Module 2 Tourism Hospitality Marketing PDF

Lesson 6 MARKET SEGMENTATION, TARGETING AND POSITIONG Objectives: 1. Define the major steps in designing a customer -driven marketing strategy, market segmentation, targeting and positioning. 2. Explain how companies identity attractive market segments and choose a market-...

Lesson 6 MARKET SEGMENTATION, TARGETING AND POSITIONG Objectives: 1. Define the major steps in designing a customer -driven marketing strategy, market segmentation, targeting and positioning. 2. Explain how companies identity attractive market segments and choose a market- targeting strategy. 3. Illustrate the concept of positioning the competitive advantage by offering specific examples. Time : 1-3 hours Market Segmentation A business firm that is non-consumer-oriented will hesitate to differentiate its market from competitors. A company that is consumer-oriented is never resistant to market segmentation. Market Segmentation is the process of dividing a market of potential customer into groups or segments, based on different characteristics. The segments created are composed of consumers who will respond similarly to marketing and who share traits, as such similar interests, needs or location. Figure 1. Steps in segmentation, targeting and positioning Market Segmentation Market targeting Product positioning 1. Identify bases 5. Develop for segmenting 3. Develops positioning for each the market measures of target segment 2. Develop segments attractiveness. 6. Develop profiles of 4. Select the marketing mix for resulting target segments each target segments segment Market is the set of all actual and potential buyers of a product. It is one of the composition of systems, institutions procedures, social relations or infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods and services in exchange of money in buyers. Three Steps of the Target marketing Process A. Market Segmentation is the process of dividing a market into distinct groups of buyers who might require separate products and/or marketing mixes. B. Market targeting is the process of evaluating each segment’s attractiveness and selecting one or more of the market segments. C. Positioning is the process of developing competitive positioning for the product and an appropriate marketing mix. Market Segmentation A. Bases for segmenting a market. There is no single way to segment a market. A marketer has to try different segmentation variables, alone and in combination, hoping to find the best way to view the market structure. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 1  1. Geographic segmentation calls for dividing the market nations, states, regions, countries, cities or neighborhoods. 2. Demographic segmentation consists of dividing the market into groups based on graphics variables such as age, gender, family, life cycle, income, occupation, education, religion, race, and nationality. 3. Psychographic segmentation divides buyers into different groups based on social class, lifestyle and personality characteristics. 4. Behavior segmentation divides buyers into groups based on their knowledge, attitude, use or response to a product.  Customers who tend to be loyal to a brand will most likely not respond to a competitor’s price cut, at least, not immediately.  Place or distribution, display and packaging can be critical for self- conscious buyers of intimate products such as lingerie and condoms. B. Requirements for Effective Segmentation 1. Measurability. The degree to which the segment’s size and purchasing power can be measured. 2. Accessibility. The degree to which segments are large or profitable enough to serve as markets. 3. Substantiality. The degree to which segments are large or profitable enough to serve as markets. 4. Actionability. The degree to which effective programs can be designed for attracting and serving segments. Evaluating Market Segments: Factors in evaluating segments: a. Segment size and growth. Companies analyze the segment size and growth and choose the segment that provides the best opportunity. b. Segment structural attractiveness. A company must examine major structural factors that affect long-run segment attractiveness. c. Company objectives and resources. The company must consider its own objectives and resources in relation to a market segment Selecting Target Market WHO WILL BUY? Bata/matanda? Age? Me trabaho? Anong tinapos? Gender? THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 2 Figure 1. Selecting target market Target market Marketing System Things to be Marketing marketed Organization Defining the target market A specific way of defining the target market is to identify the primary target that is the most logical buyers to generate the bulk sales. Secondary target markets must also be reached through different communications and marketing mixes. Target market are the buyers of the goods. They can be present product users or they can be the prospective buyers being targeted by the marketing organizations. Market is shall not mean a “palengke” but “people with need to satisfy, capacity or money to spend and willingness to buy. These people are the target market. Image by: go.survey.in The Marketing System Marketing system deals with identification of major institutional components in an organization’s environment that interact to produce results in the market place. The marketing organization is defined as the marketers, the sellers of goods or services who can be either be the producer, the manufacturer, wholesaler or retailer. Market Positioning A product’s position is the way the product is defined by consumers on important attributes-the place the product occupies in consumers’ minds relative to competing products. A. Positioning Strategies 1. Specific product attributes. Price and product features can be used to position the product. 2. Needs products fill or benefits products offer. Marketers can position products by the needs that they fill or the benefits that they offer. For example, a restaurant can be positioned as a fun place. 3. Certain classes of users. Marketers can also position for certain classes of users, such as hotel advertising itself as a women’s hotel. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 3  4. Against an existing competitor. A product can be positioned against an existing competitor. In “Burger Wars”, Burger King used its flame-broiled campaign against McDonald’s claiming that people prefer flame-broiled over fried burgers. B. Choosing and implementing a position strategy. The positioning tasks consists of three steps: identifying a set of possible competitive advantages on which to build a position, selecting the right competitive advantages, and effectively communicating and delivering the chosen position to carefully selected target market. C. Product Differentiation 1. Physical Attributes 2. Service 3. Personnel 4. Location 5. Image Source: Philip T. Kotler, Pearson New International Edition, Marketing for Hospitality and Tourism, Sixth Edition, 2015 THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 4  Lesson 7 DESIGNING AND MANAGING PRODUCTS Objectives: 1. Define the term product, including the core, facilitating, supporting and augmented product. 2. Understand branding and the conditions that support branding 3. Explain the new-product development. 4. Understand how the product lifecycle can be applied to the hospitality industry. Time Frame: 4 hours Discussion: I. What is a Product? A product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. It includes physical object, services, place, organizations and ideas. II. Product Level A. Core product. It answers the question of what the buyer is really buying. Every product is a package of problem-solving services. A core product is a company product or service that is most directly related to its core companies.( Wikipedia) B. Facilitating products. These are services or goods that must be present for the guest to use the core product. C. Supporting products. These are extra products offered to add value to the core product and to help differentiate it from the competition. D. Augmented products. An augmented products has been enhance by its seller with other features or services to distinguish it from the same product offered by its competitors. Augmenting a products involves including intangible benefits or add-on that go beyond the product itself. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 5  1. Accessibility. This refers to how accessible the product is in terms of location and hours. 2. Atmosphere. Atmosphere is a critical element in services. It is appreciated through the senses. Sensory terms provide descriptions for the atmosphere as a particular set of surroundings. The main sensory channels for atmosphere are sight, sound, scent and touch. 3. Customer interactions with the service system. Manager must think about how the customers use the product in the three phases of involvement, joining, consumption and detachment. 4. Coproduction. Involving the guest in service delivery can increase capacity, improve customer satisfaction and reduce cost. III. Branding Strategy. Brand is a name, term, sign, symbol, design or a combination of these elements that is intended to identify the goods or services of a seller and differentiate them from those competitors. A. Building strong brands. Brands are powerful assets that must be carefully developed and managed A brand is a word, mark, symbol or combination of them used to identify the marketer’s product or service. Branding is the process of endowning products and services with the power of brand. It’s all about creating differences between products. A brandname is something which can be vocalized or spoken. A brandmark is a non-registered design, symbol or product logo. A tradename is a registered company name. Characteristics of good brand names: a. It must be easy to remember. (ex. MILO) b. It must suggest something about product benefits or use. (ex. Pronto floor wax – means fast action) c. It must be distinctive. Symbols, colors must be easily recognized and not to confusing to consumers. d. It must be legally protected. B. Brand equity. It is added value endowed on products and services. It may be reflected in the way consumers think, feel and act with respect to the brand, as well as in the prices, market share, and profitability the brand commands for the firm. C. Branding positioning. Companies can position brands at any of three levels. At the lowest level, they can position the brand on product attributes. A brand can be better positioned by associating its name with a desirable benefit. The strongest brands go beyond attribute or benefit positioning. They are positioned on strong beliefs and values. D. Brand portfolios. The brand portfolio is the set of all brands and brand particular category or market segment. Marketers often need multiple brands in order to pursue these multiple segments. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 6  Reasons for introducing multiple brands: e. attracting consumers seeking variety who otherwise have switched to another brand. f. increasing internal competition within the firm: g. yielding economies of scale in advertising, sales, merchandising and physical distribution. E. Managing brands. Companies must manage their brands carefully. First, the brand’s positioning must be continuously communicated to consumers. The company should carry on internal brand building to help employees understand and be enthusiastic about the brand promise. IV. New product Development A. New Product development process: Figure 1: Major stages in new product development Idea Concept Marketing Idea screening generation development strategy & testing Business Product Test Commercia analysis development marketing lization 1. Idea Generation. Ideas are gained from internal sources, customers, competitors, distributors and suppliers. 2. Idea screening. The purpose of screening is to spot good ideas and drop poor ones as soon as possible. Idea screening procedures are needed to eliminate ideas generated with poor or low potential and allow those with superior potential to go further. Developing products with poor potential can be very costly. 3. Concept development and testing. Surviving ideas must now be developed into product concepts. These concepts are tested with target customers product idea It is important to distinguish between a product idea product concept and product image. A product idea envisions a possible product that company managers might offer to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way that consumers picture an actual or potential. 4. Marketing strategy development. There are 3 parts of marketing strategy statements. The first part describes the target market, the planned product positioning and the sales, market share and profit goals for the first two years. The second part outlines the product’s planned price, distribution and marketing budget for the first year. The third part describes the planned long-run sales, profit and market mix strategy over time. 5. Business analysis. Business analysis involves review of the sales, costs and profit projections to determine whether they satisfy the company’s objectives. During business analysis there 3 important things to be defined: a. Target market b. Communication plan c. Financial analysis and marketing mix plan THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 7  6. Product development. Product development turns the concept into a prototype of the product. 7. Market testing. Market testing is the stage in which the product and marketing program are introduced into more realistic market settings. 8. Commercialization. The product is brought into the market place. Marketing testing gives management the information it needs to make a final decision about whether to launch a new product. It will face high costs. It may have to spend several million dollars for advertising and sales promotion in the first year. (ex. MCDonald) V. Product Life-Cycle Stages In developing new products and in anticipating future market developments, marketers must consider what stage of the product life cycle the product is in. Product life cycle (PLC) shows the process where both the customers and the suppliers change their behavior while interacting in the market. The concept associates products to the life cycle of human beings. Stages in the Product Life-cycle 1. Product development begins when the company finds and develops a new product idea. During product development, sales are zero and the company’s investment costs add up. 2. Introduction is a period of slow sales growth as the product is being introduced into the market. Profits are nonexistent at this stage because of the heavy expenses of product introduction. 3. Growth is a period of rapid market acceptance and increasing profits. This is when sales and profits increase at an increasing rate. Product “tryers” are now repeat buyers. Competitors are now reacting, so the marketing organization must develop selective demand, thru the use of “ buy our brand” strategy by promoting product benefits, rather than a simple “try our product” strategy. 4. Maturity is of slowdown in sales growth because the product has achieved acceptance by most of its potential buyers. Although sales are still high, profits level off or decline because of increased marketing outlays to defend the product against competition. This stage is divided into 3 phases. a. Growth maturity. Sales are declines because of distribution saturation, unwillingness of middlemen to re-sell manufacturers product. b. Stable maturity. Sales become level-off or at break-even because of market saturation; unwillingness of market to buy due to loss of interest to the product. c. Decaying maturity. Sales continue to decline; customers shift to other brands or available substitute. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 8 5. Decline is the period when sales fall off quickly and profits drop. New products or brands eventually enter the industry. Obsolescence of the company’s products sets in. as new concepts come in, they replace the old ones. Figure 2: Product Life cycle Source: Mill and Morrrison: The Tourism system, 1998 THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 9  PRICING PRODUCTS: PRICING CONSIDERATIONS, APPROACHES, AND STRATEGY Lesson 8 Objectives: 1. Outline the internal factors affecting pricing decisions, especially marketing objectives, marketing mix strategy, costs, and organizational considerations. 2. Identify and define the external factors affecting pricing decisions, including the effects of the market and demand competition and other environmental elements. 3. Contrast the differences in general pricing approaches and be able to distinguish among cost-plus pricing, target profit pricing, value-based pricing, and going rate. 4. Identify the new product pricing strategies of market-skimming pricing and market- penetration pricing. 5. Understand how to apply pricing strategies for existing products, such as price bundling and price-adjustment strategies. 6. Understand and be able to implement a revenue management system. 7. Discuss the key issues related to price changes, including initiating price cuts and price increases, buyer and competitor reactions to price changes and responding to price changes. Time: 3 hours Discussion: PRICING PRODUCTS: PRICING CONSIDERATIONS, APPROACHES, AND STRATEGY Lesson 8 Price means the money value of a product or service expressed in terms of peso and or centavos. Price is also the amount of money needed in order to acquire a product or service and its accompanying services. Factors to Consider When Setting Price Internal factors: External factors: Nature of the market & Marketing objectives Pricing demand Marketing-mix strategy decisions Competition Costs Other environmental factors Organization for pricing (economy, resellers, government) A. Internal Factors include the company’s marketing objectives, marketing mix strategy, costs, and organizational considerations. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 10  1. Marketing Objectives Before establishing price, a company must select product strategy. If the company has selected a target market and positioned itself carefully, its marketing mix strategy, including price, will be more precise. Major Influence of Price a. Survival. It is used when the economy slumps or a recession is going on. A manufacturing firm can reduce production to match demand and a hotel can cut rates to create the best cash flow. b. Current profit maximization. Companies may choose the price that will produce the maximum current profit, cash flow, or ROI (Return of Investment), seeking financial outcomes rather than long-run performance. c. Market-share leadership. When companies believe that a company with the largest market share will eventually enjoy low costs and high long-run profit, they set low opening rates and strive to be market-share holder. d. Product-quality leadership. Hotel like the Ritz-Cariton chain charge a high price for their high-cost products to capture the luxury market. e. Other objectives. Stabilize market, create excitement for new product, and draw more attention. 2. Marketing Mix Strategy Pricing decisions vary with product features, distribution and promotion decisions. Companies often position their products on price, wherein it defines the target market, competitors and product design. This technique is called target costing, wherein it starts with identifying ideal price, then targets costs that will ensure that the price is met. 3. Costs. There are two types of costs a. Fixed cost. Costs that do not vary with production or sales level. b. Variable costs. Costs that vary directly with the level of production. 4. Cost subsidization 5. Organizational considerations. Management must decide who within the organization should set prices. In small companies, this will be top management; in large companies, pricing is typically handled by a corporate department or by a regional or unit manager under guidelines established by corporate management. B. External Factors 1. Nature of the Market and Demand Different prices create different market demand. a. Cross-selling. The company’s other products are sold to the guest. b. Upselling. Sales and reservation employees are trained to offer continuously a higher-priced product that will better meet the customer’s needs, rather than settling for the lowest price. 1. Consumer perception of price value. It is the consumer who decides whether a product’s price is right. The price must be buyer oriented. The price decision requires a creative awareness of the target market and recognition of the buyer’s differences. 2. Analyzing the price-demand relationship. Demand and price are inversely related; the higher the price, the lower the demand. Most demand curves slope downward in either a straight or a curved line. The prestige goods demand curve sometimes slopes upward. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 11 3. Price elasticity of demand. If demand hardly varies with a small in price, the demand is inelastic; if demand changes greatly, the demand is elastic. Buyers are less price-sensitive when the product is unique or it is high in quality, prestige or exclusiveness. Consumers are also less price-sensitive when substitute products are hard to find. If demand is elastic, sellers generally consider lowering their prices to produce more total revenue. 4. Factors Affecting Price-Demand Relations a. Unique value effect. Creating the perception that offering is different from those of your competitors avoids price competition b. Substitute awareness effect. Lack of the awareness of the existence of alternatives reduces price sensitivity. c. Business expenditure effect. When someone else pays the bill, the customer is less price sensitive. d. End-benefit effect. Consumers are more price-sensitive when the price of the product accounts for a large share of the total cost of the end benefit. e. Total expenditure effect. The more someone spends on a product, the more sensitive he/she is to the product’s price. f. Price quality effect. Consumers tend to equate price with quality, especially when lack any prior experience with the product. 5. Competitor’s Price and Offers. When a company is aware of its competitor’s price and offers, it can be use the information as a starting point for deciding its own pricing. Example: branded perfume and fragrance vs local brand 6. Other Environmental factors. Other factors include inflation, boom or recession, interest rates, government purchasing and birth of new technology. III. General Pricing Approaches A. Cost-based pricing. This is the simplest pricing method wherein a standard mark-up is added to the cost of the product. Example: a bottle of wine that costs P250 may sell for P750, or three times the cost. B. Break-even pricing. This is also known as target profit pricing. Price is set to break- even on the costs of making and marketing a product, or to make a desired profit. Example: Supposing fixed costs is Php30,000, variable cost is Php10.00, at Php 37.50 the company must sell at least 1091 units to break-even. Break-even volume = fixed cost/price-variable cost = Php 30,000/37.50-10 = Php 30,000/27.50 = 1091 units C. Value based-pricing. This cost-based approach is also known as buyers-based approach which considers consumers perceived value on the product. This means that the price is considered before designing the product or planning for its marketing program. Pricing begins with analyzing consumers needs and value perceptions, and price is set to match consumers’ perceived value. D. Competitive-based pricing. Competition-based price is based on the establishment of price largely against those competitors, with less attention paid to costs or demand. In competition-based pricing strategy, there are two common ways in setting prices. These are: 1. Going Rate. In going rate, marketers work within the prevailing market price. Commodities like gasoline have similar prices except for self-service stations, which charge a little less. Thus firms can price their products lower than the going rate, or price their product at parity with competition, and emphasize their other product value. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 12  2. Sealed Bid. In sealed bid, marketers price their product or service depending on how competitors are expected to price theirs. Most of the time, this pricing policy is required by government offices to ensure they get the best deal. IV. Pricing Strategies A. New Product pricing strategies. Pricing strategies usually change as a product passes through it life cycle. The introductory stage is especially challenging. 3. Prestige pricing. Hotels or restaurants seeking to position themselves as luxurious and elegant enter the market with a high price that supports the position. 4. Skim-the cream pricing. This involves setting higher price from what the market expects. This can be possible since the buyer’s associate higher prices with better quality goods. 5. Market- penetration pricing. This involves setting a low initial price for the product or service. Product is priced at minimum that will generate profit. The aim of this strategy is to target the mass market immediately and win a large market share. This strategy can be effective when market is price sensitive, where low price result to market growth. Production and distribution costs must decline as sales volume increases. Finally, low price must keep out competitive entry, on a longer period for price advantage. Example: CRD-King sells CDs and related products in various kiosks, saving on the margins typically given to retailers. 6. Product-bundle pricing. Sellers using product-bundle pricing combine several of their products and offer the bundle at a reduced priced. Most use by cruise lines. Example: computer CPU, printer, scanner, table and chairs and even cloth covers; hotel prices for service, room, meal and entertainment B. Existing-product pricing strategies. The strategies just described are used primarily when introducing a new product. However, they can also be useful with existing products. The following strategies are ones that can be used with existing products. 1. Price adjustment strategies. Companies usually adjust their basic prices to account for various customer differences and changing situations. a. Volume discounts. Hotels have special rates to attract customers who are likely to purchase a large quantity or hotel rooms, either for a single period or throughout the year. b. Discounts based on time of purchase. A seasonal discount is a price reduction to buyers who purchase services out of season when the demand is lower. Seasonal discounts allow the hotel to keep demand steady during the year. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 13  Discount Policies: Reductions from List prices 1. Quantity discounts are price reductions offered to encourage customers to buy in large amount. 2. Trade discounts are also known as functional discounts. Reductions in price in given to certain classes of buyers, usually to compensate them for the performance of particular marketing functions. 3. Cash discounts are reduction in price allowed the buyer for prompt payment of his bill. 4. Datings. These refer to the length of time for which sellers extend credit terms to buyers. c. Discriminatory pricing. Segmentation of the market and pricing differences based on price elasticity characteristics of the segments. In discriminatory pricing, the company sells a product or service at two or more prices, although the difference in price is not based on differences in cost. It maximizes the amount that each customer pays. 2. Revenue Management. Revenue management involves upselling, cross-selling and analysis of profit margins and sales volume for each product-line. A yield-management system is used to maximize a hotel’s yield or contribution. 3. Psychological Pricing. Also called ‘ Noticeable Price Difference”, the Psychological Pricing technique is used most especially in supermarkets and department stores to create an impression of “good value”. For instance, a price of Php 2.95 may sell as well as Php 2.75 but no longer as good if priced at Php 3.05 or above because of easy differentiation. The same is true for high-ticket items. Example, an LCD projector price at Php 29,500 may sell as well it priced at Php 29,800 but not as well if the price will be changed to Php 30,350. 4. Promotional Pricing. Hotels temporarily price their products below list price, and sometimes even below cost, for special occasions, such as introduction or festivities. Promotional pricing gives guests a reason to come and promotes a positive image for the hotel. 5. Value Pricing. Value pricing means offering a price below competitors permanently, which differs from promotional pricing, in which price may be temporarily lowered during a special promotion. This is also known as buyers-based approach which considers consumers perceived on the product. This means that the price is considered before designing the product or planning for its marketing program. Pricing begins with analyzing consumers needs and value perceptions, and price is set match consumers’ perceived value. VI. Price Changes/ Adjustments A. When to Increase Price. Reasons for company to cut price are excess capacity, inability to increase business through promotional efforts, product improvement, follow-the-leader pricing and desire to dominate the market. Some reasons for price adjustments are:  inflation- a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services. (Merriam Webster since 1828)  foreign exchange- A major change in foreign exchange will necessitate a review in pricing. If devaluation occurs with the peso, costs of imported raw materials used for production will also increase. (Principles And practices In Marketing in Philippine Setting by: Josiah Go and Chiqui Escarael-Go, November 2017)  shortages -When shortages of raw materials exist: prices normally go jup. This is the basic law of demand and supply. (Principles And practices In Marketing in Philippine Setting by: Josiah Go and Chiqui Escarael-Go, November 2017) THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 14   product repositioning - Brands that are relaunched and repositioned from a perceived low quality brand to a high quality brand almost always have to change price to reflect the new value of the product. Not all brands, however would take advantage of this opportunity. Source image: aptusmarketing.com THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 15  Name: _______________________ Score: _____________________ Course/Section: _______________ Date: ______________________ Part III. Caselet: Chicken Marketing Bounty Agro successfully launched rotisserie chicken Chooks-to-Go without sauce in 2008 and became the market leader within two years, aggressively opening more stores numbering at 1,000 – more than the next 3 competitors combined. In 2013, Bounty Agro launched another cooked chicken kiosk brand. Uling Roasters, this time using a charcoal grill similar to early entrants Andok’s, Baliwag and Sr. Pedro. Uling Roasters even used an unconventional tagline, “Di raw masyadong masarap pero pwede na.” In 2015, Bounty Fresh launched a third brand, Reyal Litson Manok offering sauce – in fact, with a tagline, “Masarap pag me sauce”. Identify who is the target market and what is the value proposition of each of the 3 brands of Bounty – Chooks-to-Go, Uling Roasters, and Reyal. How are they priced differently? Chooks-to-Go Uling Roasters Reyal Target Market Value Proposition Pricing THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 16  DISTRUBUTION CHANNELS Lesson 9 Objectives: After reading this chapter, you should be able to: 1. Describe the nature of distribution channels, and tell why marketing intermediaries are used. 2. Explain the different marketing intermediaries available to the hospitality industry and the benefits each of these intermediaries 3. Illustrate the channel management decisions of selecting, motivating and evaluating channel alternatives 4. Identify factors to consider when choosing a business location Time frame: 3 hours Discussion: I. Nature and Importance of Distribution Channels A distribution channel (or trade channel) is made of marketing intermediaries, or organizations that assist in moving goods and services from producers to end users or consumers. Marketing intermediaries are the middle of the distribution process between the producer and the end user. The middlemen play a vital role in distribution channel. Middlemen are independent business concern that operate as links between producers and ultimate consumers or industrial users. Middlemen are classified into two: 1. Merchant middlemen. Those who are actually take the title to the goods they handle. Examples are wholesalers and retailers 2. Agent middlemen. Those who do not take title to the goods but do not actually assist in the transfer of title. Examples are real estate brokers Figure 1: Distribution channel THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 17 Flow of Channel of Distribution Figure 2: Manufacturer/ Producer Wholesaler Retailers Ultimate consumers Manufacturing is the processing of raw materials or parts into finished goods through the use of tools, human labor, machinery and chemical processing. Efficient manufacturing techniques enable manufactures to take advantage of economies of scale, producing more units at a lower cost (Feb 5, 2020, www.investopedia.com) A manufacturer is a person that makes goods to sell. (www.vocabulary.com) Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or other wholesalers and related subordinated services. In general, it is the sale of goods to any one other than a standard consumer. (en.m.wikipedia.org>wiki ) A wholesaler is a person whose business is buying large quantities of goods and selling them in smaller amounts. www.collinsdictionary.com) Wholesaler is a merchant middleman because of the presence of both factors: delivery and payment. A retailer is a person or business that sells goods to the public in relatively small quantities for use of consumption rather than resale. (Oxford Language) Retailers typically don’t manufacturer their own items. They purchase goods from a manufacturer or a wholesaler and sell these goods to consumers in small quantities. Middlemen are persons who buy goods from producers and sell them to retailers or consumers. (Oxford language) Consumers are people or organizations that purchase products or services. The term also refers to hiring of goods and services. They are human or other economic entities that use a good or service. They are the end users in the distribution chain of goods and services. In fact, sometimes the consumer might not be the buyer. A. Reasons that marketing intermediaries are used. The use of intermediaries depends on their greater efficiency in marketing the goods available to target markets. Through their contacts, experience, specialization and scale of operation, intermediaries normally offer more than a firm can on its own. THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 18  B. Distribution channel functions: A distribution channel moves goods from producers to consumers. It overcomes the major time, place and possession gaps that separate goods and services from those who would use them. Members of the marketing channel perform many key functions: 1. Information: Gathering and distributing marketing research and intelligence information about the marketing environment 2. Promotion: Developing and spreading persuasive communications about an offer 3. Contact: Finding and communicating with prospective buyers 4. Matching: Shaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling and packaging 5. Negotiation: Agreeing on price and other terms of the offer so that the ownership or possession can be transferred 6. Physical distribution: Transporting and storing goods 7. Financing: Acquiring and using funds to cover the costs of channel work 8. Risk taking: Assuming financial risks such as the inability to sell inventory at full margin. II. Hospitality Distribution Channel  Industry consist of contractual agreements and alliances between independent organizations.  In the hospitality and travel industries, distribution systems move the customer to the product (ex. The hotel, restaurant, cruise ship, airplane) Two types of distribution channel: a. Direct channel – is a supply chain strategy that delivers product directly from producer to consumer without intermediaries b. Indirect channel - means selling wholesale agents or retailers so that they can distribute the product to you Figure 3: Direct Distribution Producer Customer Indirect Distribution Producer Intermediaries Customer A. Major hospitality distribution channels  Direct booking – is a booking made directly with the supplier of the tour or activity  Online travel agencies – Examples: Agoda, booking.com  Global distribution systems – is a computerized network that facilitates transactions between travel service providers and travel agents (businessdictionary.com Sept 6, 2019)  Travel agents – a private retailer or public service that provides travel and tourism-related service to general public on behalf or accommodation or travel suppliers (Wikipedia) THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 19   Tour wholesalers – operate in a very similar way to wholesalers in other industries. However, instead of supplying tangible products they supply touring options including travel, accommodation and tours. A tour wholesaler supplies the retail travel agents, they DO NOT sell directly to consumers. (www.tourismcouncilwa.com.au) B. Specialist: tour brokers, motivational houses and junket reps C. Hotel representatives – a company serving the travel agent channel that serves as the booking contact for hotel or group of hotels (www.travel-indutry-dictionary.com) D. National, state and local tourist agencies E. Consortia and reservation systems – consortia are Association of marketing organization which link together to small medium sized independent travel agencies to leverage purchasing power and marketing opportunities. The consortia rate is negotiated between the hotels and travel agencies and is only available to contracted consortia. (www.xotels.com) F. Concierges – 1) a caretaker of an apartment complex or small hotel, typically one living on the premises , 2) a hotel employee whose job is to assist guest by arranging tours, making the theater and restaurant reservations, etc. (Oxford dictionary) G. Restaurant distribution systems  Traditional telephone method  Call centers  Online or mobile through their own website or applications  Online or mobile through general third-party reservations sites or applications III. Channel Behavior Distribution channels are more than simple collections of firms tied together by various flows. They are complex behavioral systems in which people and companies interact to accomplish individual, company, and channel goals. (https://www.scrib.com) July 17, 2015 A. Channel Conflict – occurs when manufacturers (brands) disintermediate their channel partners, such as distributors, retailers, dealers and sales representatives, by selling their products directly to consumers through general marketing methods and/or over the internet. (http://en.m.wikepedia.org) 1. Horizontal conflict. Conflict between firms at the same level. Example, suppose a toy manufacturer has deals with two wholesalers, each contracted to sell products to retailers in different regions. 2. Vertical conflict. Conflict between different levels of the same channel. Example, if the toy manufacturer discovers its products are arriving at retail stores later than scheduled, a conflict might develop between the manufacturer and the wholesaler responsible for shipping to retailers. IV. Channel Organization. While channels can be very complex, there is a common set of channel structures that can be identified in most transactions. Each channel structure includes different organizations. Generally, the organizations that collectively support the distribution channel are referred to as channel partners. (https://courses.lumenlearning.com) THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 20 Fig. 4: Comparison of conventional distribution channel with VMS A. Conventional marketing system. A conventional marketing system, producers, wholesalers and retailers are separate businesses that are all trying to maximize their profits. When the effort of one channel member to maximize profits comes at the expenses of other members, conflicts can arise that reduce profits for the entire channel. (https://www.inc.com>encyclopedia) B. Vertical marketing system. A vertical marketing system consists of producers, wholesalers and retailers acting as a unified system. VMSs were developed to control channel behavior and manage channel conflict and its economies through size, bargaining power and elimination of duplicated services. The three major types of VMSs are corporate, administered, and contractual.  Corporate. A corporate VMS combines successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of the parties.  Administered. A coordinated system of distribution channel organization in which the flow of products from producer to end-user is controlled by the power and size of one member of the channel system rather than by common ownership or contractual ties. ( https://www.monash.edu)  Contractual. A contractual VMS consists of independent firms at different levels of production and distribution who join through contracts to obtain economies or sales impact. a. Franchising. It is based on marketing concept which can be adopted by an organization as a strategy for business expansion. Where implemented, a franchisor licenses its know-how procedures, intellectual property, use of its business model, brand and rights to sell its branded products and services to franchisee. b. Alliances. Alliances are developed to allow two organizations to benefit from each other’s strengths. C. Horizontal marketing system. It is all about connecting to a broad audience. This could mean that two or more organizations join together to capitalize on new opportunities. For instance, a supermarket and a bank could agree to have bank’s ATMs situated at their supermarket locations. Nov.22, 2018 (https://fabrikbrands.com) D. Multichannel marketing system. A single firm sets up to two or more marketing channels to reach one or more customer segments. V. Business Location. characteristics There are four (4) steps in choosing a location: a. Understanding the marketing strategy. Know the target market of the company. b. Regional analysis. Select the geographic market areas THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 21  c. Choosing the area within the region. Demographic and psychographic characteristics and competition are factors to consider. d. Choosing the individual site. Compatible business, competitors, accessibility, drainage, sewage, utilities and size are factors to consider. Key Terms: Agent - a wholesaler who represents buyers or sellers on a more permanent basis, performs only a few functions, and does not take title to the goods. Alliances – are developed to allow two organizations to benefit from each other’s strengths Broker – a wholesaler who does note take title to goods whose function is to bring buyers and sellers together and assist in negotiations Horizontal conflict - conflict between firms at the same level Junket reps – serve the casino industry as intermediaries for premium players Retailer - business whose sales come primarily from retailing Vertical conflict - conflict between different levels of the same channel Wholesaler – firms engaged primarily in wholesaling activity References: Merriam Webster since 1828 https://www.monash.edu https://www.scrib.com July 17, 2015 www.tourismcouncilwa.com.au (https://fabrikbrands.com) Nov.22, 2018 https://www.inc.com>encyclopedia) RUBRIC FOR SHORT ESSAY 3 2 3 1 1 Score Content The essay The essay The essay The essay The essay X1 contains the contains the mentioned contains one did not purpose, purpose, some of the purpose and mention a information information purpose, with one purpose; any and and few one or two information information elaboration of elaborations information but no or the chosen of the chosen and few elaboration elaboration topic. All these topic. elaboration of of the about the are discussed the chosen chosen topic. chosen topic completely. topic. is not evident. Organization The ideas flow There is an One or two More than There is no X1 freely and effort for ideas flow two ideas free flow of there are no ideas to flow smoothly but seem to be ideas. exaggerations. smoothly and there are disconnected Exaggeration The ideas are there is no exaggerations. and is evident. coherent. attempt to One or two exaggerated. Ideas are exaggerate. ideas are More than 3 incoherent. The ideas are incoherent. ideas are coherent. incoherent. Total THC 7: HOSPITALITY AND TOURISM MARKETING ARLENE R. DULAY Assistant Professor II 22