Chapter 3Chapter 3

Understanding and segmenting customersUnderstanding and segmenting customers

After going through this chapter, you should be able to:

* Understand a number of core concepts that explain hospitality consumer and organizational customers’ behaviour* Discuss the role of customer expectations* Identify the factors that influence the hospitality consumer,

buyer and organizational customer decision-making process* Explain the principles of segmenting demand in hospitality markets* Describe hospitality segmentation variables* Evaluate the characteristics of hospitality target markets

Marketers study consumer behaviour to understand and predict what customers will buy, how and why

Marketers need to understand the processes consumers go through in buying and consuming hospitality products.

If we can understand who buys which hospitality productswhere, when and why, then we can influence demand

By understanding and meeting customer expectations, companies can better deliver customer satisfaction

Key economic factor is consumer disposable income

When there is:* strong economic growth* low employment opportunities* higher consumer confidence - then there is an increase in consumption

When there is:* economic downturn/recession* low employment opportunities* lower consumer confidence - then there is a decrease in consumption

Individual consumer buyer behaviour can becategorized into:

* socio-cultural influences * individual differences * contextual circumstances

Figure 3.1 Figure 3.1 Influences on individual hospitality consumers

Consumers’ perception of the risk associated with buying a

hospitality product influences the purchase decision

Financial riskWhen large amount of money at stake - major hospitality purchases

Social riskWhen hospitality products that have social significance for consumer

Psychological riskWhen consumers perceive a threat to their self-image and self-esteem

Consumers vary regarding the level of involvement they have in purchasing decisions

A high-involvement purchase decision is one that is personally significant/relevant A low-involvement purchase decision is a routine decision with limited significant/relevance

Involvement tends to vary between:* individuals (some people are highly involved in many decisions)* products (some products are more involving than others) context (the level of involvement can vary across purchasing contexts)

1. consumer identifies a need2. need may be caused by internal conditions or external stimuli3. low-involvement product = routinized buying decision4. high-involvement product = search for information to make decision 5. search process can be internal or external: * An internal search uses memory to recall previous experiences (or information) to provide solution * If the internal search does not provide a solution, then the consumer engages in external search * Consumers evaluate alternatives and make decision

Customers have expectations of hospitality encounters, which marketers must meet if customers are to be satisfied

Zones of tolerance:* Ideal level – ‘what can be’* Desired level – ‘what should be’ * Predicted level – ‘what will be’* Minimum tolerable – ‘what must be’.

Factors influencing customer’s zone of tolerance:* Customer’s personality and current circumstances* Importance of the purchase occasion* Characteristics of the product* Price

Organizations have a different approach to the buying process compared with individual consumers - differences include:

* number of participants involved in the organization’s purchase* users are not always the buyers* complexity of the arrangements (numbers, travel, accommodation, catering and entertainment* technical requirements

The ‘decision making unit’ (DMU):

Users are the customers who consume hospitality productsInfluencers are people who influence any part of the decisionDeciders are the people who actually make the purchase decisionsBuyers are the people who make and pay for the bookingGatekeepers are people who control the flow of information to other members of the DMU

Segmentation is the starting point for developing effective marketing strategies because:

* trying to target all consumers is not cost-effective * identifying the characteristics of target markets

means the hospitality offer can be designed to satisfy customers more effectively

* providing a more focused and cost-effective marketing strategy improves profitability by maximizing customer satisfaction, generating repeat and recommended sales

* Specify the market

* Establish segmentation criteria

* Generate segmentation variables

* Evaluate market segment profiles

* Evaluate company’s competences to serve selected segments

Figure 3.2 Figure 3.2 Hospitality market segmentsHospitality market segments

The primary segmentation variable is purpose of travel

Three main categories are:* business* leisure* visiting friends and relatives (VFR)

Each of these main categories can be subdivided into several distinct market segments

Key point is that the same person can have different customer needs and wants depending on whether the purpose of travel is business, non-business or VFR

Accommodation business customers tend to:

* be less price sensitive, employer pays for hospitality and travel expenses* have shorter stays (one night or only a few)* be more frequent, or regular, users of hotel accommodation* stay at establishments that are within a reasonable (5– 3 0 min) travel time of their place of work less seasonal

Accommodation leisure customers tend to:

* be more price sensitive than business travellers, since they are paying for the accommodation out of their own after-tax income* be more likely to stay longer on each trip* be less-frequent users of hotel accommodation (unless also business travellers) * stay at establishments that are close to leisure amenities and tourist attractions * be much more seasonal

Geographic DemographicAge GenderFamily size/structure Socio-economic classEthnic origin, religion and nationality Buyer needs and benefitsPrice/product Current user statusBrand loyalty Purchase occasionSize of party Lifestyle (or psychographics)Time

Figure 3.3 Figure 3.3 Guest usage status

Companies need to evaluate the potential of market segments using the following criteria:

Market data – size, growth, accessibility, consumer needs and wants and benefits sought, customer power;Competitor analysis – number of competitors, their market share, capabilities, resources, strengths and weaknesses, differentiators and profitability and the potential for new entrants;Internal company audit – capability of servicing the market segment, compatibility with existing and future segments, and compatibility with the company’s resources and values

Consumer target markets:* Families* International outbound market – e.g. China* Seniors market

Organizational target markets* Corporate travel* MICE – meetings; incentive; conferences; exhibitions* Aircrew * Tour groups* SMERFE - social, military, educational, religious, fraternal and ethnic* Intermediaries

Figure 3.4 Figure 3.4 Best Western advert targeting classical music loversBest Western advert targeting classical music lovers

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