hospitality

Marketing for Hospitality and Tourism, Fifth Edition

By Philip Kotler, John Bowen and James Makens

2010 Pearson Higher Education, Inc.

Pearson Prentice Hall - Upper Saddle River, NJ 07458

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It is the whole business seen

from the point of View of its

final result, that is, from the

customers point of view

Business success is not

determined by the producer

but by the customer.

PETER DRUCKER

Marketing is so basic

It cannot be considered a

separate function.

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After reading this chapter, you should be able to:

OBJECTIVES





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Understand the relationships between the worlds hospitality and travel industry.

After reading this chapter, you should be able to:

OBJECTIVES

Define marketing and outline the steps in the marketing process.

Explain the relationships between customer value and satisfaction.

Understand why the marketing concept calls for a customer orientation.

Understand the concept of the lifetime value of a customer and be able to relate it to customer loyalty

and retention.





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Chipotle opened in 1993 with the goal of serving fresh, gourmet-quality food at reasonable prices.

the dream and creation of Steve Ells, a graduate of the Culinary Institute of America

Steve used to watch the lines of customers moving through the tacquerias on Mission Street.

I believed I could make a superior product and capture the

success of those small restaurants in a big way.

With his dads help, the first Chipotle near the University of Denver sold four hundred dollars worth of burritos on

opening night.

Chipotle Mexican Grill

Marketing for Hospitality & Tourism

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Food with Integrity - the philosophy that led to

success, and continues to guide Chipotle.

Food must complement and enhance its environment and not

clash or harm the environment in which it exists.

Steve insists on fresh productsnot canned, frozen, or freeze-dried.

Using organic, naturally raised foods, Steve entered the natural food niche in restaurant operations with

emphasis on great-tasting food, quality & simplicity.

the aim was to explore the possibility of incorporating as many organic or naturally raised foods as possible

Chipotle Mexican Grill - Food with Integrity


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Mexican restaurants can look alike, with photos of

Pancho Villa or other decorations the public has

come to expect as normal.

A Chipotle restaurant is different!

kitchen and food preparation areas are in front of the

customers, designed to appeal to the senses

Customers observe freshness, cleanliness & variety

at the same time they smell the spices and hear the

sizzle of meat on the grill.

this stimulates the appetite and blends the ambience

of food preparation with food consumption

Chipotle Mexican Grill - Environment


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Steve asked sculptor friend Bruce Gueswel to design

artwork appropriate to the environment.

a unique line of original art-work and furniture using

welded steel, corrugated metal, and wood to depict

modern renditions of ancient Mayan hieroglyphics

The style, known as cantina moderne, employs

metals, plywood, concrete, and glass to provide a

sophisticated postindustrial feel with exposed duct

work and pipes.

Chipotle restaurants have been given awards for design

by the American Institute of Architects

Chipotle Mexican Grill - Environment


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Unlike most quick-service restaurant chains, Chipotle

offers no coupons or specials.

at Chipotle all food all the time is either full price or free

prices are comparatively reasonable but vary by market

Thousands of promotional bucks for one free

burrito are given away during the year.

proven to be very popular and productive in new markets

From there, word-of-mouth supported by free

publicity in newspapers and magazines serves as

the principal means of promotion.

Chipotle Mexican Grill - Pricing & Promotion


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Repeat visits by customers have proven to be very

high within Chipotle restaurants.

Why? The Chipotle experience.

Our menu is focused. Our food refined. Our look

distinctive. Our atmosphere eclectic.

Customers see, select, and direct precisely what goes

into their burrito or taco. Our crews dont just take

orders.

Our recipes are original and innovative. The ingredients

in our food are the finest and freshestwhat we call food

with integrity.

Chipotle Mexican Grill - Customer Loyalty


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Chipotles loyalty also applies to its employees.

We hire talented people who value autonomy,

responsibility, hard work, and having a little fun.

We encourage our people to grow as far as their ability

will take them.

Chipotle provides a manager bonus of up to $10,000

for developing hourly employees into managers.

promotion from within provides a career for the best

workers

Managers also get to keep 10 percent of any revenue

gains over the years budget.

Chipotle Mexican Grill - Staff Loyalty


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Chipotle has mastered the use of social networks,

new, powerful forms of media that many companies

are trying to incorporate into their marketing plans

A $30,000 prize offered to university or college

teams to produce the best Chipotle advertisement.

Chipotle received 45 entries from 18 colleges.

winners received air time on TV & in movie theaters

Many of the ads ended up on youtube.com and

myspace.com where some received a million hits.

an effective and efficient way for Chipotle to penetrate

this media

Chipotle Mexican Grill - Social Networking


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As a manager in a global economy, marketing will

greatly assist your personal career & the success of

the enterprise you manage.

in todays hospitality/travel industry, the customer is

global and is king or queen

Customers can enhance or damage your career

through the purchase choices they make and the

positive or negative comments they make to others.

The travel industry is the worlds largest industry

and the most international in nature.

receipts of over $1 trillion and over 1 billion travelers

Hospitality in a Global Economy

Your Passport to Success

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Thirty years ago there

was nothing in Dubai

but a creek, a sheiks

palace, and a reputation

as a smuggling capital

of the Arabian Gulf.



Today Dubai boasts some of the worlds best hotels

& $70 billion committed to development of tourism.

30% of Dubais gross domestic product is from travel &

tourism, and will increase when DUBAILANDTM opens

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The title The Worlds Best Airport is not held by

a US or European airport, but by Hong Kong.

Hong Kong International Airport boasts the worlds

largest enclosed space, with a terminal eventually

capable of handling 87 million visitors per year

The best international airline is Singapore Airlines

The worlds best hotel is Oberoi Udaivilas in

Udaipur, India.

the other top five hotels are in four different countries:

South Africa, Thailand, Turkey, and Italy.



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Tourism planning/promotion departments and

hospitality companies are filled with college

graduates from across the globe.

Competition is strong and getting tougher each day.

yet opportunities are greater than ever before

Welcome to marketing

Managing in a Global Economy


Your passport

to success!

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Today marketing isnt simply a business function.

its a philosophy, a way of thinking, and a way

of structuring your business and your mind

marketing is much more than a new ad campaign

Marketings task is to provide real value to targeted

customers, motivate purchase, fulfill consumer

needs, and never fool the customer or endanger

the companys image.

Creating customer value and satisfaction are at the

heart of hospitality and travel industry marketing.

Marketing in a Global Economy


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Todays successful companies are strongly customer

focused and heavily committed to marketing.

Accor has become one of the worlds largest hotel

chains by delivering Lesprit Accor

the ability to anticipate and meet the needs of their

guests, with genuine attention to detail

Ritz-Carlton promises & delivers truly memorable

experiences for its guests.

McDonalds grew into the worlds largest

restaurant chain by providing its guests with

QSC&V (quality, service, cleanliness, and value).



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Successful hospitality companies know that if they

take care of their customers, market share & profits

will follow.

As a manager, you will be motivating your

employees to create superior value for your

customers.

You will want to make sure that you deliver

customer satisfaction at a profit.

This is the simplest definition of marketing.



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The purpose of a business is to create and maintain

satisfied, profitable customers.

customers are attracted/retained when their needs are met

customers talk favorably to others about their satisfaction

Some hospitality managers act as if todays profits

are primary and customer satisfaction is secondary.

this attitude eventually sinks a firm as it finds fewer repeat

customers and faces increasingly negative word of mouth

Successful managers understand that profits are best

seen as the result of running a business well rather

than as its sole purpose.

Customer Orientation

Satisfied Customers

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When a business satisfies its customers, they will pay

a fair price for the product, which includes a profit

for the firm.

Managers who forever try to maximize short-run

profits are short-selling both customer & company.

much of the behavior of employees toward their

customers is the result of management philosophy

The alternative management approach is to put the

customer first and reward employees for serving the

customer well.


Satisfied, Profitable Customers

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Without customers, assets have no value.

a new multi-million-dollar restaurant will close

a $300 million hotel will go into receivership


Satisfied, Profitable, Repeat Customers

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It is wise to assess the customers long-term value

and take appropriate actions to ensure a customers

long-term support.

The Forum Company found the cost of retaining a

loyal customer is 20 percent of the cost of attracting

a new one.

Another study found an increase in customer

retention rates yielded a profit increase of 25 to

125 percent.


Satisfied, Profitable, Repeat Customers

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In the hotel industry, marketing and sales are often

thought to be the same

Sales managers provide prospective clients with

tours, entertaining them in the hotels food and

beverage outlets.

the sales function is highly visible, where most areas of

the marketing function take place behind closed doors

It is not uncommon to hear restaurant managers say

that they do not believe in marketing.

when they actually mean they are disappointed

with the impact of their advertising

Sales & Marketing

What is Hospitality and Tourism Marketing?

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Advertising and sales are components of the

promotional element of the marketing mix.

other elements include product, price, and distribution,

research, information systems, and planning

The Marketing Mix


The Four-P framework calls for marketing to decide:

Some critics feel the four Ps underemphasize or

omit certain important activities

Product: the product and its characteristics

Price: set the price

Place: decide how to distribute the product

Promotion: choose methods for promoting the product

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If marketers do a good job of identifying consumer

needs, developing a good product, and pricing,

distributing, and promoting it effectively, the result

will be attractive products and satisfied customers.

Products Serving Needs


Starbucks Coffee has created customer

loyalty, allowing it to open shops around the

world. In this photo, Starbucks customers sit

in an outdoor caf in Singapore. Jonathan

Drake.

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Marriott developed its Courtyard concept; Darden

designed the Olive Garden Italian Restaurant.

Products Serving Needs


Companies such as Sonic have brought

marketing skills to the restaurant industry.

Courtesy of Sonic Corporation and

Subsidiaries.

Different products, offering new consumer benefits.

marketing means hitting the mark.

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The marketing mix must be just thata mix of ingredients to create an effective

product/service package for the target market.

This does not mean that selling and promotion are

unimportant.

they are part of a larger marketing mix, a set of marketing

tools that work together to produce satisfied customers

The only way selling and promoting will be

effective is if we first define customer targets and

needs and then prepare an easily accessible and

available value package.

Effective Marketing


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The hospitality industry is one of the worlds major

industries & in the US, the second largest employer.

The entrance of corporate giants into the hospitality

market transformed it from a mom-and-pop industry

to an industry is now dominated by chains

Twenty-four companies now account for over a third

of all restaurants in the United States.

McDonalds leads the restaurant group at over 30,000

stores in 119 countries serving 52 million customers a day

Accor, Blackstone & Starwood are buying hotel chains

and operating different brands under one organization

Importance of Marketing

Marketing in the Hospitality Industry

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In response to growing competitive pressures, hotel

chains are relying more on the marketing director.

While the marketing director is a full-time marketer,

everyone else must be a part-time marketer.

all managers must understand marketing

Importance of Marketing


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The two main industries comprising the activities we

call tourism are the hospitality and travel industries.

successful hospitality marketing is highly dependent on

the entire travel industry

Tourism Marketing


Many resort/hotel guests

purchase travel-hospitality

packages assembled by

wholesalers and offered

through travel agents

Visitors to international destinations, such as these tourists on the Brazilian side of Iguacu Falls, often

purchase packages that include international airfare, ground transportation, and hotel

accommodations. Courtesy of Demetrio Carrasco Dorling Kindersley.

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By agreeing to participate in packages arranged by

wholesalers, hotels effectively eliminate competitors.

Hotel & rental car companies have developed

cooperative relationships with airlines that offer

frequent-flyer plans.

The success of cruise lines is a result of coordinated

marketing by many travel industry members.

airlines, auto rental firms, and passenger railways cooperatively develop packages with cruise lines

requires coordination in pricing, promotion & delivery of those packages

Cooperative Marketing


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Government or quasi-government agencies play an important role through legislation and promotion of

regions, states, and nations.

Few industries are as interdependent as travelhospitality which will only increase in complexity.

The travel industry must understand the big picture and respond to changing consumer needs through creative

strategies based on solid marketing knowledge.

Marketing is the art and science of finding, retaining, and

growing profitable customers.

Marketing Complexities and Definition


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Many people think of marketing only as selling

and advertising, which is really only a tip of the

marketing iceberg.

today, marketing must be understood in a sense

of satisfying customer needs

If the marketer understands customer needs;

develops products that provide superior customer

value; and prices, distributes, and promotes them

effectively, these products will be sought after by

the customer.

Definition of Marketing


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Figure 1-1

A simple model

of the marketing

process.

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2 3

4

The Marketing Process

A Five-Step Model

Here are steps one through four of a simple five-step

model of the marketing process.

companies working to understand consumers, create

customer value & build strong customer relationships

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In the fifth, final step, companies reap the rewards

of creating superior customer value.

The Marketing Process

A Closer Look

By creating value for

customers, they capture

value from customers

in the form of sales,

profits & long-term

customer equity.

As the first step, marketers need to understand customer needs & wants, and the marketplace

within which they operate.

Figure 1-1

5

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The most basic concept underlying marketing is that

of human needs. A human need is a state of felt

deprivation.

these needs were not invented by marketers, but

are part of the human makeup

The second basic concept to marketing is that of

human wants, the form human needs take as they

are shaped by culture and individual personality.

wants are how people communicate their needs

wants are described in terms of objectives that will

satisfy needs

Understanding the Marketplace & Customer Needs

Customer Needs, Wants and Demands

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Sellers can confuse wants with needs. A drill bit

maker may think his customer needs a drill bit,

but what the customer really needs is a hole.

these sellers forget that a physical product is only a

tool to solve a consumer problem.

These sellers get into trouble if a new product comes

along that serves the need better or cheaper.

Understanding the Marketplace


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People have almost unlimited wants, but limited resources, and so choose products that

produce the most satisfaction for their money.

when backed by buying power, wants become demands

Outstanding marketing organizations go to great lengths to learn about & understand their

customers needs, wants and demands.

they conduct customer research.

smart companies also have employees at all levelsincluding top managementstay close to customers

The Marketplace & Customer Needs


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Consumer needs and wants are fulfilled through a

market offering.

a product that is some combination of tangible, services,

information, or experiential product components

In the hospitality industry, the intangible product

including customer service and experiences are

more important than the tangible products.

a market offering includes much more than physical

goods or services

Consumers decide which destinations to visit, events

to experience, hotels and restaurants to patronize.

Products, Services, and Experiences


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at a Ritz-Carlton Resort, every evening at sunset they set

up chairs on the beach & hire a cellist to play

Marriott provides Dolphin safaris at its Newport Beach

property, and a water rafting trip for its Utah property

Lufthansa and Air France created a personalized first-

class service above regular first class

Tangible Products, Services, and Experiences


To the consumer these are all products.

Managers of resorts realize their guests will be

leaving with memories of their stay, and try to

create experiences that will generate pleasant ones.

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luxury hotels in Hong Kong such as The Shangri-La do

not expect executive guests to stand in line to register

Dominos Pizza saves the customer time and provides

convenience by delivering pizza

limited service hotels provide value to the overnight

traveler by offering a free continental breakfast

Customer Value and Satisfaction


Customer value is the difference between benefits

the customer gains from owning and/or using a

product, and the costs of obtaining the product.

Costs can be monetary or nonmonetary & a very big

nonmonetary costs for hospitality customers is time.

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One of the biggest management challenges is to

increase their product value for their target market.

managers must know their customers and

understand what creates value for them

Customer expectations are based on past buying

experiences, the opinions of friends, and market

information.

Marketers must set the right level of expectations.

if they set expectations too low, they may satisfy

those who buy but fail to attract new customers

too high and buyers will be disappointed



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Managers must realize the importance of creating

highly satisfied, rather than just satisfied customers.

On a 7-point scale, with 1 very satisfied and 7 very

dissatisfied, most managers are happy to receive a 2.

Think of the last time you went to a restaurant and

were just satisfied. Would you go back?

probably not

When you walk out of a restaurant and say,

Wow, that was great!

you will probably return and tell others about your

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Figure 1-2 Scores of 1, 2, and 3 are all on the satisfaction side of the scale; that is, they are all better

than a score of 4, which is neither satisfied nor dissatisfied. You can see that satisfying the guest is not enough. Only when guests leave very satisfied are they likely to come back.

As a manager, your goal is to have all guests leave very satisfied.

Results of a guest survey at

a Boston hotel show a huge

gap between a guest who

rates a hotel a 1, and a

guest who rates it a 2.

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Exchange is the act of obtaining a desired object

from someone by offering something in return.

Marketing consists of actions taken to build and

maintain desirable exchange relationships with

target markets.

Beyond attracting new customers and creating

transactions, the goal is to retain customers and

grow their business with the company.

The concept of transactions leads to the concept

of a market.


Exchanges and Relationships

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A market is a set of actual and

potential buyers of a product.

Markets


This advertisement for The Point Hilton Resorts communicates the

variety of activities that the resorts offer. These activities will increase

the value of the resort to those customers who perceive them as

benefits. Courtesy of The Pointe Hilton Resorts, Phoenix, Arizona.

These buyers share a particular need

or want that can be satisfied through

exchange relationships.

Marketing means managing markets

to bring about profitable customer

relationships.

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Marketing management can be defined as the art

and science of choosing target markets and building

profitable relationships with them.

To design a winning marketing strategy two

important questions require answers:

What customers will we serve?

(what is our target market)?

How can we serve these customers best?

(whats our value proposition)?

The company wants to select only customers that

it can serve well and profitably.

Designing Customer-Driven Marketing Strategy

Selecting Customers to Serve

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A companys value proposition is the set of benefits

or values it promises to deliver to consumers to

satisfy their needs.

such propositions differentiate one brand from another

The company must decide how it will serve targeted

customershow it will differentiate and position

itself in the marketplace.

Companies must design strong value propositions

that give them the greatest advantage in their target

markets.


Choosing a Value Proposition

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What philosophy should guide marketing strategies

that will build profitable relationships with target

consumers?

What weight should be given to the interests of

customers, the organization, and society?

often, these interests conflict with each other

There are five alternative concepts under which

organizations design and carry out their marketing

strategies:

production, product, selling, marketing, &societal

marketing concepts


Marketing Management Orientation

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One of the oldest philosophies guiding sellers, the

production concept holds that consumers will favor

products that are available & highly affordable.

therefore management should focus on production

and distribution efficiency

Management may become so focused on production

systems they forget the customer.

Unionization of service staff is another reason for

a production mentality, when workers tend to work

in accordance with union work rules, which often

conflict with customer needs.


The Production Concept

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The Product Concept

One way that Olive Garden Italian Restaurants differentiates itself

is by freshly grating cheese for the guest. Courtesy of Jeff

Greenberg/Alamy Images.

The product concept, like the production concept,

has an inward focus.

This concept holds that consumers

will favor products which offer

the most in quality, performance,

and innovative features.

Focusing only on the products

can lead to marketing myopia.

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The selling concept holds consumers will not buy

enough products unless the organization undertakes

a large selling and promotion effort.

The aim is to get every possible sale, not worry about

satisfaction or the revenue contribution of the sale.

It does not establish a long-term relationship with the

customer; the focus is on getting rid of what one has.

The concept exists within the hospitality industry,

with overcapacity being a major contributing factor.

when owners & top management face overcapacity,

the tendency is to sell, sell, sell


The Selling Concept

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Pride in having the most capacity and false belief

economies of scale will occur as size increases.

Economic incentives by governments to build a

larger tourism/hospitality infrastructure to create

economic growth.

tax laws encourage overbuilding because of tax write-offs

Poor/nonexistent forecasting & planning by owners,

consultants, financial organizations, governments.

failure to merge revenue & sales/marketing management

A myth that the travel industry faces almost

unlimited future demand.


Causes of Overcapacity

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The marketing concept is a recent philosophy and

is being rapidly adopted in the hospitality industry.

It holds that achieving organizational goals depends

on determining needs & wants of target markets and

delivering the desired satisfaction more effectively

and efficiently than competitors.

Four Seasons Hotels, Accor, and McDonalds follow this concept fully

The pure marketing concept ignores possible

conflicts between short-run consumer wants &

long-run societal needs.


The Marketing Concept

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The Concepts Contrasted

Figure 1-3 The Selling and Marketing Concepts Contrasted

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determine the needs, wants & interests of target markets

deliver desired satisfactions more effectively and

efficiently than competitors

in a way that maintains or improves the consumers

and societys well-being


The Societal Marketing Concept

The newest concept, societal marketing, holds

that the organization should

It questions marketing concepts in an age of

environmental problems, resource shortages,

rapid population growth, worldwide inflation,

and neglected social services.

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Societal marketing asks if the firm that serves &

satisfies individual wants is always doing whats

best for consumers and society in the long run.

Advocates of societal marketing would like public-

interest groups to guide corporations to decisions

that will benefit society over the long term.

Societal pressures are already manifested in the

marketing of cigarettes, liquor & fast-food.

hotels & restaurants have no-smoking sections

restaurants can face liability for serving excessive alcohol

fast-food pursues environmentally sound packaging


The Societal Marketing Concept

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The National Restaurant Association is developing

an initiative to reduce waste and the carbon footprint

of restaurants and is working with restaurants to

create a more socially responsible industry

Resort developers must consider the impact on the

of their initial construction, disposal of waste

products and their use of water.

Denigration of the environment makes it necessary

for marketers to become more socially responsible.

smart restaurateurs/hoteliers will do this before public outcry or laws force them


Societal Pressures at Work

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As we read in the chapter opening, Chipotle is

moving toward the societal marketing concept.

the companys marketing strategy outlines which

customers the company will serve and how it will

create value for these customers

The marketer develops an integrated marketing

program that will actually deliver the intended

value to target customers.

the marketing program builds customer relationships

by transforming the marketing strategy into action

it consists of the firms marketing mix, the marketing

tools the firm uses to implement its marketing strategy

Preparing an Integrated Marketing Plan

Chipotle

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To deliver its value proposition, the firm must first

create a need-satisfying market offering: Product

It must decide how much it will charge for the offer:

Price, and how it will make the offer available to

target consumers: Place.

Finally, it must communicate with customers about

the offer & persuade them of its merits: Promotion.

The firm must these into a comprehensive, integrated

marketing program that communicates and delivers

the intended value to chosen customers.

Preparing an Integrated Marketing Plan

The Four Ps of Marketing: Product, Price, Place, Promotion

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The first three steps in the marketing process all

lead up to the fourth and most important step, that

of building profitable customer relationships

a company can adopt any of three value-building tools

to develop stronger customer relationships

The first relies primarily on adding financial benefits

to the customer relationship.

airlines offer frequent-flyer programs

hotels give room upgrades to their frequent guests

restaurants have frequent-diner programs

Frequency programs often used tiered programs.

Building Profitable Customer Relationships

Value-Building Tools - Financial Benefits

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The second approach is to add social as well as financial benefits, turning customers into clients.

company personnel work to learn individual customers needs and wants

products and services are individualized & personalized

A customer may be nameless to the institution. clients cannot be nameless

Customers are served as part of the larger segment. clients are served on an individual basis

Customers are served by anyone available. clients are served by the professional assigned to them


Value-Building Tools - Social Benefits

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The third approach is to add structural ties to the

financial and social benefits.

airlines developed reservation systems for travel agents

and lounges & limo service for their first-class customers

Sheraton developed flexible check-in and checkout times

Hilton provides a personalized welcome message on the

guests television

Structural changes are difficult to implement, but

they are harder for competitors to match.

they create a competitive advantage until they are matched


Value-Building Tools- Structural Ties

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A company should develop relationships selectively,

determining which customers are worth cultivating.

because you meet their needs more effectively than others


Selective Customer Relationships

customers who are high on profitability and frequency

deserve management attention.

those high on profitability but low on frequency can

sometimes be developed in higher frequency customers

Table 1-1 Types of customers.

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When it comes to relationship marketing you dont want a relationship with every customer.

Guests who are in the low-frequency, low-

profitability quadrant are often bargain hunters.

they come when there is a promotion and avoid paying

full price at all costs

It is very difficult to build a relationship with these

price-sensitive customers.



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Some customers are spreading their business across

several different providers of the same service.

High-frequency, low-profitability customers, may

be motivated by the value of additional purchases.

hotels can show a business traveler advantages to staying

on the concierge floor where there is a lounge to work

If we can make our company their preferred

provider, we can turn them into our best customers.

Knowing your customers helps you select the

customers you want to develop a relationship with

and to strengthen the relationship over time.



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Customer relationship management (CRM) may

be the most important concept of modern marketing.

It involves managing detailed information about

individual customers, carefully managing customer

touchpoints in order to maximize loyalty.

A customer touch point is any occasion a customer

encounters the brand & product, in actual experience,

personal/mass communication or casual observation

for a hotel this includes reservations, check-in & out,

frequent-stay programs, room service, business services,

amenities, restaurants, and bars.

Customer Relationship Management


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CRM enables companies to provide excellent real-

time customer service through effective use of

individualized information.

important because a major driver of profitability is

the aggregate value of the companys customer base

More recently, CRM has taken on a broader meaning

as an overall process of building and maintaining

profitable customer relationships.

By delivering superior customer value & satisfaction, it deals with all aspects of

acquiring, keeping, and growing customers.



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Companies are building more direct and lasting

relationships with carefully selected customers.

many companies use profitability analysis to weed out

unprofitable customers and target winning ones

Once they identify profitable customers, firms can

create attractive offers and special handling to

capture these customers and earn their loyalty.

CRM has allowed companies to serve chosen

customers in a deeper, more lasting way.


The Changing Nature of Customer Relationships

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The final step in the marketing process involves

capturing value in return, in the form of current and

future sales, market share, and profits.

Good CRM creates delighted customers, who remain

loyal and talk favorably to others about the company.

studies show differences in loyalty of customers who are

less satisfied, somewhat satisfied, and completely satisfied

a slight drop in satisfaction can create a large loyalty drop

Companies are realizing that losing a customer

means losing the entire stream of purchases he/she

customer would make over a lifetime of patronage.

Capturing Value from Customers

Customer Loyalty and Retention

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Benefits of customer loyalty come from continued

patronage, reduced marketing costs, decreased price

sensitivity, and partnership activities.

loyal customers purchase from the business they

are loyal to more often than nonloyal customers

they also purchase a broader variety of items.

Reduced marketing costs are the result of requiring

fewer marketing dollars to maintain a customer than

to create one.

and the creation of new customers through the positive

word-of-mouth of loyal customers.



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Lifetime value is the stream of profits a customer

will create in the life of a business relationship

average life is determined through surveys or guest history



Ritz-Carlton knows the life-time value of its loyal

customer is over $100,000 over their lifetime.

a restaurant customer can be worth several thousand dollars worth of business

a travel agency customer can generate over $50,000 during his/her lifetime by using the agency

It measures how much a member of a market

segment produces per year, multiplied by the

average life of a member of that segment.

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Many markets have settled into maturity, with not

too many new customers entering most categories.

outstanding companies go all out to retain their customers

Competition is increasing, and the costs of attracting

new customers are rising.

it might cost five times as much to attract a new customer

as to keep a current customer happy

Offensive marketing typically costs more than

defensive marketing

it takes a great deal of effort and spending to coax

satisfied customers away from competitors



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Good CRM can help marketers increase their share

of customerthe share they get of the customers

purchasing in their product categories.

banks want to increase share of wallet

restaurants want to get more share of stomach

airlines want greater share of travel

Loyal customers have higher propensity to frequently

purchase a wider variety of a companys products.

Marketers train employees to identify possible

products that may create additional value for the

customer that they have not purchased yet.


Growing Share of Customer

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Customer equity is the discounted lifetime values of

all the companys current and potential customers

The best approach to customer retention is to deliver

products that create high satisfaction and perceived

value, resulting in strong customer loyalty.

the more loyal the firms profitable customers, the

higher the firms customer equity

Customer equity may be a better measure of a firms

performance than current sales or market share.

where sales & market share reflect the past, customer

equity suggests the future


Building Customer Equity

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Rapid changes can quickly make yesterdays

winning strategies out of date.


Marketings Future

a technology executive stated, The pace of change is

so rapid that the ability to change has now become a

competitive advantage.

management thought leader Peter Drucker observed,

a companys winning formula for the last decade

will probably be its undoing in the next decade.

The Internet has changed the way we distribute

travel products, but as a market force it is just a

little over ten years old.

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The importance of CRM has created the need for

those who understand database marketing and the

hospitality industry.

The worldwide growth of the travel industry has

created a shortage of managers.

in some regions projects are put on hold because

the developer cannot acquire a management staff

Marketing, with its customer

orientation has become the

job of everyone, and


Marketings Future

Your passport

to success!

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Customer equity - is the discounted lifetime values

of all the companys current and potential customers.

Customer expectations - are based on past buying

experiences, the opinions of friends, and market

information.

Customer relationship management (CRM) -

involves managing detailed information about

individual customers and carefully managing

customer touch points in order to maximize

customer loyalty.

KEY TERMS

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Customer touch point - is any occasion on which a customer encounters the brand and productfrom actual experience to personal or mass communications

to casual observation.

Customer value - the difference between benefits that the customer gains from owning and/or using a product

and the costs of obtaining the product.

Demands - Human wants that are backed by buying power, want or need. It includes physical objects,

services, persons, places, organizations, and ideas.

KEY TERMS

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Exchange. The act of obtaining a desired object from someone by offering something in return.

Hospitality industry. Made up of those businesses that offer one or more of the following: accommodation,

prepared food and beverage service, and/or

entertainment.

Human need. A state of felt deprivation in a person.

Human want. The form that a human need takes when shaped by culture and individual personality.

KEY TERMS

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Lifetime value. The lifetime value of a customer is the stream of profits a customer will

create over the life of his or her relationship to a

business.

Market. A set of actual and potential buyers of a product.

Marketing. The art and science of finding, retaining, and growing profitable customers.

KEY TERMS

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Marketing concept. The marketing management philosophy that holds that achieving organizational

goals depends on determining the needs and wants of

target markets and delivering desired satisfactions

more effectively and efficiently than competitors.

Marketing management. The art and science of choosing target markets and building profitable

relationships with them.

Marketing manager. A person who is involved in marketing analysis, planning, implementation, and

control activities.

KEY TERMS

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Marketing mix. Elements include product, price, promotion,and distribution. Sometimes

distribution is called place and the marketing

situation facing a company.

Product. Anything that can be offered to a market for attention, acquisition, use, or

consumption that might satisfy a need. It

includes physical objects, services, persons,

places, organizations, and ideas.

KEY TERMS

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Product concept - The idea that consumers will favor products that offer the most quality,

performance, and features, and therefore the

organization should devote its energy to making

continuous product improvements.

Production concept - Holds that customers will favor products that are available and highly

affordable, and therefore management should

focus on production and distribution efficiency.

Purpose of a business - To create and maintain satisfied, profitable customers.

KEY TERMS

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Relationship marketing - Involves creating, maintaining, and enhancing strong

relationships with customers and other

stakeholders.

Selling concept - The idea that consumers will not buy enough of an organizations products unless the organization undertakes a large

selling and promotion effort.

KEY TERMS

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KEY TERMS

Societal marketing concept - The idea that an organization should determine the needs, wants, and

interests of target markets and deliver the desired

satisfactions more effectively and efficiently than

competitors in a way that maintains or improves

the consumers and societys well-being.

Transaction - Consists of a trade of values between two parties; marketings unit of measurement.

Value proposition - The full positioning of brandthe full mix of benefits upon which it is positioned.

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Restaurant - Visit two restaurants in the same class,

such as two fast-food restaurants or two casual

restaurants.

observe the cleanliness of the restaurants, in-house

signage, and other physical features

order a menu item and observe the service and the

quality of the food

EXPERIENTIAL EXERCISES

Try One !

Write up your observations, and then state which

restaurant you feel is more customer oriented.

explain why

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Hotel - Call the central reservation number of two

hotels. Request information on room availability,

different room types, and price for a date one month

from now. (Note: Do not make a reservation.)

EXPERIENTIAL EXERCISES

Try One !

Write up your experience, including:

description of how quickly the phone was answered

customer orientation of information provided

friendliness of the employee

Based on your experiences, which hotels do you feel

had the more customer-oriented reservation system?

why?

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One of the support features of this book is a Web site

to assist you: www.prenhall.com/kotler

www.prenhall.com/kotler

Web Site

The site serves as a portal to a wealth of information

on marketing and travel & hospitality organizations.

Designed to give real-world examples of how

companies market and provide information on

companies mentioned in the book

The site also contains a resource guide, where

students can find information about marketing.

major association sites, job information, and

research information can be found in this section

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INTERNET EXERCISES

Try This !

Choose three restaurants or hotels listed on the books Web site under Internet Exercise Chapter

1, or use restaurant/hotel companies you find on the

Internet

Based on information provided in each Web site:

describe how each of these companies tries to satisfy a customers want

how does each of these companies create value for the customer?

do they segment the market by offering pages for a specific market segment?

select the company you would purchase from and state why

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END

CHAPTER END

hospitality

Documents

pearson higher education

integrity marketing

objectives marketing

marketing concept

marketing process

john bowen

james makens

philip kotler