Chapter 11Chapter 11

Marketing Mix VariablesMarketing Mix VariablesObjectiveObjective: determining the marketing mix variables: : determining the marketing mix variables: product, price, place and promotion to accomplish product, price, place and promotion to accomplish

the objectivesthe objectives

Strategies & TacticsStrategies & Tactics

Marketing strategiesMarketing strategies; are plans of action that ; are plans of action that shows how marketing mix variables will be shows how marketing mix variables will be used to accomplish annual objectives and grand used to accomplish annual objectives and grand strategies.strategies.

Marketing action plans or in other words, Marketing action plans or in other words, tacticstactics; include the specifics of how the ; include the specifics of how the marketing mix variables will be used to marketing mix variables will be used to implement the strategies. Tactics give answers implement the strategies. Tactics give answers to: what will be done? Where will it be done? to: what will be done? Where will it be done? When and how will it be promoted? Who will be When and how will it be promoted? Who will be responsible for implementation? And how much responsible for implementation? And how much will be budgeted?will be budgeted?

Philosophies of Strategy Philosophies of Strategy PreparationPreparation

There are two contrasting philosophies of There are two contrasting philosophies of strategy preparation; top-down and bottom-strategy preparation; top-down and bottom-up. up.

Top-down strategies are developed by upper Top-down strategies are developed by upper managementmanagement

Bottom-up strategies are developed with Bottom-up strategies are developed with input from all staff personnel, unit managers, input from all staff personnel, unit managers, first-line supervisors, and line employees, first-line supervisors, and line employees, though orchestrated by the top management. though orchestrated by the top management. E.g. waiters.E.g. waiters.

It is not possible to develop effective It is not possible to develop effective strategies without input from the personnel, strategies without input from the personnel, since they will be implementing them.since they will be implementing them.

Market Driven versusMarket Driven versus Product Driven Product Driven

The actual and potential customers for any The actual and potential customers for any given product or service should be the given product or service should be the primary consideration in strategy primary consideration in strategy formulation. formulation.

Market Driven FirmMarket Driven Firm Research focus: environmental (PEST AND Research focus: environmental (PEST AND

PECCS) and the company’s abilities to extract the PECCS) and the company’s abilities to extract the maximum advantage from it.maximum advantage from it.

Product focus: based on customers’ wants. “But Product focus: based on customers’ wants. “But the aim of marketing is to make selling the aim of marketing is to make selling superfluous. The aim of marketing is to know and superfluous. The aim of marketing is to know and understand the customer so well that the product understand the customer so well that the product or service sells itself” (Drucker, 1974)or service sells itself” (Drucker, 1974)

Product Driven FirmProduct Driven Firm Research focus: companyResearch focus: company Product focus: based on making an excellent Product focus: based on making an excellent

product. “I know what the customers want”. product. “I know what the customers want”. “If you build mousetrap, the world will only “If you build mousetrap, the world will only beat a path to your door if they need a better beat a path to your door if they need a better mousetrap”. Product driven firms generally mousetrap”. Product driven firms generally stay with the same product offering (a stay with the same product offering (a successful one by accident) too long. successful one by accident) too long.

Development ProcessDevelopment Process

First, present strategies should be reviewed First, present strategies should be reviewed to see which are compatible with new to see which are compatible with new objectives and which are not.objectives and which are not.

The amount of required new strategies will The amount of required new strategies will vary based on;vary based on; the dynamics of the environment andthe dynamics of the environment and the desire for change on the part of management.the desire for change on the part of management.

In many instances, there will be few In many instances, there will be few changes. changes.

However, whatever the decision, it will However, whatever the decision, it will determine the basic direction of the firm for determine the basic direction of the firm for the coming years.the coming years.

Generally, management, financial (the desired Generally, management, financial (the desired debt-to-equity ratio, profit and cost goals do debt-to-equity ratio, profit and cost goals do vary much from year to year) and grand vary much from year to year) and grand strategies related to marketing may not need strategies related to marketing may not need drastic changes.drastic changes.

However, functional marketing strategies However, functional marketing strategies represent the greatest area of change, since represent the greatest area of change, since there are more factors to consider – PEST and there are more factors to consider – PEST and PECCS, grand strategies, and the 4P’s – which PECCS, grand strategies, and the 4P’s – which are subject to greater fluctuations than those are subject to greater fluctuations than those for operations or financial strategies. for operations or financial strategies.

Restaurants, since they need to keep their Restaurants, since they need to keep their menus current, generally have more changes menus current, generally have more changes that do hotels. “thinking outside the box”that do hotels. “thinking outside the box”

Pretesting StrategiesPretesting Strategies

Managers can test their strategies in Managers can test their strategies in any of three ways;any of three ways; Conceptual or intuitively, based on the Conceptual or intuitively, based on the

personal experience and judgment.personal experience and judgment. Theoretically, based on published Theoretically, based on published

research on the topic (public domain research on the topic (public domain research)research)

Empirically, by trying them out (lab or Empirically, by trying them out (lab or field test).field test).

Causes of Ineffective Causes of Ineffective StrategiesStrategies

1.1. limited cross-functional cooperationlimited cross-functional cooperation2.2. overambitious managementoverambitious management3.3. product driven, rather than market drivenproduct driven, rather than market driven4.4. subjective, rather than objective, appraisal of the subjective, rather than objective, appraisal of the

environment or the abilities of the business environment or the abilities of the business 5.5. too many strategic plans ignore threats too many strategic plans ignore threats

(generally the emphasis put on the opportunities)(generally the emphasis put on the opportunities)6.6. not seeking consensus among those who will not seeking consensus among those who will

carry out the strategiescarry out the strategies7.7. forgetting that the ultimate objective is to win the forgetting that the ultimate objective is to win the

war,war,not every battlenot every battle

8.8. rubberstamping of strategiesrubberstamping of strategies9.9. not setting effective policies and action plansnot setting effective policies and action plans

Products and ServicesProducts and Services Here, the decisions include new products Here, the decisions include new products

or services to be offered + changes to be or services to be offered + changes to be made in existing products and services, made in existing products and services, packaging, and design of the physical packaging, and design of the physical facilities, such as exterior appearance and facilities, such as exterior appearance and internal atmosphere and the firm’s brand internal atmosphere and the firm’s brand (its name and logo)(its name and logo)

In the grand strategies section, the In the grand strategies section, the concern was on the possible changes in concern was on the possible changes in the firm’s offering; here, it is on the the firm’s offering; here, it is on the action plan – on the specific changes to action plan – on the specific changes to implement.implement.

When searching for new products When searching for new products and services, one should not forget and services, one should not forget that customers are usually much that customers are usually much more concerned with the more concerned with the professional execution of the basics professional execution of the basics (clean room, a comfortable bed, (clean room, a comfortable bed, friendly service) than with friendly service) than with innovative new services or innovative new services or differentiation (McCleary, Weaver, differentiation (McCleary, Weaver, 1992; West, Olson, 1990)1992; West, Olson, 1990)

Typical Considerations for Product Typical Considerations for Product StrategiesStrategies

Are new products designed for a particular Are new products designed for a particular market necessary?market necessary?

Are improvements in product quality Are improvements in product quality necessary?necessary?

Where does the company stand as far as its Where does the company stand as far as its relative perceived product/service quality relative perceived product/service quality (RPPQ) and relative perceived value (RPV), (RPPQ) and relative perceived value (RPV), and what changes should be considered to and what changes should be considered to reach the desired RPPQ or RPV ratings?reach the desired RPPQ or RPV ratings?

Which products and services have the greatest Which products and services have the greatest gross margin?gross margin?

What USPs will be offered, such as fresh-baked What USPs will be offered, such as fresh-baked bread or desserts, large platters for entrees, bread or desserts, large platters for entrees, extensive wine list r drink menu, signature extensive wine list r drink menu, signature appetizers or entrees, free movies, an inroom appetizers or entrees, free movies, an inroom stocked bar, or internet availability? stocked bar, or internet availability?

Does the name of the company, and its products Does the name of the company, and its products and services, create the type of image that is and services, create the type of image that is sought? What graphic form should the name or sought? What graphic form should the name or logo take?logo take?

What USPs related to décor, such as an What USPs related to décor, such as an exhibition kitchen, bakery, or fish tank, might be exhibition kitchen, bakery, or fish tank, might be incorporated in the design of the hotel or incorporated in the design of the hotel or restaurant?restaurant?

Should the layout be changed to improve Should the layout be changed to improve efficiency?efficiency?

What type of music should be played, What type of music should be played, background (soft, without words), background (soft, without words), foreground (with or without words) or foreground (with or without words) or recreational (dominates room) Should it be recreational (dominates room) Should it be varied, depending on the meal or day of the varied, depending on the meal or day of the week? Is live music a consideration?week? Is live music a consideration?

What colors should be used in the lobby, What colors should be used in the lobby, guest rooms, dining room, bar, and kitchen?guest rooms, dining room, bar, and kitchen?

Should plants be used as a focal point, or as Should plants be used as a focal point, or as a complement to the design? What type of a complement to the design? What type of plants will be used? How large and how plants will be used? How large and how many?many?

What aromas will customers be smelling What aromas will customers be smelling while they are in the building or around while they are in the building or around it? Which have the greatest impact on it? Which have the greatest impact on customers? Most restaurants have a customers? Most restaurants have a distinctive smell? The scientific term for distinctive smell? The scientific term for the utilization of aromas is “olfactory-the utilization of aromas is “olfactory-evoked recall”. This refers to the evoked recall”. This refers to the relationship between the aroma/smell, relationship between the aroma/smell, one’s experience with it, and its one’s experience with it, and its physiological effect on individuals. E.g. physiological effect on individuals. E.g. lavender tends to be relaxing, jasmine can lavender tends to be relaxing, jasmine can be stimulating.be stimulating.

PricePrice

In the marketing plan, it is acceptable to In the marketing plan, it is acceptable to combine prices with the product sections. combine prices with the product sections. E.g. the menu could be included with its E.g. the menu could be included with its price or hotel rooms and suites with their price or hotel rooms and suites with their applicable rate schedule.applicable rate schedule.

Pricing decisions reflect the business’s Pricing decisions reflect the business’s overall and specific marketing objectives. overall and specific marketing objectives. Charging too much, too little, or not Charging too much, too little, or not knowing if the current price is suitable for knowing if the current price is suitable for the firm’s market, can develop a serious the firm’s market, can develop a serious problem.problem.

The frequency of changing prices vary The frequency of changing prices vary considerably. Restaurants normally have considerably. Restaurants normally have stable prices for menu items. Each six months stable prices for menu items. Each six months or so, managers review the cost of each item or so, managers review the cost of each item sold, its current price, and various other sold, its current price, and various other internal and environmental concerns, then internal and environmental concerns, then determine whether the price should be determine whether the price should be increased, left as is, or lowered.increased, left as is, or lowered.

The prices of the hotel business are quite The prices of the hotel business are quite flexible. Most prices for a hotel room would flexible. Most prices for a hotel room would be negotiated between the buyer and seller. be negotiated between the buyer and seller. Yield management – a method of balancing Yield management – a method of balancing price with demand, is an important concern price with demand, is an important concern for hotel rooms.for hotel rooms.

Pricing StrategiesPricing Strategies

They are the easiest of the strategies They are the easiest of the strategies to change, therefore, the most to change, therefore, the most abused.abused.

Dramatic changes should be avoided Dramatic changes should be avoided because price is generally one of the because price is generally one of the most sensitive issues for the most sensitive issues for the customer.customer.

Raising or Lowering PricesRaising or Lowering Prices

There are several basic rules that can be followed There are several basic rules that can be followed in changing prices. They apply to different in changing prices. They apply to different circumstances;circumstances; Try not to raise prices by more than about 10%. Try not to raise prices by more than about 10%.

Raising a price more than 10% is quite Raising a price more than 10% is quite noticeable to a regular customer. If the noticeable to a regular customer. If the increase is necessary, then adjustments (plate increase is necessary, then adjustments (plate presentation, accompaniments etc) should be presentation, accompaniments etc) should be considered to make the implementation easier. considered to make the implementation easier. However, the 10% rule does hold true for However, the 10% rule does hold true for hotels, since they need to adjust their prices hotels, since they need to adjust their prices based on the time of year and occupancy level.based on the time of year and occupancy level.

When price increase are unavoidable, spread When price increase are unavoidable, spread the increase over several items rather than the increase over several items rather than increasing only one or e few items. increasing only one or e few items.

Keep in mind that, each price point will have a Keep in mind that, each price point will have a different meaning to each target customer different meaning to each target customer group, depending on such factors as income group, depending on such factors as income level, frequency of purchases and whether level, frequency of purchases and whether their company is paying.their company is paying.

Two other suggestions for pricing;Two other suggestions for pricing; Even-dollar pricing can be applied when Even-dollar pricing can be applied when

increasing room prices. A price of $74,00 increasing room prices. A price of $74,00 sound better than $73,60 or $74,50.sound better than $73,60 or $74,50.

For restaurants, it is better to end prices with For restaurants, it is better to end prices with the numbers 5, 9, or 0. This is what people are the numbers 5, 9, or 0. This is what people are used to.used to.

Reactions to Changes in a Reactions to Changes in a Competitor's PriceCompetitor's Price

Generally, in the hospitality business, a company Generally, in the hospitality business, a company should react to a competitor’s price changes if it should react to a competitor’s price changes if it foresee it is going to lose sales or if it does begin foresee it is going to lose sales or if it does begin to lose sales.to lose sales.

Prices should not be lowered if it is not Prices should not be lowered if it is not necessary.necessary. wait and see what happens to reservationswait and see what happens to reservations find out why the competitor lowered its pricesfind out why the competitor lowered its prices is it a temporary reduction?is it a temporary reduction? do the customers care about this new pricing?do the customers care about this new pricing? do our customers care about this new pricing?do our customers care about this new pricing?

are present occupancy and future are present occupancy and future reservations satisfactory to keep sales?reservations satisfactory to keep sales?

has this happened before? If so how did has this happened before? If so how did it affect sales?it affect sales?

Typically, when a restaurant lowers its Typically, when a restaurant lowers its prices, the reaction will depend on the prices, the reaction will depend on the competitiveness of the market and the competitiveness of the market and the level of service. Fast-food restaurants level of service. Fast-food restaurants tend to follow price changes; casual tend to follow price changes; casual dining and fine dining restaurants dining and fine dining restaurants generally disregard changes, unless they generally disregard changes, unless they begin to affect sales. For them, the total begin to affect sales. For them, the total package is more important than the price.package is more important than the price.

Typical Considerations for Typical Considerations for PricingPricing

What is the desired food cost percentage, What is the desired food cost percentage, alcoholic beverage, labor, or any other alcoholic beverage, labor, or any other major applicable cost categories that must major applicable cost categories that must be factored into the price?be factored into the price?

Are costs controlled at the lowest effective Are costs controlled at the lowest effective level (purchasing, finance, accounting, level (purchasing, finance, accounting, operations and marketing)?operations and marketing)?

Should prices be adjusted upward or Should prices be adjusted upward or downward, based on costs, customer downward, based on costs, customer perception, or competitor’s price structure?perception, or competitor’s price structure?

Does the hotel or restaurant take surveys Does the hotel or restaurant take surveys to find out what customers think of its to find out what customers think of its prices (pricing strategies)?prices (pricing strategies)?

Can the company economically afford Can the company economically afford seasonal discounts or can other, more seasonal discounts or can other, more creative options be sought?creative options be sought?

How can individual prices be adjusted to How can individual prices be adjusted to yield the greatest profit?yield the greatest profit?

How sensitive are customers to changes How sensitive are customers to changes in price (elastic – very sensitive; or in price (elastic – very sensitive; or inelastic – not very sensitive)?inelastic – not very sensitive)?

PlacePlace Place includes all factors relating to the Place includes all factors relating to the

distribution of the product to the customer.distribution of the product to the customer. It refers to where the business is in the It refers to where the business is in the

distribution or marketing channel. In the distribution or marketing channel. In the hospitality industry, hotels and restaurants are hospitality industry, hotels and restaurants are considered to be retailers. considered to be retailers.

The primary consideration for a retailer in The primary consideration for a retailer in regard to the marketing channel is its location; regard to the marketing channel is its location; so it becomes the main issue to be addressed.so it becomes the main issue to be addressed.

In addition to its normal distribution channels, In addition to its normal distribution channels, hospitality businesses will need to determine hospitality businesses will need to determine alternative means of delivering the alternative means of delivering the product/service.product/service.

One alternative is offering food for One alternative is offering food for delivery through the Internet. Some delivery through the Internet. Some hotels are offering discounted rooms hotels are offering discounted rooms through the Internet. Even many casual through the Internet. Even many casual and fine dining concepts have and fine dining concepts have implemented delivery strategies. implemented delivery strategies. Recently, all kinds of restaurants are Recently, all kinds of restaurants are adding catering to their marketing adding catering to their marketing channel.channel.

Typical Considerations for Place Typical Considerations for Place StrategiesStrategies

What geographic areas are compatible What geographic areas are compatible with the business’s concept?with the business’s concept?

Should new types of locations or Should new types of locations or distribution channels such as pizza distribution channels such as pizza restaurants opening up in convenience restaurants opening up in convenience stores or smaller hotels in niche stores or smaller hotels in niche markets, be sought out?markets, be sought out?

What stage in its cycle is the location?What stage in its cycle is the location?

PromotionPromotion

Promotion refers to decisions on how the Promotion refers to decisions on how the business will communicate its offering to its business will communicate its offering to its customers. customers.

In the strategic marketing plan, this is the In the strategic marketing plan, this is the creation of the promotional campaign. creation of the promotional campaign.

The focus will be on the effective and efficient The focus will be on the effective and efficient use of the promotional mix variables of use of the promotional mix variables of merchandising, advertising, personal selling, merchandising, advertising, personal selling, public relations, and sales promotion. None of public relations, and sales promotion. None of them are mutually exclusive. them are mutually exclusive. MerchandisingMerchandising: primarily in-house promotion : primarily in-house promotion

of products and servicesof products and services

AdvertisingAdvertising: nonpersonal promotion : nonpersonal promotion through a mass medium, by an through a mass medium, by an identified sponsor identified sponsor

Personal sellingPersonal selling: promotion of products : promotion of products and services through personal and services through personal communication channelscommunication channels

Public relationsPublic relations: promotion of the : promotion of the company’s image, rather than its company’s image, rather than its products and servicesproducts and services

Sales promotionSales promotion: short-term incentives : short-term incentives to increase sales, customer counts, and to increase sales, customer counts, and customer loyaltycustomer loyalty

Promotional Promotional MisconceptionMisconception

A common misconception in marketing is that A common misconception in marketing is that low sales can be rectified almost exclusively low sales can be rectified almost exclusively by promotion. This occurs because hotel or by promotion. This occurs because hotel or restaurant managers often fail to recognize restaurant managers often fail to recognize and identify the root cause of the problem.and identify the root cause of the problem.

Promotion is a tool that when wisely used can Promotion is a tool that when wisely used can complement the business’s execution of the complement the business’s execution of the other marketing mix variables – product, other marketing mix variables – product, price, and place. If these are not satisfactory, price, and place. If these are not satisfactory, then promotion will not save the firm. The rule then promotion will not save the firm. The rule is: execute the first 3P’s effectively, then is: execute the first 3P’s effectively, then promote.promote.

Hotel PromotionHotel Promotion Hotels, because of their wide spread of target Hotels, because of their wide spread of target

customers, need to use heavy promotion than customers, need to use heavy promotion than most restaurants.most restaurants.

Often, the decision makers for a hotel stay are Often, the decision makers for a hotel stay are meeting planners, corporate travel planners, meeting planners, corporate travel planners, and travel agents who make travel plans for and travel agents who make travel plans for entire firms or associations. They must be entire firms or associations. They must be contacted personally by the hotel’s sales staff contacted personally by the hotel’s sales staff through personal selling. through personal selling.

Since individual business travels come from Since individual business travels come from various locations, using various types of sales various locations, using various types of sales promotions and advertising is a necessity. Not promotions and advertising is a necessity. Not only to attract them, but to keep the brand only to attract them, but to keep the brand name and image in the minds of these name and image in the minds of these customerscustomers

Restaurant PromotionRestaurant Promotion Restaurants are generally in a much different Restaurants are generally in a much different

position than hotels.position than hotels. Fast-food restaurants, because of their Fast-food restaurants, because of their

locations and relatively undifferentiated locations and relatively undifferentiated products, must continually advertise to keep products, must continually advertise to keep their brands on the minds of the customers and their brands on the minds of the customers and to convince them that their offerings is best.to convince them that their offerings is best.

For the majority of cause and fine dining For the majority of cause and fine dining concepts, the primary (or ideal) promotional concepts, the primary (or ideal) promotional vehicle is their target customers or word-of-vehicle is their target customers or word-of-mouth advertising. Since the major reason why mouth advertising. Since the major reason why customer select these restaurants customer select these restaurants

is for a higher level of quality and service, is for a higher level of quality and service, quality should be the primary focus of quality should be the primary focus of their business. The same principle should their business. The same principle should be followed when choosing the primary be followed when choosing the primary method of promotion. Since the objective method of promotion. Since the objective is to keep present customers returning is to keep present customers returning and bringing their friends, promotions and bringing their friends, promotions would preferably focus on public relations would preferably focus on public relations or keeping the brand name in the public or keeping the brand name in the public eye.eye.

Typical Considerations forTypical Considerations for Promotional Strategies Promotional Strategies

Which products or services should be promoted?Which products or services should be promoted? Where should each menu item be Where should each menu item be

positioned/placed on the menu or menu board?positioned/placed on the menu or menu board? How important is the overall design of the menu to How important is the overall design of the menu to

the customer's perception of quality and value?the customer's perception of quality and value? Should food be displayed any manner?Should food be displayed any manner? Will incentives be offered to promote Will incentives be offered to promote

customer/guest satisfaction or to increase sales?customer/guest satisfaction or to increase sales? Is there a promotional message or slogan needed?Is there a promotional message or slogan needed?

Which of the promotional mix options – Which of the promotional mix options – merchandising, advertising, personal selling, merchandising, advertising, personal selling, public relations, sales promotion – will be used? public relations, sales promotion – will be used? Basically, what are the most effective methods of Basically, what are the most effective methods of reaching the firm’s target customers?reaching the firm’s target customers?

What type of media will be used – print, broadcast, What type of media will be used – print, broadcast, display?display?

What percentage of the budget will be spent in What percentage of the budget will be spent in each selected medium and on selected target each selected medium and on selected target customers?customers?

What percentage of the budget will be spent on What percentage of the budget will be spent on mass media – broadcast, print, and display – and mass media – broadcast, print, and display – and how much on personal communications – point-of-how much on personal communications – point-of-purchase promotions, merchandising, and personal purchase promotions, merchandising, and personal selling?selling?