Marketing for Hospitality and Tourism PDF

Market Segmentation, Targeting, and Positioning 1 “The mythological, homogeneous America is gone. We are a mosaic of minorities.” -Joel Weiner 2  Chapter Objectives Explain market segmentation and identif...

Market Segmentation, Targeting, and Positioning 1 “The mythological, homogeneous America is gone. We are a mosaic of minorities.” -Joel Weiner 2  Chapter Objectives Explain market segmentation and identify several possible bases for segmenting markets List and distinguish among the requirements for effective segmentation Outline the process of evaluating market segments Illustrate the concept of positioning for competitive advantage Discuss choosing and implementing a 3  Markets A market is all actual and potential buyers of a product or service 4  Stages of Marketing Mass marketing Product-variety marketing Target marketing Micromarketing Customized marketing 5  Target Marketing Companies today recognize that they cannot appeal to all customers in the marketplace, or at least not all customers the same way Customers are too numerous, too widely scattered, and too varied in their needs and buying processes Most companies have moved away from mass marketing and toward target marketing Identifying market segments Selecting one or more of them Developing products and market programs tailored to each 6  Target Marketing The first is market segmentation  Dividing a market into distinct groups who might require separate products and/or marketing mixes The second step is market targeting  Evaluating each segment's attractiveness and selecting one or more of the market segments The third step is market positioning  Developing competitive positioning for the product and an appropriate 7 marketing mix  Differentiation Distinguishing the product or service from the competition in ways that are both identifiable and meaningful for the customer The customer should perceive a greater value 8  Differentiation Differentiation is effective when: – It cannot be easily copied – It appeals to a particular need or want – It creates an image or impression that goes beyond the specific difference itself 9  Differentiation Differentiation as an effective marketing tool – It helps to create awareness and trial by the customer – Sometimes product differentiation is the only thing a firm can do – It is much easier to do in the foodservice environment, even within hotels 10  Differentiation Differentiation - of anything – Can be product, message or brand specific – Difficult to achieve in hospitality because of the variety of services offered – Separates product classes and products within the same class – Provides an opportunity to strengthen competitive strategy Is the basis for positioning strategy 11  Market Segmentation Markets consist of buyers who differ in one or more ways. They may differ in their wants, resources, locations, buying attitudes, and buying practices Because buyers have unique needs and wants, each is potentially a separate market Market segmentation: – Is a complimentary strategy to differentiation – Is dividing a market into meaningful groups who have similar wants and needs (market segments) – Starts with the customer 12  Market Segmentation Which comes first: differentiation or segmentation? – Both happen in combination at different times – Both are part of the marketing concept – First know how people differ – Then segment them accordingly – Develop products that meet their specific wants and needs – Creating these two strategies are major reason to study consumer behavior 13  Market Segmentation The process: – Step 1: Needs and wants of the marketplace – Step 2: Projecting wants and needs into potential markets – Step 3: Matching the market and capabilities – Step 4: Segmenting the market – Step 5: Selecting target markets from identified segments 14 15  Geographic Segmentation Geographic segmentation calls for dividing the market into different geographic units, such as nations, states, regions, counties, cities, or neighborhoods Most widely used in restaurant and hotel industry These segments then become easier to reach – Direct mail – Media – Data and information on demographics Metropolitan statistical areas Defining large metropolitan areas in terms of supposed economic boundaries 16  Geographic Segmentation Motel 8 began in Aberdeen, South Dakota, with original appeal to the Midwestern and Western market, but expanded well beyond regional boundaries. Hyatt Hotels initiated a program to offer regional dishes on its menus. The Four Seasons Hotel in Washington, D.C., became concerned about offering local cuisine. 17  Demographic Segmentation Demographic segmentation consists of dividing the marketing into groups based on demographic variables. Demographic variables are the most popular bases for segmenting customer groups Widely used because easy to measure and classify Does not necessarily distinguish wants and needs Demographic lines are now blurred (unclear) Useful demographics – Age – Income – Family life cycle stage – Education – Gender – Religion – Income – Race – Occupation – Nationality 18  Demographic Segmentation Age and life cycle stage: consumer needs and wants change with age. – Some companies offer different products or marketing strategies to penetrate various age and life cycle segments. – For example, McDonald’s offers happy meals that include toys, aimed at young children. – American Express focuses much of its marketing attention on the “mature” market. 19  Demographic Segmentation – Nevertheless, age and life-cycle variables can be misleading. – For instance, some customers were not the physiologically old but the psychologically young. – Southwest Airlines realized that many senior citizens are psychologically young. – Their advertisements for senior fares show active older people enjoying themselves. 20  Demographic Segmentation Gender: Currently, women accounted for 40 % of all business travelers. Hotel corporations are now taking women into consideration in designing their hotel rooms. Most effective when combined with lifestyle and demographic information. 21  Demographic Segmentation Income: Income alone does not always predict which customers will buy a given product or service. It should combine with other variables. For instance, the St. Moritz on-the-Park Hotel in New York City has combined income and geographical segmentation variables to set its prices. Middle-income consumer is by far the largest segment but is difficult to attract and retain. 22 23  Psychographic Segmentation Dividing buyers into different groups based on social class, lifestyle, and personality characteristics Based on activities, interests, and opinions (AIO), self-concepts and lifestyle behaviors Lifestyle patterns combines demographics with the way people live, think and behave in their everyday lives and correlate them into homogeneous categories 24  Psychographic Segmentation People in the same demographic group can have very different psychographic characteristics A rich area for marketing effectiveness for the hospitality industry Marketers also use personality variables to segment markets 25  Psychographic Segmentation Social class: social class has a strong effect on preferences for leisure activities. For example, afternoon tea at the Ritz- Carlton is aimed at the upper-middle and upper classes. A neighborhood pub near a factory targets the working class. 26  Psychographic Segmentation Lifestyle: marketers are increasingly segmenting their markets by consumer lifestyles. (T-book-230) For example, nightclubs are designed with certain clientele in mind: young singles wanting to meet the opposite gender, singles wanting to meet the same gender. 27  Psychographic Segmentation Personality: marketers also use personality variables to segment markets. For example, Frontier Airlines is building a personality around animals by putting colorful graphics on their planes. 28  Behavioral Segmentation Buyers are divided into groups based on their knowledge, attitude, and use or response to a product This is the best starting point for building market segments Types – Special occasion segmentation – Benefits sought – User status – Usage rate – Loyalty status – Buyer readiness stage 29  Behavioral Segmentation Special Occasions: Buyers can be grouped according to occasions when they get the idea, make the purchase, or use a product. – For example, air travel is triggered by occasions related to business, vacation, or family. Mother’s Day has been promoted as a time to take your mother or wife out to eat. 30  Behavioral Segmentation ₋ Some hotels in the Pocono Mountains of Pennsylvania, specialize in the honeymoon market. ₋ Doubletree’s “Room at the Inn” program offers free short-term lodging for travelers needing emergency lodging between Thanksgiving and Christmas. 31  Behavioral Segmentation Benefits sought: Buyers can also be grouped according to the product benefits they seek. For example, a study indicated that the benefits sought by patrons of restaurants are different. Knowing the attributes or benefits sought by customers is useful in two ways. First, restaurant marketers understand what to provide and promote to attract a specific segment. Second, identification of customer types is 32  Behavioral Segmentation / Benefits Sought This type of information reduces waste in advertising and increases effectiveness. The French Trianon Palace Hotel found a specific niche for travelers who want to travel with their best friend – their dog – by offering special services for their pets. 33  Behavioral Segmentation / User status User status: Many markets can be segmented into nonusers, former users, potential users, first-time users, and regular users of a product. Potential users and regular users often require different marketing appeals. 34  Behavioral Segmentation / Usage Rate Usage rate: Markets can also be segmented into light-, medium-, and heavy-user groups. Heavy users are often a small percentage of the market but account for a high percentage of total buying. ₋ For example, a study found heavy users of fast food restaurants account for only 20 % of the customers but 60 % of fast food transactions. ₋ Heavy users of airline travel accounts for only 4.1 % of the customers but 70.4 % of total airline trips. ₋ Heavy users of pleasure trip users of hotels and motels account for only 7.9 % of the customers but 59.4 % of 35 room nights.  Behavioral Segmentation / Usage Rate One of the most controversial programs ever employed by the hospitality and travel industries to ensure heavy patronage by key customers is the frequent flyer or frequent guest program. Clearly, marketers are eager to identify heavy users and build a marketing mix to attract them. 36  Behavioral Segmentation / Loyalty Loyalty status: Markets can also be segmented into four groups: hard-core loyalty, soft-core loyalty, switchers, and no loyalty. In the hospitality and travel industries, marketers attempt to build brand loyalty through relationship marketing. Loyal customers are generally more price insensitive. 37  Behavioral Segmentation / Buyer readiness Buyer readiness stage: At any given time, people are in different stages of readiness to buy a product. Some are unaware of the product; some are aware; some are informed; some want the product; and some intend to buy. The relative number in each stage makes a big difference in designing a marketing program. 38 Behavioral Segmentation 39  Usage Segmentation Umbrella term that covers a wide range of categories – Purpose – Frequency – Monetary value – Recency (novelty) – Timing – Nature of the purchase – Where they go – Purchase occasion – Heavy, medium or light 40  Benefit Segmentation May be the most basic and most predictable of all segments Benefits are very related to need satisfaction Benefits – Comfort – Prestige – Low price – Recognition – Attention – Romance – Quiet – Safety 41  Price Segmentation A form of benefit segmentation, only more visible and more tangible Price segments within a product class Price segments between product classes 42  Multiple Segmentation Using Multiple Segmentation Bases Marketers rarely limit their segmentation analysis to only one or a few variables only Rather, they often use multiple segmentation bases in an effort to identify smaller, better-defined target groups 43  Segmentation Strategies There will be many segments, some with overlap, and different strategies for each segment The test of a segment is their different behavior Segments change over time Market segmentation has become increasingly critical with competition Segmentation will remain a key competitive strategy within the product class 44 45 46  Target Marketing Selecting specific market segments to target and designing the product or service to meet their specific wants or needs More refined segmenting rules apply Strategies: – Undifferentiated targeting market strategy – Strong targeting strategy – Differentiated multi-target marketing 47  Mass Customization The concept that modern technology is bringing us closer to target markets of one Make one product and personalize the product to their specifications Largely due to databases that track customer behavior 48  Requirements for Effective Segmentation Measurable Measurable Size, purchasing power, profiles of segments can be measured. Accessible Accessible Segments can be effectively reached and served. Segments are large or Substantial Substantial profitable enough to serve. Effective programs can be designed to attract and Actionable Actionable serve the segments. 49  Market Targeting Strategies Evaluating Market Segments Selecting Market Segments Choosing a Market-Coverage Strategy 50  Market Targeting Strategies Evaluating Market Segments: When evaluating different market segments, a firm must look at three factors: a) segment size and growth, b) segment structural attractiveness, c) company objectives and resources. 51  Segment size and growth: The company must first collect and analyze data on current segment sales, growth rates, and expected profitability for various segments. The “right size and grow” this a relative matter. The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may find they lack the skills and resources needed to serve the larger segments, or that these segments are too competitive. 52  Segment structural attractiveness The company must examine several major structural factors that affect long-run segment attractiveness. The following three factors make a segment less attractive: 1) the segment already contains many strong and aggressive competitors 2) the buyers in the segment possess strong bargaining power relative to sellers 3) the segment contains powerful suppliers. 53  Company objectives and resources: The company must consider its own objectives and resources in relation to that segment. Some attractive segments could be dismissed quickly because they do not mesh with the company’s long-run objectives. For example, Disney has avoided getting involved in the gaming business segment. 54  Selecting Market Segments After evaluating different segments, the company must now decide which and how many segments to serve. This is the problem of target-market selection, a company can adopt one of three market-coverage strategies: Undifferentiated Marketing (fast food) Bifurcated Marketing (dual / two segments) Differentiated Marketing (Adressing different segments) Concentrated Marketing (few market segments – city hotels) 55  Undifferentiated Marketing Strategy: An undifferentiated marketing strategy ignores market segmentation differences and goes after the entire market with one market offer. Undifferentiated marketing provides cost economies. The narrow product line keeps down production, inventory, and transportation costs. Most modern marketers have strong doubts about this strategy in today’s competitive environment. 56  Undifferentiated Marketing Strategy: In recognition of this problem, many firms target smaller segments or niches where product differentiation is appreciated. For example, microbrewery serves a limited market. Several new niche market airlines have emerged, such as Casino Express, which flies between Denver, Colorado, and Elko, Nevada, and Spirit Airlines, based in Atlantic City. 57 Alternative Market Coverage Strategies 58  Bifurcated (dual) Marketing: In many undeveloped nations, a group of high-end hotels exists for international visitors and guests with high incomes. Another distinct group of low-end hotels exists for locals and adventurous tourists. 59  Differentiated Marketing Strategy: The firm targets several market segments and designs separate offers for each. – For example, Accor Hotels, a French company, operates under 12 trade names and manages several brands and types of hotels. Included in its brands are international luxury hotels (Sofitel), three-star hotels (Novotel), two-star hotels (Ibis), limited-service hotels (Formula One and Motel 6), and extended-stay hotels aimed at the elderly (Hotelia). 60  Differentiated Marketing Strategy: It typically produces more total sales than undifferentiated marketing. For example, Accor gets a higher hotel room market share with three different brands in one city than if it only had one brand in that city. However, its costs are higher to produce the research, forecasting, analysis, and advertising for each brand. 61  Concentrated Marketing Strategy: The firm pursues a large share of one or more small markets. This strategy is especially appealing to companies with limited resources. For example, Four Seasons Hotels and Rosewood Hotels concentrate on the high- priced hotel room market. Furthermore, the firm also enjoys many operative economies because of specialization in production, distribution, and promotion. If the segment is well chosen, the firm can earn a high rate of return on investment. 62  Choosing a Market – Coverage Strategy Factors affecting market coverage strategy Company resources Degree of product homogeneity Market homogeneity Competitors’ strategies 63  Factors Affecting Market Coverage Strategy Companies need to consider several factors in choosing a market-coverage strategy. 1. The Company's Resources. When the company's resources are limited, concentrated marketing makes the most sense. 2. The Degree of Product Homogeneity. Undifferentiated marketing is more suited for homogeneous products. Products that can vary in design, such as restaurants and hotels, are more suited to differentiation or concentration. 64  Factors Affecting Market Coverage Strategy 3. Market Homogeneity. If buyers have the same tastes, buy a product in the same amounts, and react the same way to marketing efforts, undifferentiated marketing is appropriate. 4. Competitors' Strategies. When competitors use segmentation, undifferentiated marketing can be suicidal. Conversely, when competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing. 65  Product Differentiation A company can differentiate its product or offer products similar to competitors. Today, most products try to differentiate themselves from their competitors. A company can differentiate along the lines of a) physical attributes, b) service, c) personnel, d) location, or e) image. 66  1 - Physical Attributes Differentiation The physical environment offers something that competitors cannot match. For example, Sheraton Place in San Francisco is an example of renovated classic hotels. Planet Hollywood differentiates itself by the memorabilia from the motion picture industry. Hard Rock Café differentiates itself by the music memorabilia. 67  2 - Service Differentiation By providing services that will benefit its target market, a company can achieve differentiation. For example, Sheraton provides an in-room check-in service. Red Lobster allows its customers to call from home and put their name on the waiting list, reducing the waiting time. 68  3 - Personnel Differentiation Companies can gain a strong competitive advantage through hiring and training better people than their competitors do. For example, Singapore Airlines enjoys an excellent reputation largely because of the grace of its flight attendants. As far as Southwest Airlines, it’s difficult for competitors to create a spirit similar to the spirit of Southwest’s employees. 69  4 - Location Hospitality and travel firms should look for benefits created by their location and use these benefits to differentiate themselves from their market. For example, hotels facing Central Park in New York City have a competitive advantage over those hotels a block away with no view of the park. Motels that are located right off a freeway exit can have double-digit advantages in percentage of occupancy over hotels a block away. Restaurants along the River Walk in San Antonio, Texas have a competitive advantage over restaurants without a riverfront location. 70  5 - Image Differentiation A company or brand image should convey a singular or distinctive message that communicates the product’s major benefits and positioning. For example, Chili’s has developed an image as a casual and fun neighborhood restaurant. This message is conveyed by their advertising, menu, the physical atmosphere, and the employees. The image must be supported by everything that the company says and does. 71  Selecting the Right Competitive Advantages Suppose that a company is fortunate enough to discover several potential competitive advantages. It now must choose the ones on which it will build its positioning strategy. It must decide how many differences to promote and which ones. 72  Selecting the Right Competitive Advantages: How Many Differences to Promote: – Many marketers think that companies should aggressively promote only one benefit to the target market. – The major ones are best quality, best service, lowest price, best value, and best location. – For example, Motel 6 consistently promotes itself as the lowest-priced national chain, and Ritz-Carlton promotes itself as a value leader. 73  Selecting the Right Competitive Advantages: Other marketers think that companies should position themselves on more than one differentiating factor. For example, a restaurant may claim that it has the best steaks and service. A hotel may claim that it offers the best value and location. However, as companies increase the number of claims for their brands, they risk disbelief and a loss of clear positioning. 74  Which Differences to Promote: Not all brand differences are meaningful, worthwhile or make a good differentiator. Companies must carefully select the ways in which it will distinguish itself from competitors. A difference is worth establishing to the extent that it satisfies the following criteria: Important. The difference delivers a highly valued benefit to target buyers. Distinctive. Competitors do not offer the difference, or the company can offer it in a more distinctive way. 75  Which Differences to Promote: Superior. The difference is superior to other ways that customers might obtain the same benefit. Communicable. The difference is communicable and visible to buyers. Preemptive. Competitors cannot easily copy the difference. Affordable. Buyers can afford to pay for the difference. Profitable. The company can introduce the difference profitably 76  Communicating and Delivering the Chosen Position Once having chosen positioning characteristics and a positioning statement, a company must consistently communicate their position to targeted customers. All of a company's marketing mix efforts must support its positioning strategy. For example, if a company decides to build service superiority, it must hire service-oriented employees, provide training programs, reward employees for providing good service, and develop sales and advertising messages to broadcast its service 77 End of Chapter Slides.. 78