beppo. Ruby Tuesday, Morrison Hospitality Group, Michael Jordans Restaurant. See Defining the Corporate Mission. Establishing strategic business units: ski resorts and Holiday Inn. See Establishing Strategic Business Gnits.

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Assigning resources to each SBU: Boston Consulting Group Approach and Kasavanas and Smiths Menu-Engineering matrix. See Assigning Resources to Each SBU. Developing Growth Strategies: Starbucks example. See Developing Growth Strategies.

Supportive PowerPoint Slides: 3-15 to 3-18. Objective: 4. Understand the processes involved in defining a company mission and setting goals and objectives. Recommended Ideas: A mission should define competitive scopes within which the company will operate. A companys mission should be clear at the beginning and should be motivating. Good mission statements embody a number of characteristics. They should focus on a limited number of goals. The following six scopes should be considered by managers when defining missions, goals, and objectives: industry scope, products and applications scope, competencies scope, market-segment scope, vertical scope, and geographical scope. Examples: Products and applications scope: American Airlines. See Defining the Corporate Mission. Market-segment scope: Four Seasons Hotel and Resorts. See Defining the Corporate Mission. Vertical scope: examples of tour operators tie together airline travel, ground transportation, sightseeing, restaurant meals, club entertainment, hotel lodging, and travel gifts. See Defining the Corporate Mission. Geographical scope: Biscuitville fast food chain, Sheraton hotels, Hilton hotels, Canadas Delta Hotels. See Defining the Corporate Mission. Supportive PowerPoint Slides: 3-11 to 3-14. Objective: 5. Discuss how to design business portfolios and growth strategies. Recommended Ideas: Applying the Boston Consulting Group model to design business portfolios. The BCG matrix is divided into four cells, each indicating a different type of business. They are question marks, stars, cash cows, and dogs. There are four recommended strategies for the mentioned four types of businesses. They are build, hold, harvest, and divest. The Boston Consulting Group matrix is useful in explaining how companies allocate resources. They will cut back on dogs and maintain cash cows. The bulk of the money will go into the stars and making question marks into stars. This has employment implications for college students. If they go with the star there will be more chances for growth as the chain expands. This is a good way to get across the concept. The BCG matrix was also adapted and utilized in menu engineering. Programs with an emphasis on food and beverage might want to show the similarities between the two matrixes. This provides an example of how the material presented in this chapter has been used as a tool in restaurants. Three major growth strategies are intensive growth (market penetration, market 30

development, and product development strategy), diversification growth (concentric diversification, horizontal diversification, and conglomerate diversification strategy), and integrative growth (backward integration, forward integration, horizontal integration). Examples: Market penetration: Starbucks adds new stores in current market. See Developing Growth Strategies. Market development: Starbucks develops its market to new demographic markets (senior or ethnic groups) or new geographic markets (Southeast and Southwest of the U.S. and Asia, Europe, and Australia). See Developing Growth Strategies. Product development: Starbucks increases its food offerings, sells coffee in supermarket, extends its brand to coffee ice cream. See Developing Growth Strategies. Concentric diversification: Starbucks considers open new restaurant, Caf Starbucks and Cricadia. See Developing Growth Strategies. Horizontal diversification: Hard Rock Cafs restaurant-logo clothing. Starbucks considers making a line of branded casual clothing consistent with the Starbucks experience. See Developing Growth Strategies. Conglomerate diversification: Hyatt operates a retirement division. See Developing Growth Strategies Integration: Marriott example. See Developing Growth Strategies. Supportive PowerPoint Slides: 31-8, 3-19, 3-20. Objective: 6. Explain the steps involved in the business strategy planning process. Recommended Ideas: Business strategy planning is planning at the SBU level. Each SBU must define its specific goals and policies as a separate business, defining in the process its various scopes. This includes: products, applications, competence, market segments, vertical positioning, and geography. The steps involved are: business mission, SWOT analysis (external environmental analysis and internal environmental analysis), Goal Formulation, Strategy Formulation, Strategic Alliances, Program Formulation, Implementation, and Feedback and Control. Supportive PowerPoint Slides: 3-21 to 3-27. CHAPTER OUTLINE The Aim of Strategic Planning is to help a company select and organize its business in a way that keeps the company healthy in spite of unexpected occurrences. It is the process of developing and maintaining a strategic fit between the organizations goals and capabilities and its changing marketing opportunities. It is defined by three ideas: Managing a companys business as an investment portfolio, from which it will be decided which business entities deserve to be built, maintained, phased down, or terminated. See Pepsico restructuring its corporate portfolio.
I.

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 Assessing the future profit potential of each business by considering the markets growth rate and the companys position and fit. For example, Hyatt, Marriott, and Holiday Inns offer a diverse portfolio of brand name lodging. Developing a game plan for achieving a companys long-run objectives. For example, American Airlines is pressing for cost reduction as a full-service airline and a strong global market share. Southwest continues to strive for low-cost, limited domestic service airlines. Supportive PowerPoint Slides: 3-1 to 3-6. II. Four Organizational Levels of Large Corporations Figure 3-1 illustrates the whole planning, implementation, and control cycle that is carried out by the corporation. A. The corporate level is responsible for designing a comprehensive strategic plan to guide the whole enterprise. It makes decisions on financial support allocated to each division as well as which businesses to start or eliminate. B. The division level establishes a plan covering the allocation of funds to each business unit within that division. C. The business level Each business unit in turn develops a strategic plan to carry that business unit into a profitable future. D. The product level Each product level within a business unit develops a marketing plan for achieving its objectives in its product market. III. Nature Of High Performance Business Figure 3-2 illustrates the highperformance business. A. Stakeholder: The principle that a business must at least strive to please the minimum expectations of each stakeholder group to produce sufficient revenue. Stakeholders include customers, employees, suppliers, and distributors. An often-overlooked critical group is that of owners of hotels managed by a hotel management company. Figure 3-3 shows the dynamic relationship connecting the stakeholder groups and why each must be sufficiently satisfied in order for the operation to remain viable. B. Processes: Companies build cross-functional teams that manage core business processes to be superior to competitors. This alleviates common interdepartmental conflicts inhibiting cooperation. For example, the Las Vegas Hilton hotel incorporated marketing and strategic planning into accounting rather than viewing them as separate stand-alone areas and philosophies. C. Resources: Companies are commonly deciding to out-source less critical resources. They identify their core competencies and use them as the basis for their strategic planning. See table 3-1 Strategic Analysis: Questions that Generate Creative Ideas. 32

D. Organization: Companies align their organization's structure, policies, and culture to the changing requirements of business strategy. For example, the corporate culture of Rockresorts had been changed from product driven to customer oriented. Supportive PowerPoint Slides: 3-7 to 3-10. IV. Corporate Strategic Planning Four Planning Activities A. Defining the corporate mission. The mission should define competitive scopes within which the company will operate. 1. Industry Scope: The range of industries that the company will consider. 2. Products and Application Scope: The range of products and applications in which the company will participate. These must be continuously examined. 3. Competencies Scope: The range of marketing and other core competencies that the company will master and leverage. 4. Market-Segment Scope: The types of markets or customers the company will serve. 5. Vertical Scope: The number of channel levels in which the company will engage, for example, whether a restaurant chain has its own food processing plant and trucking company. 6. Geographical Scope: The range of countries or regions where the corporation will operate. B. Establishing Strategic Business Units 1. Definition of Strategic Business Units (SBU) An SBU is a single business or collection of related businesses that can be planned separately from the rest of the company. Each has its own set of competitors and a manager who is responsible for strategic planning and profit performance. C. Assigning resources to each SBU 1. Analytical tools such as the Boston Consulting Group growth-share matrix (Figure 3-4) are used to guide resource allocation. a. Question Marks: Company businesses that operate in high-growth markets but have relatively low market shares. Strategy must decide between further investment to move question marks to star status or phasing the product out. b. Stars: A star is a market leader in a high-growth market. Stars often require heavy investment to build/maintain share in rapidly expanding markets. c. Cash Cows: A cash cow is the market leader in a slow growing mature market. The company has already made an investment in assets and in many cases, paid off most of the debt associated with the business. Thus, the cash cow produces cash for other company investments.

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d. Dogs: Dogs describe company businesses that have weak market share in low-growth markets. They typically generate low profits or losses and are often targets for divestment. 2. Companies must next determine what objectives, strategy and budget to assign to each SBU. Four objectives can be pursued: build, hold, harvest, and divest. a. Build: the objective is to increase the SBUs market share, even foregoing short-term earnings to achieve this objective. Building is appropriate for question marks whose shares have to grow to become starts. b. Hold: the objective is to preserve the SBUs market share. This objective is appropriate from strong cash cows if they are to continue to yield a large positive cash flow. c. Harvest: the objective is to increase the SBUs short-term cash flow regardless of the long-term effect. This strategy is appropriate for weak cash cows whose future is dim and from whom more cash flow is needed. Harvesting can also be used with question marks and dogs. d. Divest: the objective is to sell to liquidate the business because resources can be better used elsewhere. 3. Critique of BCG portfolio Models: Portfolio models must be used cautiously. They may lead the company to place too much emphasis on market-share growth and entry into high-growth businesses, to the neglect of managing the current businesses well. D. Developing Growth Strategies 1. Intensive Growth Opportunities: Identify further opportunities to achieve growth within the company's current business. a. Market penetration strategy seeks to increase current products in current markets. b. Market development strategy looks for new markets in which current products can expand. c. Product development strategy considers new product possibilities. 2. Diversification Growth Opportunities: Identify opportunities to add attractive businesses that are unrelated to the company's current businesses. a. Concentric Diversification Strategy: Company seeks new products that have technological and/or marketing synergy with existing product lines, even though the product may appeal to a new class of customers. b. Horizontal Diversification Strategy: Company searches for new products that could appeal to its current customers though technology unrelated to its currents product line. c. Conglomerate Diversification Strategy: Company seeks new businesses that have no relationship to the company's current technology, product, or market.

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3. Integrative Growth Opportunities: Identify opportunities to build or acquire businesses that are related to the company's current business. a. Backward Integration: A hotel company acquiring one of its suppliers. b. Forward Integration: A hotel company acquiring tour wholesaler or travel agents. c. Horizontal Integration: A hotel company acquiring one or more competitors, provided the government does not bar the move. Supportive PowerPoint Slides: 3-13 to 3-20. V. Business Strategy Planning Planning at the SBU level. 1. Business Mission Each SBU must define its specific goals and policies as a separate business, defining in the process its various scopes. This includes: products, applications, competence, market segments, vertical positioning, and geography. a. SWOT Analysis: The overall evaluation of a companys strengths, weaknesses, opportunities, and threats is called SWOT analysis. 2. External environment analysis opportunities and threats a. Macro environment forces are demographic/economic, technological, political/ legal, competition and social/cultural in nature. b. Micro environment factors are directly related to the business and include customers, competitors, distribution channels, and suppliers. c. Opportunities: A marketing opportunity is an area of need in which a company can perform profitably. Opportunities can be listed and classified according to their attractiveness and the success probability. d. Threats: An environmental threat is a challenge posed by unfavorable trends or developments that would lead, in the absence of defensive marketing action, to sales or profit deterioration. Threats can be classified according to their seriousness and probability of occurrence. See Mad Cow disease in text. 3. Goal Formulation (What do we want?) Four Characteristics of SBU's Objectives: a. Hierarchical: The business unit should prioritize its objectives hierarchically, from the most to the least important. b. Quantitative: Each SBU should strive to specify objectives into goals specific in magnitude and time. c. Realistic: The levels should arise from an analysis of the business unit's opportunities and strengths, not from wishful thinking. d. Consistent: "long-run market-share growth" and "high current profits. 4. Three Performances Measures: a. A hotels return: Returns-based performance tests measure income before fixed costs or net operating income. b. Operating margins: owners also often insist on performance measures based on increase in operating margins, such as increasing IBFC from 20% of revenue to 28%.

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5.

6. 7. 8. 9.

c. Revenue per available room: REVPAR tests assume that room revenue is a good indicator of a hotels overall performance. Strategy Formulation (How do we get there?) Michael Porter's three generic types of strategy: a. Overall Cost Leadership: Achieving the lowest costs among those competitors adopting a similar differentiation or focus strategy. b. Differentiation: Cultivating strengths that will give it a competitive advantage in one or more benefits. c. Focus: Focusing on a narrow market segment, the firm provides for the needs of these segments and pursues either cost leadership or differentiation from the competition. Strategies Alliances: companies need to form strategic alliances with domestic or multinational companies that complement or leverage their capabilities and resources to achieve leadership nationally or globally. Program formulation. A company must develop hiring, training, advertising and other programs to support its strategy. Implementation. A firm must communicate its strategy to its employees and it must have the resources to carry out its strategy. Feedback and control are absolutely necessary to track results and monitor new developments in the environment. The company will need to recognize when it is necessary to review and revise its implementation, programs, strategies, or even objectives.

Supportive PowerPoint Slides: 3-21, 3-27.

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DISCUSSION QUESTIONS 1. The instructor can recommend students look at the beginning of the annual report for the letter to shareholder section. Generally speaking, in the letter to shareholders section, companies provide information regarding their performances for the past year, their strategies for the coming year (i.e., expansion plans, the way to create customer values, and business integration). At the same time, the annual report will also provide some information regarding the competition. A middle class hotel chain was chosen as an example in this question. The hotel chain plans to expend its properties in the coming years, such as open more hotels in different continents. The hotel chain plans to expand its brand to luxury hotel segment and vacation ownership. Additionally, the hotel chains will focus on growing its profit by the following three strategic initiatives. The hotel chain took on the integration and acquired another group of brands. This franchising and brand development activities integrate the hotel chains frequent stayers programs, and cross-selling among the brand and reservation system. (1) The hotel chains benefit from the acquisition. The acquisition contributed to the hotel chains with well respected group of brands, hotel products, and an excellent franchising system. (2) The frequent stayers program has produced a combined total of 20% of occupied nights. This program has solidified its position as the pre-eminent loyalty program. (3) The cross selling among its brands is an important revenue and resulted in incremental system-wide booked revenue. 2. The instructor can lead students to answer this question by asking students to think about the aims of strategic planning which are different from the aims of sales planning or restructuring. The aim of strategic planning is to help a company select and organize its business in a way that keeps the company healthy despite unexpected upsets occurring in any of its specific businesses or product lines. No. Strategic planning sets the stage for the rest of the planning in the firm. The purpose of strategic planning is to find ways in which the company can best use its strengths to take advantage of attractive opportunities in the environment. At the corporate level this includes the companys overall purpose and mission. Supporting objectives are developed that guide the whole company. Then the company analyzes the portfolio of businesses and develops strategic plans for each in the best interest of the company. In turn, each business and product unit must perform its planning functions in accordance with and support of the company-wide plan. Sales planning, on the other hand, is the process that will accomplish objectives set by sales management. While the objectives may be corporate or SBU in nature, product or market specific, this planning function (sales) is a more focused 37

approach to addressing a more explicit aim. Sales planning usually occurs at the SBU level. Restructuring, in most cases, is a result of strategic planning. Within the strategic planning process, the relative health and viability of SBU's are assessed. In that process if a business is becoming less aligned with the company objectives or is performing below expectations, its future will need to be addressed. Furthermore, restructuring is a method of reorganizing the business or company to address any number of issues that might be present at the time. Strategic planning may have brought these issues into the light, or perhaps the restructuring is an effort of strategic planners to address economic factors well-known to the whole industry. The breakup of AT&T into the smaller, more nimble and competitive Baby Bells is an example of restructuring. 3.* The instructor can inspire students to answer this question by reminding students from a companys mission we can tell how the companies define themselves, what the companies values are, and reasons they exist. A company whose mission is to make profits is very bottom-line oriented. The two primary strategies are to increase sales (based on the selling concept) or to decrease costs of conducting business. A company that sees its mission is to create customers is a marketing oriented company. This company realizes that marketing is the means to the end, and that profits will follow as the company is continually focusing on satisfying the customers needs and wants and creating value for customers. A company whose mission is to fight world hunger has adopted the societal marketing concept. It will determine the needs, wants, and interests of target markets and deliver the desired satisfactions more effectively and efficiently than competitors in a way that maintains or improves the consumers and societys well-being. 4. Strategic Business Units (SBUs) can be a company division, a product line within a division, or sometimes a single product or brand. An SBU is an individual unit within a company with a separate mission and objectives than other SBUs. A firm with SBUs can plan independently for each while still maintaining the overall strategic objectives of the firm. The instructor can lead students to answer this question by the two types of vertical integration: forward and backward integration. This is a wide open question. Companies may buy suppliers (backward) and distributors (forward). For example, large restaurant chains may start their own food supply companies. Hotel chains sell their rooms via Internet instead of going through travel agencies. It should be cautioned that alliances with outside

5.* 6.

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companies keep companies focused on their core strengths and allows the company to be flexible. Thus, purchasing and managing suppliers is not always the best option. This last point can lead into some interesting class discussions. * The instructor can lead students to answer this question by asking students to think about the needs and wants for the potential target customers. Are there any unfulfilled needs and wants existing? The instructor can suggest students use the 7-P concept: product, promotion, price, place, people, physical evidence, and process. For example, opening a Panda Express nearby campus might be a good idea. There are many fast food restaurants around campus, such as Inn & Out Hamburger, McDonalds, Dell Taco, Wendys Pizza Hunt, and Jack in the Box. However, there is no Chinese fast food restaurant around the campus. Therefore, the major difference between Panda Express and current businesses operating near campus are that Panda Express will serve Chinese fast food. Panda Express will serve students and faculty who want to have different dishes rather than having Western fast food everyday. Product: Price: Place: Promotion: Chinese fast food. Budget Nearby campus within 5 minutes walking distance Distributing fliers around the campus, placing print advertisements on the university newspaper, and placing posters on the entrance of each major building, such as Students Union. People: The employees will be educated to know that they are part of service product. The interaction between employees and customers is as important as the quality of the food. Physical evidence: The Panda brand signage will tell customers what to expect. Employees casual polo shirt uniform readdress this is a fast food restaurant. Process: A standard operation process and procedure designed by the headquarter will be carried out. EXPERIENTAL EXERCISE 1. The instructor can suggest students make a table listing the results of their observation for each restaurant. The instructor can recommend students look at the location of the restaurant (i.e., can customers conveniently access the restaurant?), physical facilities (i.e., Does the restaurant have adequate number of parking spaces? Is this restaurant well-kept? Does the signage provide current and accurate information? Are the signage well maintained? Are employees uniforms dirty? Are table cloths clean?), employees attitudes (i.e., how the host person greeted and seated the customers), quality of food (i.e., variety and freshness of the food) and reputation of the brand (i.e., Is it a well-known branded restaurant

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or it is an independent owned restaurant?) Strengths Location: The restaurant is located at a corner of the street where customers can conveniently access the restaurant. Physical facilities *The signage provides current and accurate information. The signage does not have burned-out light and is well maintained. * The table cloths and employees uniform are clean and fit the atmosphere of the restaurant. Weaknesses

Physical facilities *The exterior of the restaurant is worn down and needs renovation. * The restaurant has only 30 parking spaces which are not enough during the lunch hours. Employees Attitudes: The host person showed up after customers had been waiting for 5 minutes.

Quality of the food: The choices of the food and the quality of the food are both good. Reputation of the brand: A well-known national chained restaurant. 2. Hilton hotels integrate with Promus to complement or leverage their capabilities and resources to achieve leadership nationally or globally. Up to year 2002 February, Hilton Hotel Corporate develops, owns, manages or franchises 2,000 hotels in approximately 55 countries. The family of Hilton brands are: Hilton, Doubletree, Embassy Suites hotels, Hampton Inn, Hampton Inn Suites, Harrison Conference Centers, Hilton Garden Inn, Homewood Suites, and Conrad.

INTERNET EXERCISE 1. The instructor can suggest students look at whether the companys mission statement is consistent with its objectives, purposes and values. The students can also look at the mission statement following the 6-scope criteria: industry scope, products and applications scope, competencies scope, market-segment scope, vertical scope, and geographical scope. Additionally, students should check whether the mission statement provides a vision and direction for the company for the next 10 to 20 years. Also, whether it provides employees with a shared sense of purpose, direction, and opportunity. Please see Discussion Question #1.

2.

*Questions that are useful for in-class discussions. They require the student to think, but require little outside preparation. 40

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CHAPTER 4 The Marketing Environment

CHAPTER OVERVIEW A companys marketing environment consists of the outside actors and forces that affect marketing managements ability to develop and maintain successful transactions with its target customers. The marketing environment is made up of microenvironments and macro environments. The microenvironment consists of forces close to the company that can affect its ability to serve its customers. The company itself, marketing channel firms, customer markets, competitors, and a broad range of publics are all classified under the microenvironment. The macro environment consists of the larger societal forces that affect the whole microenvironment. Demographic, economic, natural, technological, political, competitor and cultural forces are examples of macro environmental forces. CHAPTER OBJECTIVES Students should be able to: 1. List and discuss the importance of the elements of the companys microenvironment, including the company, suppliers, marketing intermediaries, customers, and public. 2. List the macro-environmental forces that affect the companys ability to serve its customers and describe the levels of competition. 3. Explain how changes in the demographic and economic environments affect marketing. 4. Identify the major trends in the firms natural and technological environments. 5. Explain the key changes that occur in the political and cultural environments. 6. Discuss how companies can be proactive rather than reactive when responding to environmental trends. Supportive PowerPoint Slides: 4-1 to 4-4. TEACHING SUGGESTIONS: Teaching suggestions are provided in two formats. The first format guides the instructor through the chapter objectives. The second format is a chapter outline and provides more detail than the chapter objective format. OBJECTIVES: Objective: 1. List and discuss the importance of the elements of the companys microenvironment, including the company, suppliers, marketing intermediaries, customers, and public. Recommended Ideas:

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The company: Marketing managers must work closely with top management and the various company departments. All company departments will have some impact on the success of marketing plans. Suppliers are firms and individuals that provide the resources needed by the company to produce its goods and services. Marketing intermediaries are a specialized group of suppliers that help the company promote, sell, and distribute its goods to the final buyers. Additionally, transportation systems, marketing services agencies, financial intermediaries also impact the hospitality marketing environment. Examples: Suppliers: Seafood supplier, Steak and Ale, The Lenox Hotel, and The New York Palace. See Suppliers. Marketing intermediaries: A wholesaler creates leisure packages. See Red Lobster, Sheraton, Fuddruckers and Del Taco. See Marketing Intermediaries. Supportive PowerPoint Slides: 4-5 to 4-9. Objective: 2. List the macro-environmental forces that affect the companys ability to serve its customers and describe the levels of competition. Recommended Ideas: Macro environments: competitive, demographic, economic, natural, technological, political, and cultural. There are four levels of competition: (1) A company can view its competitors as other companies that offer similar products and services to the same customers at a similar price. (2) A company can see its competitors as all companies making the same product or class of products. (3) A company can see its competitors more broadly as all companies supplying the same service. (4) A company can see its competition even more broadly as all companies that compete for the same consumer dollars. Examples: The first level of competition: McDonalds will view its competition as Burger King, Wendys, and Hardees. The second level of competition: McDonalds may see its competition as all fast-food restaurants, including Jamba Juice, Kentucky Fried Chicken, Taco Bell, and Arbys. The third level of competition: McDonalds would see itself competing with all restaurants and other suppliers of prepared food, such as the deli section of a supermarket. The fourth level of competition: McDonalds would see itself competing with grocery stores and the self-provision of the meal by the consumer. See Competitors. Supportive PowerPoint Slides: 4-10, 4-11. Objective: 3. Explain how changes in the demographic and economic environments affect marketing. Recommended Ideas: Demographic environment: Changing Age Structure of the Population (The Baby Boomers, Generation X, The Echo Boomers, Generational Marketing). The Changing American Family. Geographic Shifts in Population. A Better-Educated and More White-Collar Population. Increasing Diversity. Economic environment: Changes

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in Income; Changing Consumer Spending Patterns; Global Economic Patterns. Examples: Polar Bear sightseeing expedition and cruises (all-inclusive vacations) are popular with baby boomers. Miller Brewing Company ads and Chart House Restaurants appeal to GenXers. Convenience foods and services cater to changing American family. Quality foods and travel are demanded by a better-educated and more white-collar population. Hospitality industry caters to various ethnic and racial makeups. Hotel brochures show the wheelchair access. See Demographic Environment. Changes in income and consumer spending pattern make customers more financially cautious and thus marketers need to offer buyers greater value, the combination of product quality and good service at a fair price. Global economic patterns influence the hospitality industry, for example, the expansion of Choice Hotel International, U.S. Franchise Systems, and McDonalds. See Economic Environment. Supportive PowerPoint Slides: 4-12 to 4-15. Objective: 4. Identify the major trends in the firms natural and technological environments. Recommended Ideas: Natural Environment: Conservation of Resources, Ecotourism, Recycle and reduce waste. Technological Environment: Utilize advanced technology in the hospitality industry. The development of the Internet. Examples: See Bird watching Ecotourism Activities". Disney protects the environment by recycling and reducing the waste, such as shredding its paper products to use as packing material or uses gray water to water its lawns. See Natural Environment. Robots and machines. Computerized video checkout services. Electronic guest room locking systems. Locking fax machines receive orders at restaurants. The City of Boston posted restaurant inspection scores on a Web site. Power sources for notebook computers for first-class passengers in the airplane. Selling hotel rooms via the Internet (Expedia.com). Starbucks coffee shops provide Internet access. See Technological Environment. Supportive PowerPoint Slides: 4-16, 4-17. Objective: 5. Explain the key changes that occur in the political and cultural environments. Recommended Ideas: Political Environment: Increased Legislation and Regulation Affecting Business; International Legislation; Government Intervention in Natural Resource Management; Changing Government Agency Enforcement; Growth of publicInterest Groups; Increased Emphasis on Ethics and Socially Responsible Actions. Cultural Environment: Persistence of Cultural Values; Subcultures. Examples: Norway bans several forms of sales promotion as being inappropriate or unfair ways of promoting products. Thailand requires food processors selling national brands to market low-price brands also, so that lower-income consumers can find

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economy brands on the shelves. In India, food companies must obtain special approval to launch brands that duplicate those already existing on the market. The German government vigorously pursues environmental quality. See Political Environment. The culture changes toward approves the use of alcohol. Hoteliers in Israel are expected to understand and observe the rules of kashruth, or keeping kosher. In order to boost the business, the Hyatt Hotel in Singapore was redesigned with Feng Shui in mind. See Cultural Environment. Supportive PowerPoint Slides: 4-18 to 4-20. Objective: 6. Discuss how companies can be proactive rather than reactive when responding to environmental trends. Recommended Ideas: Companies should take an environmental management perspective. Rather than simply watching and reacting, these firms take aggressive action to affect the publics and forces in their marketing environment. In addition, companies should also use an environmental scanning plan to be proactive. Furthermore, companies should acquire reliable and timely information for their decision-making. Examples: Companies hire lobbyists to influence legislation. Companies run advertorials (ads expressing editorial points of view) to shape public opinion. Companies hire lobbyists to present their interests at the local, state and federal levels of government. See Responding to the Marketing Environment. Supportive PowerPoint Slides: 4-21 to 4-24. CHAPTER OUTLINE I. Microenvironment: Figure 4-1 illustrates this concept. A. The Company Throughout the marketing process, marketing managers must work closely with top management and within various company departments to ensure that a comprehensive system is in place. Top management sets the companys mission, objectives, broad strategies and policies. Marketing decisions must be made to achieve the mission, objectives, and strategies while acting within the policies. B. Suppliers-Firms and individuals that provide the resources needed by the company to produce its goods and services. A positive supplier environment is critical to maintaining good customer service standards. Supplier back orders, or unexpected supplier complications may affect customers perceptions and should be carefully guarded against. Some hotels have contracted with restaurant companies to supply their food and beverage services. There are two common problems for this type of practice. First, some hotels that have leased out their operations to upscale operators. Upscale restaurant operators often are not interested in the coffee shop and room service operations and these operations often suffer as a result. Second, the leasing of food service operations ties up hotel space through lease agreements. This can be a

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problem if the hotel decides to renovate and change the design of the public spaces. Furthermore, on a macro basis tourist destinations need suppliers. Airline service, hotel, restaurants, ground operations, meeting facilities and entertainment are some of the components of a tourist destination. One of the roles of a regional convention and visitors bureaus (CVB) is to make sure that there is a good selection of suppliers of tourist products in their area. C. Marketing Intermediaries specialized groups of suppliers that help the company promote, sell and distribute its goods to the final buyers. Intermediaries are business firms that help hospitality companies find customers or make sales. They include travel agents, wholesale tour operators and hotel representatives. These relationships also are important in providing the firms service to customers and should be maintained with care. Marketing Services Agencies suppliers that help the firm formulate and implement its marketing strategy and tactics. Marketing research firms, advertising agencies, media firms and marketing consulting firms that help companies target and promote their products to the right market. Financial Intermediaries-Banks, credit companies, insurance companies or other firms that help hospitality companies finance their transactions or insure risks associated with the buying and selling of goods and services. These companies affect the credit, cash or coverage of the hospitality firm and are necessarily important environments to manage. See Coca Cola and Wendys in text. Supportive PowerPoint Slides: 4-1 to 4-9. II. Macro environment-Figure 4-2 illustrates this concept. A. Competition: Every company faces a broad range of competitors. The marketing concept states that to be successful, a company must satisfy the needs and wants of consumers better than its competitors do. In general a company should monitor three variables when analyzing each of its competitors: (1) Share of market: The competitors share of the target market. (2) Share of mind: The percentage of customers who named the competitor in responding to the statement Name the first company that comes to mind in this industry. (3) Share of heart. The percentage of customers who named the competitor in responding to the statement "Name the company from whom you would prefer to buy the product. Figure 4-3 illustrates the four various levels of a competitive environment. 1. A company can view its competitors as other companies that offer similar products and services to the same customers at a similar price. At this level, McDonalds will view its competition as Burger King, Wendys, and Hardees. 46

2. A company can see its competitors as all companies making the same product or class of products. Here McDonalds may see its competition as all fast-food restaurants, including Jamba Juice, Kentucky Fried Chicken, Taco Bell, and Arbys. 3. A company can see its competitors more broadly as all companies supplying the same service. Here McDonalds would see itself competing with all restaurants and other suppliers of prepared food, such as the deli section of a supermarket. 4. A company can see its competition even more broadly as all companies that compete for the same consumer dollars. Here McDonalds would see itself competing with grocery stores and the self-provision of the meal by the consumer. Two forces that affect the competition are the ability of companies to enter and exit markets. Entry barriers prevent firms from getting into a business, while barriers to exit prevent them from getting out. Low barriers to entry characterize the restaurant industry. With many capable of opening restaurants, it is hard to forecast competition. Hotels have moderately high barriers of entry, due to the costs of building a hotel and the scarcity of good locations. However, hotels find themselves with a different problem, high barriers to exit from the industry Supportive PowerPoint Slides: 4-10, 4-11. B. Demographic Environment-Demography is the study of human populations in terms of size, density, location, age, sex, race, occupation and other statistics. Several of the recent trends of note are described in the text. 1. The changing age structure of the population is a demographic trend. The single most important demographic trend in the United States is the changing age structure of the population. The age distribution of the U.S. population is rapidly assuming an hourglass shape. Two very large age groups, the baby boomer generation and the baby boomlet generation, surround the smaller Generation X. The Echo Boomers (or Generation Y) the reins to the latest demographic group, the echo boomers (or baby boomlet generation). Born between 1977 and 1994, the children dwarf the GenXers and almost equal in size to the baby boomer segment. The baby boomlet has created large and growing kid and teens markets. Generational Marketing: Do marketers have to create separate products and marketing programs for each generation? Some experts caution that each generation spans decades of time and many socioeconomic levels. 2. The changing American family structure is another trend that is affecting the demography of the country. In the United States today, 34% of households are married with children. Singles comprise 12%. Non-family households make up 47

32% of the total Marketers must increasingly consider the special needs of nontraditional households, because they are now growing more rapidly than traditional households. The number of working women has also increased greatly. This trend has spawned the child day care business and increased consumption of convenience foods and services. 3. Geographic shift in population: A massive exit from the cities to the suburbs. Demographers are noting another shift that they call the rural rebound. Non-metropolitan counties that lost population to cities for most of this century are now attracting large numbers of urban refugees. More and more Americans are moving to micropolitan area, small cities located beyond congested metropolitan areas. 4. A Better-Educated and More White-Collar Population: the rising number of educated Americans will increase the demand for higher quality luxury hotels, travel, wine and dining experiences. 5. Increasing Diversity: Countries vary in their ethnic and racial makeup. An example is The United States, with people from virtually all nations. Marketers are facing increasingly diverse markets, both at home and abroad as their operations become more international in scope. Diversity goes beyond ethnic heritage. For example, there are more than 52 million disabled people in the United States, representing almost $1 trillion in annual spending power. See British Tourist Authority in text. Supportive PowerPoint Slides: 4-12, 4-13. C. Economic Environment-The economic environment consists of factors that affect consumer purchasing power and spending patterns. Changes in income and changing consumers spending patterns make customers spend more carefully and seek greater value in the products and services they buy. Value marketing became the watchword for many marketers. Rather than offering high quality at a high price, or lesser quality at very low prices, marketers are looking for ways to offer todays more financially cautions buyers greater value just the right combination of product quality and good service at a fair price. Furthermore, with many markets in Europe and North America saturated with hotels, companies are looking to other global markets. Supportive PowerPoint Slides: 4-14. D. Global Economy The travel industry operates in a global environment. 1. Growth of tourism in one destination will come at the expense of other destinations. 2. Currency exchange rates can greatly affect the affordability of travel from one monetary system to another.

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Supportive PowerPoint Slides: 4-15. E. Natural Environment-The natural environment consists of natural resources required by marketers or affected by marketing activities. 1. Communities are finding that preserving the natural environment can be good for tourism. For example, Hong Kong saw the coming of Disneyland as a chance to improve its natural environment. Forums were held to gain community support for improving the green space in Hong Kong. 2. Ecotourism: Bird watching and ecotourism activities are a growing source of visitors 3. One way of protecting the environment is to recycle and reduce waste. For example, Disney shreds its paper products and sends the shredded paper to the gift shops to use as packing material, and torn linens are made into rags, reducing the need for paper towels. Also, Disney World uses gray water, treated wastewater, to water its golf courses, lawns, and gardens. McDonalds has developed an extensive recycling and packaging program. Supportive PowerPoint Slides: 4-16.

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F. Technological Environment-This is one of the most dramatic forces shaping our destiny, affecting the hospitality industry in many ways. 1. The hospital food tray delivery, computerized check-in and check-out services. 2. The on-line computer services are offering car rental and hotel reservations. Fax machines and laptops are available at upscale business hotels. 3. Robots are used to deliver hospital food trays to stations throughout a hospital. Machines cook food automatically, eliminating human error. Computerized video checkout services are now common in many hotels. Electronic guest room locking systems tell housekeepers which rooms are occupied, the mini bar lock tells which guests accessed their mini bar, making restocking easier. Locking fax machines now receive orders at restaurants. Computerized yield management systems are helping hotels to optimize their profits through pricing to demand. 4. The development of the Internet has had a profound effect on the hospitality and travel industry. For example, the City of Boston posted restaurant inspection scores on a Web site. Expedia.com sold more than ten million hotel room nights. Starbucks coffee shops announced an agreement with Microsoft to provide wireless Internet connection at selected company stores. Supportive PowerPoint Slides: 4-17. G. Political Environment The laws, government agencies and pressure groups that influence and limit various organizations and individuals in society define the political environment. 1. Increased regulation continues to be a factor in the service industry. Hotel and restaurant taxes have become sources of revenue for local governments. 2. Changing government policies affect marketing performance, creating dramatic effects with and without enforcement. 3. Legislation and regulation affecting business have been enacted for three reasons. First, it protects companies from each other. Second, government legislation and regulation also aim at protecting consumers from unfair business practices. Third, government regulation also aims to protect societys interests against unrestrained business behavior. 4. International Legislation: Legislation affecting business around the world has increased steadily over the years. The United States has many laws on its books covering such issues as competition, fair trade practices, environmental protection, product safety, truth in advertising, packaging and labeling, pricing, and other important areas. 5. Government Intervention in Natural Resource Management: The governments of different countries vary in their concern and efforts to promote a clean environment. For example, the German government vigorously pursues environmental quality, partly because of the strong

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public green movement and partly because of the ecological devastation in former East Germany. 6. Growth of Public-Interest Groups: The number of public-interest groups has increased during the past two decades, as has their clout in the political arena. MADD (Mothers Against Drunk Driving) has had a major impact on the hospitality industry by demanding that restaurants be more responsible in their serving of alcohol. Supportive PowerPoint Slides: 4-18, 4-19. H. Cultural Environment This includes institutions and other forces that affect societys basic values, perceptions, preferences and behaviors. Society shapes its beliefs and defines its relationships with cultural overtones. Shifts in fundamental values should be viewed as trends to manage by marketers. The cultural changes in the United States towards alcohol and tobacco are examples of this shift. The hospitality industry is worldwide. Chances are very good that many readers of this book will find themselves serving in a foreign setting sometime during their careers. Cultural norms and cultural prohibitions may affect their managerial roles in ways quite different from in the United States and Canada. Each society contains subcultures, groups of people with shared value systems based on common life experiences or situations. To the extent that sub cultural groups have specific wants and buying behavior, marketers can choose subcultures as their target markets. Supportive PowerPoint Slides: 4-20. III. Popcorns Cultural Trends: cashing out, cocooning, clanning, down-aging, egonomics, fantasy adventure, pleasure revenge, small indulgences, 99 lives, S.O.S., being alive, the vigilante consumer. Supportive PowerPoint Slides: 4-21. IV. The Environmental Factors Are Linked The following example shows how the elements of environment are linked. Economic forces result in families with both heads of the household working. This is a demographic statistic that can be tracked over time. Women are also able to build careers and take management positions once reserved for men. The working heads of the household no longer have time to cook. Culturally, 30 to 40 years ago women were expected to stay home and cook. That is no longer the case. Thus we have seen a cultural change where men now participate in home duties and no one member of the household is expected to prepare all meals. Technology has also made it easier to reconstitute food and to warm prepared

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meals at home. Finally, the competitive environment between grocery stores and quick-service restaurants is expected to heat up. See Marketing Highlight 4-2 Food Service Operators Respond to Low Carb Diets V. Responding to the Marketing Environment A. An environmental management perspective suggests an aggressive approach to affect the publics and forces in the marketing environment. By shaping opinion and influencing legislation, these types of companies attempt to control their industrys opportunities better. B. Environmental scanning is an integral part of any marketing environment. The use proves beneficial to track the changes in all environments concerning the marketing of an organization. Table 5-1 shows an example of an environmental scanning system for a restaurant. The steps involved are: 1. Determining the environmental areas that need to be monitored 2. Determining how the information will be collected 3. Implementing the data collection plan 4. Analyzing the data and using it in the market planning process C. Using information about the marketing environment is critical to any marketing strategy. Simply collecting and analyzing the data is insufficient. The marketer must translate the data into information and implement it in the strategic planning of the firm. Supportive PowerPoint Slides: 4-22, 4-24. DISCUSSION QUESTIONS 1. The instructor can lead students to answer this question by reminding students the three environments which influences companies. For example, Internal environment: various departments. Micro environment: suppliers, marketing intermediaries. Macro environment: competitive, demographic, economic, natural, technological, political, and cultural. a. McDonalds began operating with a limited menu, streamlined service and low prices. Over time they increased their accessibility by offering drivethrough, and sit-down as well as take out service. They expanded their menu to include breakfast items, low-fat items and childrens meals. Many have a playground for children. b. McDonalds has always been marketed to the family, but now there is a distinct targeting to specific markets like the mature (over 55 years old) as well as business person. Also, McDonalds has recently expanded

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internationally. They have also developed smaller units for malls, hospitals, and retail outlets such as Wal-Mart. The environmental forces behind these changes are various. Increased competition is a big factor. The changing demographics of the United States facilitate the target marketing they employ. Economic opportunities opened the door to multinational expansion. Cultural changes prompted the light menu options. 2. The instructor can lead students to answer this question by reminding students the three environments which influences companies. For example, Internal environment: various departments. Micro environment: suppliers, marketing intermediaries. Macro environment: competitive, demographic, economic, natural, technological, political, and cultural. * Several environmental trends come to mind that will affect hotels like Hyatt or Sofitel. As director of marketing, one might address these impending trends. An increase in female business travelers could be a good area for marketing research to identify precisely what are the needs of this large market segment. Lighted lounges, increased security measures, room amenities and the like might be a good start to begin addressing this trend. Similarly, technological advances necessary for the business traveler follow along the same lines. There are numerous advances that are currently available, and a whole stream of burgeoning communications technologies waiting in the wings. In-room availability for personal fax and modem, as well as access to certain of these machines is becoming standard. Enhancing the technology that is available over the television is another area of interest. Soon travelers may be able to order pizza delivery, choose from several movies at their convenience, or schedule a tour of the city from maps that are on the television screen. Another trend is toward shorter vacations for families and couples. Hotels are now attracting this market with mini-vacation packages. Look for more socially conscious efforts to emerge from companies. Successful companies are learning to become responsible for their participation in communities across the country. The new generation (often termed Generation X) is expecting companies to become more than profit centers. These are future customers and employees, managers and suppliers. 3. The instructor can lead students to answer this question by reminding students the characteristics of baby boomers discussed in Demographic environment. * Opportunities associated with the aging of the baby boomers include the increase in disposable income and leisure time as their children become older. This means that they have more money to spend on hospitality products and the ability to travel. Baby Boomers will spend billions of dollars on travel. They are going to look for active vacations, as they do not feel old. Vacations where they

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can have adventure or explore will be attractive. They look for value and research their vacations. Threats include the cultural values of the boomers themselves, as community and family values increase in importance, they may choose to spend more time at home. 4. Environmental trends have affected nearly every area of hotel design. You may want to focus on a few of the areas covered. For instance, within the microenvironment, the hotels have realized the necessity of establishing strong and trustworthy relationships between departments, intermediaries and suppliers. In the macro environment, the hotels have addressed the natural environment by setting up recycle options like trash bins and treated water. Technologically, the hotels are increasingly addressing the computer literate with express check-in and check-out, computerized ticketing, and fax machines and computer lines within the hotel rooms. The development of the Internet helps hotels to promote and sell its rooms via the web sites. Increased involvement in the governmental and legislative process show influence in the political arena. The food and beverage offerings of a Sheraton could be greatly affected by environmental trends. Some ways include: a) Recycle bins in the kitchen for glass, paper, aluminum, and cans b) Water by request only c) Different options of liquor offerings i.e., more examples of premium beers d) Light menu itemslow calorie, low fat, low sodium options e) Increased regard for the political ramifications of alcoholthe dram shop laws f) Non-smoking environments The instructor can lead students to answer this question by the concept of environmental management perspective. * Even though companies have little control over the macro environment, companies should still be concerned with the macro environment. Furthermore, smart marketing managers take a proactive rather than a reactive approach to the publics and forces in their marketing environment. Companies which take an environmental management perspective, analyze environmental forces and design strategies that will help the company avoid the threats and take advantage of the opportunities that the environment provides. Rather than simply watching and reacting, the proactive firms take aggressive action to affect the publics and forces in their marketing environment. At the same time, astute marketers will be able to assess and address any potential opportunities and threats that may arise. While control may be limited, one must still certainly be aware of and participate in ones that are relevant and available. There is also some measure of responsibility that accompanies any business endeavor. The ethical responsibility and political responsibilities are somewhat more intangible but still absolutely necessary to monitor. Likewise, cultural trends offer the same responsibilities and opportunities that are available in the other arenas. Marketers help shape the values and trends that are affected by its presence. Advertising dollars, public

5.*

6.

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relations, media exposure, natural resource use and political associations all contribute to the image of a service firm. Having little control over them should not dissuade it from being concerned with these issues. 7. Walt Disney Company will be affected by many environmental issues during the 2000s. Some of these issues for its destination resort include: Competitive competition from other destination resorts, vacation areas in general, and local attractions in the resort area. Disney needs to make the Disney Experience outstanding so other resorts and vacations cant compete. Demographic the changing American family means that over half of families do not have children under 18. Disney has traditionally been a family resort. Its prime target market is shrinking. Disney should promote its experience to the adults. For example, instead of focusing on attracting children, Disney promotes its cruise lines to parents who want to enjoy a children worry free vacation. Disney also appeals to the senior citizens by promoting that Disney Land is the other thing the elders should see. Additionally, as the disabled population grows, Disney should alternate its facilities to cater to the disabled customers. Economic Changes in income and consumer spending patterns make customers spend more carefully. Value marketing became the watchword for many marketers. Disney needs to offer todays more financially cautious buyers, greater value with the right combination of product quality and good service at a fair price. Natural Disney has been doing a great job in protecting environment. The efforts should be continued. Technological The development of the Internet adds more distribution channel for the hospitality industry. Disney can utilize the Internet to promote and sell its resort experience. Cultural Cultural norms and cultural prohibitions may affect managerial roles in ways quite different from in the United States and Canada. As Disney expanded its operation to Asian and European markets, Disney should become familiar with those cultures. EXPERIENTAL EXERCISE 1. The instructor can suggest students look at whether the company modifies its plan in responding to the environment forces. For example, students may look for whether the company adds service products to cater to the senior citizens because of the aging of the population. Does the company modify its facilities to cater to the disabled population? Does the company provide more value-oriented

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offerings to cater to the financially cautious customers? Does the company utilize the advancement of the technology in its operational system or sales promotion? Does the company run advertorials to shape public opinions? * A middle class hotel chain was chosen as an example in this question. In responding to the changing consumer spending patterns, the hotel provides allinclusive vacation, including airfares, hotel rooms, and car rental. In responding to the global economic patterns, the hotel has an overseas expansion plan. At the same time, the hotel also fully utilizes advanced technology to provide electronic check-in and check-out. The hotel also provides a web site to allow customers to make reservations via the Internet. The hotel integrates its database of its loyalty program. This integration allows customers to redeem their points in every family brand property. 2. The instructor can lead students to answer this question by reminding students the characteristics of baby boomers, Generation X, and Echo Boomers discussed in Demographic environment. For example, baby boomers look for active vacations, as they do not feel old. Hence, adventure or explore vacation may be attractive to them. GenXers care more about the environment and respond favorably to socially responsible companies. Therefore, an environmental conscious company may appeals to the GenXers. A casual restaurant which caters to GenXers was chosen as an example in this question. This restaurant seems to appeals to the GenXers. GenXers are a more skeptical bunch, cynical of frivolous marketing pitches that promise easy success. They are more savvy shoppers, and their financial pressures make them more value conscious. Moreover, GenXers do surf the Internet more than other groups with serious intent. This restaurant sells fast food and drinks at low price. It also has lots of combos catering to the value conscious customers. This restaurant is very environmentally conscious. Its napkins are made by recycled paper. It uses its waste water to water its lawn. The restaurant provides vegetarian menus for health conscious customers. The restaurant provides free Internet access for customers. In addition, this restaurant has its own web sites introducing the owner of the restaurant, the open hours of the restaurant, the menus. The web sites also provide a $5 coupon to the surfers.

INTERNET EXERCISES 1. The instructor can suggest students look how the organization preserves the resources and at the same time attract tourists. The Scottish Tourism Board was chosen as an example in this question. The Scottish Tourism Board is working on attracting tourists by its pristine environment, fresh air, fabulous scenery and enigmatic wildlife. Its aims are to raise the profile of nature-based tourism and its potential in Scotland and to provide delegates with the opportunity to highlight the issues facing them and

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how best to move wildlife tourism in Scotland forwards. The Scottish Tourism Board provides various tours, pictures of scenes for each tour, and educational information regarding each tour. For example, it provides Wildlife Watching at Sea tour. Tourists will expect to see Whales, Dolphins, Puffins and Seals. The web site provides the pictures and introduction of Whales, Dolphins, Puffins and Seals. Additionally, the Scottish Tourism Board also recommends a Wildlife Watching on Land tour: Raptors, Capercaillie, Otters, Deer, and Red Squirrels. 2. The instructor can suggest students access the following web sites to get the information regarding space tourism. www. spacetranportation.org www. member.aol.com www. gwu.edu/~spctour www. space-tourism.com www. spaceislandgroup.com Serious discussion of the possibility of space travel by "ordinary people," i.e., people other than professional astronauts, has been underway for the past four decades. Market studies made in the United States and elsewhere, during the past very few years suggest that, when fully developed, space travel and tourism could become a new space-related business with annual revenues of as much as $10 billion per year. However, the government pace was slow. In the mid-1980s a few small companies were formed in the United States that began to explore the possibility of creating viable private sector space tourism enterprises. However, the tragic Shuttle Challenger disaster of 1986, in which five professional astronauts and schoolteacher were killed, saw all government and private sector space tourism ambitions put aside. Then, professional and business interest in space tourism commenced in Japan, and it has continued since. The space tourism wont be viable unless the safe issue is warranted. Finally, the possible organizations who are working to develop space tourism are cooperation with Federal government and private space transportation vehicle development companies. Source: Rogers, T. F. (1998). The Prospects For Space Tourism. The Sophron Foundation, and The Space Transportation Association *Questions that are useful for in-class discussions. They require the student to think, but require little outside preparation.

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CHAPTER 5 Marketing Information Systems and Marketing Research

CHAPTER OVERVIEW Chapter 5 explains the underlying concepts of marketing research, and details the importance of information to the company. The beginning of the chapter describes the marketing information system, an integrated collection of people, equipment, and procedures used to gather, evaluate, and distribute relevant information to marketing decision makers. It then continues with a discussion of the four key steps in the marketing research process: defining the problem and objectives, developing a research plan, implementing the plan, and interpreting and reporting the findings. Possible sources of information are described, including primary and secondary data, and approaches that can be used to collect such knowledge, including observational, survey, and experimental research. CHAPTER OBJECTIVES Students should be able to: 1. Explain the concept of the marketing information system. 2. Identify the different kinds of information the company might use. 3. Outline the marketing research process, including defining the problem and research objectives, developing the research plan, implementing the research plan, and interpreting and reporting the findings. Supportive PowerPoint Slides: 5-1 to 5-3. TEACHING SUGGESTIONS: Teaching suggestions are provided in two formats. The first format guides the instructor through the chapter objectives. The second format is a chapter outline and provides more detail than the chapter objective format. OBJECTIVES: Objective: 1. Explain the concept of the marketing information system. Recommended Ideas: In todays rapidly changing travel marketplace, managers need accurate information quickly. New technologies allow analysis of large quantities of data. MIS consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. The three stages in the system are as followings: (1) The MIS interacts with managers to assess their information needs. (2) It develops needed information from internal company records, marketing intelligence activities, and the marketing research 59

process. Information analysts then research and process information to make it useful and applicable (3) It distributes information to managers in the most appropriate form and timely manner to facilitate and enhance marketing planning, implementation, and control. Examples: Marriotts entry into the economy hotel business on the opening of Chapter 5. Supportive PowerPoint Slides: 5-4, 5-5. Objective: 2. Identify the different kinds of information the company might use. Recommended Ideas: Internal records, marketing intelligence, and marketing research. Examples: Internal databases, data warehouses, guest history information, guest information trends, guest comment cards, listening to and speaking with guests, automated systems, mystery shoppers, company records, point-of-sale information, corporate customer and marketing intermediary information. See Internal records. Internal and external sources of marketing intelligence, sources of competitive information, and commercial sources of marketing information. See Marketing intelligence. Supportive PowerPoint Slides: 5-6 to 5-15. Objective: 3. Outline the marketing research process, including defining the problem and research objectives, developing the research plan, implementing the research plan, and interpreting and reporting the findings. Recommended Ideas: (1) Defining the problem and research objectives: Managers and marketing researchers must work closely to define the problem and the research objectives. Once the problem is well defined, there are three types of objectives for a marketing research project. (2) Developing the research plan: determining the needed information and developing a data collection plan. (3) Implementing the research plan: The researcher puts the plan into action by collecting, processing, and analyzing the information. (4) Interpreting and presenting the findings: The researcher must now interpret the findings, draw conclusions, and report them to management. Examples: Marriotts example of determining special information needs. Multiunit foodservice operators send researchers into competing restaurants to learn menu item prices example. A hotel chain sends observers posing as guests into its coffee shops to check on cleanliness and customer service. Hardees fast-food restaurant conducted extensive consumer perception surveys to learn customer needs. Arbys might use experiments before adding a new sandwich to the menu. Steamboat used intercept interviews to gather information from 600 summer visitors. Hotel managers invite a group of hotel guests. Andy Reis of Cafe Provincial conducted focus groups. Observation City Resort Hotel in Perth offers an example of a hotel that used marketing information and research to produce enviable results. See Developing the Research Plan. Supportive PowerPoint Slides: 5-16 to 5-26.

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CHAPTER OUTLINE I. A Marketing Information System consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. Figure 5-1 helps illustrate the MIS. Keep in mind that there are three stages in the system; A. The MIS interacts with managers to assess their information needs. B. It develops needed information from internal company records, marketing intelligence activities, and the marketing research process. Information analysts then research and process information to make it useful and applicable. C. The MIS distributes information to managers in the most appropriate form and timely manner to facilitate and enhance marketing planning, implementation, and control. Supportive PowerPoint Slides: 5-4, 5-5. II. Assessing Information Needs A good MIS will balance information that managers would like to have against that which they really need and is feasible to obtain. For example, Mrs. Fields Cookies provides their managers with sales forecasts with updates each hour. Managers need to anticipate new competitive product offerings. However, competitors withhold information to prevent their competition from knowing about the product. During KFCs development of their Chicken Little sandwich, only a few corporate managers knew of the project. KFC had developed ingredient specifications for the making of the sandwich, and its suppliers had to sign secrecy agreements. KFC did not want competitors to learn about the new product offering before its test marketing. Yet a competitor with a good MIS system might have picked up clues in advance about KFCs plans. The costs of obtaining, processing, storing, and delivering information can add up quickly. Companies must estimate the value of having an item of information against the costs of obtaining it. This value depends on essential but subjective estimates of how it will be used and the costs of obtaining it. Supportive PowerPoint Slides: 5-6. III. Developing Information Information needed by marketing managers can be obtained from internal company records, marketing intelligence, and marketing research. The information analysis system processes this information and presents it in a form that is useful to managers. A. Internal Records: 61

 Internal records information consists of information gathered from sources within the company to evaluate marketing performance and to detect marketing problems and opportunities; it is essentially raw data. Internal databases: Many companies use internal records to build extensive internal databases, computerized collections of information obtained from data sources within the company. Marketing managers can readily access and work with information in the database to identify marketing opportunities and problems, plan programs, and evaluate performance. Data warehouses: Increasingly, companies are creating data warehouses to house their customer data in a single, more accessible location. Then, using powerful data mining techniques, they search for meaningful patterns in the data and communicate them to managers. Guest history information: The single most important element in any hospitality marketing information system is to have a process for capturing and using information concerning guests. Guest information is vital to improving service, creating effective advertising and sales promotion programs, developing new products, improving existing products, and developing marketing and sales plans and to the development and use of an effective revenue management program. Guest information trends are vital to the planning and revenue/yield processes. Types of guest trend information used by hotels, airlines, cruise lines, and auto rental companies include the following: Booking patterns, cancellations, conversion percentage, overbook patterns, historical trends on occupancy for prime, shoulder, and low seasons yield patterns by season. Gathering this vital information requires careful planning by a management information system. Guest Information Management: Acquisition of this critical information cannot be left to chance or the whims of department managers. A system for obtaining guest information may include any or all of the techniques discussed below. (1) Handwritten Journals and Card Files from Guest Registrations and Personal Observations. (2) Guest Comment Cards (3) Listening to and Speaking with Guests (4) Automated Systems (5) Disguised Shoppers (6) Company Records (7) Point-of-Sale Information. Corporate Customer and Marketing Intermediary Information: A database of customers/prospects is of great value to a professional sales force. The marketing information concerning the prospect can be obtained from annual reports, financial analyses of public companies, and articles on the company, and by talking with company employees. For example, the sales force of Benchmark Hospitality Conference Resorts is trained to go beyond demographic studies and to target prospects by geography and industry segment. Benchmarks salespeople monitor the health of specific industries and qualify prospects. B. Marketing Intelligence includes everyday information about developments in the marketing environment that helps managers prepare and adjust marketing 62

plans and short-run tactics. Internal sources of marketing intelligence include the companys executives, front-desk staff, service staff, purchasing agents and sales force. This information can be gathered from internal databases, data warehouses, guest history information, guest information trends, guest comment cards, listening to and speaking with guests, automated systems, mystery shoppers, company records, point-of-sale information, corporate customer and marketing intermediary information. External sources of marketing intelligence include macro market information, competitive information, and new innovation and trends. Sources of Competitive Information: competitive intelligence is available from competitors annual reports, trade magazine articles, speeches, press releases, brochures, and advertisements. Commercial sources of marketing information: Companies can purchase information from outside suppliers or from on-line database of information services. Good examples include: Dialog Dow Jones News Retrieval, UMI ProQuest, and Dun & Bradstreets Online Access. C. Marketing Research is a process that identifies and defines marketing opportunities and problems, monitors and evaluates marketing actions and performance, and communicates the findings and implication to management. For example, when McDonalds decided to add salads to its menu, its planners needed to research customers preferences for types of vegetables and dressings. The 10 most common activities are measurement of market potentials, market-share analysis, the determination of market characteristics, sales analysis, studies of business trends, short-range forecasting, competitive product studies, long-range forecasting, marketing information systems studies, and testing of existing products. D. Sources of Competitive Information a great deal of information is readily available about your competitors. Information can be gathered from competitors annual reports, trade magazines, speeches, press releases, brochures and advertisements as well as site visits. Search engines can look through thousands of databases online. Supportive PowerPoint Slides: 5-7 to 5-15. IV. Marketing Research Processing: The marketing research process consists of four steps (Figure 5.2): defining the problem and research objectives, developing the research plan, implementing the research plan, and interpreting and presenting the findings. 1. Defining the problem and research objectives: Managers and marketing researchers must work closely to define the problem and the research objectives. Once the problem is well defined, there are three types of objectives for a marketing research project.

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 Exploratory. To gather preliminary information that will help define the problem and suggest hypotheses. Descriptive. To describe the size and composition of the market. Causal. To test hypotheses about cause-and-effect relationships. 2. Developing the research plan: determining the needed information and developing a data collection plan. Determining specific information needs from research objectives. Research objectives must be translated into specific information needs. Two types of data may be used to meet the managers information needs. a. Secondary data consists of information that already exists somewhere, having been collected for another purpose. Table 5-4 shows many secondary sources, both internal and external. b. Primary data consists of information collected for the specific purpose at hand. Planning primary data collection may entail three main research approaches. a. Observational research consists of gathering primary data by observing relevant people, actions, and situations. Observational research can yield information that people are normally unwilling or unable to provide. However, feelings, beliefs, and attitudes that motivate buying behavior cannot be observed. For example, a multiunit food-service operator sends researchers into competing restaurants to learn menu item prices, check portion sizes and consistency, and observe point-of-purchase merchandising. b. Survey research (structured/unstructured, direct/indirect) is best suited to gathering descriptive information. Surveys can help describe reasons for peoples behavior and provide the research with flexibility. Depending on the survey design, it may also provide information more quickly and at lower cost than observational or experimental research. For example, in the early 1980s, Hardees fast-food restaurant chain knew it was not responding effectively to consumer needs. Extensive consumer perception surveys were conducted. c. Experimental research. best suited to gathering causal information. Experiments involve selecting matched groups of subjects, giving them different treatments, controlling unrelated factors, and checking for differences in group responses. For example, researchers at Arbys might use experiments before adding a new sandwich to the menu. d. Internet research is able to collect large amounts of data is easily analyzed within a database. Information is gathered at a low cost. Surveys online can be easily changed. Contact Methods. Information can be collected by mail, telephone, personal interview (individual intercept and group), or the Internet. Table 5.6 shows the strengths and weaknesses of each contact method. Additionally, Internet surveying is a relatively new contact method. The survey can be available to a global sample with having to worry about international postal rates. Moreover, focus group interviewing is usually 64

conducted by inviting six to 10 people to gather for a few hours with a trained moderator. Sampling Plan. Marketing researchers usually draw conclusions about large consumer groups by taking a sample. a. A sample is a segment of the population selected to represent the population as a whole. b. Designing the sample calls for four decisions: i. Who will be surveyed? ii. How many people should be surveyed (sample size)? iii. How should the sample be chosen (probability or nonprobability)? iv. When will the survey be given? Research instruments: In collecting primary data, marketing researchers have a choice of primary research instruments: a. The interview (structured or unstructured) * Structured interviews employ the use of a questionnaire. In preparing a questionnaire, the marketing researcher must decide what questions to ask, what form the questions should take, and how to word and sequence the questions. Care should be taken in the phrasing of questions. Table 5.8 provides an overview of common formats for closed- and open-end questions. A classic example of a marketing research mistake was made by a U.S. airline. See Planning Primary Data Collection. b. Mechanical devices c. Structured models such as test markets Presenting the research planAt this stage, the marketing researcher should summarize the plan in a written proposal, covering the management problems addressed, research objectives, information to be obtained, sources of secondary information, methods for collecting primary data, and how the results will aid in management decision making. 3. Implementing the research plan: Here, the researcher puts the plan into action by collecting, processing, and analyzing the information. The datacollection phase of the marketing research process is generally the most expensive and the most subject to error. The researcher should watch the fieldwork closely to ensure that the plan is implemented correctly and to guard against problems with contacting respondents, respondents who refuse to cooperate or who give biased or dishonest answers, and interviewers who make mistakes or take shortcuts. The collected data must be processed and analyzed to pull out important information and findings. 4. Interpreting and presenting the findings: The researcher must now interpret the findings, draw conclusions, and report them to management. Interpretation should not be left entirely to the researcher. Findings can be interpreted in different ways, and discussions between researchers and managers will help point to the best interpretations. Managers and researchers must work closely together when interpreting research results. Both share 65

responsibility for the research process and resulting decisions. Supportive PowerPoint Slides: 5-16 to 5-24. V. Information Analysis: Information gathered by the companys marketing intelligence and marketing research systems can often benefit from additional analysis. This might include advanced statistical analysis to learn more about the relationships within a set of data. Supportive PowerPoint Slides: 5-25 VI. Distributing information: The information gathered must reach the appropriate marketing managers at the right time. Large companies have centralized marketing information systems that provide managers with regular performance reports, intelligence updates, and reports on the results of studies. Managers need these routine reports for making regular planning, implementation, and control decisions. Recent developments in information handling have led to a revolution in information distribution, such as advances in microcomputers, software, information network, and the Internet.

Supportive PowerPoint Slides: 5-26. DISCUSSION QUESTIONS 1.* 2. Marketing research helps a firm understand their customers. Without information on their customers it is difficult for a firm to implement the marketing concept. Marketing information systems gather, sort, analyze, evaluate, and distribute information from and for marketing managers. It begins and ends with marketing managers, but is useful throughout the management ranks. MIS takes primary and secondary data and massage it into useful and applicable information for marketing managers. It sets out to find information that specifically addresses issues identified by marketing managers that concern the property or firm. Furthermore, it incorporates the marketing intelligence system. The marketing intelligence system, on the other hand, includes everyday information about developments in the marketing environment and helps managers prepare and adjust marketing plans and short-run tactics. 3. By observing your employees during a variety of shifts, you will get an accurate picture of the current level of skill and attitude towards service that your staff possesses. By understanding how your staff currently performs and your guests reaction to their work, you can determine the necessary elements of a training program to improve the level of service.

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4.

Research helps answer the following questions: Distribution decisions How do our customers purchase our products and make reservations? How can we make it easier for the customer to purchase our product and make reservations? Product decisions What will be the benefit of releasing a product on the market in any of several different ways? How will the market react to product revisions? What is the current perception of product X? Why are the sales numbers falling in regards to product A? Advertising decisions What effect will a change in advertising tactics have on the sales numbers? Is the advertising campaign currently in use reaching the specific target markets intended? Are the advertising media being used as efficiently as possible, or are there other venues to reach the target markets? Personal selling decisions If our product is currently preferred by the corporate market, what are the possibilities of expanding into another segment? What will their expectations include? What are their needs? Can the company provide for these needs? What are the customers' perceptions of the competition? Who are the most likely purchasers of the product or service? Pricing decisions Demand management will cover some of this research; however, the premise remains. What is the most appropriate price for the product? At which point will the demand decrease and the profits decline? What is the consumers perception of the current pricing structure? What are the competitors pricing and how do the numbers compare to the researching companys?

5.

The manager may know something is wrong but not know the specific causes. If the problem is incorrectly identified, the research will not address, and therefore not answer, the real question. For example, if the problem is identified as poor advertising, but the research finds that the advertising is reaching the correct market, further research must be made to identify a service problem. The objectives likewise must be agreed upon by both the marketer (who has experience in the industry) and the researcher (who has experience in the information process). Both of these phases must be consummated with an agreement by both parties. This may sometimes be the occasion for friction.

6.*

Students may refer to Table 5-4 by the Dialogue Database Catalog. Here they will find a comprehensive list of secondary data available in this overwhelming age of information. Specifically for a restaurant, researchers should look over the databases for relevant trends. Specific libraries on Lexis/Nexis for example can identify trade journals for specific industries. ABI Inform can access information in the same manner. There are numerous trade publications for the restaurant

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industry. Commercial data within the restaurants area may indicate the business trends for the restaurant, as well as competitors actions. Annual surveys are good indicators of economic trends and may be found in magazines like Time or Working Woman. Depending on the specific information needs, there are any number of places where relevant data may be accessed. 7.* Those filling out the cards are usually unhappy with some part of the service or product and use the questionnaire as a means to alert management. Occasionally the response is for extraordinarily good service; rarely is the card filled out for ordinary events. In this manner the sample is skewed, and does not represent the average guest. Note: If using this question for classroom discussion ask students if they have filled out a comment card. Then ask why they took the time to fill the card out. Many students will say they filled out the card because of a good or bad incident. The cards are useful as part of the marketing information to identify potential problems. For example, a hotel may get several complaints about its buffet, indicating a problem in that area. 8. a. In investigating the effect that young children have on parents purchase decisions; it might use focus groups, surveys, observation, and experiments. Experiments and observation would give the clearest results, because parents may not realize (or not want to admit) how much their purchases are influenced by their children. Surveying parents and children could be quicker and cheaper, reveal childrens influence in a wider range of purchase situations, and explain why parents respond as they do. b. Focus groups can be used to provide this information. The hotel managers can invite a group of hotel guests who stay for business purpose to have a free breakfast with them. During the breakfast the manager gets a chance to meet the guests and discuss how they feel about the menu variety, food, and services in the restaurant. c. In selecting a site for a new outlet, the casual restaurant needs information on population density in different areas, incomes, ages, ethnic characteristics, family sizes, location of competitors, and traffic patterns at various times of the day. In a dynamic suburb, census data might be too outdated to be useful, but most of the information this restaurant needs could still be obtained from secondary sources, such as the local chamber of commerce or utility companies. They will use a combination of a number of different research techniques. d. An experiment using two or more similar cities and a different type in each city could be used. e. Focus groups with visitors, visitor surveys, and discussions with employees working at welcome centers could provide information on how guests heard about the destination, and what sources of information they accessed in making their decision.

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9.

A good summary of the advantages and disadvantages of focus group interviews is contained in William D. Wells, Group Interviewing, a chapter of Handbook of Marketing Research (Robert Ferber, ed., New York: McGraw Hill, 1974). Focus groups have many usesthey are good for generating ideas; they aid in developing and pre-testing questionnaires; they provide overall background information on a product category, and so on. Advantages focus groups are fast and cheap; they are good for generating hypotheses when little is known about a situation; they reduce the distance between the respondent and the marketer who uses the research; they are flexible and can be adjusted while the discussion is underway, in response to an interesting or unanticipated point; interview respondents stimulate each other to say things they might not have revealed in a one-to-one interview; and the results are in a form that non research-oriented people can understand. Disadvantages focus groups should not be treated as representative of a population, but careless marketers sometimes act as if this is the case; they are not good for evaluating really new concepts that are outside the participants experience; the order of discussion can influence responses; and participants may not want to say things that they feel could embarrass the interviewer, so the focus group may give a one-sided view of what is being discussed.

EXPERIENTIAL EXERCISE 1. a. The instructor can recommend students look at whose feelings the campus foodservice is trying to find out (Faculty? Staff? Students?) in order to decide the population. b. The instructor can recommend students follow the sampling plan discussed. The students need to pay attention to four decisions regarding designing the sample: Who will be surveyed? How many people should be surveyed (sample size)? How should the sample be chosen (probability or nonprobability)? When will the survey be given? Students also need to specify the time and place for the surveys. The days and hours should be representative of the flow of traffic. If the population is student and 70% of the students stay in school during 9:00AM to 5:00 PM, then the data should be collected during this period of time. At the same time, if more than 50% of the students will go to library or student union, then the surveys should be collected at these two places. 2. The instructor can recommend students look at whether the comment card design can generate meaningful information for managers decision making. A restaurants comment card was chosen as an example in this question.

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Q1. Please rate your food & service Food Quality 1 Level of service Appearance of Staff 1 Professional Attitude of Staff

2 1 2 1

3 2 3 2

4 3 4 3

5 4 5 4

5 5

First, this comment card does not tell respondents what the numbers represent. The respondents do not know if they feel the level of service is good, they should choose 1 or choose 5. Second, the comment card asks customers to rate the staff in general. However, if some customers feel the host person is fabulous, but the waiter is poor, how can they rate the level of service and professional attitude of the staff. Therefore, I will indicate 1 =poor and 5= good. Additionally, I will change the questions to specify the host persons attitude or the waiters attitude. Finally, if the results indicated that the rating of appearance of staff was bad, I will do some research about the staffs uniform to finds out why the consumers feel negatively toward the appearances of the staff. INTERNAL EXERCISE 1. The instructor can recommend students check the loyalty programs currently provided by the hospitality industry, for example, the Delta Sky Privileges Plus. The members enjoy the following benefits: frequent flyers board the airline first, have special toll-free phone numbers for service, special check-in desks, and get access to first-class upgrade. For example, the members for Jamba Juice get discounts for the drink and receive news release from the companies. Then, students can analyze whether the loyalty programs provide the benefits which are personally valued by the customers. Students can also make comparisons among different loyalty programs to see which one is more customer oriented and user friendly. The instructor can suggest students look at the tourists motivations to find out what is important to visitors when they visit a destination. The pull items include outstanding scenery, museums and art galleries, and exotic atmosphereetc. The push items include experiencing new and different lifestyles, traveling to historically important places, and learning new things, increasing knowledge.

2.

*Questions that are useful for in-class discussions. They require the student to think, but require little outside preparation.

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