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Marketing in Travel & Tourism: Concepts and Principles


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Marketing in Travel & Tourism: Concepts and Principles

  1. 1. Marketing in Travel & Tourism Unit #5 – Learning Outcome 1 Understanding the concepts and principles of marketing in the travel and tourism sector The International Travel College of New Zealand 1
  2. 2. Core Concepts of Marketing The International Travel College of New Zealand 2
  3. 3. Marketing is All-Around.. Over the last decade in particular prosperity in business has reflected the ways in which companies: 1. Organize their product design and delivery around customer interests. 2. Establish core values that underpin strategic planning and decision-making at every level of the business, usually reflecting wider social and environmental values. 3. Create and promote distinctive branding for product portfolios that promotes relationships with customers. 4. Control, maintain and continuously improve product quality to match or exceed the offers of competitors. 5. Sustain profitability in challenging times. The International Travel College of New Zealand 3
  4. 4. Marketing Definition Marketing is the activity, set of institutions, and processes for creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society at large. American Marketing Association, 2007 The International Travel College of New Zealand 4
  5. 5. Marketing is about ‘understanding’  Understanding the needs and desires of existing and prospective users and any interaction they may seek with suppliers (including why they buy if a price to the user is involved).  Understanding which products or services they choose to use or buy (when, how much, at what price and how often).  Understanding how they get information about products and other offers.  Understanding where they obtain or buy products from (direct or through a retail or other intermediary).  Understanding what level of after sales or in use service is needed.  Understanding how they feel after their purchase and consumption of products and services. The International Travel College of New Zealand 5
  6. 6. Marketing questions focus on.. • Which products or services to provide and why; especially new products? • How many products and other offers to produce? (volume of supply) • At what price or cost to sell the product at? • How to communicate their offers and communicate with buyers, by which media? • When, where and how to make them available/ deliver to users or buyers? • What level of pre/ in use/ and after sales or usage services has to be offered? The International Travel College of New Zealand 6
  7. 7. Management Orientation • Marketing at a strategic level reflects a particular set of strongly held attitudes and a sense of commitment on the part of directors and senior managers which are always found in marketingled organizations. • Combined, the guiding principles and attitudes that affect the whole of an organization are known as a ‘management orientation’ or ‘corporate culture’. The International Travel College of New Zealand 7
  8. 8. Marketing Orientation • • • • • Recognition that the conduct of business operations must revolve around the long-run interests and satisfaction of customers or users rather than a focus on one-off exchanges. Understanding that the achievement of profits and other organizational goals results from customer satisfaction and customer retention. A positive, outward looking, innovative and competitive attitude towards the conduct of exchange transactions. An outward looking, responsive attitude to events and conditions in the external business environment within which an organization operates, especially the actions of competitors. An understanding of the strategic or long-run sustainability balance to be achieved between the need to earn profits or maximize the use of existing assets and the equally important need to adapt an organization to achieve future profits, recognizing social and environmental resource constraints The International Travel College of New Zealand 8
  9. 9. Other management orientations: Product and Production Orientation Sales Orientation • • • The attitudes and responses of businesses whose products are typically in strong and rising demand, and profitable. Because demand does not present problems, there is a natural tendency for managers to focus their main attention on more pressing decisions, such as those concerning production capacity, quality and cost controls, finance for increasing production and maintaining the efficiency and profitability of operations generally. • The attitudes and responses of businesses whose products are no longer enjoying steady growth in demand, or for which demand may be declining to levels that reduce profitability. Production is not now the main problem; surplus capacity is. The International Travel College of New Zealand 9
  10. 10. Three Marketing Propositions 1. Marketing is a management orientation or philosophy. 2. Marketing comprises three main elements linked within a system of exchange transactions. 3. Marketing is concerned with the long term (strategy) and the short term (tactics). 4. Marketing is especially relevant to analysing and responding to twenty-first century market conditions and can make a major contribution to sustainable development. 5. Marketing facilitates the efficient and effective conduct of business. The International Travel College of New Zealand 10
  11. 11. Three Main Elements in Marketing Exchanges • The attitudes and decisions of customers concerning the perceived utility and value of available goods and services, in terms of their needs, wants, interests and ability to pay. • The attitudes and decisions of producers concerning production or provision of goods and services for sale, in the context of their long-term business objectives and the wider environment in which they operate. • The ways in which producers communicate with consumers before, during and after the point of sale, and distribute or provide access to delivery of their products. The International Travel College of New Zealand 11
  12. 12. Tension between seller and buyer • There is no natural or automatic harmony between what consumers want and will pay for and what producers are able or willing to provide. • Tthere is usually continuing tension between a producer’s need for profit, the need to operate efficiently and sustainably with available assets and resources, and the customer’s search for low cost, best available value and satisfaction in the experiences they seek. • Marketing managers have to use judgement in balancing between these conflicting needs in the exchange process and to do so with imprecise knowledge about markets, distribution channels and their competitors’ decisions. • Their judgement is expressed primarily in communicating, distributing and delivering products, on which the bulk of marketing expenditure is spent. • The better the balance between the interests in the exchange process, the smaller the marketing expenditure will need to be as a proportion of sales revenue and vice versa. The International Travel College of New Zealand 12
  13. 13. 21st Century Market Conditions for Travel & Tourism • A relatively small number of large, still growing, highly competitive businesses with standardized products and internationally recognized brands that command a growing share of the markets they operate in. • The massive number of small or micro-enterprises that dominate the sector numerically • The revolutionary development of ICT that has simultaneously made possible the growth and management control of large corporations and offering a powerful networking collaborative route for small businesses to compete. • Capacity of supply considerably in excess of what markets can absorb naturally. • Growing numbers of consumers in developed countries with sufficient disposable income and leisure time to indulge in non-essential purchases. • Sustainable development requirements constraining business decisions that have flowed from the 1992 World Summit at Rio de Janeiro. The International Travel College of New Zealand 13
  14. 14. Monitoring and Control • Marketing-orientated businesses are characterized by the systematic organization of their planning processes, their knowledge of the effects of their actions on their customers, the precision with which they state their targets and the speed at which they can act in relation to competitors. • Identifying, responding and adapting to market changes ahead of competitors is the essence of the modern marketing approach. • Efficiency and effectiveness in marketing are based on precise objectives and action programmes that can be closely monitored and evaluated. The International Travel College of New Zealand 14
  15. 15. Special Characteristics of Travel & Tourism Marketing The International Travel College of New Zealand 15
  16. 16. Big Businesses: Characteristics • Production, sale and distribution of purpose-designed, repeatable, quality-controlled service products – all operations managed and controlled using modern ICT. • Continuous production and availability throughout the year, typically in multiple sites. • Products typically heavily branded with advertising support and bearing standard prices (with frequent variations by place and time). • Products available on-line via corporate websites and typically also at multiple outlets. • Most marketing undertaken by corporate head offices, which control and direct the activities at individual production/ delivery units. • These characteristics are common to most retail chains, fast-food chains, post offices, financial services providers, car rental and hotel corporations. They are not restricted to travel and tourism services. The International Travel College of New Zealand 16
  17. 17. Micro Businesses • Businesses comprising less than 250 employees are the ‘SME’ sector – small to medium sized enterprises • The group representing the smallest number of employees (less than ten employees) have unique characteristics • These ‘Micro-businesses’ provide the bulk of the essentially local ambience and quality of visitor experiences at destinations on which the future growth of overseas and domestic visits depends. • They also comprise a seed bed of entrepreneurial and enterprise ‘culture’ that is highly relevant for future destination marketing. • Major players in airlines, sea ferries and railways may provide the best of public transport. Global hotel groups may provide the highest standards of branded accommodation. But few visitors are motivated by the joys of transport to a destination, while most hotels and other forms of accommodation are often perceived as just a means to an end. • In practice, it is mostly small businesses that deliver the bulk of the visitor experiences that define a visitor’s perception and enjoyment of a destination. • It is likely that nine out of ten domestic and overseas leisure visitors will encounter microbusinesses at some point of time during their stay in a destination. Those encounters will influence their perception of sense of place, quality and value for money, and their wish to revisit – or recommend friends to visit. The International Travel College of New Zealand 17
  18. 18. Services and Their Characteristics • ‘Goods are produced. Services are performed’ • Goods are products purchased through an exchange transaction conferring ownership of a physical item that may be used or consumed at the owner’s choice of time and place. • Services are products purchased through an exchange transaction that does not confer ownership but permits access to and use of a service, usually at a specified time in a specified place. The International Travel College of New Zealand 18
  19. 19. The Demand for Tourism Products The International Travel College of New Zealand 19
  20. 20. The Main Determinants of Demand • The underlying factors of demand for tourism are common to all countries. • Although the demand patterns generated for a particular region within any specific country are unique to that area, the same set of external demand determinants affects individual operators such as hotels, tour operators, airlines and attractions. • The responses that marketing managers make as they keep the factors under continuous review and anticipate market shifts, differ according to their understanding and judgment of the factors at any point in time and their view of how best to achieve a competitive edge. The International Travel College of New Zealand 20
  21. 21. Ten determinants of demand for travel and tourism 1. 2. 3. 4. 5. 6. Economic factors and comparative prices. Demographic characteristics of tourism generating nations. Geographic factors. Socio-cultural attitudes to tourism. Access to personal transport. Government/ regulatory ‘infrastructure’ surrounding travel and tourism. 7. Media communications. 8. Information and communications technology (ICT). 9. Environmental concerns and demand for more sustainable forms of tourism. 10. International political developments and terrorist actions. The International Travel College of New Zealand 21
  22. 22. The Marketing Response to the Determinants of Tourism • To monitor, research and identify the opportunities and threats arising from external factors in the business environment that influence movements in the particular markets with which they are concerned • To forecast the direction and speed of change in the determinants and the implications of such forecasts for the travel patterns in their markets. • To take action through strategic decisions and marketing mix decisions • Investment and operating decisions in marketing-led organizations will always be based on their best understanding of a rapidly changing business environment. • This is true in all circumstances, but especially true where markets are no longer growing rapidly, but are changing structurally and subject to increasing competition in conditions of economic downtown and recession. The International Travel College of New Zealand 22
  23. 23. Understanding the Consumer: Tourism Motivations and Buyer Behaviour The International Travel College of New Zealand 23
  24. 24. Models of Buyer Characteristics Influencing the Decision • Pine and Gilmore (1999) argued that we are now living in an Experience Economy, where what we value most are not products or services but experiences. To them, the growth of the visitor economy is evidence of the added value people place on unique and memorable experiences. They go on to say that the most desired experiences are those that offer some kind of personal development or transformation, for example , adventure tourism, health spas, cultural tourism or activity holidays and learning new skills. • Iso-Ahola’s (1982) view was that tourists are either escaping (from their everyday life) or seeking (new experiences). Their motives for doing so will be partly personal, psychological, in origin and partly interpersonal, i.e. socially influenced. • Beard and Ragheb’s (1983) Leisure Motivation Scale. This is based on four elements : intellectual motivation (to learn, explore, discover new things); social motivation, which is not only the desire to socialize but also to derive a sense of identity and belonging; the desire for competence and mastery of skills and abilities, usually through physically challenging activities and stimulus-avoidance motivations leading to the need to escape, seek solitude or relaxation. The International Travel College of New Zealand 24
  25. 25. Consumer Decision-Making Process: Influencing Factors • Personal and Economic Circumstances • Social and Cultural Influences • Perception and response to the marketing message • Attitudes The International Travel College of New Zealand 25
  26. 26. Response: Buyer Behaviour • Websites linked with computerized reservations and ticketing systems are used to drive information databases that can give marketers a rich source of knowledge about their customers. • An on-line booking form can be used to provide essential management information on: – – – – – – – – – – – – Type and class of products purchased Frequency of purchase Special needs requested-diets, disabilities, babysitting, business facilities, etc. Dates of booking – are they booking early or at the last minute? Source of booking – agency, telephone or on-line. Response to a promotional campaign or special offer. Full address and postcode as well as email address (on-line). Family or group size. Age – especially if there are special rates for children and senior citizens. Birthdays and other special occasions. Method of payment. Addresses -very useful not only for mailing special offers to existing customers but also in suggesting where other potential customers might be found. The International Travel College of New Zealand 26
  27. 27. Relationship Marketing • • • • • • • • • • • • • Knowing that repeat customers are important is critical to success in business today Through improved technology companies now have the ability to recognize repeat buyers instantly and address them individually by name when organizations are dealing with tens of thousands or millions of customers a year. This ability provides the drive behind Relationship Marketing. Relationship Marketing switches the emphasis from the recruitment of new customers to the retention and recovery of existing ones. It is much cheaper to sell to an existing customer than to recruit a new customer For smaller companies such as niche tour operators, 80% of their business can come from repeat bookings and referrals from satisfied customers. Customer Relationship Management (CRM) systems have a powerful market research value in generating detailed knowledge of repeat buyers and cutting out the cost of undertaking traditional usage and attitude studies among buyers. The aim of CRM should be to create a long-term relationship with the customer, based on a high quality of service, ‘the keeping of promises’ and the the building of a continuous relationship between principal and customer. That means not always selling when a communication is made and not always demanding a response. It means obtaining loyalty through customer service and care, by building a relationship centred around the customer rather than the Good relationships are based on trust and mutual need. If one party is continually pestering the other with unsolicited and unwanted messages, that is closer to stalking than a true relationship. Permission marketing ensures that customers only receive the marketing messages that they have requested. The International Travel College of New Zealand 27
  28. 28. Market Segmentation for Travel and Tourism Markets Market segmentation recognizes that people differ in their tastes, needs, attitudes, lifestyles, family size and composition. It is a deliberate policy of maximizing market demand by directing marketing efforts at significant sub-groups of customers or consumers. (Chisnall, 1985: 264) The International Travel College of New Zealand 28
  29. 29. What is Market Segmentation? • • • • • • The process of organizing potential customer groups and selecting those whose needs and wants a business is best able to supply with products, now and in the future. It is increasingly impossible to deal with all customers on a mass consumption or ‘one size fits all basis,’ so market segmentation is the practical expression in business of the theory of consumer orientation. It is arguably the most important of all the practical marketing techniques available to marketing managers in travel and tourism. It is normally the logical first step in the marketing process involved in developing products to meet customers’ needs. Segmentation is also the necessary first stage in the process of setting precise marketing objectives and targets and the basis for effective planning, budgeting and control of marketing activities. It is the basis for positioning, branding and communicating relevant images to targeted users. The International Travel College of New Zealand 29
  30. 30. Tour Operators Hotels Corporate/ business clients Visitors on group package tours Independent vacationer Weekend/ midweek package breaks Conference delegates. Young people singles and couples 18– 30-year-olds Families with children Retired/senior citizens/empty nesters Activity/ sports participants Culture seekers Examples of sub-groups/sectors for the travel and tourism product Transport Operators First-class passengers Club-class passengers Standard-class passengers Charter groups APEX purchasers Destination Attractions Local residents in the area Day visitors from outside local area Domestic tourists Foreign tourists School parties. The International Travel College of New Zealand 30
  31. 31. Segmentation Defined • • • • • • • Segmentation is justified on the grounds of achieving greater efficiency in the supply of products to meet identified demand, and increased cost-effectiveness in the marketing process. In most cases travel and tourism businesses will deal with multiple segments and multiple products over a 12-month period but not necessarily simultaneously. In the tourism industry most established businesses will often have no practical choice but to target certain segments because of the location and nature of their business. There may be other segments that could be selected as targets if they contribute to needs of a business. Most tourism businesses will have continuous scope and strategic opportunities for altering the mix of revenue generated by the current structure of segments, through targeting new segments and manipulating the marketing mix. They will have a strong incentive to do so in order to improve the profitability of their total portfolio of markets and products over time. The criteria for choosing new segments for marketing development will stem either from the producer’s needs to utilize assets or from recognizing attractive characteristics of the segments themselves The International Travel College of New Zealand 31
  32. 32. 5 Criteria for Segmentation 1. Discrete - The selected subgroups must be separately identifiable by criteria such as purpose of visit, income, location of residence or motivation 2. Measurable - The criteria distinguishing the subgroups must be measurable by available marketing research data, or via such new data as can be obtained at acceptable cost. 3. Viable - The long-run projected revenue generated by a targeted segment exceeds the full cost of designing a marketing mix to achieve it – by a margin that meets the organization’s financial objectives. Viability is a function of the costs of designing or adapting products for segments, promoting to target groups, and ensuring that prospective customers can find convenient access to such products, once they have been persuaded to buy. 4. Appropriate - The inseparability of service product delivery means that it is essential that segments to be serviced on the same premises are mutually compatible and contribute to the image or position in the market adopted by the business. 5. Sustainable - Assessing the extent to which segments contribute positively or negatively to the environmental mission and objectives of a business.. The International Travel College of New Zealand 32
  33. 33. 7 Methods to Segment Markets 1. Purpose of travel 2. Buyer needs, motivations and benefits sought 3. Buyer behaviour/ characteristics of product usage 4. Demographic, economic and geographic profiles 5. Psychographic profile 6. Geodemographic profile 7. Price The International Travel College of New Zealand 33
  34. 34. The Marketing Environment The International Travel College of New Zealand 34
  35. 35. 3 Key Elements in the Marketing Environment 1. The internal environment: the conditions, entities, events, and factors within an organization that influence its activities and choices, particularly the behavior of the employees 2. The micro environment: made up of individuals and organizations that are close to the company and directly impact on the customer experience. 3. The macro environment: all-encompassing influences from the broader global society. Includes Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. (PEST) The International Travel College of New Zealand 35
  36. 36. PEST Analysis • • • • Political Factors Economic Factors Sociocultural Factors Technological Factors + • Legal Factors • Ecological Factors The International Travel College of New Zealand 36