Chapter 11 -

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Transcript Chapter 11 -

Chapter 11
Marketing Mix Variables
Objective: determining the marketing mix variables: product, price,
place and promotion to accomplish the objectives
Strategies & Tactics
Marketing strategies; are plans of action that shows
how marketing mix variables will be used to accomplish
annual objectives and grand strategies.
Marketing action plans or in other words, tactics;
include the specifics of how the marketing mix
variables will be used to implement the strategies.
Tactics give answers to: what will be done? Where will
it be done? When and how will it be promoted? Who
will be responsible for implementation? And how much
will be budgeted?
Philosophies of Strategy Preparation
There are two contrasting philosophies of strategy
preparation; top-down and bottom-up.
Top-down strategies are developed by upper
Bottom-up strategies are developed with input from all
staff personnel, unit managers, first-line supervisors,
and line employees, though orchestrated by the top
management. E.g. waiters.
It is not possible to develop effective strategies without
input from the personnel, since they will be
implementing them.
Market Driven versus
Product Driven
The actual and potential customers for any given
product or service should be the primary consideration
in strategy formulation.
Market Driven Firm
Research focus: environmental (PEST AND PECCS) and the
company’s abilities to extract the maximum advantage from
Product focus: based on customers’ wants. “But the aim of
marketing is to make selling superfluous. The aim of
marketing is to know and understand the customer so well
that the product or service sells itself ” (Drucker, 1974)
Product Driven Firm
Research focus: company
Product focus: based on making an excellent product. “I
know what the customers want”. “If you build mousetrap,
the world will only beat a path to your door if they need a
better mousetrap”. Product driven firms generally stay with
the same product offering (a successful one by accident) too
Development Process
First, present strategies should be reviewed to see
which are compatible with new objectives and which
are not.
The amount of required new strategies will vary based
the dynamics of the environment and
the desire for change on the part of management.
In many instances, there will be few changes.
However, whatever the decision, it will determine the
basic direction of the firm for the coming years.
Generally, management, financial (the desired debt-toequity ratio, profit and cost goals do vary much from
year to year) and grand strategies related to marketing
may not need drastic changes.
However, functional marketing strategies represent the
greatest area of change, since there are more factors to
consider – PEST and PECCS, grand strategies, and the
4P’s – which are subject to greater fluctuations than
those for operations or financial strategies.
Restaurants, since they need to keep their menus
current, generally have more changes that do hotels.
“thinking outside the box”
Pretesting Strategies
Managers can test their strategies in any of three
Conceptual or intuitively, based on the personal
experience and judgment.
 Theoretically, based on published research on the
topic (public domain research)
 Empirically, by trying them out (lab or field test).
Causes of Ineffective Strategies
limited cross-functional cooperation
overambitious management
product driven, rather than market driven
subjective, rather than objective, appraisal of the
environment or the abilities of the business
too many strategic plans ignore threats (generally the
emphasis put on the opportunities)
not seeking consensus among those who will carry out the
forgetting that the ultimate objective is to win the war,
not every battle
rubberstamping of strategies
not setting effective policies and action plans
Products and Services
Here, the decisions include new products or
services to be offered + changes to be made in
existing products and services, packaging, and
design of the physical facilities, such as exterior
appearance and internal atmosphere and the
firm’s brand (its name and logo)
In the grand strategies section, the concern was
on the possible changes in the firm’s offering;
here, it is on the action plan – on the specific
changes to implement.
 When searching for new products and services,
one should not forget that customers are usually
much more concerned with the professional
execution of the basics (clean room, a
comfortable bed, friendly service) than with
innovative new services or differentiation
(McCleary, Weaver, 1992; West, Olson, 1990)
Typical Considerations for Product Strategies
Are new products designed for a particular market
Are improvements in product quality necessary?
Where does the company stand as far as its relative
perceived product/service quality (RPPQ) and relative
perceived value (RPV), and what changes should be
considered to reach the desired RPPQ or RPV ratings?
Which products and services have the greatest gross
What USPs will be offered, such as fresh-baked bread
or desserts, large platters for entrees, extensive wine list
r drink menu, signature appetizers or entrees, free
movies, an inroom stocked bar, or internet availability?
Does the name of the company, and its products and
services, create the type of image that is sought? What
graphic form should the name or logo take?
What USPs related to décor, such as an exhibition
kitchen, bakery, or fish tank, might be incorporated in
the design of the hotel or restaurant?
Should the layout be changed to improve efficiency?
What type of music should be played, background
(soft, without words), foreground (with or without
words) or recreational (dominates room) Should it be
varied, depending on the meal or day of the week? Is
live music a consideration?
What colors should be used in the lobby, guest rooms,
dining room, bar, and kitchen?
Should plants be used as a focal point, or as a
complement to the design? What type of plants will be
used? How large and how many?
What aromas will customers be smelling while they are
in the building or around it? Which have the greatest
impact on customers? Most restaurants have a
distinctive smell? The scientific term for the utilization
of aromas is “olfactory-evoked recall”. This refers to
the relationship between the aroma/smell, one’s
experience with it, and its physiological effect on
individuals. E.g. lavender tends to be relaxing, jasmine
can be stimulating.
In the marketing plan, it is acceptable to combine prices
with the product sections. E.g. the menu could be
included with its price or hotel rooms and suites with
their applicable rate schedule.
Pricing decisions reflect the business’s overall and
specific marketing objectives. Charging too much, too
little, or not knowing if the current price is suitable for
the firm’s market, can develop a serious problem.
The frequency of changing prices vary considerably.
Restaurants normally have stable prices for menu items.
Each six months or so, managers review the cost of
each item sold, its current price, and various other
internal and environmental concerns, then determine
whether the price should be increased, left as is, or
The prices of the hotel business are quite flexible. Most
prices for a hotel room would be negotiated between
the buyer and seller. Yield management – a method of
balancing price with demand, is an important concern
for hotel rooms.
Pricing Strategies
They are the easiest of the strategies to change,
therefore, the most abused.
Dramatic changes should be avoided because
price is generally one of the most sensitive
issues for the customer.
Raising or Lowering Prices
There are several basic rules that can be followed in
changing prices. They apply to different circumstances;
 Try not to raise prices by more than about 10%.
Raising a price more than 10% is quite noticeable to
a regular customer. If the increase is necessary, then
adjustments (plate presentation, accompaniments
etc) should be considered to make the
implementation easier. However, the 10% rule does
hold true for hotels, since they need to adjust their
prices based on the time of year and occupancy
When price increase are unavoidable, spread the
increase over several items rather than increasing only
one or e few items.
 Keep in mind that, each price point will have a
different meaning to each target customer group,
depending on such factors as income level, frequency
of purchases and whether their company is paying.
Two other suggestions for pricing;
 Even-dollar pricing can be applied when increasing
room prices. A price of $74,00 sound better than
$73,60 or $74,50.
 For restaurants, it is better to end prices with the
numbers 5, 9, or 0. This is what people are used to.
Reactions to Changes in a Competitor's Price
Generally, in the hospitality business, a company should
react to a competitor’s price changes if it foresee it is
going to lose sales or if it does begin to lose sales.
Prices should not be lowered if it is not necessary.
 wait and see what happens to reservations
 find out why the competitor lowered its prices
 is it a temporary reduction?
 do the customers care about this new pricing?
 do our customers care about this new pricing?
are present occupancy and future reservations
satisfactory to keep sales?
 has this happened before? If so how did it affect
Typically, when a restaurant lowers its prices, the
reaction will depend on the competitiveness of the
market and the level of service. Fast-food restaurants
tend to follow price changes; casual dining and fine
dining restaurants generally disregard changes, unless
they begin to affect sales. For them, the total package is
more important than the price.
Typical Considerations for Pricing
What is the desired food cost percentage, alcoholic
beverage, labor, or any other major applicable cost
categories that must be factored into the price?
Are costs controlled at the lowest effective level
(purchasing, finance, accounting, operations and
Should prices be adjusted upward or downward, based
on costs, customer perception, or competitor’s price
Does the hotel or restaurant take surveys to find out
what customers think of its prices (pricing strategies)?
Can the company economically afford seasonal
discounts or can other, more creative options be
How can individual prices be adjusted to yield the
greatest profit?
How sensitive are customers to changes in price (elastic
– very sensitive; or inelastic – not very sensitive)?
Place includes all factors relating to the distribution of
the product to the customer.
It refers to where the business is in the distribution or
marketing channel. In the hospitality industry, hotels
and restaurants are considered to be retailers.
The primary consideration for a retailer in regard to the
marketing channel is its location; so it becomes the main
issue to be addressed.
In addition to its normal distribution channels,
hospitality businesses will need to determine alternative
means of delivering the product/service.
One alternative is offering food for delivery through
the Internet. Some hotels are offering discounted
rooms through the Internet. Even many casual and fine
dining concepts have implemented delivery strategies.
Recently, all kinds of restaurants are adding catering to
their marketing channel.
Typical Considerations for Place Strategies
What geographic areas are compatible with the
business’s concept?
Should new types of locations or distribution
channels such as pizza restaurants opening up in
convenience stores or smaller hotels in niche
markets, be sought out?
What stage in its cycle is the location?
Promotion refers to decisions on how the business will
communicate its offering to its customers.
In the strategic marketing plan, this is the creation of
the promotional campaign.
The focus will be on the effective and efficient use of
the promotional mix variables of merchandising,
advertising, personal selling, public relations, and sales
promotion. None of them are mutually exclusive.
 Merchandising: primarily in-house promotion of
products and services
Advertising: nonpersonal promotion through a mass
medium, by an identified sponsor
 Personal selling: promotion of products and services
through personal communication channels
 Public relations: promotion of the company’s image,
rather than its products and services
 Sales promotion: short-term incentives to increase
sales, customer counts, and customer loyalty
Promotional Misconception
A common misconception in marketing is that low sales
can be rectified almost exclusively by promotion. This
occurs because hotel or restaurant managers often fail
to recognize and identify the root cause of the problem.
Promotion is a tool that when wisely used can
complement the business’s execution of the other
marketing mix variables – product, price, and place. If
these are not satisfactory, then promotion will not save
the firm. The rule is: execute the first 3P’s effectively,
then promote.
Hotel Promotion
Hotels, because of their wide spread of target
customers, need to use heavy promotion than most
Often, the decision makers for a hotel stay are meeting
planners, corporate travel planners, and travel agents
who make travel plans for entire firms or associations.
They must be contacted personally by the hotel’s sales
staff through personal selling.
Since individual business travels come from various
locations, using various types of sales promotions and
advertising is a necessity. Not only to attract them, but to
keep the brand name and image in the minds of these
Restaurant Promotion
Restaurants are generally in a much different position
than hotels.
Fast-food restaurants, because of their locations and
relatively undifferentiated products, must continually
advertise to keep their brands on the minds of the
customers and to convince them that their offerings is
For the majority of cause and fine dining concepts, the
primary (or ideal) promotional vehicle is their target
customers or word-of-mouth advertising. Since the
major reason why customer select these restaurants
is for a higher level of quality and service, quality
should be the primary focus of their business. The
same principle should be followed when choosing the
primary method of promotion. Since the objective is to
keep present customers returning and bringing their
friends, promotions would preferably focus on public
relations or keeping the brand name in the public eye.
Typical Considerations for
Promotional Strategies
Which products or services should be promoted?
Where should each menu item be positioned/placed on
the menu or menu board?
How important is the overall design of the menu to the
customer's perception of quality and value?
Should food be displayed any manner?
Will incentives be offered to promote customer/guest
satisfaction or to increase sales?
Is there a promotional message or slogan needed?
Which of the promotional mix options – merchandising,
advertising, personal selling, public relations, sales
promotion – will be used? Basically, what are the most
effective methods of reaching the firm’s target customers?
What type of media will be used – print, broadcast,
What percentage of the budget will be spent in each
selected medium and on selected target customers?
What percentage of the budget will be spent on mass
media – broadcast, print, and display – and how much on
personal communications – point-of-purchase promotions,
merchandising, and personal selling?