Tourism Marketing Introduction by Azizul Yaakop

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

ÂŠ 2010 Pearson Higher Education, Inc. Pearson Prentice Hall - Upper Saddle River, NJ 07458

OBJECTIVES After reading this chapter, you should be able to: Marketing is so basic…

It cannot be considered a separate function. It is the whole business seen from the point of View of its final result, that is, from the customer’s point of view… Business success is not determined by the producer but by the customer.

— PETER DRUCKER Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

OBJECTIVES After reading this chapter, you should be able to: • Understand the relationships between the world’s hospitality and travel industry.

• Define marketing and outline the steps in the marketing process. • Explain the relationships between customer value and satisfaction. • Understand why the marketing concept calls for a customer orientation. • Understand the concept of the lifetime value of a customer and be able to relate it to customer loyalty and retention. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

Your Passport to Success Hospitality in a Global Economy • As a manager in a global economy, marketing will greatly assist your personal career & the success of the enterprise you manage.

– in today’s hospitality/travel industry, the customer is global and is king or queen

• Customers can enhance or damage your career through the purchase choices they make and the positive or negative comments they make to others. • The travel industry is the world’s largest industry and the most international in nature. – receipts of over $1 trillion and over 1 billion travelers Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Your Passport to Success Hospitality in a Global Economy • Thirty years ago there was nothing in Dubai but a creek, a sheik’s palace, and a reputation as a smuggling capital of the Arabian Gulf.

• Today Dubai boasts some of the world’s best hotels & $70 billion committed to development of tourism. – 30% of Dubai’s gross domestic product is from travel & tourism, and will increase when DUBAILANDTM opens Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Your Passport to Success Hospitality in a Global Economy • The title ―The World’s Best Airport‖ is not held by a US or European airport, but by Hong Kong.

– Hong Kong International Airport boasts the world’s largest enclosed space, with a terminal eventually capable of handling 87 million visitors per year

• The best international airline is Singapore Airlines • The world’s best hotel is Oberoi Udaivilas in Udaipur, India. – the other top five hotels are in four different countries: South Africa, Thailand, Turkey, and Italy.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Your Passport to Success Managing in a Global Economy • Tourism planning/promotion departments and hospitality companies are filled with college graduates from across the globe. • Competition is strong and getting tougher each day.

– yet opportunities are greater than ever before

• Welcome to marketing…

Your passport to success! 1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Your Passport to Success Marketing in a Global Economy • Today marketing isn’t simply a business function. – it’s a philosophy, a way of thinking, and a way of structuring your business and your mind – marketing is much more than a new ad campaign

• Marketing’s task is to provide real value to targeted customers, motivate purchase, fulfill consumer needs, and never fool the customer or endanger the company’s image. • Creating customer value and satisfaction are at the heart of hospitality and travel industry marketing.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Your Passport to Success Marketing in a Global Economy • Today’s successful companies are strongly customer focused and heavily committed to marketing. • Accor has become one of the world’s largest hotel chains by delivering L’esprit Accor

– the ability to anticipate and meet the needs of their guests, with genuine attention to detail

• Ritz-Carlton promises & delivers truly ―memorable experiences‖ for its guests. • McDonald’s® grew into the world’s largest restaurant chain by providing its guests with QSC&V (quality, service, cleanliness, and value). Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Your Passport to Success Marketing in a Global Economy • Successful hospitality companies know that if they take care of their customers, market share & profits will follow. • As a manager, you will be motivating your employees to create superior value for your customers. • You will want to make sure that you deliver customer satisfaction at a profit. • This is the simplest definition of marketing.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Customer Orientation Satisfied Customers • The purpose of a business is to create and maintain satisfied, profitable customers.

– customers are attracted/retained when their needs are met – customers talk favorably to others about their satisfaction

• Some hospitality managers act as if today’s profits are primary and customer satisfaction is secondary. – this attitude eventually sinks a firm as it finds fewer repeat customers and faces increasingly negative word of mouth

• Successful managers understand that profits are best seen as the result of running a business well rather than as its sole purpose. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Customer Orientation Satisfied, Profitable Customers • When a business satisfies its customers, they will pay a fair price for the product, which includes a profit for the firm. • Managers who forever try to maximize short-run profits are short-selling both customer & company.

– much of the behavior of employees toward their customers is the result of management philosophy

• The alternative management approach is to put the customer first and reward employees for serving the customer well.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Customer Orientation Satisfied, Profitable, Repeat Customers

I • Without customers, assets have no value. – a new multi-million-dollar restaurant will close – a $300 million hotel will go into receivership

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Customer Orientation Satisfied, Profitable, Repeat Customers • It is wise to assess the customer’s long-term value and take appropriate actions to ensure a customer’s long-term support. • The Forum Company found the cost of retaining a loyal customer is 20 percent of the cost of attracting a new one. • Another study found an increase in customer retention rates yielded a profit increase of 25 to 125 percent.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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What is Hospitality and Tourism Marketing? Sales & Marketing • In the hotel industry, marketing and sales are often thought to be the same • Sales managers provide prospective clients with tours, entertaining them in the hotel’s food and beverage outlets.

– the sales function is highly visible, where most areas of the marketing function take place behind closed doors

• It is not uncommon to hear restaurant managers say that they ―do not believe in marketing‖. – when they actually mean they are disappointed with the impact of their advertising Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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What is Hospitality and Tourism Marketing? The Marketing Mix • Advertising and sales are components of the promotional element of the marketing mix.

– other elements include product, price, and distribution, research, information systems, and planning

• The Four-P framework calls for marketing to decide: – – – –

Product: the product and its characteristics Price: set the price Place: decide how to distribute the product Promotion: choose methods for promoting the product

• Some critics feel the four Ps underemphasize or omit certain important activities Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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What is Hospitality and Tourism Marketing? Products Serving Needs • If marketers do a good job of identifying consumer needs, developing a good product, and pricing, distributing, and promoting it effectively, the result will be attractive products and satisfied customers.

Starbucks Coffee has created customer loyalty, allowing it to open shops around the world. In this photo, Starbucks customers sit in an outdoor café in Singapore. © Jonathan Drake.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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What is Hospitality and Tourism Marketing? Products Serving Needs

I Companies such as Sonic have brought marketing skills to the restaurant industry. Courtesy of Sonic Corporation and Subsidiaries.

• Marriott developed its Courtyard concept; Darden designed the Olive Garden Italian Restaurant. • Different products, offering new consumer benefits. – marketing means ―hitting the mark.‖ Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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What is Hospitality and Tourism Marketing? Effective Marketing • The marketing mix must be just that—a mix of ingredients to create an effective product/service package for the target market. • This does not mean that selling and promotion are unimportant.

– they are part of a larger marketing mix, a set of marketing tools that work together to produce satisfied customers

• The only way selling and promoting will be effective is if we first define customer targets and needs and then prepare an easily accessible and available value package. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Marketing in the Hospitality Industry Importance of Marketing • The hospitality industry is one of the world’s major industries & in the US, the second largest employer. • The entrance of corporate giants into the hospitality market transformed it from a mom-and-pop industry to an industry is now dominated by chains • Twenty-four companies now account for over a third of all restaurants in the United States. – McDonald’s leads the restaurant group at over 30,000 stores in 119 countries serving 52 million customers a day – Accor, Blackstone & Starwood are buying hotel chains and operating different brands under one organization Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Marketing in the Hospitality Industry Importance of Marketing • In response to growing competitive pressures, hotel chains are relying more on the marketing director. • While the marketing director is a full-time marketer, everyone else must be a part-time marketer.

– all managers must understand marketing

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Marketing in the Hospitality Industry Tourism Marketing • The two main industries comprising the activities we call tourism are the hospitality and travel industries.

– successful hospitality marketing is highly dependent on the entire travel industry

• Many resort/hotel guests purchase travel-hospitality packages assembled by wholesalers and offered through travel agents Visitors to international destinations, such as these tourists on the Brazilian side of Iguacu Falls, often purchase packages that include international airfare, ground transportation, and hotel accommodations. Courtesy of Demetrio Carrasco © Dorling Kindersley. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Marketing in the Hospitality Industry Cooperative Marketing • By agreeing to participate in packages arranged by wholesalers, hotels effectively eliminate competitors. • Hotel & rental car companies have developed cooperative relationships with airlines that offer frequent-flyer plans. • The success of cruise lines is a result of coordinated marketing by many travel industry members. – airlines, auto rental firms, and passenger railways cooperatively develop packages with cruise lines – requires coordination in pricing, promotion & delivery of those packages Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Marketing in the Hospitality Industry Marketing Complexities and Definition • Government or quasi-government agencies play an important role through legislation and promotion of regions, states, and nations. • Few industries are as interdependent as travel– hospitality which will only increase in complexity. • The travel industry must understand the big picture and respond to changing consumer needs through creative strategies based on solid marketing knowledge.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Marketing in the Hospitality Industry Definition of Marketing • Many people think of marketing only as selling and advertising, which is really only a tip of the marketing iceberg.

– today, marketing must be understood in a sense of satisfying customer needs

• If the marketer understands customer needs; develops products that provide superior customer value; and prices, distributes, and promotes them effectively, these products will be sought after by the customer. • Marketing is the art and science of finding, retaining, and growing profitable customers. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketing Process A Five-Step Model • Here are steps one through four of a simple five-step model of the marketing process.

– companies working to understand consumers, create customer value & build strong customer relationships

Figure 1-1 A simple model of the marketing process.

Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketing Process A Closer Look • In the fifth, final step, companies reap the rewards of creating superior customer value. • By creating value for customers, they capture value from customers in the form of sales, 5 profits & long-term customer equity. Figure 1-1 • As the first step, marketers need to understand customer needs & wants, and the marketplace within which they operate. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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See this feature on page 11 of your textbook. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

ÂŠ 2010 Pearson Higher Education, Inc. Pearson Prentice Hall - Upper Saddle River, NJ 07458

Understanding the Marketplace & Customer Needs Customer Needs, Wants and Demands • The most basic concept underlying marketing is that of human needs. A human need is a state of felt deprivation.

– these needs were not invented by marketers, but are part of the human makeup

• The second basic concept to marketing is that of human wants, the form human needs take as they are shaped by culture and individual personality. – wants are how people communicate their needs – wants are described in terms of objectives that will satisfy needs Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Understanding the Marketplace… Customer Needs, Wants and Demands • Sellers can confuse wants with needs. A drill bit maker may think his customer needs a drill bit, but what the customer really needs is a hole.

– these sellers forget that a physical product is only a tool to solve a consumer problem.

• These sellers get into trouble if a new product comes along that serves the need better or cheaper.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketplace & Customer Needs Customer Needs, Wants and Demands • People have almost unlimited wants, but limited resources, and so choose products that produce the most satisfaction for their money.

– when backed by buying power, wants become demands

• Outstanding marketing organizations go to great lengths to learn about & understand their customer’s needs, wants and demands. – they conduct customer research. – smart companies also have employees at all levels— including top management—stay close to customers Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketplace & Customer Needs Products, Services, and Experiences • Consumer needs and wants are fulfilled through a market offering.

– a product that is some combination of tangible, services, information, or experiential product components

• In the hospitality industry, the intangible product including customer service and experiences are more important than the tangible products. – a market offering includes much more than physical goods or services

• Consumers decide which destinations to visit, events to experience, hotels and restaurants to patronize. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketplace & Customer Needs Tangible Products, Services, and Experiences • Managers of resorts realize their guests will be leaving with memories of their stay, and try to create experiences that will generate pleasant ones.

– at a Ritz-Carlton Resort, every evening at sunset they set up chairs on the beach & hire a cellist to play – Marriott provides Dolphin safaris at its Newport Beach property, and a water rafting trip for its Utah property – Lufthansa and Air France created a personalized firstclass service above regular first class

• To the consumer these are all products.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketplace & Customer Needs Customer Value and Satisfaction • Customer value is the difference between benefits the customer gains from owning and/or using a product, and the costs of obtaining the product. • Costs can be monetary or nonmonetary & a very big nonmonetary costs for hospitality customers is time. – luxury hotels in Hong Kong such as The Shangri-La do not expect ―executive guests‖ to stand in line to register – Domino’s Pizza saves the customer time and provides convenience by delivering pizza – limited service hotels provide value to the overnight traveler by offering a free continental breakfast Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketplace & Customer Needs Customer Value and Satisfaction • One of the biggest management challenges is to increase their product value for their target market.

– managers must know their customers and understand what creates value for them

• Customer expectations are based on past buying experiences, the opinions of friends, and market information. • Marketers must set the right level of expectations. – if they set expectations too low, they may satisfy those who buy but fail to attract new customers – too high and buyers will be disappointed Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketplace & Customer Needs Customer Value and Satisfaction • Managers must realize the importance of creating highly satisfied, rather than just satisfied customers. • On a 7-point scale, with 1 very satisfied and 7 very dissatisfied, most managers are happy to receive a 2. • Think of the last time you went to a restaurant and were just satisfied. Would you go back?

– probably not

• When you walk out of a restaurant and say, ―Wow, that was great!‖ – you will probably return and tell others about your discovery Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketplace & Customer Needs Customer Value and Satisfaction

I Results of a guest survey at a Boston hotel show a huge gap between a guest who rates a hotel a 1, and a guest who rates it a 2.

Figure 1-2 Scores of 1, 2, and 3 are all on the satisfaction side of the scale; that is, they are all better than a score of 4, which is ―neither satisfied nor dissatisfied.‖ You can see that satisfying the guest is not enough. Only when guests leave very satisfied are they likely to come back. As a manager, your goal is to have all guests leave very satisfied. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketplace & Customer Needs Exchanges and Relationships • Exchange is the act of obtaining a desired object from someone by offering something in return. • Marketing consists of actions taken to build and maintain desirable exchange relationships with target markets. • Beyond attracting new customers and creating transactions, the goal is to retain customers and grow their business with the company. • The concept of transactions leads to the concept of a market. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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The Marketplace & Customer Needs Markets • A market is a set of actual and potential buyers of a product. • These buyers share a particular need or want that can be satisfied through exchange relationships. • Marketing means managing markets to bring about profitable customer relationships. This advertisement for The Point Hilton Resorts communicates the variety of activities that the resorts offer. These activities will increase the value of the resort to those customers who perceive them as benefits. Courtesy of The Pointe Hilton Resorts, Phoenix, Arizona. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy Selecting Customers to Serve • Marketing management can be defined as the art and science of choosing target markets and building profitable relationships with them. • To design a winning marketing strategy two important questions require answers:

– What customers will we serve? (what is our target market)? – How can we serve these customers best? (what’s our value proposition)?

• The company wants to select only customers that it can serve well and profitably. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy Choosing a Value Proposition • A company’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs.

– such propositions differentiate one brand from another

• The company must decide how it will serve targeted customers—how it will differentiate and position itself in the marketplace. • Companies must design strong value propositions that give them the greatest advantage in their target markets.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy Marketing Management Orientation • What philosophy should guide marketing strategies that will build profitable relationships with target consumers? • What weight should be given to the interests of customers, the organization, and society?

– often, these interests conflict with each other

• There are five alternative concepts under which organizations design and carry out their marketing strategies: – production, product, selling, marketing, &societal marketing concepts Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy The Production Concept • One of the oldest philosophies guiding sellers, the production concept holds that consumers will favor products that are available & highly affordable.

– therefore management should focus on production and distribution efficiency

• Management may become so focused on production systems they forget the customer. • Unionization of service staff is another reason for a production mentality, when workers tend to work in accordance with union work rules, which often conflict with customer needs. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy The Product Concept • The product concept, like the production concept, has an inward focus. • This concept holds that consumers will favor products which offer the most in quality, performance, and innovative features. • Focusing only on the products can lead to marketing myopia.

One way that Olive Garden Italian Restaurants differentiates itself is by freshly grating cheese for the guest. Courtesy of Jeff Greenberg/Alamy Images.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy The Selling Concept • The selling concept holds consumers will not buy enough products unless the organization undertakes a large selling and promotion effort. • The aim is to get every possible sale, not worry about satisfaction or the revenue contribution of the sale. • It does not establish a long-term relationship with the customer; the focus is on getting rid of what one has. • The concept exists within the hospitality industry, with overcapacity being a major contributing factor. – when owners & top management face overcapacity, the tendency is to sell, sell, sell Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy Causes of Overcapacity • Pride in having the most capacity and false belief economies of scale will occur as size increases. • Economic incentives by governments to build a larger tourism/hospitality infrastructure to create economic growth.

– tax laws encourage overbuilding because of tax write-offs

• Poor/nonexistent forecasting & planning by owners, consultants, financial organizations, governments. – failure to merge revenue & sales/marketing management

• A myth that the travel industry faces almost unlimited future demand. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy The Marketing Concept • The marketing concept is a recent philosophy and is being rapidly adopted in the hospitality industry. • It holds that achieving organizational goals depends on determining needs & wants of target markets and delivering the desired satisfaction more effectively and efficiently than competitors.

– Four Seasons Hotels, Accor, and McDonald’s follow this concept fully

• The pure marketing concept ignores possible conflicts between short-run consumer wants & long-run societal needs. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy The Concepts Contrasted

Figure 1-3 The Selling and Marketing Concepts Contrasted Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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1 ÂŠ 2010 Pearson Higher Education, Inc. Pearson Prentice Hall - Upper Saddle River, NJ 07458

Designing Customer-Driven Marketing Strategy The Societal Marketing Concept • The newest concept, societal marketing, holds that the organization should…

– determine the needs, wants & interests of target markets – deliver desired satisfactions more effectively and efficiently than competitors – in a way that maintains or improves the consumer’s and society’s well-being

• It questions marketing concepts in an age of environmental problems, resource shortages, rapid population growth, worldwide inflation, and neglected social services. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Designing Customer-Driven Marketing Strategy The Societal Marketing Concept • Societal marketing asks if the firm that serves & satisfies individual wants is always doing what’s best for consumers and society in the long run. • Advocates of societal marketing would like publicinterest groups to guide corporations to decisions that will benefit society over the long term. • Societal pressures are already manifested in the marketing of cigarettes, liquor & fast-food. – hotels & restaurants have no-smoking sections – restaurants can face liability for serving excessive alcohol – fast-food pursues environmentally sound packaging Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Preparing an Integrated Marketing Plan The Four P’s of Marketing: Product, Price, Place, Promotion • To deliver its value proposition, the firm must first create a need-satisfying market offering: Product • It must decide how much it will charge for the offer: Price, and how it will make the offer available to target consumers: Place. • Finally, it must communicate with customers about the offer & persuade them of its merits: Promotion. • The firm must these into a comprehensive, integrated marketing program that communicates and delivers the intended value to chosen customers. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Building Profitable Customer Relationships Value-Building Tools - Financial Benefits • The first three steps in the marketing process all lead up to the fourth and most important step, that of building profitable customer relationships

– a company can adopt any of three value-building tools to develop stronger customer relationships

• The first relies primarily on adding financial benefits to the customer relationship. – airlines offer frequent-flyer programs – hotels give room upgrades to their frequent guests – restaurants have frequent-diner programs

. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Building Profitable Customer Relationships Value-Building Tools - Social Benefits • The second approach is to add social as well as financial benefits, turning customers into clients.

– company personnel work to learn individual customers’ needs and wants – products and services are individualized & personalized

• The third approach is to add structural ties to the financial and social benefits. – airlines developed reservation systems for travel agents and lounges & limo service for their first-class customers – Sheraton developed flexible check-in and checkout times – Hilton provides a personalized welcome message on the guest’s television Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Building Profitable Customer Relationships Selective Customer Relationships • A company should develop relationships selectively, determining which customers are worth cultivating.

– because you meet their needs more effectively than others

Table 1-1 Types of customers.

– customers who are high on profitability and frequency deserve management attention. – those high on profitability but low on frequency can sometimes be developed in higher frequency customers Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Building Profitable Customer Relationships Selective Customer Relationships • When it comes to relationship marketing you don’t want a relationship with every customer. • Guests who are in the low-frequency, lowprofitability quadrant are often bargain hunters.

– they come when there is a promotion and avoid paying full price at all costs

• It is very difficult to build a relationship with these price-sensitive customers.

1 Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Customer Relationship Management Selective Customer Relationships • Customer relationship management (CRM) may be the most important concept of modern marketing. • It involves managing detailed information about individual customers, carefully managing customer ―touchpoints‖ in order to maximize loyalty. • A customer touch point is any occasion a customer encounters the brand & product, in actual experience, personal/mass communication or casual observation – for a hotel this includes reservations, check-in & out, frequent-stay programs, room service, business services, amenities, restaurants, and bars. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Customer Relationship Management Selective Customer Relationships • CRM enables companies to provide excellent realtime customer service through effective use of individualized information.

– important because a major driver of profitability is the aggregate value of the company’s customer base

• More recently, CRM has taken on a broader meaning as an overall process of building and maintaining profitable customer relationships. • By delivering superior customer value & satisfaction, it deals with all aspects of acquiring, keeping, and growing customers. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Customer Relationship Management The Changing Nature of Customer Relationships • Companies are building more direct and lasting relationships with carefully selected customers.

– many companies use profitability analysis to weed out unprofitable customers and target winning ones

• Once they identify profitable customers, firms can create attractive offers and special handling to capture these customers and earn their loyalty. • CRM has allowed companies to serve chosen customers in a deeper, more lasting way.

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Capturing Value from Customers Customer Loyalty and Retention • The final step in the marketing process involves capturing value in return, in the form of current and future sales, market share, and profits. • Good CRM creates delighted customers, who remain loyal and talk favorably to others about the company.

– studies show differences in loyalty of customers who are less satisfied, somewhat satisfied, and completely satisfied – a slight drop in satisfaction can create a large loyalty drop

• Companies are realizing that losing a customer means losing the entire stream of purchases he/she customer would make over a lifetime of patronage. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Capturing Value from Customers Customer Loyalty and Retention • Benefits of customer loyalty come from continued patronage, reduced marketing costs, decreased price sensitivity, and partnership activities.

– loyal customers purchase from the business they are loyal to more often than nonloyal customers – they also purchase a broader variety of items.

• Reduced marketing costs are the result of requiring fewer marketing dollars to maintain a customer than to create one. – and the creation of new customers through the positive word-of-mouth of loyal customers. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Capturing Value from Customers Customer Loyalty and Retention • Lifetime value is the stream of profits a customer will create in the life of a business relationship

– average life is determined through surveys or guest history

• It measures how much a member of a market segment produces per year, multiplied by the average life of a member of that segment. – Ritz-Carlton knows the life-time value of its loyal customer is over $100,000 over their lifetime. – a restaurant customer can be worth several thousand dollars’ worth of business – a travel agency customer can generate over $50,000 during his/her lifetime by using the agency Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Capturing Value from Customers Customer Loyalty and Retention • Many markets have settled into maturity, with not too many new customers entering most categories.

– outstanding companies go all out to retain their customers

• Competition is increasing, and the costs of attracting new customers are rising. – it might cost five times as much to attract a new customer as to keep a current customer happy

• Offensive marketing typically costs more than defensive marketing – it takes a great deal of effort and spending to coax satisfied customers away from competitors Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Capturing Value from Customers Growing Share of Customer • Good CRM can help marketers increase their share of customer—the share they get of the customer’s purchasing in their product categories.

– banks want to increase ―share of wallet‖ – restaurants want to get more ―share of stomach‖ – airlines want greater ―share of travel‖

• Loyal customers have higher propensity to frequently purchase a wider variety of a company’s products. • Marketers train employees to identify possible products that may create additional value for the customer that they have not purchased yet. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Capturing Value from Customers Building Customer Equity • Customer equity is the discounted lifetime values of all the company’s current and potential customers • The best approach to customer retention is to deliver products that create high satisfaction and perceived value, resulting in strong customer loyalty.

– the more loyal the firm’s profitable customers, the higher the firm’s customer equity

• Customer equity may be a better measure of a firm’s performance than current sales or market share. – where sales & market share reflect the past, customer equity suggests the future Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Capturing Value from Customers Marketing’s Future • Rapid changes can quickly make yesterday’s winning strategies out of date. • The Internet has changed the way we distribute travel products, but as a market force it is just a little over ten years old. – a technology executive stated, ―The pace of change is so rapid that the ability to change has now become a competitive advantage.‖ – management thought leader Peter Drucker observed, ―…a company’s winning formula for the last decade will probably be its undoing in the next decade.” Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Capturing Value from Customers Marketing’s Future • The importance of CRM has created the need for those who understand database marketing and the hospitality industry. • The worldwide growth of the travel industry has created a shortage of managers.

– in some regions projects are put on hold because the developer cannot acquire a management staff

• Marketing, with its customer orientation has become the job of everyone, and…

Your passport to success! 1

Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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KEY TERMS • Customer equity - is the discounted lifetime values of all the company’s current and potential customers. • Customer expectations - are based on past buying experiences, the opinions of friends, and market information. • Customer relationship management (CRM) involves managing detailed information about individual customers and carefully managing customer ―touch points‖ in order to maximize customer loyalty.

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KEY TERMS • Customer touch point - is any occasion on which a customer encounters the brand and product—from actual experience to personal or mass communications to casual observation. • Customer value - the difference between benefits that the customer gains from owning and/or using a product and the costs of obtaining the product. • Demands - Human wants that are backed by buying power, want or need. It includes physical objects, services, persons, places, organizations, and ideas.

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KEY TERMS • Exchange. The act of obtaining a desired object from someone by offering something in return. • Hospitality industry. Made up of those businesses that offer one or more of the following: accommodation, prepared food and beverage service, and/or entertainment. • Human need. A state of felt deprivation in a person. • Human want. The form that a human need takes when shaped by culture and individual personality.

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KEY TERMS • Lifetime value. The lifetime value of a customer is the stream of profits a customer will create over the life of his or her relationship to a business. • Market. A set of actual and potential buyers of a product. • Marketing. The art and science of finding, retaining, and growing profitable customers.

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KEY TERMS • Marketing concept. The marketing management philosophy that holds that achieving organizational goals depends on determining the needs and wants of target markets and delivering desired satisfactions more effectively and efficiently than competitors. • Marketing management. The art and science of choosing target markets and building profitable relationships with them. • Marketing manager. A person who is involved in marketing analysis, planning, implementation, and control activities.

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KEY TERMS • Marketing mix. Elements include product, price, promotion,and distribution. Sometimes distribution is called place and the marketing situation facing a company. • Product. Anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a need. It includes physical objects, services, persons, places, organizations, and ideas.

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KEY TERMS • Product concept - The idea that consumers will favor products that offer the most quality, performance, and features, and therefore the organization should devote its energy to making continuous product improvements. • Production concept - Holds that customers will favor products that are available and highly affordable, and therefore management should focus on production and distribution efficiency. • Purpose of a business - To create and maintain satisfied, profitable customers. Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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KEY TERMS • Relationship marketing - Involves creating, maintaining, and enhancing strong relationships with customers and other stakeholders. • Selling concept - The idea that consumers will not buy enough of an organization’s products unless the organization undertakes a large selling and promotion effort.

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KEY TERMS • Societal marketing concept - The idea that an organization should 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 consumer’s and society’s well-being. • Transaction - Consists of a trade of values between two parties; marketing’s unit of measurement. • Value proposition - The full positioning of brand—the full mix of benefits upon which it is positioned.

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EXPERIENTIAL EXERCISES Try One ! • Restaurant - Visit two restaurants in the same class, such as two fast-food restaurants or two casual restaurants.

– observe the cleanliness of the restaurants, in-house signage, and other physical features – order a menu item and observe the service and the quality of the food

• Write up your observations, and then state which restaurant you feel is more customer oriented. – explain why

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EXPERIENTIAL EXERCISES Try One ! • Hotel - Call the central reservation number of two hotels. Request information on room availability, different room types, and price for a date one month from now. (Note: Do not make a reservation.) • Write up your experience, including:

– description of how quickly the phone was answered – customer orientation of information provided – friendliness of the employee

• Based on your experiences, which hotels do you feel had the more customer-oriented reservation system?

– why? Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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Web Site www.prenhall.com/kotler • One of the support features of this book is a Web site to assist you: www.prenhall.com/kotler • The site serves as a portal to a wealth of information on marketing and travel & hospitality organizations. • Designed to give real-world examples of how companies market and provide information on companies mentioned in the book • The site also contains a resource guide, where students can find information about marketing. – major association sites, job information, and research information can be found in this section Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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INTERNET EXERCISES Try This ! • Choose three restaurants or hotels listed on the book’s Web site under Internet Exercise Chapter 1,

– or use restaurant/hotel companies you find on the Internet • Based on information provided in each Web site: – describe how each of these companies tries to satisfy a customer’s want – how does each of these companies create value for the customer? – do they segment the market by offering pages for a specific market segment? – select the company you would purchase from and state why Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

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END

CHAPTER END Marketing for Hospitality and Tourism, Fifth Edition By Philip Kotler, John Bowen and James Makens

ÂŠ 2010 Pearson Higher Education, Inc. Pearson Prentice Hall - Upper Saddle River, NJ 07458