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TIM 304 Midterm #1

Terms in this set (70)

• You may not always verbalize expectations, but subconsciously they exist
• When you spend money, you are saying that it is worth the risk that your expectations will be met, the solution will solve your problem, and the value you will receive will be worth the sacrifices
• The expectations part of the triangle is what makes marketing in hospitality unique
• The greater the sacrifice, the greater the risk, the greater the expectation, and the more demanding the customer
• If the solution meets the expectation and the value justifies the sacrifice, the risk becomes more justifiable, and a higher level of satisfaction becomes more likely, which means a higher likelihood that we have created a customer
• Management must fulfill customers' expectations to create and keep customers
• Satisfaction occurs under the solution, not between sacrifice and solution. Satisfaction is a result of marketing, not part of the process of creating and keeping the customer. If the gap is too great between expectation and fulfillment of the solution, there will be a low level of satisfaction.
• Address the issue of meeting or exceeding expectations, if it does, satisfaction will be high and the guest will return.
• Ensure that you are solving the customer's problem: give them what they want or need at the time and place of their choosing and at the price they are willing to pay
• "Satisfaction" or "service" guarantees force customers to buy and have a bad experience before being refunded
• Customers purchase solution at the same time they consume it, once the decision is made to purchase, there is no backing out.
• Marketing does not create the needs or problems associated with hunger or the need to sleep, but it identifies needs associated with what to eat and where to sleep
• Marketing differentiates among the available solutions through the creation and management of expectations
• Marketing reduces perceived risk so that the prospective customer perceives the expectation as worth the risk
• Must persuade the customer that the solution is worth the price
• The result in the trade-off model is not profit, it is the level of satisfaction felt after making the sacrifice
• The goal for marketers is to present the best solution to the problem at the lowest risk
• Since the fulfillment of expectations is surely operations management's responsibility, they become totally involved in marketing
• Traditional marketing only brings the customer to the door; nontraditional marketing creates and keeps the customer
1. Operations Orientation
• Operations orientation is categorized by its emphasis on "a smooth operation"
• Sometimes forget the customer in the interest of a smooth operation
• Customers are fickle so procedures cannot be written for every kind of demand/problem
• Impossible to obtain consistency in service delivery without manuals
• Problems occur when there is no room for deviation on the customer's behalf or when the manual is written from an operations efficiency or cost perspective and without consideration for the customer
• When the company or the company's executives are very bottom line or profit driven, they follow procedures based mainly on cost considerations, overlooking their impact on customers
• Happens if company rewards based on bottom-line results
• Respond to decreasing occupancy by cutting costs and raising prices

2. Product/Service Orientation
• Product/service orientation place their emphasis on the product or service
• "Build it and they will come"
• May offer products/services that the customer does not want
• E.G. new technology may require hotel to raise rates
• Consider whether factors are solutions to customers' problems
• Products and services should be defined only in terms of the value and solution they provide for the customer

3. Selling Orientation
• Selling orientation emphasizes finding someone who will come through the doors, as opposed to marketing a solution to a designated market's needs
• Large sales forces and/or advertising budgets
• Conscious of open periods and push sales people to fill them and meet sales quotas
• May run frequent promotions and special offers or flood their market with discounts and coupons
• Based on "sell, sell, sell" rather than identifying customers' needs and wants

4. Bottom-Line Orientation
• Bottom-line orientation: most things, if not everything, are done in the name of profit. Profit or cost is the basis for decisions
• Does not have a place in a company, especially when they do not regard its impact on customers
• Important to yield a satisfactory return on invested capital, but must think of impact on customer
• For many business, the mandate is cost-driven prices, to price-driven costs, which should be the case
• A marketing oriented company, however, views these achievements as subsets of marketing. They are accomplished with the customer as the focal point.
• The service manager must first consider what the service will do for the target market. Then the sales manager sells those benefits that will solve customers' problems and make their experiences hassle-free.

5. Marketing Orientation
• Marketing orientation: based on the premises that the customer is king; the customer has a choice; and the customer does not have to buy your product or services
• Best way to ear a profit is to serve the customer better
• In attempting to satisfy customers, businesses must consider not only short-run, immediate needs but also broad, long-term desires; fulfill customer expectations and solve problems
• Marketing concept is a willingness to recognize and understand the customer's needs and wants and to adjust any of the marketing mix elements (including product) to satisfy those needs and wants
• Putting oneself in the customer's shoes
• Identifying, profiling, and selecting market segments that can be served profitably
• Making the business do what suits the customer's interests
• Integrating and coordinating the research, planning, and systems approach
• Problem solving and decision making to enhance the objectives of the entire firm
• Creation of genuine customer value
• Communicate effectively to customers
• Marketing philosophy and marketing concept must both exist before we can define the firm as a true marketing company
• Guiding philosophy is established by top management, which provides leadership and direction for the organization
• Ensure that marketing philosophy and concept pervade all levels
• Accept change as a constant: recognize the needs and wants, but also recognize that the customer changes
• Three components of marketing leadership: opportunity, planning, and control

1. Opportunity
• Companies don't create the need, wants or problems, but recognize the opportunities
• Look for customer problems because they are easier to identify
• Customer problem may also be the symptom of an operations problem, which becomes an opportunity
• Seeking, finding, and exploiting opportunities ensures growth

2. Planning
• Planning is defining what has to be done and allocating the resources to do it
• Proacting rather than reacting
• Opportunities must be sought and planned for in a systematic manner
• Plan with the customer in mind
• Marketing plans often turn into promotional objectives, advertising and sales allocations, budgets, and day-by-day occupancy forecasts. Rarely do they address the creation of customers or changes in current operating procedures to keep these customers coming back

3. Control
• Control is the glue that holds the others together and make them work
• Control of your destiny through leadership, planning, and opportunity by controlling the customer, the market, and the product
• Control is the feedback loop of the system that tells whether the system is working and provides information to management on who the market is and what the customer's problems, expectations, perceptions, and experiences are
• Control is knowing whether perceptions equal reality, why the customers come or don't come, how they use the product, how their complaints are handled, and whether they return
• Control is knowing and serving the customer, and knowing your employees
• Requires a good management information system
1. Intangibility
• Intangible: incapable of being touched/perceived by touch; incapable of being defined or determined; unable or difficult to be perceived by the five senses and by conceptualization
• One cannot taste, feel, see, smell, or hear a service until one has consumed it
• Servies are experienced, rather than possessed
• There is no passing of title
• Buyers have nothing to be displayed or ever use again
• Buyers leave the transaction empty-handed, but not empty-headed (memories)

* The Customer
• Buyers are not sure what they are buying or what they will get
• Cannot go back and get the same thing again
• Buy based on what they think they might received based on expectations set and managed by marketers
• May rely on similar experiences, expectations formed through exposure to advertising and promotion, and word-of-mouth endorsements (experiences of others)
• Expectations may be set by traditional marketing: advertising, PR, promo events
• First service experience creates expectations for future experiences and should be thought of as a marketing effort
• Only true way customer can value purchase and determine whether it is worth it
• Not sure if it will be repeated, but decreases risk.
• Creating the right customer perception and expectation is critical
• Hotels often advertise intangibles
• Terms create perceptions that may be far from the reality when encountered
• Good marketing seeks to equate perception with reality because perception is reality for the customer

* The Marketer
• Not easy to display and communicate intangible services
• Must convince prospective buyers that they offer the right solution to buyers' needs or problems, without promising what cannot be delivered
• First step is to develop the expectation through advertising, direct marketing, personal selling, and publicity, and the Internet
• Words are often as abstract as the service itself
• Try to tangibilize the intangible
• Marketers must make promises; and the greater the intangibility and corresponding promise, the greater the risk for buyers because they do not know what they are getting until they buy
• Customers have no choice but to believe marketer
• Advertising hospitality services is usually to create awareness and as a reminder, or "maintenance" advertising
• Buyers of services assign greater credibility to word of mouth than any other source
• Must create positive experiences for customers
• Intangibility makes pricing decisions difficult
• Buyers equate higher prices with better quality
• Brand name used to be moniker of quality, but Internet has changed this
• Services cannot be protected by patents
• No organization has exclusive right to provide excellent service
• May easily be copied by competition

2. Perishability
• If not sold, opportunity to sell is gone forever; cannot be stored and sold later
• Marketers must create demand
• Issue of perishability is compounded by the fixed capacity of most services

* The Customer
• Perishability and fixed capacity impact the quality of service (swamped during busy check-in period or slow periods)
• Perishability and fixed capacity can impact product availability
• May overbook, which upset customers who only care about availability and having their expectations met
• Allow customers to purchase service at a lower promotional rate

* The Marketer
• Inventory management and control are important o company
• Must have capacity and the capability of delivering satisfaction when demand occurs
• Unable to increase capacity in the short run, so must manage both capacity and demand
• Discount price during slow times and increase during high demand
• Use revenue management o balance out demand and capacity
• During low demand, managers may go into "operations mode" to restrict costs, which may have an adverse effect on the customer relationship
• When unexpected demand occurs, service levels become too low, which can cause decrease in customer satisfaction
• Marketing manager must keep staff informed so they can balance staffing to demand

3. Heterogeneity
• Heterogeneity of services refers to the variation and lack of uniformity in the service being performed
• Fluctuations in service that are a result of individual differences among employees and among customers themselves, as well as customers' perceptions of these differences
• Consistency of service is very difficult because of the human-intensive nature of providing a service
• They can never predict what various individuals with various backgrounds, various orientations, and various personalities will actually do in a given situation

* The Customer
• Understanding customers' problems is more than smiling at the customer and believing "the customer is always right"
• Customers themselves are heterogeneous
• Knowledge, experience, and proficiency of the customer will also affect the quality of consumption
• Wide variation in customers' assessment of quality, and what satisfies one may very well not satisfy another

* The Marketer
• Marketers of services who make promises to customers have three challenges
• How the employee will handle the "moment of truth" with customer
• Customers themselves (what is appropriate one may be inappropriate to another)
• Service to one customer may affect the service delivered to another
• Heterogeneity of services constitutes a lack of assurance that the product you market is the product that is actually produced
• Means risk and a lack of assurance that expectations will be met
• Customer often perceives the personnel as "the service," one unpleasant interaction can result in criticism of the entire experience
• Customers' problems are infinite in number and diverse in scope
• Standardization: industrialization of service
• Implementation of self-service technologies
• When is less service more and vice versa?
• When machines are faster and more reliable than human counterparts
• Knowing your market and your customers well so you can customize the desired services in a manner that is consistent with their expectations
• Emphasis should be placed on understanding the customer, not on the service

4. Simultaneity of Production and Consumption
• Buyer must be present to experience the service provided by the seller
• Management is marketing
• Unique to services
• Service personnel must be trained to produce the service that meets or exceeds the customer's expectations and solves his problem(s)

* The Customer
• The entire product is consumed on premise with the seller on hand
• The customer is buying the service
• One individual can totally personify the service of a particular establishment
• Every time we purchase a service, there is the possibility of a completely new experience, especially considering the turnover of personnel in hospitality

* The Marketer
• Employees must embrace a marketing philosophy
• Must be able to produce while the customer consumes and solves the customer's problems on the spot
• Rules become part of the service because they restrict the customer's consumption
1. Physical Product
• Physical product: tangible component of the service
• Management has direct, or almost direct, control
• Management's decisions or practices directly affect the physical product
• Management expertise determines the quality of the product
• May also depend on management's willingness to spend or not spend money in pursuit of the target market it wishes to serve
• Price is a tangible, as although it is a cost of service, it is a good because it tangibilizes the intangible
• To the customer, price is very tangible in any purchase decision
• Physical components generally provide solutions to basic problems

2. Service Environment
• Also known as the servicescape: physical environment in which the service is delivered
• Because services are intangible, customers often look to the servicescape for clues on how to behave
• Management has some control, although not directly or easily
• Environmental items may or may not be tangible, they are something customer feels
• Service environment is comprised of ambient conditions, spatial layout, and signs and symbols
• Ambient condition: created by lighting, background music, décor, architecture
• Spatial layout: create atmosphere, seeking to inhabit space which empowers us, which feels most rewarding, most secure, most natural, and most intimate; chaos or disorientation drives customers away
• Signage: reduces chaos and disorientation. Directs customers, informs customers about procedures

3. The Service Product
• Service product: core performance or service purchased by the patron
• Defines how the service works in theory, "plan your work"
• Industrialization of services
• Management develops and plans all actions employees undertake when hosting guests
• Includes nonphysical, intangible attributes
• Depend heavily on the personal attributes of employees, such as friendliness, speed, attitude, professionalism, and responsiveness
• Depend on employee aptitude, and also system
• Also depends on management decisions, such as whether to offer a particular service

4. Service Delivery
• What happens when the customer actually consumes the service
• "Work your plan"
• The "moment of truth" is when the service product meets the service delivery

The Interrelationships of the Different Components
• Guest expects things to be executed well as the service is the solution to their problem
• Customer measures the price-value relationship by how the service is executed
• No opportunity to return the service; it solves or causes problems, it can keep or lose a customer
Gap 1: Gap between services expected by the customer and management's perceptions of customers' expectations
• Discrepancy between what the company thinks customers' wants and needs are and the actual wants and needs of the customers
• Result of a lack of upward communication between management and customers
• Result of inadequate customer research
• Do not ask their customers what their problems, wants, needs, or expectations are
• Result of a lack of upward communication between contact employees and managers
• Customers may communicate their wants and needs to employees in general conversation, but no mechanism for these comments to get passed up so they remain with the employee and be forgotten
• Inadequate process for handling complaints
• Think of complaints as the customer telling them what they want, management must listen

Gap 2: Gap between management's perceptions of customer expectations and service quality specifications
• When service provider fails to design service procedures to meet the expectations of guests
• Occurs when knowing what guests want, but not providing it because operational concerns take priority over guest's concerns
• Occurs when reward system for employees is designed in conflict with guest's needs
• Result of poor service design (close nearer kitchen to cut costs)

Gap 3: Gap between service quality specifications and service delivery
• What was planned by management was not implemented by the staff
• Result of poor human resources policy
• Hire "warm bodies" rather than right person for job
• Unwillingness to properly train employees and poor scheduling of employees
• When too many employees are on duty, service can suffer because everyone thinks it is someone else's job; too few employees can also cause service to suffer

Gap 4: Gap between service delivered and service promised
• Occurs when the communications mix presented to customers exceeds what the provider can actually deliver
• Advertising is frequently the culprit (picture of largest and nicest room)
• Hotel salespeople are known for "saying anything" to get the business

Gap 5: Gap between perceived service and actual service
• Expected service is affected by customers' past experiences, the implicit promise (brand name), exposure to communications (ads and promotion), and word-of-mouth recommendations
• Customers have a certain level of expectations before they arrive
• We are most concerned with Gap 5 because it is the proximate cause of all others
• Any gaps in the other four measures will likely cause a Gap 5
• Hard to manage because even though everything is perfect in the first four areas, customers may not realize that everything has gone as planned
• Customers forget when everything goes as planned and remember only when things do not as much of the service experience is intangible
• Determining quality from the service experience is difficult
• Understanding of dimensions f service quality enables marketers to constantly remind customers of the excellent service they are receiving
• The hospitality marketing mix contains three major submixes: the product/service mix, the presentation mix, and the communications mix
• As well as price and distribution

1. The Product/Service Mix
• The product/service mix is the combination of products and services, whether free or for sale, that are offered to satisfy the needs of the target market
• "Free" includes supporting goods that the customer pays for indirectly: pools, gym, airport transportation, tablecloths, silverware, fresh flowers, free Internet access; management decides what part of the product mix to offer to the guest
• Other "free" features which management may have little or no control but that are part of the customer's expectations: the sun, moon, stars, ocean, beach, weather; they have bearing on customers' expectations and resulting satisfaction
• It's the physical product: what customers see, get, and perceive when they go to a hotel, restaurant, or other hospitality entity

2. The Presentation Mix
• The presentation mix is all of the elements used by the firm to increase the tangibility of the product/service mix in the perception of the target market at the right place and time
• Presentation mix is how the product/service is presented for the customer to sense; it is what the customer perceives
• Six elements can be used to make tangible the product/service mix and to differentiate from the competition: physical plant, location, atmospherics, price, employees, and customers
• Price is a highly tangible element that increases the tangibility of the product/service mix in the perception of the target market

3. The Pricing Mix
• The pricing mix is the combination of prices used by the firm to represent the value of the offering
• How the customer values what is being offered and what is received

4. The Communications Mix
• The communications mix is all communications between the firm and the target market that increase the tangibility of the product or service
• Establishes or monitors customer expectations, builds relationships, or persuades customers to purchase
• Similar to that of traditional marketing although with some new twists due to the intangibility of the product
• Promotion is one subset of communication

5. The Distribution Mix
• The distribution mix is all channels available between the firm and the target market that increase the probability of getting the customer to the product
• How the customer can buy and use the services offered
• Customer must come to the service; nationwide locations is "distributing" the product
• A customer must come to the place where a service is produced in order to experience it, making production and distribution largely inseparable
• Treat distribution and supporting technology as a separate element of marketing mix
• Design of a product begins with what the customer wants
• Customers do not purchase individual elements of the offering; rather, they purchase a bundle or unified whole
• When buying a hotel room, customer is buying the bed, bathroom, restaurant, wake-up call, check-in procedure
• A change in one element can affect the customer's perception of the entire product
• Break the bundle down into its component parts: the formal product, the core product, and the augmented product

1. The Formal Product
• The formal product can be defined as what the customers think they are buying
• Simple as a bed or a meal, or as elusive as quality or elegance
• May be as intangible as environment or class or as specific as location
• Formal product is what the customer can easily articulate
• Hotel and restaurant customers frequently name location and good food as their primary reasons, but this is because they can be easily articulated

2. The Core Product
• The core product is what the customer is really buying
• Often consists of abstract and intangible attributes
• Experience, atmosphere, relaxation, celebration, convenience
• Core benefits
• Understanding the core product means understanding the customer's problems
• Understanding customers' problems is where product design should begun, rather than with management's problems
• The formal product is also known as the salient product
• Core product, which is determinant, and what they are really buying
• E.g. a quiet, controlled, hassle-free, successful meeting
• How the entire facility deals with the meeting planner's problems
• That's what the hotel should be marketing

3. The Augmented Product
• The augmented product is the totality of all benefits received or experienced by the customer
• The entire system with all accompanying services
• The way the customers uses the product
• Include both tangible and intangible attributes: the manner in which things are done, assurance, timeliness, personal treatment, no-hassle experience, linens used, cleanliness, honored reservation, sun, moon
• The total product bundle that should solve all the customers' problems and even some they haven't thought of yet
• Success begins with understanding of the core product and its augmentation to solve customers' problems
• Narrow the problem down by segmentation and target marketing, so these strategies are critical to effective marketing
• Certain characteristics of products/services are taken for granted by customers
• Firms use the RATER system to get credit for what they do normally as the RATER system reminds the guest of the quality of service being given by the service provider
• Customers look for other benefits that may be unique to a particular hotel
• Product offerings can be presented as standard products, standard products with modifications, or customized products

1. Standard Products
• Standard products provide a cost benefit derived from standardization
• More amenable to efficient national marketing
• Standardization exists, justifiably, almost entirely at the lower end of the price scale
• Upscale properties provide standardization as well, mostly to ensure proper service
• A problem with standardized products is the emphasis on cost savings
• Sometimes more expensive variations in the product in certain markets are ignored
• Results in a loss of customers who want something different or want a more modified or customized product
• Some companies, like McDonald's, allow their franchisees to make variations

2. Standard Products with Modifications
• Standard product with modifications is a compromise between the standard product and the customized product
• E.g. concierge floor of a hotel
• Scale economies of building and furnishing a standard room remain unchanged; the modifications are easily added to only those rooms requiring them, and an additional charge is often extracted
• Modifications or added amenities are sometimes easily added, removed, or changed as the market changes
• Property maintains a flexibility and can easily meet customer requirements and encourage new uses of the product
• Another advantage is differentiation within the product class, while maintaining the same strategic position
• Offer different-size portions
• High level of flexibility as well as caters directly to changing market needs

3. Customized Products
• Customized products are based on the premise of designing the product to fit the specific needs of a particular target market or even one individual
• Price may not be a large consideration for buyers of customized products because they expect to pay a premium to have it exactly the way they want it
• The growth of all-suite hotel concepts has led to both modifications in the standard product and some degree of customization
• Hotel bathrooms may be the latest version of customized products in the hotel industry
• Designers are looking for new attractions
• Product goes through various stages during its lifetime
• Each stage calls for different strategies and tactics
• May refer to all products within a class (industry life cycle) or perhaps one particular brand, one particular property, or to one specific product line.

* The Nature of Product Life Cycles
• Life cycles of products can vary widely in time span
• Products with very short life cycles are usually referred to as fads
• Product life cycles do not always follow the familiar S-shaped curve
• Product life cycles may be in different stages in different parts of the world
• The hotel industry is considered mature in the U.S., but still in introductory in China
• As the country gains more income, country residents begin to travel, hence the need for middle-tier properties
• Brands may be in different positions as well
• In the introductory, growth, and decline stages of the product life cycle must, at some point in time, come to an end.
• The mature stage, at least theoretically, could go on forever
• The mature stage is the most critical to the marketer
• At the mature stage or that of early decline that the introductory and/or growth stage must be reincarnated if the product is to survive in some form
• The growth of a product is to some extent a function of the strategy being pursued
• Thus, a product is not necessarily predestined to decline as propounded by the traditional concept of the product life cycle, but can be kept profitable and mature by proper adaptation to the evolving market environment
• Recognize the stage in which the product presently resides
• Too often, management may be unaware of the product's stage, believing that growth will go on forever
1. The Introductory Stage
• The introductory stage of a product is its entry into the marketplace
• Some products in the later years of their product life cycles begin anew with new names
• Often a repositioning of a refurbished individual property does that
• Those who first buy the product are referred to as innovators (customers)
• Firms introduce the simplest rendition of the product or service (category of offering) in order to understand the process
• Product/service champions must receive support from upper management and to think creatively to confront the many problems that occur with a new opening
• The very nature of the hospitality product often make test marketing prohibitive before introduction, although not for a new brand or new restaurant item
• Product should be developed on the basis of as much customer research as possible. However, this is not frequently done.
• If the property is innovative, the marketer holds a double-edged sword as it is easy to differentiate, but may create resistance to achieving trial and acceptance.
• The introductory stage may be one of high costs
• Hotels and restaurants cannot keep their property secret
• Construction may be as long as 3-4 years and is often preceded by publicity because of zoning changes, financial arrangements, and other events that must occur long before the actual opening
• Advantage: free publicity
• Hotels seek two to three years of lead time and restaurants may use up to a year to promote the introduction of their product
• Groups, conventions, corporate accounts, and others must be solicited well in advance of actual purchase and usage
• Property's marketing team arrives well in advance of the opening
• Introduction begins with a "soft' opening that may be a few days to a few weeks before the official opening
• Word of mouth brings some customers, small groups (sometimes large) are booked, and various people such as dignitaries are invited to "test" the facility
• This is the shakedown period, where management can smooth operations
• Hospitality marketers must produce on demand
• They hope they can handle the crowds, that the staff is trained and ready, that everything has been thought of and that there are no major crises
• The produce is usually not totally complete since construction never seems to finish quite on time and the furniture and equipment never all arrive on time
• Hospitality products depend on repeat business; will they come back?
• Initial hospitality customers are less likely to be innovators than are initial good buyers, although initial hospitality customers may be more innovative with restaurants
• People who try new hotels or restaurants are variety seekers who want to try something different and may not be too willing to forgive when everything doesn't go right the first night
• Competitors may be many, and customers can always go back since switching costs are low
• In a new cocktail lounge or restaurant: the lead times will be shorter, more publicity and advertising will be needed to create awareness, but the same concerns pertain
• New service menu item, or smaller part of the product mix: advance time is less, if it exists at all, and the risks are far lower, but the elements are the same
• The marketing objectives at this stage include creating product awareness, inducing trial, and establishing a position in the marketplace
• Brand name alone is insufficient to establish a firm's position because of the often wide variations between properties, especially with hotels
• Businesspeople, at least, judge far more by the individual property than the brand
• For a product to enter the growth stage, the customer must be persuaded in the introductory stage
• If the demand forecast is accurate, awareness and trial will come relatively easily through advance publicity, advertising, and word of mouth
• It is what happens to the customer during trial that determines the slope of the growth curve
• Selling and advertising to get new customers is important, but it is secondary to the critical need for relationship marketing and creating loyalty
• This is the high-cost, low-profit stage of the life cycle
• The customer has to be wooed and won at any cost
• Failure to recognize this can be suicidal
• Emphasis must be on internal and relationship marketing

2. Growth Stage
• In the hospitality industry, there is large investment capital, so if a property fails in the introductory stage, the property will find a new owner who buys it at the right price and has pockets deep enough to ride out the slow growth period
• It may emerge in a new form, such as condominiums
• High rate of restaurant failures occurs mostly in the growth stage
• Customers in the growth stage are referred to as early adopters
• Firms change the product or service to better meet customers' needs, and they focus on managing the process of service delivery to make sure customers are happy
• Communication methods go to a more broadly defined audience as awareness continues to be built
• Growth stage if of excitement and pitfalls; business is booming
• Survivors of the introductory stage will proceed into a period of slow or rapid growth or somewhere in between
• The previous relationship marketing pays off
• Customers come back and they tell others
• Hospitality product depends far more on repeat customers
• Good relationship marketing must continue as the hospitality customer is very fickle, and management must be ever alert
• Time of product refinement
• Continuous customer research and feedback should result in both elimination of flaws and fine-tuning of the product to the target market
• Products must be improved and ways must be found to serve the target markets better than ever
• This is the time for building loyalty, not gouging the customer; do not raise prices
• Hospitality management is inseparable from hospitality marketing
• While these decisions are being made, management is exhorting its salespeople to get out there and get more customers
• Growth stage is time for fortification and consolidation
• Plow back both money and goodwill, not take away; it is the time to sow, not reap
• Reward your good staff and keep them enthusiastic and motivated
• Listen to your customers and employees for constant improvement of the product
• Steal customers from the competition
• Marketing objectives: solidify, to price for penetrating the market, and to keep customers as every customer you keep will create other customers
• Do things right and do the right things
• This stage will make or break the product
• Start planning for entering the mature stage

3. Mature Stage
• The mature stage can continue for a long period or it can end very abruptly
• Complacency is a bitter foe
• The product's positioning should be established, its niche carved out, and its target market steady and loyal
• The product or service has been augmented quite a bit and continues to be augmented as the firm tries to differentiate itself
• The process is well understood and the goal is to focus on reducing the cost of the service delivery, while improving customer satisfaction
• Promotion dollars are geared both loyal and broad based users
• Leveling off of sales levels, good repeat business, and settling down of the operations
• Product sometimes begins to get a little frayed around the edges - not just the furniture, but also the concept and the execution. All elements need refurbishing
• Competition abounds, market segments have been tapped, and the product and product concept are both old hat
• The best defense is to have built the loyalty and fortification in the growth stage
• Go on the offensive: being innovative, staying close to the customer, finding new markets, seeking and solving customers' problems, and doing this better than the competition
• Sales growth slows down in the stage
• This is a maintenance stage, not of creating interest but of maintaining it
• Developing new users and new uses and new variations on the theme
• Product quality is paramount
• Customers have gotten to know us well and will not tolerate our blunders
• Time to augment the product
• Total quality management (TQM) proves itself
• Evaluate the RATER system, remind guests of the quality
• If product is not maintained during the mature stage, it will enter into the decline stage
• Sometimes this is natural and appropriate if the product was a short-lived pad and has run its course
• Menu items lose their freshness, tastes change, the customer changes, and it is time to go on to bigger and better things
• When the product is real estate, the situation is different. To avoid decline, the product must be reanalyzed, refurbished, renovated, reformatted, redesigned, repositioned and/or remarketed. Time to reverse the curve.
• It takes real marketing leadership to know which way to go, to understand the market, and to take the risk involved.
• Often demands a change in attitude

4. Decline Stage
• Decline has a tendency to accelerate even faster than growth
• Alert leadership knows when it is in the mature stage and that something has to be done; even more alert leadership starts planning before it reaches the mature stage
• Customers are referred to as laggards; they are the last group to try a new restaurant
• Firms continue to reduce the cost of service delivery
• Communication goes to more narrowly defined audiences that can be reached very inexpensively
• Many restaurants fail simply because they allow product quality to slip
• When the product slips and business declines, management tends to raise prices and cut costs, but these only grease the skids
• Management, faced with declining revenues, take the easiest course of action: reducing expenses (labor, cheaper soap, smaller shrimp), customers begin to notice the decline in service and product
• Guests then go to competitors
• Revenue declines, more dissatisfied customers, resulting in further revenue declines
• Focus on doing marketing to bring in customers instead of cutting costs
• Some products should die after living their time and serving their purpose
• Highly subjective, prone to error, because of irregularities in the S curve, and inconclusive
• First step in locating a product in its life cycle is to study its performance, competitive history, and current position and match this information with the characteristics of a particular stage of the life cycle.
• Past performance can be analyzed by examining the following:
• Sales growth and market share progression in comparison with the best-fitting curve that one would expect for the particular product
• Alterations and enhancements that have to be made to the product
• Sales and profit history of similar, related, complementary, or comparable products
• Casualty history of similar products in the past
• Customer feedback
• Repeat and new business ratios (heavy repeat business with declining overall business is a sign of maturity or decline)
• Competitive growth and decline
• New competition and new concept introduction
• Number of competitors and their strengths and weaknesses
• Industry life cycle progressions
• Critical factors for the success of the product
• Current situations should be reviewed to gauge whether:
• Sales are on the upswing, have leveled out, or are heading down
• Any competitive products are moving up to replace the product
• Customers are becoming more demanding vis-a-vis price, service, special features
• Additional sales efforts are necessary to keep sales going up
• It is becoming harder to work through the distribution network
• Analysis is not for amateurs
• Managerial intuition and judgment are critical
• Thinking tends to be strongly tainted or biased after the fact, a wise move could be to develop a model based on the preceding list, prior to introducing the product
• The model can serve as a yardstick for future measurement.
• Customers are the most important assets of a company
• Firms need to spend money protecting their customers
• Relationship/loyalty marketing is marketing that protects the customer base
• Relationship marketing sees the customer as an asset; its function is to attract, maintain, and enhance customer relationships
• From the customer balance sheet, the goals of an organization should be:
1. To get more customers
2. To keep more customers coming back (reduce number of customers defecting)
3. To lose fewer potential customers because unhappy current customers say unflattering things
• Relationship/loyalty marketing adds a new dimension: goal is to encourage guests to return and to get them to tell their friends how wonderful the organization is
o One metric is: "how likely is it that you would recommend us to a friend?"
9-10: promoters
0-6: detractors
7-8: indifferent
Net promoter score is the difference between the percentage that are promoters and the percentage that are detractors
• The goals of loyalty marketing include two more items:
1. Have customers spend more money while on property
2. Have customers tell management when things go wrong, instead of just walking way and never coming back
• Management must not only solve the problem, but place systems to ensure that the same mistake does not happen again

* What Relationship/Loyalty Marketing Is and What It Is Not
• Relationship/loyalty marketing is not database marketing, frequent traveler programs, partnerships, or relationship selling
o May be used to enhance relationships, but they are not the base of relationship
• True sense and purpose is to maintain customer relationships and build loyalty with the expectation that both parties in the relationship will continue long after the formal production/consumption process has ended, seeking to keep customers and bring them back
• Both parties must "get something"
o The guest will spread positive word of mouth and tell management when things go wrong
o Firm will do everything to ensure an error-free and customized experience and look after the guest's best interest
• A good relationship involves commitment and trust
o Trust: the belief that an individual or exchange partner can be relied on to keep his word; an antecedent of loyalty because the customer trusts the organization to do thing that it is supposed to do, implicitly or explicitly. Any actions taken to increase feelings of trust will lead to commitment and vice versa. Opportunistic behavior will cause a lack of trust.
o Commitment: the belief that an ongoing relationship is so important that the partners are willing to work at maintaining it and make short-term sacrifices to realize long-term benefits
• Antecedents and consequences of commitment include trust, value (e.g. saving time, experiential, and emotional), certainty (firm does what it says it will do), benefits (All the things the customer receives), and switching costs
• Relationship/loyalty marketing means thinking in terms of the customers we have, rather than the ones we hope to acquire.
• Competition is standing by ready & willing to take the customers you can't keep
• Relationship/loyalty marketing: an ongoing process of identifying and creating new value for individual customers for mutual value benefits and then sharing the benefits from this over a lifetime of association
o It seeks to create new value for customers and share the value so created
o Recognizes key role of individual customers in defining the value they want - that is, value is created with customers, not for customers
o Company must define its organization to support the value that individual customers want
o Continuously cooperative effort between buyer & seller
o Recognizes value of customers over their purchasing lifetimes
o Seeks to build a chain of relationships between the organization and its main stakeholders to create the value that customers want
o Focuses on the processes and whatever else is needed to advance the customer relationship
• With loyalty marketing, we develop customer-specific objectives and strategies that are unique to each customer or to each group of similar customers, which are part of a larger target market
• Customer loyalty ladder: the most obvious effort is to move the customer from the state of awareness (suspect/prospect) to being a brand advocate.
* First two rungs of the ladder are suspects and prospects
Suspects: anyone who might buy our product or service; we suspect they might buy our service, but we don't know enough about them to be sure.
Prospect: someone who has a need for our product or service as well as the ability to buy. Has heard of us, but has not yet purchase.
• Strategy: Overcome apprehension with empathy and encouragement, client "success stories," site visits, or product/service guarantees.
• Possible to come across disqualified prospects. We may learn enough to know that they do not need or have the ability to buy. Customers who are unprofitable and likely to remain so.

* Next rung is first-time customer: come from competition or may be new to the category
Strategy: meet or exceed their expectations. Staff must subtly remind guests what a great job they are doing in providing quality service by focusing on the dimensions of service quality (RATER). Build a promise for return visits, thank them for their business, and invite them to return.

* Repeat customers are on the next rung: customers who have purchased two or more times
Strategy: Provide value added benefits with each repeat purchase and to seek regular feedback. Tailor the service to their needs.
Eventually becomes clients. Customers who buy regularly all or most of the firm's products. Strong ongoing relationship makes firm immune to the competition.
Do not take business for granted, remind customers that it is smart to do business with them.
Continually seek input and feedback.

* Final rung are the advocates
They are like clients, but encourage others to buy from us
Do our marketing for us and bring additional customers
Strategy: Get them to sell for us. Encourage advocacy through letters of endorsement and referral acknowledgements. Communicate with them regularly.

• Firms often have inactive customers or clients, who have not bought from the firm in a period longer than the normal purchase cycle
o Strategy: develop a "win back" plan based on inactivity diagnosis.
o If defection is certain, ask, "What can we do to win you back?" and listen closely.
• Loyalty circle has three main functions: process, value, and communication
o There are places where the customer might exit the circle and relationships
o The goal of hoteliers is to keep the customer in the circle by executing equally well the three functions of the circle
o Equality is key to the loyalty circle

1. Process: how the service works; involves all activities from both the guest's perspective and the hotelier's perspective
o No gaps in this process
o Process includes everything, all interactions with employees
For the guest: all interactions with employees
For the hotel: all interactions between employees and guests; the design of the service operations; hiring and training of service personnel; collection of info to understand customers' needs, wants, and expectations
o To monitor process, use consumer research and intelligence techniques (e.g. mystery shopping, focus groups where a moderator leads a discussion focused on topics of interest to management, large-scale survey research with current/past customers)

2. Value-creation: subdivided into two parts: value added and value recovery
o Value added strategies increase loyalty by providing guests with more than just the core product
Increase the long term value of the relationship with the service firm by offering greater benefits to customers than can be found at competing firms who charge a comparable price
Features include financial (money), temporal (time, business travelers value their time at $100 per hour), functional (product does what it was designed to do), experiential (enhancing experience such as offering an upgrade), emotional (more recognition/pleasure), social (interpersonal link with service provider).
Business travelers want a hotel that "is a good value for the price paid," "collects your preferences and uses that information to customize your current and future stays" and "accommodates early morning check-in and late afternoon checkout." These add value to the core product offering.
o Value recovery strategies rectify a lapse in service delivery
Goal: ensure that the guest's needs are taken care of without further inconveniences.
E.g. empowering employees to solve problems and offering guarantees
Complaints should be taken seriously and processes to stop mistakes

3. Communication: incorporates database marketing, newsletters, and general advertising
o Involves all areas of how the hotel communicates with its customers
o External communications cannot overpromise what the service can deliver
o Communications reflect the needs of the customer and that customers do not receive offers in which they have no interest
• Frequency programs are not the same as loyalty programs
• Loyalty program: strategy undertaken by a firm to manage the three components of the loyalty circle to create an emotional bond with customers so that they give the firm a majority of their business, provide positive word of mouth, act in partnership with the firm, and spend more with the firm than a nonloyal guest would.
• Frequency program: any program that rewards guests with points, miles, stamps, or "punches" that enable them to redeem such rewards for free or discounted merchandise
• Confusing purchase frequency with loyalty is to confuse the ends with the means
o Loyalty builds frequency
o Frequency can create loyalty if the firm uses the information gathered on frequent visits to focus on the components of the loyalty circle, but if the firm ignores this opportunity then it ignores the emotional and psychological factors that build real commitment.
o Without commitment, they focus on the "deal," not the brand/product relevance
• With frequency programs, sales may increase, as they would with price discounts
o Repeat purchases may also increase, but the focus is on the rewards, not on product superiority or brand relevance
o Awards programs are tactical solutions to a strategic problem
o Economics of bribery begin to collapse with greater and greater bribes, eventually eroding the brand image and diminishing product/service differentiation

What Frequency Programs Don't Do
• They aren't quick fixes; they won't show short-term profit—these are long-term efforts
• They will not fix an essential problem in the operation that may be costing customers
• Won't bring in new customers

What Makes Frequency Programs Work?
• A vital database—the relationship foundation
• Targeted communications—the relationship dialogue
• Meaningful rewards—relationship recognition
• Simplicity—easy to participate and understand
• Attainability—motivational rewards must be attainable (e.g. upgrades)
• Sustainability—don't let it lapse; keep it active
• Measurability—make sure it is working in the right ways
• Management—full commitment and behind it all the way
• Manageability—don't let it get out of hand
• Profitability—is it really working in the long term?
• Don't treat the program like a promotion
• Don't focus excessively on rewards, but on the relationship
• Don't short-change the communications component
• Don't underestimate the importance of internal support
• Don't pretend to care more than you really do
• Tailor value of benefits to specific customers based on their achieved or expected values
• There can be no service recovery if the firm does not know when something goes wrong
• A complaint is a gift
• Customer complaints deserve special treatment because they are one of the most misunderstood and mishandled areas of customer relations
• What complaints are:
o Inevitable: diversity of the hospitality customer and heterogeneity of the hospitality product means nothing is perfect
o Healthy: customers are never totally satisfied, so if you don't hear any, they are not talking to you or you are not talking to them; relationship is deteriorating. Listen to your employees.
o Opportunities: problems may be idiosyncratic or caused by operation. If it's broken, you can fix it, if not, you can make it better, be creative, develop a new product, to learn new needs, and keep old customers.
o Marketing tools: marketing must know what customers want.
o Advertising: best and most loyal customers is one who had a complaint that was resolved and loves to tell about it.
• TARP findings:
o 50% of customers will complain about a problem to a front line person
o 1-5% will complain to a manger or corporate
o Problems that result in out-of-pocket monetary loss have high complaint rates, whereas mistreatment, quality, and incompetence problems evoke only 5-30%
o Twice as many people are told about a bad experience than a good one
• Once the cause of the complaint has occurred, the level of stress becomes a function of the handling of the situation. The disturbance level can be reduced if the complainant actively believes in management. Management must create an attitude that will minimize the negative effect of the complaint.
• Complainants want to feel that management is sincere and make a sincere effort to correct the situation
• If complaints were resolved quickly, more likely to make repeat purchases
• American consumers are more likely to voice dissatisfaction to the company, where other cultures avoid confrontation and just leave and engage in negative word of mouth
• Encouraging complaints becomes the necessary objective
o People do not complain for three primary reasons:
1. It is not worth the time and effort
2. They don't know where or how to complain
3. They believe that nothing will be done even if they do complain
• Marketing's task is to overcome these obstacles by making it easy to complain, making it known where and how to complain, and truly doing something about the complaint if it is reasonable, which over ¾ of complaints are.
Set up special procedures because when employees see management taking complaints seriously, they feel more inclined to do likewise.
• Unhappy customer is giving company an opportunity to solve the problem and transform him into a satisfied customer with repurchase intentions.
• The way complaints are handled is the major factor determining whether someone will return for another night's stay.

• Measure how well the procedures are working
o What percentage of guests have a problem during their stay?
o Of those who have a problem, what percentage is reporting problem to management?
o Of those who report a problem, what percentage claims their problem was solved to their satisfaction?
o Of those who report a problem, what percentage claims their problem was not solved to their satisfaction?
o What is the impact of complaint procedures on customers' willingness to return, overall satisfaction, and net promoter score?
• If you cannot solve the problem, it is best not to ask if there was a problem
• Benefits
o Long-term profit from loyal customers and more positive and less negative word-of-mouth advertising
o Ancillary benefits include new product ideas, new product information, improved image, better-educated customers, and higher productivity and service.
o For line employees, there is less customer conflict, better image and word of mouth about the company, and better respect for the company and the product
• Internal marketing (employee relationship marketing): applying marketing principles and the components of the loyalty circle to the people who serve the customers
• Emphasis: employee as the internal customer who also has needs, wants, and problems
o What this customer is buying is his job
o Job is the product that satisfies the needs and wants of these internal customers so that they, in turn, will better satisfy the needs and wants of the external customers

• Effort that supports the concept of internal marketing starts with top management and involves management at every level
o If employees are expected to be customer conscious, management style and decisions must support this
o Personnel policies must reflect this orientation in job selection, recruitment, and promotion
• Successful internal marketing considerably eases the task of implementing relationship marketing or the primary task of keeping customers
• Final barrier to loyalty are employees
o If employees do not communicate the attitude that a guest's problems are important to them, guests will not become loyal to a hotel
• Traditional marketing activities can also play a role in influencing personnel
o Employees should know about new products, new developments, and new customer promises before the customer so employees can respond to customers.
o In addition, unawareness leads to embarrassment, disappointment, reduced motivation, and lack of support for marketing efforts.
• "Treat employees the same way you want employees to treat customers. Managers are the servants of employees, not just the bosses. They must provide services to the employees in a friendly, helpful, and efficient manager that will enable those employees to better serve the customers."
• Lower-level employees, cannot be expected to be customer conscious if the management above them does not display the same focus
o Operations-oriented managers who concern themselves with policies and procedures, without regard to the customer, undermine the firm's internal marketing effort, reducing employees' jobs to mechanical functions. This restricts management's ability to satisfy the customer.
• Service profit chain model
o Direct and strong relationships between profit and growth; customer loyalty and customer satisfaction; the value and quality of goods and services delivered to customers, and employee satisfaction, loyalty, capability, and productivity
o Satisfaction mirror: employee satisfaction being "reflected" in terms of customer satisfaction
• Employee satisfaction index accounted for 50% of the variance in its customer satisfaction index, which, in turn, accounted for 50% of the variance in its RevPAR
• Employees, after all, manage the process, provide the imagination, implement the policies, and derive the insight to help deepen customer bonding
o Especially true when we deal with so many intangibles that make for customer value and can never be explicit in the policies ordained.
o Without the commitment of employees, relationship marketing is doomed to fail
o Employer must create value for the employee
• One of the first tasks is to have the employees believe in their job, which is the product that they represent to the customer
o Must sell jobs to employees before it can sell services to customers
o Dissatisfied customers (employees) express their dissatisfaction to customers
o Paying customers, in turn, find that their problems are not adequately solved, so they go elsewhere.
• Relationships with customers often depend on employees to go beyond standard policies and procedures to make a big difference in problem resolution and the feeling a customer has for the company
• What does it mean to have trust in a luxury hotel?
o The hotel does things as promised
o Feeling my personal property is safe in my room
o If I receive a fax, I know it will be delivered to my room
o Employees provide quick and correct answers
o I trust a hotel that trust its employees
• Competitive strategy is about being different
• Strategic competition is the process of perceiving new market positions that bring new customers from competitors or bring new customers into the market
• These positions open up or close because of environmental change or because they have been ceded by competitors
• What is strategy?
1. Strategy is the creation of a unique and valuable market position. Choose the products, services, and methods of promotion that are different from competitors and valued by the target market
2. Strategy is making trade-offs. Cannot be all things to all customers. Purposefully limit what a company offers.
3. Strategy is creating "Fit" or directing all activities that occur in an organization toward the same goal. Fit lock s out competitors by creating a chain that is as strong as its strongest link. The best fits are strategy specific because they enhance the company's uniqueness. The whole matters more than any individual part, and sustainable competitive advantage grows out of the entire system.
• Many companies lack marketing strategies or fail to make strategic choices or let their strategies disintegrate and disappear
• May be due to external causes
• More often it comes from within - from a misguided view of competition, organizational failure, or the undisciplined desire to grow "bigger and better"
• Managers are under increasing pressure to deliver measurable performance growth. Managerial effectiveness becomes the goal, and strategic thinking gets bypassed.
• There is the desire to grow with steps that blur a company's strategic position
• Attempts to compete on many fronts can create confusion and cause organizational chaos
• Uniqueness is fuzzy, compromises are made, fit is reduced, and competitive advantage is lost
• Apply four major criteria to growth and acquisitions
1. The strategic fit
2. The net present value 10 years out
3. Earnings per share
4. The reputability of the company
• Success, ironically, can be one of the greatest threats to survival and future success because it may invoke the attitude, "we can do no wrong."

• Tactics are the way to win the battle, strategy is the way to win the war.
• In marketing, strategy is the way to gain and keep customers (always give better value); tactics are the step-by-step procedure of how to do it (call by name).
• Tactics flow from strategy, so you should develop an appropriate strategy first
o Strategy drives the firm and specifies the direction in which it is going
o If there is no explicit strategy, then there is an implicit one by default.
• Necessary at every level, but there are certain strategic functions at certain levels: corporate, business, and functional
o Corporate: those responsible for the direction the whole organization takes
o Business: those involved in running the individual businesses
o Functional: those improving the effectiveness of functional operations (e.g. manufacturing, marketing, materials management, R&D, HR)
o May all come together in the same place in smaller companies

1. Corporate-Level Strategy
• Addresses the issue of what business you should be in to maximize the long-run viability
o Involves issue of position, trade-offs, and fit
o How to maximize these capabilities to take advantage of competitive advantage
• Vertical integration: moving backward into the production process (upstream) or forward into the distribution process (downstream) better manage the business
o Building blocks most influenced by vertical integration: quality and efficiency
o Ice cream shop makes their own ice cream because it's better (upstream)
o Hiring staff to deliver food (downstream)
• Diversification: entering into a new business activity that complements (related) the present business or uses extra resources to enter into a different business (unrelated)
o Entering a related business takes advantage of core competencies, while growing
o Additional size may provide economies of scale
• Other strategies include: acquisitions, new ventures, and restructuring
o All companies, especially publicly trade ones, have a mandate to grow in order to increase shareholder value
o Acquisitions: Marriott acquired Ritz=Carlton Hotels
o New ventures: Courtyard by Marriott was developed and franchised for faster growth
o Restructuring: Marriott sold its restaurant venture; PepsiCo divested its restaurants, now part of a company called Yum! Brands (management buy-outs or spin-offs)
• Strategic alliances and joint ventures occur when two or more parties get together to enhance the overall value of each
• Financially oriented, but are corporate marketing strategies
o May reduce costs, provide better management, and have other benefits, their primary objective is to reach different markets or the same markets differently and gain competitive advantage
• The building block on which these strategies focus is size
• This is strategic visioning and leadership: saw industries consolidating, understood forces of branding, analyzed opportunities and risks, and chose expanded branding and international growth as prime competitive methods

2. Business-Level Strategy
• Reflected in the overall competitive theme of a company and the way it positions itself in the marketplace
• Porter's three generic competitive strategies at the business level: cost leadership, differentiation, and focus

* Cost leadership strategy
• Outperforming competitors by producing at a lower cost
• Enables a business to charge a lower price but realize the same profits or charge a similar price but make higher profits
• Chooses a low level of product differentiation or uniqueness
• Targets a mass market, and its distinctive competency is the management of the materials and production process
• Customer loyalty is likely based on lower prices

* Differentiation strategy
• Creating a product/service that is perceived to be unique in some meaningful way (defined by the preferences of customers)
• May target a number of different market segments and may often charge a premium price
• Have distinctive competencies in research, development, sales and marketing, because all are needed to see in the market what others firms cannot
• Customer loyalty is based on unique characteristics
• Difficulty is the long-term ability to maintain the perceived uniqueness
• Differentiate through marketing imagination as the way a company manages its marketing may be the most powerful form of differentiation

* Focus strategy
• Aimed at serving the needs of a limited customer group or segment, one or a few, based on any kind of distinctive competency
• Specializes in some way
• May be by differentiation or as a cost leader, but in a more specialized sense than when those two are used as a core generic strategy
• I.E. New York Palace created "the Towers" (173 of 890 rooms to create a specialized product to compete directly with smaller luxury New York hotels)
• I.E. Hotwire, Priceline focus on companies that book travel for those who focus on price alone
• Some companies use both a cost leadership and a differentiation strategy
• Those pursuing a focus strategy may also use either a cost leadership or a differentiation strategy, so that in many cases there is a not a clear-cut distinction
• Firms that are caught in the middle will never know which opportunities to respond to/neglect; the consumer will also be often confused

3. Functional-Level Strategy
• Aimed at improving the effectiveness of functional operations
• Value chain: each activity in the value chain adds value to the final offering of the product/service, presentation, communication, and distribution
o Divided into two parts: primary and support activities
Primary: pertain to the physical creation of the product/service (e.g. manufacturing and marketing; marketing is primary because it connects the customer to the product/service_
Support: allow the primary activities to take place (infrastructure, HR, R&D, materials management)
o Strategies that pertain to the value chain activities focus on the generic building blocks of competitive advantage
o Different functional areas can impact the competitive advantage of a firm
• The environment of companies has become larger and more complex
• Events in faraway places have an impact close to home
• Customer needs and wants are also ever changing, creating an environment that is dynamic and demanding
• Environmental scanning: trying to determine what the future holds in store
• What is going on in the environment that will impact us?
• Be proactive rather than reactive, and constantly perceive what is happening and anticipate what will occur
• As a systematic approach, environmental scanning is an essential leadership tool
• Relative to the competition, which is also an environmental force

* The Steps of Environmental Scanning
1. Watch for broad trends
• American change: drinking, smoking, later marriages, two-income families, increased travel, diet consciousness, and "grazing" eating habits
2. Determine relevant trends
• Not everything that happens in the environment is relevant, nor can an organization adapt to everything that is relevant
• Creativity, imagination, and farsightedness play important roles
• Some people are better at this than others
• Circulate a short memo to key people and ask for reactions
3. Analyze the impact
• What is the impact both sooner and later?
• Analyze in terms of product, price, target market, competition, cost, employee attitude, other variables
• Is it a threat or an opportunity? Can it be turned into an opportunity?
4. Forecast direction
• Dificult stage
• Use people to develop scenarios (focus groups, employees)
• Bring in an outside consultant who is unconstrained by past experiences and persona biases
• Intuitive reasoning by one person alone should not be used as their view may be too narrow and may be impacted by values, beliefs, experiences, likes, and dislikes
• Playing off opposites can help in getting in getting all viewpoints, to find a relationship or impact
5. Assess opportunity
• Too easy to look at the bad side of things, look for opportunities
• Necessity is the mother of invention
6. Relate the outcome
• Relate the outcome of the preceding five steps to the marketing strategy or the marketing plan, now, next year, and five years from now
• Are changes needed? What are the implications?
• Environmental scanning should be done systematically
• Macro environmental forces, other than competition, can be broadly classified into technological, political, economic, sociocultural, and natural environments
• These components are dynamic and often tied to each other
• Major task of environmental scanning is to identify the elements that affect the firm and assess the nature of the effect
• Favorable effect: opportunity
• Unfavorable effect: threat

1. Technological Environment
• Technology impacts both how managers run their businesses and how consumers use these businesses
• E.g. advent of inexpensive mass computer storage has enabled management to collect large amounts of info about its guests, which can be used to customize the stay for the guest
• Technology can also create and destroy businesses
• Rise of the Internet as a distribution channel (e.g. Expedia, Hotwire, Travelocity)
• Internet has provided consumers with an infinite number of choices and access to large amounts of info - info that used to be available only through travel agents
• Technological advances have brought other benefits to organizations, such as better and faster elevators, self-service kiosks, immediate credit card approval, electronic door locks, etc.
• Marketing executives must be concerned about impact of technology on consumer behavior
• Determine whether a technological solution can be used to improve the non-technological amenity and thereby increase customer satisfaction (e.g. portable phones, wireless internet, self-service kiosks)

2. Political Environment
• Refers to the rules and regulations that can either encourage growth and trade or impede it
• World Trade Organization helps monitor and set the rules and regulations of trade
• Particularly critical for large and multinational companies in many areas of the world because in addition to the WTO, each government also sets trade rules
• Government regulations that occur within a nation's borders can either be taken advantage of or counteracted
• Local politics are also equally critical: liquor licenses, zoning variances, building permits, and hours of operations, local associations may lobby

3. Economic Environment
• Man of the economic factors that affect any business include recessions, inflation, employment levels, interest rates, the price of oil, and personal discretionary income
• Fluctuation in currency values has a particularly significant impact on international travel
• When U.S. dollar is strong relative to other international currencies, that means that items in the United States are more expensive than the same items in other countries
• Price resistance impacts the hospitality industry
• Expense account customers were once classified as "non-price-sensitive" are now resisting higher prices
• Corporate controllers have forced cutbacks in expense accounts, and organizational travel planners and buyers are seeking reduced-price contracts with both airlines and hotel companies

4. Sociocultural Environment
• The personal beliefs, aspirations, values, attitudes, opinions, lifestyles, interpersonal relationships, religion, and social structure of the members of a society
• Much of the hospitality experience depending on sociocultural trends
• Also includes demographic trends (e.g. aging of the population), socioeconomics (e.g. increasing dual-income households), cultural values (e.g. the changing role of women), and consumerism (e.g. certain "rights" such as full information, safety, and ecology)
• An organization that is constantly alert and adapts to cultural change will have a lead
• Sociocultural changes affect menus and entire dining concepts (e.g. healthier foods, interesting food and presentation is replacing quantity, decaffeinated coffee/tea, substitutes for sugar/alt, truth-in-menu, spa menus, non-smoking sections)

5. Natural Environment
• Ecological environment (natural environment) includes everything relating to the care and preservation of the environment
• Includes natural disasters such as SARS, tsunami, hurricanes, earthquakes
• As customers become more aware of the fragility of our natural environment, ecology issues have risen to the forefront
• One of the growing segments of the travel industry is ecotourism
• Environmental concerns such as waste disposal, recycling, and pollution are attracting attention from customers and regulators
• Public expects the hospitality industry to incorporate ecological concerns into its decision making
• Some companies have found it profitable
• Much of the progress in ecological management has been outside of the U.S.
• Mission statement brings together competitive objectives, customer objectives, company objectives
• Defines the purpose of a business, why the firm exists, who the firm competes against, who the target market is, and how to serve the constituents
o Constituents: those who have an interest in what the firm does (e.g. customers, employees, owners, financial backers, local community) - all whom are called stakeholders
• All other mission statements in the organization flow from the corporate mission statement
• Mission statements exist at the level of every strategic business unit (SBU) within the firm
o SBU: a unit of business that serves a clearly defined product-market segment with its own strategy, but in a manner consistent with the overall corporate strategy, its own mission, and its own identifiable competitors (e.g. Marriott and Courtyard)
o Should each have own objectives, mission, and identifiable competitors
o Strategic planning occurs at every level where an SBU exists
• A firm's objectives may include growth, return on investment, profit, leadership, industry position, or other factors
• Mission statement indicates the purpose of the business and is a statement of why the business exists, it drives all subsets of the business
• Mission statements must be realistic or else it will lead to confusion at lower levels of the organization
• Should be something in which all employees can believe.
o Sets goal and urges everyone in the organization to meet those goals
o Unify the organization; if the response is "Who are we kidding" the entire effort becomes meaningless and defeating
• The three entities should be equally represented in the mission statement: employees, customers, and shareholders

* Criteria of an Effective Mission Statement
1. It states what business the company (or SBU) is in or will be in
• Goes considerably beyond being in the hotel, restaurant, or food business
• More specific and states how we serve our customers and specifies who they are
• Statement has numerous ramifications such as how, what, when, and where, which are addressed in the strategic plan
2. It identifies the special competency of the firm and how it will be unique in the marketplace
• Committed the firm to a definite course of action
• Its competency and uniqueness is special knowledge of the target market and a commitment to maintain and implement that knowledge
3. In a market position statement it defines who the competition will be—that is, it actually chooses whom it will compete against and does not leave this to chance
4. It identifies the needs of its constituents
• Customers: conduct ongoing research of its customers, both at the corporate and unit levels. Continuously seek to satisfy those needs within the constraints of its mission
• Employees: Recognize all employees as internal customers with their own varying needs and wants. Attend to those needs and wants with the same attitude it holds towards it paying customers and maintain an open line of communication.
• Community: Recognize its position in the economic, political, and social communities. Maintain a role of good citizenship.
• Owners: Commit to a percent RIO for its investors and a positive image of which they can be proud.
5. It identifies the future
• Master strategy begins with a situational analysis of strengths and weaknesses
• Shapes the objectives and sets the stage for all decisions aspects
• Deals with generic stages such as positions, trade-offs, and fit
• Marketing objectives are identified in the master strategy in the context of the following issues:
o New markets, growth sectors, customer loyalty, repeat business, quantity versus quality, cheap versus expensive, best versus biggest, high or low markups, quick turnover, product/service range, building brand name, customer awareness and perception, and a host of other things that guide the business strategies
• One must first define their current state, with an environmental analysis, looking especially at the long-range trends and effects
o These trends could be economic (State of the international, national, or local economy), sociocultural (the graying of America, generation X), lifestyle (interest in fitness and health), legal (laws pertaining to employees such as minimum wage and smoking bans), ecological (Environmental concerns), political (room taxes to terrorism), technological (Internet reservations), or competitive (industry consolidation)
o Major purpose is to identify external opportunities and threats
Opportunities: favorable trend in the environment such as an emerging market segment or a need or demand for certain specialized services
Threat: unfavorable trend (reduced demand or new competition)
• SWOT Analysis: main objective is to identify strategies that fit a company's resources and capabilities to the demands of the environment in which the company operates
o Build on a company's strengths by exploiting opportunities, countering the threats, and overcoming the weaknesses, thus developing distinctive competencies and a competitive advantage
o Distinctive competency: what a company can do particularly well; takes a great deal of objective self-analysis to understand and abide by.
o Failing to recognize strengths and weaknesses results in targeting the wrong markets; a firm should only do what it has the competency and resources to do well in.
o Assess future opportunities by:
Involve managers who will make the final strategic choices
Test alternative strategies against strengths and weaknesses
Evaluate strengths and weaknesses in terms of the future and their strategic significance and relative to the competition
Separate weaknesses from simple problems to be overcome
o Internal: Strengths and weaknesses
Brand demand
Customer profile
Organizational values
Resources
Product/service
Objectives
Policies
Organization
o External: Opportunities and threats
Generic demand
Competition
Environment
o Plan future around strengths and solve/avoid weaknesses
o Solid strength and weakness analysis may be the most neglected phase of strategic planning
• Next stage in strategic marketing is the planning stage; it flows directly from the master strategy
• Consists of both operational and business-level strategies
• The "how"
• Organization acts in advance, rather than reacts, by planning for change
• Company attempts to minimize risk, maintain control, and allocate resources to keep in focus and reach its objectives
• Specific matching of the product to the market, of understanding where the business is going to come from, of developing new products and services, and of influencing demand

1. Target Market Strategy
• Target market strategy clearly depends on resources and capabilities; the firm should target the market that the firm can serve best and better than the competition
• If a firm does not have the resources or capabilities to sustain an advantage against a market segment, the result is a confused imagine and failure to fulfill potential
• Another peril derives from targeting too many different markets, which lacks focus and results in confusion for all
• Define the right target market within the broader market segment

2. Product Strategy
• Concerned with the offering of different products and services to satisfy market needs
• Deals with the benefits the product provides, the problems it solves, and how it differentiates from the competition
• Based on opportunities in the environment and customer needs rather than what management/owners feel the product "should be"
• Product strategy is to have something for everyone instead of defining the specific needs of the target market
• Sometimes if the product already exists, the market must be found that fits the product
o Might exist when the market changes or new competition takes it away

3. Competitive Strategy
• The firm actually chooses its competition and when and where it will compete, as well as whether it will be a low-cost producer, a differentiator, a focuser, or a combination
• Choice must be realistic and based on an objective situational analysis
• Find a market in which there is a clear advantage or a niche in the market that can be defended. Then, match the firm's product strengths with the market or niche.
• Choose accurate competition and stick to it in the marketplace
• In some companies with widely varied product carrying the same name, each property has to choose its own competition. Sometimes difficult when the brand name is carried on all products.

4. Market Strategy
• Founded on the premise of reaching the right market with the product
• If you can't reach the market, the best product and most well-defined strategy will fail
• Reaching the market can be looked at in two ways:
o Taking the product to the market and bringing the market to the product
• With services, taking the product to the market is part of the distribution system
• With manufactured goods, taking the product to the market is a major commitment and capital investment
• Getting the market to the product involves a new set of strategies. When resources are scarce, the market strategy must designate where to use those resources.

5. Positioning Strategy
• Entails the creation and/or enhancement of a specific brand image in the customer's mind
• No less than the presentation of the product strategy directed at the target markets, consistent with resources and capabilities of the firm, aimed at specific markets, vis-à-vis the competition
• Functional strategies: the "what" of the strategic system
o "What we are going to do to get where we want to go"
o Still strategies, not tactics
• Strategies that flow directly to the customer in the form of the value chain
• Represent the substrategy implementation of the business strategies
• Commonly referred to as the marketing mix
• Shorter-term and more flexible strategies

1. Product/Service Strategy
• Product/service mix: the combination of products and services, whether free or for sale, aimed at satisfying the needs of the target markets
• Strategic decisions regarding the level of service to offer and when and how to offer it: what is important to the target market? What do they expect? What problems do they have?
• Level of product and service offered must be consistent with higher-level strategies
• Higher-level strategies must be built around the target markets and the product, as should the functional strategies that flow form them and the tactics that are implemented

2. Presentation Strategy
• Presentation mix: all elements used by the firm to increase the tangibility of the product/service mix in the perception of the target market at the right time and place
• Addresses the physical plant, atmospherics, employees, customers, location, and price
o Physical plant and atmosphere must be consistent with product/service strategy, they shouldn't be overdone/underdone
o Employees: must be hired and trained accordingly. Expect an emphasis on the customer rather than on the service.
o Customer mix: don't mix incompatible markets if you can possibly help it. If you have to deal with incompatible markets, keep them separated in both time (e.g. seasonally) and space (e.g. separate dining rooms)
o Location: being where the customer can get to you or you can get to the customer.
o Pricing: should be consistent with the other functional strategies. Price creates many expectations; should be set with regards to the interrelationship with other strategies

3. Pricing Strategy
• Pricing mix: combination of prices used by the firm to represent the value of the offering
• How the customer values what is being offered and what is received
• The follow points have been considered in developing the pricing strategy:
o Special features of the product
o Spending power of the market
o Traffic movement of the market
o Possibility of losing regular users of high-rate rooms to lower-rate rooms
o Pricing of the competition
o Management policy to avoid discounted business, group business, and any upgrading to the new rooms
o The fact that the rates will be raised in three months
• Increase in price should be considered for its effect on long-term profitability, demand elasticity and competitive moves.
o Although a higher price may mean higher profits in the short run, the long-run effect of a price increase may be disastrous
o The increase may encourage new entrants and competition from substitutes
o Long-term effects should always be examined. Increase in price may lead to shifts in demand that could be detrimental.

4. Communication Strategy
• Communications mix: consists of all communications between the firm and the target market that increase the tangibility of the product/service mix, that increase the tangibility of the product/service mix, that establish or monitor customer expectations, or that persuade customers to purchase
o Replaces promotion in the four P's
• Strategic issue is "what to say," not how to say it (left for those with exceptional creativity)
o Should not be left for advertising agencies to decide as this usually results in advertising that does not clearly communicate the desired or appropriate message
o Always filter ad through the strategy to be certain that is what they are really saying
• Dictates emphasis and proportion of budget that should be placed on communication methods: combination of advertising, personal selling, public relations, promotion (including frequent traveler programs), merchandising, direct mail, marketing on the World Wide Web

5. Distribution Strategy
• Made up of all channels available between the firm and the target market that increase the probability of getting the customer to the product (replaces place on the 4 P's)
• Strategies deal with channels and how to move the customer physically to the product
o Include: travel agents, tour brokers, wholesalers, referral services, reservation systems, websites, airlines, travel clubs, concierges
o Strategies involve on the emphasis placed on each as well as the channels used
• Destination hotels and resorts place special emphasis on using these channels
• Distribution systems have become increasingly complex in the hotel industry and require far more attention
• Destination management companies are increasingly becoming strong channels of destination. Originally designed to handle the land transportation needs of groups upon arrival, they now steer potential customers to restaurants, catering facilities, attractions, etc.
• Two feedback loops in the strategic marketing system model
o Risk/fit loop: questions the risk if the strategy is pursued and the strategic fit.
What can happen? Will it work? How will competitors react? What are the economics? Does it meet objectives? Is there a fit between the marketplace and the strategy?
If negative answers, reevaluate
o Synthesis, evaluation/fit, and feedback
Analysis: break a problem into its many parts (E.g. marketing, finance, organizational, environmental)
Synthesis: putting the pieces back together in a meaningful way that separates the wheat from the chaff
• Requires artful pattern recognition, receptiveness, and magical insight
• Restating the pertinent elements in a concise, clear summation that is configured in a way that considers the needs of its firms, the needs of its customers, and the challenges of its competitors
• Identifying a theme or a vision for a configuration that is durable, defensible, and feasible
Evaluation/fit: ask some of the same questions asked in the risk loop
• Make value judgments about whether the strategy matches capabilities and whether the organization can support it
Feedback: whether the strategy is working once it is in place
• Marketing research is fed into the marketing intelligence system, which warns managers to act before the system gets out of control
• Once the strategy is planned and approved, it has to be implemented
o Organization: strategy is implemented through organizational design
Create an organizational structure that spots its own weaknesses and make the strategy work
Sometimes strategy is put in place with an existing organizational structure that doesn't allow it to work or strategy is designed around existing structure
Structure follows strategy
Employees' activities must be coordinated, and employees must be motivated to make the strategy work—to create value and obtain competitive advantage
Design an effective control system that compares actual performance against established, targets, evaluates the results, and takes action if necessary
• Excellent design, marketing, and delivery are crucial for experiences
• Ingenuity and innovation will always precede growth in revenue

* Two dimensions
o Customer participation
Passive participation: customers don't affect the performance (e.g. symphony-goers who are just observers)
Active participation: customers play key roles in creating the performance or event that yields the experience (e.g. skiers)
In the middle: people that go to watch a ski rate are not completely passive, because by being there, they contribute to the visual and aural event
o Connection, or environmental relationship that unites customers with the event or performance
Absorption: absorb event taking place in front of them (e.g. watching Kentucky Derby, taking notes during a lecture, watching movie at home)
Immersion: people standing infield are immersed in sights, sounds, and smells around them (reading a book, movies in theater)

* Four broad categories according to where they fall on the spectrum of the two dimensions
o Entertainment - passive and absorption (e.g. watching television/concert)
o Educational - active and absorption (e.g. attending class)
o Escapist - active and immersion (e.g. acting, playing in a band, climbing)
o Esthetic - passive and immersion (e.g. viewing grand canyon, art gallery)
• Richest experiences encompass aspects of all four realms, forming a "sweet spot" around the area where the spectra meet
• Experiences must meet a customer need, they have to work, and they have to be deliverable
• Derive from a process of exploration, scripting, and staging
1. Theme the experience
• Customers know what to expect when they enter the establishment
• Gives customers something to organize the impressions they encounter and yield a lasting memory
• Theme should be concise and compelling
• Not a corporate mission statement or marketing tagline; doesn't need to be publicly articulated in writing
• Drives all the design elements and staged events of the experience toward a unified story line that wholly captivates the customer

2. Harmonize impressions with positive cues
• Impressions are the "takeaways" of the experience
• Introduce cues that affirm the nature of the experience to the guest
• Each cue must support the theme and be consistent
• When a restaurant host says "your adventure is about to begin" rather than "your table is ready"
• Cues that make the impressions that create the experience in the customer's mind
• Includes architectural features, visual and aural cues, etc.

3. Eliminate negative cues
• Eliminate anything that diminishes, contradicts, or distracts from the theme
• Do not litter the environment with meaningless or trivial messages
• Customers sometimes need instructions, but choose an appropriate medium or message form
• The easiest way to turn a service into an experience is to provide poor service
o "Overservicing" can ruin an experience
Eliminate negative cues by assigning off-stage personnel to answer phones, placing guest info on an interactive tv channel, creates a more pleasurable customer experience

4. Mix in memorabilia
• Certain goods have always been purchased primarily for the memories they convey (e.g. postcards, shirt, cap) as a physical reminder of the experience
• Price points are a function less of the cost of goods thank of the value the buyer attaches to remembering the experience
• Many service businesses find no demand for memorabilia because they do not stage engaging experience

5. Engage all five senses
• The sensory stimulants that accompany an experience should support and enhance its theme.
• The more senses an experience engages, the more effective and memorable it can be (e.g. crisp snaps of the cloth and scents used in shoe-shining, savvy hair stylists, bakery smells in supermarkets)
• Not all sensations are good ones, and some combinations don't work