Creating Customer Value and
Objective: Defining what marketing is and introducing its basic
What is Marketing?
Marketing is not selling or advertising.
Marketing is the management of creating and
exchanging products and value in order to satisfy
the needs and wants of the customers.
Marketing involves building profitable, longterm relationships with customers.
The goal of marketing is to satisfy customers at
a profit.
If the marketer does a good job of
understanding consumer needs, develops
products that provide superior value, and prices,
distributes, and promotes them effectively, these
products will sell easily.
Thus, selling and advertising are only part of a
larger `marketing mix` - a set of marketing
tools that work together to affect the
Marketing, more than any other business
function, deals with customers. Creating
customer value and satisfaction are at the heart
of hospitality and travel industry marketing.
The Marketing Process
Managers must realize that they cannot satisfy all
customers; they have to choose their customers
Companies work to (1) understand consumers,
(2) construct marketing programs to create
superior value for the customer, (3) build
profitable relationships and create customer
delight, and in turn (4) capture value from
customers in the forms of sales, profits and
long-term customer equity.
Core Marketing Concepts
Customer needs, wants & demands
Marketing offers – products, services and
Customer value and satisfaction
Exchanges and relationships
Needs, Wants, and Demands
Consumers have needs (physical, social,
individual etc.) wants, and demands to be
satisfied. Consumers view products as bundles
of “benefits” and choose products that give
them the best value for their money and most
satisfaction. E.g. Fairfield Inn → comfortable
bed, clean room, low price; JW Marriott Hotels
& Resorts → fine dining, luxury, comfort and
Understanding needs and wants
What are people looking for when they visit
different destinations?
Why would a tourist choose to holiday in Florida
rather than Spain – what variables are at work
apart from cost?
Why would he choose to travel with British
Airways, but not with Lufthansa?
Why would he buy an independent inclusive
tour, but not a group tour?
Need Satisfaction Theory
All consumer purchases, including choice of
travel destination, are made to satisfy a need of
the consumer. The individual has a desire for
Do people travel just to travel?
People do not travel just to travel. Travel fills
some need in each consumer. Travelers’ needs
Do we really need?
Often people talk about what they need, say a
new television set, a new dress, or a holiday. But
do they really need these things? Or are they just
expressing a desire for more?
Due to today’s increased material consumption
patterns, it is becoming difficult to distinguish
wants (e.g. reference group influence) from
Maslow’s hierarchy of needs
(e.g. self-fulfillment, etc.)
Ego needs
(e.g. self-respect, status, success, etc.)
Social needs
(e.g. affection, love, friendship, etc.)
Safety needs
(e.g. security, protection, etc.)
Physiological needs
(e.g. food, water, air, etc.)
According to Maslow, the more basic needs have
to be satisfied (satisfied according to the needs
of our cultural group) before our interest will
focus on higher level needs.
However, according to Alderfer, and his ERG
(existence, relatedness, and growth needs)
theory, (1) more than one need may be operative
at the same time, (2) if the satisfaction of a
higher level need is frustrated, the desire to
satisfy a lower level need increases.
The Main Motives for Travel and
Motivation for travel and tourism can be
categorized as;
 Physical motivations
 Cultural motivations
 Personal motivations
 Prestige and Status motivations
(Mathieson and Wall, 1993)
Physical motivations
refreshment of body and mind (rest and
relaxation) – beach holidays, lakes and mountains,
for health purposes (i.e. either medically
prescribed or undertaken voluntarily) – spas, etc.;
for participation in sports – skiing, canoeing,
safari parks, ponytrekking, etc.;
pleasure, - fun, excitement, romance and
entertainment, to shop.
Cultural motivations
curiosity about foreign countries, people and
interests in art, music, architecture, folklore –
music festivals, theatre visits, etc.;
interest in historical places (remains,
monuments, churches);
experiencing specific international and national
events - Olympic Games, Oktoberfest, etc.
Personal motivations
visiting relatives and friends;
meeting new people and seeking new friendships;
seeking new and different experiences in different
environments – sailing etc.;
escaping from one’s own permanent social environment
(i.e. desire for a change)
personal excitement of traveling;
visiting places and people for spiritual reasons (i.e.
traveling for travel’s sake
Prestige and Status motivations
pursuit of hobbies – craft or painting holidays
continuation of education or learning- study
tours etc.;
seeking of business contacts and professional
goals – fairs, etc.;
conference and meetings;
ego enhancement and sensual indulgence;
A product (persons, places, organizations, activities,
ideas) is anything that can satisfy a need or want.
Producers must see themselves as providing a
solution to a need (benefits) rather than just selling a
product. Otherwise, when a new product satisfies
the needs better or less expensively, they would not
make money.
Research is a must to understand the needs and
wants of the customers to produce the right
product. E.g. At Disney World, each manager spends a day
in the park in a Mickey costume or work on the front line -
taking tickets, selling pop-corn.
Disney World, Orlando
Customer Value and Satisfaction
How do customers choose among these many
products? Consumers make choices based on;
Value; is the difference between owning the product
and the cost of obtaining the product, in a way
“profit” to the customer. Customers do not judge
product values objectively, on the contrary they act
on perceived value. E.g. Is Hilton really the best
hotel company?
Satisfaction; is the difference between the
product’s performance and buyer’s expectations.
If the product’s performance falls short of
expectations, the buyer is dissatisfied. If the
performance matches or exceeds expectations,
the buyer is satisfied. Smart companies aim to
satisfy customers by promising only what they
can give, then giving more than they promise.
Benefits of satisfying customers: Customer
satisfaction create an emotional tie (customer
loyalty) to a product. Highly satisfied customers
make (1) repeat purchases, (2) are less price
sensitive, (3) talk positively to their friends.
Quality; simply quality can be defined as
“freedom from defects”. Today, most companies
define quality in terms of customer satisfaction.
E.g. according to Motorola “if the customer
doesn’t like the product, it’s a defect”. Quality
starts with customer needs and ends with
customer satisfaction. The concept of “total
quality management” is in a away “total customer
satisfaction”. Improving the quality of a product
that customers want increases customer
satisfaction, therefore increases profit.
Exchanges and Relationships
Marketing occurs when people decide to satisfy
needs and wants through exchange.
Exchange (transaction) is the act of getting a
desired object (product, service, idea …) from
someone by giving something in return.
Marketing should create mutually beneficial
relationships (good for both parties) to generate
profitable transactions.
A market is the set of actual and potential
buyers of a product. These buyers share a
particular need or want that can be satisfied
through exchanges and relationships.
Marketing means managing markets to bring
about profitable customer relationships.
Creating these relationships takes work. Sellers
must search for buyers, identify their needs,
design right marketing offers (products), set
right prices, promote and deliver (place) the
products in the right ways (4Ps of Marketing).
These are the core marketing activities.
Marketing Management
Marketing management is the art and science of
choosing target markets and building profitable
relationships with them.
The marketing manager’s aim is to find, attract,
keep, and grow target customers by creating,
delivering, and communicating superior
customer value.
Marketing management is in a way, demand
(customer) management.
A company’s demand comes from two groups:
new customers and repeat customers. Marketing
management deals with finding ways (1) to
attract new customers and create transactions
with them and also (2) to retain current
customers and build lasting customer
To design a winning marketing strategy, the
marketing manager must answer two important
What customers will we serve (what’s our target
 How can we serve these customers best (what’s our
value proposition)?
Selecting Customers to Serve
The company must first decide who it will serve.
It does this by diving the market into segments
of customers (market segmentation) and
selecting which segments it will go after (target
Some people think of marketing management as
finding as many customers as possible and
increasing demand. But marketing managers
should know that they cannot serve all
customers in every way. By trying to serve all
customers, they may not serve any customers
well. Instead, the company wants to select only
customers that it can serve well and profitably.
Methods Used to Segment Markets
in Travel and Tourism
There are seven main ways of dividing up
markets for segmentation purposes, all of which
are used in practice in the travel and tourism
industry. The main methods of segmentation are:
Purpose of travel
Buyer needs, motivations, and benefits sought
Buyer behavior (characteristics) of product usage
Demographic, economic, and geographic profile
Psychographic profile
Geodemographic profile
Segmentation by purpose of travel
E.g. Conference markets require different
products to those supplied to other business
travelers and meetings for groups of different
sizes require special provision.
For a tour operator, customer’s purpose and
product needs will differ according to whether
they are looking for; main summer holiday,
additional holidays and short breaks, winter sun,
winter sports.
Within the broad categories of main and
additional holidays, typical subsidiary purposes
would include sea and beach holidays (with and
without children), cultural interests, walking and
other activity interests and an interest in exotic
Segmentation by buyer needs and
benefits sought
Within purpose of travel, the next logical
consideration for segmentation is to understand
the needs, wants and motivations of particular
customer groups (as discussed).
The range and perceived importance of benefits
sought by customer segments are not easy to
understand. They can only be discovered by
market research among identified target groups.
Segmentation by benefits, makes it possible for
marketing managers to fine tune their products.
Focusing on promoting the benefits sought is a
logical objective for brochures and other
marketing communications.
Segmentation by buyer behavior
Within purpose and benefits sought, there is
scope for refining the segmentation process
according to the types of behavior or
characteristics of use of products that
customers exhibit. E.g. frequency of usage of
Frequent users (high frequency, high spending
high loyal); may represent only 10% of
individual customers in a year but up to 60% of
revenue for some hotel groups and airlines.
Segmentation by demographic, economic,
geographic and life-cycle characteristics
By using previous segmentation processes,
considerable knowledge can be obtained.
However, for the purposes of efficient
promotion and distribution of products,
especially to prospective new customers rather
than to existing ones, it is important to know the
demographic profile (e.g. age, sex, occupation,
income, place of residence) and other defining
characteristics (life-cycle) of their target
customers, including potential users.
Segmentation by psychographic
characteristics and lifestyle
Dependent on sophisticated market research
Psychographics aims to define consumer on
attitudinal or psychological rather than physical
Geodemographic segmentation
A very powerful and productive segmentation
tool; developed through combining an analysis
of census data with the postal area (zip) codes
that identify group of households in the
Segmentation by price
In leisure travel and tourism markets in all
countries, buyers are highly price-sensitive.
It is not a segmentation variable of the same
kind as the others.
There are segments of customers to be
identified and located who respond to different
price bands.
Yield management; segment targeted tactical
Choosing a Value Proposition
The company must also decide how it will serve
targeted customers – how it will differentiate
and position itself in the marketplace.
A company’s value proposition is the set of
benefits or values it promises to deliver to
customers to satisfy their needs. E.g. Northwest
Airlines punctual, friendly, fun flight; Singapore
Airlines luxurious, prestigious, special flight
Such value propositions differentiate one brand
from another.
They answer the customer’s question “Why
should I buy your brand rather than a
Companies must design strong value
propositions that give them the greatest
advantage in their target markets.
Marketing Management
There are five alternative concepts under which
organizations conduct their marketing activities:
the production, product, selling, marketing and societal
marketing concepts.
The Production Concept; holds that consumers will
favor products that are available and highly
affordable. Here, the management focus on
improving production and distribution. This oldest
philosophy is useful in two types of
situation. (1) when the demand for a product
exceeds the supply (2) when the product’s cost is
too high and improved productivity is needed to
bring it down. E.g. Henry Ford’s “Model T”, TI
 The Product Concept; holds that consumers favor
products that offer the most quality,
performance and innovative features. Here, the
organization should focus on making continuous
product improvement.
 The Selling Concept; holds that consumers do not
buy enough products if there are not large-scale
selling and promotion effort. Most
companies use the selling concept when they have
overcapacity. This concept focuses on creating
sales transactions rather than on building longterm, profitable relationships with customers.
 The Marketing Concept; holds that achieving
organizational goals (making profit) depends on
understanding the needs and wants of target
markets and delivering the desired satisfactions
more effectively and efficiently than competitors
do. Relies heavily on research. E.g. Disney,
McDonald’s, Ritz-Carlton Hotels… are customerdriven companies.
The Societal Marketing Concept; holds that the
organization should not only satisfy the needs
and wants but also improve both customer’s and
society’s well-being. This newest philosophy
focus on customer long-term welfare, since today
we have environmental problems, resource
shortages, population growth etc. E.g. Critics
against fast-food restaurants that food has a lot
of fat and salt harmful for health, a lot of
packaging increasing waste and pollution. Here,
the companies try to balance (1) company profits,
(2) consumer wants, (3) society’s interests.
Customer Relationship Management
CRM is perhaps the most important concept of
modern marketing.
Until recently, CRM has been defined narrowly
as a customer data management activity. It
involves managing detailed information about
individual customers in order to maximize
customer loyalty.
More recently, CRM is defined as the overall
process of building and maintaining profitable
customer relationships by delivering superior
value and satisfaction. It deals with all aspects of
acquiring, keeping and growing customers.
Relationship building blocks: customer
perceived value and satisfaction.
A company can always increase customer
satisfaction by lowering its price or increasing its
services. But this may result in lower profits.
Companies can build customer relationships at
many levels. E.g. frequent-flier programs, club
marketing programs.
Yesterday’s companies focused on mass
marketing to all customers at arm’s length.
Today’s companies are building more direct and
lasting relationships with more carefully selected
Today’s companies do not want relationships
with every customer. Companies are targeting
fewer, more profitable customers.
Capturing Value from Customers
By creating superior customer value, the firms
creates highly satisfied customers who stay loyal
and buy more. This, in turn, means greater longrun returns for the firm.
Good customer relationship management
creates customer delight. In turn, delighted
customers remain loyal and talk favorable to
others about the company and its products.
Customer life-time value: the value of the entire
stream of purchases that the customer would
make over a lifetime of patronage.
Losing a customer means losing more than a
single sale. It means losing the entire stream of
purchases that the customer would make over a
lifetime of patronage.
Customer equity: The total combined customer
lifetime values of all of the company’s
Product Formulation in
Objective: In response to the knowledge and forecasts on the
customer’s needs and wants, discussing how products are put
Understanding Tourism Products
There are two different dimensions for
understanding tourism products;
The overall tourism product; as far as the tourist is
concerned, the product covers the complete
experience from the time he leaves home to the time
he returns to it.
 The product of individual tourism businesses;
organizations in the industry have a much narrower
view of the products they sell, they focus primarily on
their own services.
Components of the Overall Tourism
From the standpoint of a potential customer,
the product may be defined as a bundle or
package of tangible and intangible components.
The packaged is perceived by the tourist as an
Destination attractions and environment
Destination facilities and services
Accessibility of the destination
Images of the destination
Price to the customer
Destination attractions and environment
They determine customer choice and influence
prospective buyers’ motivations.
They include;
Natural attractions
 Built attractions (e.g. The World)
 Cultural attractions
 Social attractions
Destination facilities and services
They make it possible for visitors to stay and in
other ways enjoy and participate in attractions.
They include;
Accommodation units
 Restaurants, bars and cafes
 Transport at the destination
 Sports (interest) activity
 Other facilities (e.g. language schools)
 Retail outlets
 Other services (e.g. information services)
Accessibility of the destination
These are the private and public transport
aspects of the product that determine the cost,
speed and convenience.
They include;
Infrastructure (roads, airports etc)
 Equipment (size, speed of transport etc)
 Operational factors (routes, frequency etc)
 Government regulations
Images and perceptions of the destination
The attitudes and images customers have
towards products strongly influence their buyer
Destination images are not necessarily grounded
in experience or facts but they are always
powerful motivators in leisure and travel and
Closely linked in prospective customers’ minds.
All destinations have images, often based on
historic rather than current events
It is an essential objective of destination
marketing to sustain, alter, or develop images in
order to influence prospective buyers’
The images of tourism businesses within
destinations are often closely related to the
destination image (e.g. Las Vegas)
Price to the customer
Most destinations offer a range of products and
appeal to a range of segments, price in the travel
and tourism industry covers a very wide range.
Price varies by season, by choice of activities
and internationally by exchange rates as well as
by distance traveled, transport mode and choice
of facilities and services.
Components of Specific Products
Core product; essential service or benefit
designed to satisfy the identified needs of target
customer segments.
Tangible product; the specific offer for sale
slating what a customer will receive for his
Augmented product; comprises all the forms of
added value to the formal product offers to
make them more attractive.
Branding and Product Positioning
Image, typically communicated by branding, is
identified as one of the components in the
overall tourism product and as a vital element
within the augmented product development and
marketed by individual businesses in the industry.
Tourism products are essentially intangible and
need to be communicated in ways that influence
consumers’ perceptions.
Branding provides the core attributes of;
Statement of ownership.
 Means of identifying a product or service for
purchasers and distinguishes it from that of
 Symbol of shorthand device to which expectations
of quality could be attached.
 A brand is defined as “a name, symbol, design
or some combination, which identifies the
‘product’ of a particular organization as having a
sustainable differential advantage”.
In practice, a strong brand has to exist in the
minds of consumers as a fusion of readily
understood values and benefits.
A brand offers the consumer relevant added
value, a superior proposition that is distinctive
from competitors (competitive advantage).
Consumers are prepared to pay a price premium
for strong brands.
Forms the basis of the “positioning”.
Advantages of Branding for Travel and Tourism
Helps reduce medium and long-term
vulnerability to the unforeseen external events
Reduces risk for the consumer, offers guarantee,
signals expected quality and performance of an
intangible product
Provides a common understanding and some
unity of purpose for staff etc
Branding is a strategic weapon for long-range
planning in tourism
Service Characteristics of
Hospitality and Tourism
Objective: discussing four distinguishing characteristics of
services and several things management of service firms can
do to increase the effectiveness of their business.
Services Marketing
Service industries are quite varies: governmental
services - courts, hospitals, police, fire
departments, postal services, schools etc; private
nonprofit organizations - museums, colleges,
hospitals etc; business organizations - airlines,
hotels, restaurants, advertising, real estate etc.
Satisfying the Customers
The aim of the service organizations is also
serving and satisfying the customer.
The belief that customer comes first is
reinforced in Four Seasons Hotels where
employees who go to extraordinary efforts to
satisfy the customer are entitled to be the
“Employee of the Year”, story of Ron Dyment,
doorman in Toronto.
Nature and Characteristics of
There are four distinguishing characteristics of
services. They are;
Service Intangibility
means that unlike physical products, services cannot be
seen, tasted, felt, heard or smelled before they are
Buyers look for “signals” or “tangible evidences” like
the place, people, price, equipment and information
about the service in order to reduce uncertainty caused
by intangibility before they pay the price. E.g. the
cleanliness of the restaurant, employee uniforms of the
hotel, Heublein vs Smirnoff.
Service Inseparability
means that services cannot be separated from their
both (1) providers and (2) other customers.
If a service employee provides the service, then the
employee is part of the service. E.g. the food in the
restaurant may be outstanding, but if the service person
is rude, customers will downrate the overall service of
the restaurant.
the other customers affect the service outcome as well.
E.g. a couple may choose a restaurant but if a group of
loud customers is seated next to them, the couple will
be disappointed.
Service Variability
means that the quality of services depends on who
provides them, plus, when, where, and how they are
provided. E.g. within a given hotel chain, one reception
desk agent may be cheerful and efficient one day but
would be unpleasant and slow the other day.
Service providers’ service quality depends on his energy
and his frame of mind at the time of each customer
Fluctuating demand makes it difficult to deliver
consistent services during periods of peak demand.
Variability or lack of consistency is the major cause of
customer disappointment in the industry.
Service Perishability
means that services cannot be stored for later sale or
use. E.g. if a 100 room hotel can sell only 40 rooms
today, selling the remaining 60 is gone forever.
If service providers are to maximize revenue, they must
manage capacity and demand. E.g. hotels charge lower
rates in the off-season to attract more guests;
restaurants hire part-time employees to serve during
peak periods; tour operators and airline companies have
last-minute sales.
Service perishability is a serious problem when demand
Management Strategies for
Service Businesses
Services are different from tangible products, that is
why, different marketing strategies are needed to market
services. Those strategies are;
Managing Differentiation
Managing Service Quality
Tangibilizing the Service
Managing Employees
Managing Risk
Managing Capacity and Demand
Managing Consistency
Managing Differentiation
If the customers view the services of different
providers as similar, they care less about the
provider than the price.
The solution to price competition is to develop
a differentiated offer, delivery and image.
Service companies can differentiate their service
delivery in three ways, through;
 Physical evidence
 Process
Four Seasons,
Managing Service Quality
Service quality will always vary, depending on the
interactions between employees and customers.
Companies should take steps not only to provide
good service every time but also to recover from
service mistakes when they do occur.
If a customer has a major complaint, 91% will not
buy again, if it is resolved quickly, 82% of those
customers will return (study by Technical Research
Programs Institute).
“Complaint is a Gift”.
Tangibilizing the Service
Tangible evidences such as promotional materials (e.g.
brochures), employees’ appearance, and the service
firm’s physical environment help tangibilize the
trade dress; is the distinctive nature of a hospitality
industry’s total visual image and overall appearance. For
example, McDonald’s golden arch, restaurant décor…
To compete effectively, marketing managers must
design a distinctive trade dress.
employee uniform and costumes; have an important and
useful role in differentiating one hospitality firm
from another and create pride in the employees.
physical surroundings; should be designed to reinforce
the product’s position in the customer’s mind. For
example, the furniture in the lobby of a Four
Seasons Hotel should be high quality and expensive
looking. Every piece of tangible evidence must
deliver the desired organization image to target
Managing Employees
In service businesses, the customer and front-line
service employees interact. Service providers must
interact effectively with customers to satisfy them.
That is why, companies take care of their employees to
make profit. Because they believe that only satisfied
and productive service employees can create satisfied
and loyal customers.
Internal marketing: means that the service firm must effectively
train and motivate its customer-contact employees to provide
customer satisfaction.
Managing Risk
People, who will stay in an X hotel or travel with an X
airline for the first time, perceive high risk. Because
they don’t have any idea about the service quality before
they pay the price. There is no guarantee that they will
be satisfied.
As a result, (1) “image” and reputation of the
organization,(2) “word-of-mouth advertising ” and (3)
FAM trips become more important in hospitality and
travel marketing.
Managing Capacity and Demand
Since services are perishable and can not be
reserved and sold in later sale, marketing
managers must manage capacity and demand.
If demand is less than capacity, hotel rooms and
restaurant seats are empty. If demand is higher
than capacity, there will be great difficulty in
coping with customer numbers. For example, a
restaurant must manage its capacity when there
is high demand on Mother’s Day.
Managers have two major options for matching
capacity with demand: change capacity or
change demand. For example, an airline can
change capacity on a heavily traveled route by
assigning a larger plane to the route. If a larger
plane is not available, they can reduce demand
by eliminating discounted fares. First capacity
then demand management will be discussed in
the coming sections.
In order to cope with high demand,
organizations must operate at a maximum
capacity and remember that their goal is to
create satisfied customers. Here, the problem is
that research has shown that customer
complaints increase when service firms operate
above 80% of their capacity.
Managing Capacity
In order to manage capacity with fluctuations in
short term demand, the following actions are
the customer in the service delivery system
Cross-train employees
Use part-time employees
Rent or share extra facilities and equipment
Schedule downtime during periods of low capacity
Extend service hours
Use technology
Use price
Involve the Customer in the
Service Delivery System
Getting the customer involved in service operations
increases the number of people that one employee can
serve, as a result, increasing the capacity of the
operation. This method is very useful especially during
busy periods.
For example, some restaurants have self-service salad
bars and vending machines for drinks e.g. Schlotzky
Restaurant, or hotels have computerized check-in and out e.g. Sheraton Hotels which enable the customers to
serve themselves and make it possible for employees to
handle more customers.
Cross-train Employees
Cross-training employees gives the operation
flexibility, allowing the business to increase
capacity by shifting employees, and can help to
prevent the organization from reducing capacity
when an employee calls in sick. For example,
front-desk staff or banquet staff when crosstrained can be called on if demand is higher.
Use Part-time Employees
Managers can use part-time employees to
increase capacity during an unusually busy day or
meal period or during the busy months of the
year for seasonal businesses. For example,
summer resorts hire part-time staff to work
during the summer period. Part-time banquet
waiters are called in when there is a large
banquet operation.
Rent or Share Extra Facilities
and Equipment
Businesses do not have to have space or equipment
limitations. When they have busy periods, they rent
equipment or space.
In the hospitality industry, companies can work
together and share their resources as well. For example,
when X hotel does not have enough rooms, in order to
prevent losing customers, it may refer the customers to
the sister property. Or when there is not space for a
large group in the restaurant, in Istanbul the alternative
might be a dinner cruise on Bosphorus.
Schedule Downtime during
Periods of Low Capacity
An organization also needs to decrease capacity
when there is low demand. One way to do this is
to schedule repairs and maintenance during the
low season. Employees can take holidays or
training programs can be scheduled during low
Extend Service Hours
Restaurants and entertainment facilities can
increase capacity by extending their hours.
When there the demand is high, the restaurant
operations may decide to open one hour early.
For example, nowadays fast-food operations
have extended their capacity by opening for
Use Technology
Technology can be used to increase the capacity
of systems. For example, the automatic wakeup call system in hotels that can make hundreds
of wake-up calls in an hour.
Use Price
Price can be used to adjust capacity in
companies which especially have mobile
products such as car rental companies. Rent-acar companies may offer low or no drop-off
rates to areas where they need cars.
Managing Demand
For managing demand (when demand exceeds
capacity), the following strategies are available;
Use price to create or reduce demand
Use reservations
Use queuing
Shift demand
Change the salesperson’s assignment
Create promotional events
Use Price to Create or Reduce Demand
Pricing is one method used to manage demand.
When demand is less than capacity, managers lower
prices to create demand. For example, Pizza Hut offers
“eat as much as you can” on weekdays between 15:00
to 18:00.
When demand is more than capacity, managers raise
prices to lower demand. For example, on New Year’s
Eve, many restaurants and hotels offer set menus and
packages that exceeds the normal prices. Higher prices
decrease demand but still be enough to fill the capacity.
Use Reservations
Hotels and restaurants use reservations to monitor
When there will be more demand than capacity,
managers can save capacity for the more profitable
segments. For example, hotels do not except
reservation requests of travel agencies when they
expect high demand from the individual travelers.
When capacity meets demand, reservations can also
limit demand by letting managers refuse any further
Not everyone who makes reservations comes – no
show. As a result hotel rooms remain empty. In order
to prevent hotel rooms to remain empty, managers
overbook – accept more reservations than capacity. For
example, if in an X hotel 20% of the customers with
reservations do not come, 10 rooms will be empty out
of 50 reservations. If in this hotel, the average rate is
$80, this means a potential loss of $292,000.
Overbooking must be carefully managed. Otherwise,
customers would be walked to another hotel and this
destroys the reputation of the hotel.
Use Queuing
When capacity exceeds demand and guests want to
wait, queues will form.
Queues, such as waits at restaurants, are an effective
way of managing demand. Good management of
queuing can make the wait more tolerable for the guest.
It is better to overestimate the wait and tell guests it will
take 35 minutes, when the estimated wait is 30 minutes.
The following tips are useful for the management of a
waiting line;
Unoccupied Time Feels Longer Than Occupied
Time: Managers can create entertainment to prevent
their guests to get bored from waiting. For example,
Disney Land has employees who wear Mickey Mouse
costumes talk to kids in waiting lines, occupying time
and making the wait pass faster.
Unfair Waits are Longer Than Equitable Waits:
Guests can become upset with a wait if they feel that
they are being treated unfairly. For example, after
waiting 20 minutes to check-in, one guests may have
to wait for another 10 minutes because of a phone
call which is supposed to be answered by the front
desk clerk. In order to eliminate this problem,
Marriott has started a policy of removing phones
from the front desk.
Shift Demand
It is possible to shift demand for banquets and
meetings. For example, if the date of a banquet
or meeting is flexible, managers may offer to
shift the date to a period (e.g. 3 days before or
after the stated date) when the hotel is not
forecasted to be full.
Change the Salesperson’s Assignment
In hotels, the director of sales assigns
salespeople to specific segments.
If the hotel is trying to increase its short-term
business, then the manager should shift the
salespersons from the association market (which
books a year or more out) to the corporate
market (which can produce bookings in a month
or less).
Create Promotional Events
During slow periods, creative promotions can be
an effective way of building business. For
example, hotels develop special packages and
nights, casinos have slot and table game
tournaments during their slow periods to build
Managing Consistency
Consistency means that customers will receive the same
level of services every time they come to the service
organization. For example, a cream mushroom soup
will taste the same way it tasted 2 weeks ago, a hotel
room will look the same way it looked a month ago.
In order to manage consistency, a clear company policy
must be established. Training the employees the same
way and standardizing the production with equipment
as in McDonald’s would be helpful to provide
consistent service.
Useful Links and Sources
Kotler, P.; Bowen, J. and Makens, J. (1999).
Marketing for Hospitality and Tourism (2nd ed.).
Prentice Hall. NJ.
Kotler, P. and Armstrong, G. (2006) Principles
of Marketing (11th ed.). Prentice Hall. NJ.
Middleton, V.T.C. (2004) Marketing in Travel
and Tourism (3rd ed). Elsevier. Oxford.