1. The Product/Service Mix

2. Learning Objectives Chapter 10: Product Development and Partnership 1.Identify the four major groups of organizations in the hospitality and travel industry. 2.Describe the roles played by each of these four groups of hospitality and travel organizations. 3.Identify the trends among each of the four groups of organizations. 4.Identify five overall trends and industry realities. 5.Define the product/service mix.

3. Learning Objectives Chapter 10: Product Development and Partnership 1.Identify and describe the six components of an organization’s product/service mix. 2.Explain the types of product development decisions that an organization must make. 3.Define the term partnership and list the potential benefits of marketing partnerships to hospitality and travel organizations. 4.Identify the types of partners available to hospitality and travel organizations.

4. Section 1 The product

5. Major Groups of Organizations in the Hospitality and Travel Industry Suppliers Carriers Travel trade intermediaries Destination marketing organizations There are four major groupings:

6. Categories of Suppliers 1. Suppliers Provide services that travelers need at or between destinations Cruise lines Car rental Lodging Restaurants Attractions Casino operations

7. Categories of Carriers 2. Carriers Provide transportation for travelers from their origins to their destinations Airlines Train Bus Ferry services

8. Categories of Travel Trade Intermediaries 3. Travel trade intermediaries Reserve and sell the services of suppliers, carriers, and other intermediaries Retail travel agents Tour wholesalers and operators Corporate travel managers and agencies Incentive travel planners Convention/meeting planners

9. Categories of Destination Marketing Organizations 4. Destination Marketing Organizations (DMOs) Government and non-government organizations that market all the hospitality and travel services within their destination areas National/Federal and State Tourism Marketing Agencies Convention and Visitors Bureaus (CVBs)

10. Trends in Lodging Facilities a.Chain domination b.Increasing brand segmentation c.Mergers and joint-marketing programs d.All-suite/extended-stay hotels e.Frequent guest programs f.Special services and amenities

11. Trends in Restaurant and Food Service Facilities a.Major restaurant-industry trends b.Restaurant franchising c.Co-branding d.New foodservice locations e.Increasing brand segmentation f.Changing ownership of major chains

12. Trends in Cruise Lines a.Rapid growth in cruising b.Creativity and expansion of target markets c.Dependence on travel agents d.Changing cruiser demographics e.Entry of hotel/resort companies into the cruise business f.Consolidation

13. Trends in Car Rental Companies a.Sales concentrated among business leaders b.Dependence on airlines and travel agents c.Participation in frequent-traveler programs d.New services

14. Trends in Attractions and Casinos Theme Parks a.Theme park business growth Casino Operations a.Growth in number of casino operations b.Casinos take to the water c.Casino resort diversification

15. Trends in Airlines a.Mergers and industry concentration b.More regional and commuter airlines c.Frequent-flier programs d.Strategic alliances e.Ticketless travel and e-ticketing f.Changes in travel agency commission policies

16. Overall Trends and Industry Realities a.More horizontal integration b.More vertical integration c.Introduction of a wide variety of new services, facilities, and travel alternatives d.Great future opportunities for new services, facilities, and travel alternatives e.Increasingly competitive industry

17. The Product/Service Mix 1.Staff behavior, appearance, and uniforms 2.Building exteriors 3. Equipment 4.Furniture and fixtures 5. Signage 6. Communications with customers and other publics

18. THE PRODUCT/SERVICE MIX 1. Staff Behavior, Appearance, and Uniforms. Here, it is sufficient to mention that the physical aspects of staff appearance must be carefully considered in the marketing plan. 2. Building Exteriors. Many hospitality and travel organizations serve their guests in one or more buildings. The overall physical condition and cleanliness of these structures greatly influence the customer’s image of the organization and their own satisfaction.

19. THE PRODUCT/SERVICE MIX 3. Equipment. Customers evaluate several types of hospitality and travel businesses partly on the upkeep and cleanliness of their equipment. Airline, cruise line, car rental, bus, train, limousine/taxi, and attraction companies are a few examples of the relevancy of this element. 4. Furniture and Fixtures. Many customers are sensitive to the quality of the furniture and fixtures within buildings and transportation equipment. Many hospitality and travel companies back up their high-quality images with high- quality furniture and fixtures.

20. THE PRODUCT/SERVICE MIX 5. Signage. This is another part of the product/service mix that is often forgotten. Most organizations have a variety of signs, including billboards, directional signs, and exterior building signs. 6. Communications with Customers and Other Publics. Advertising, personal selling, sales promotion, merchandising, and public relations and publicity activities are often considered only as ways to influence customers to buy.

21. Types of Product Development Decisions 1.Organization-wide Decisions: a.Width and depth of product/service mix b.Improving or modernizing the product/service mix c.Branding 1.Individual Facility/Service Decisions: a.Quality b.Range c.Design

22. 1.Organization-Wide Decisions 1.Width and Length of Product/Service Mix. For example, when Richard Branson’s company, Virgin, got into the passenger rail business in the United Kingdom it was diversifying and adding to 115 product/service - mix width. When Air Canada acquired another airline, Canadian, it increased the length of its product/service mix, as did Marriott when it acquired a part ownership of Ritz-Carlton Hotels.

23. Organization-Wide Decisions 2.Improving or Modernizing the Product/Service Mix. Sometimes a company determines, usually through a situation analysis or marketing research, that the time has come to upgrade all or part of its product/service mix. Airlines do this frequently. T heme parks are constantly updating and adding to their entertainment mix. They do this to encourage repeat visitation. Cruise lines temporarily remove ships from service in order to undertake necessary maintenance and on board improvements.

24. c. Branding. There was a time when branding was relatively unimportant in the hospitality and travel industry; the company’s name was all that was attached tothe service. Branding is becoming more important as many companies expand:the width and length of their product service mixes. The advantages of branding include the following: Organization-Wide Decisions 3. Branding Helps the company segment markets Gives the company the potential to attract loyal and profitable customers Improves the company’s image if their brands are successful Helps track reservations, sales, problems, and complaints

25. Partnership Cooperative promotions and other cooperative marketing efforts by hospitality and travel organizations

26. PARTNERSHIP Marketing partnerships of many varieties have become more popular in recent years in the hospitality and travel industry as more companies realize the advantages of relationship marketing They range from “one- shot” (short-term) cooperative promotions to strategic. (long-term) joint marketing agreements that may involve some combination of the products or services of two or more organizations

27. Types of Partners Customers Organizations in the same business Organizations in related businesses Organizations in non-related businesses Digital alliances

28. Potential Benefits of Partnerships Access to new markets Expansion of product/service mixes Increased ability to serve customer needs Increased marketing budgets Sharing of facilities and facility costs Enhanced image or positioning Access to partners’ databases Access to partners’ expertise

29. 1. Access to New Markets. A strategic partnership may provide new geographic markets or other new target markets for the organizations involved. For example, the strategic alliance between Northwest, KLM, and Continental has provided each air line with access to geographic markets throughout the world.

30. 2. Expansion of Product/Service Mixes. By teaming up with another organization. company may be able to expand its product/service mix at little or lesser cost. For example, the Carlson Companies entered the lucrative cruise market using its Radisson Hotel brand name by signing an agreement it operate the SSC Diamonc on behalf of the ship’s owners.

31. 3. Increased Ability to Serve Customer Needs. When hospitality and travel organizations or destination areas pool their facilities and services, they may be in a better position to serve customer needs. For example, the code-sharing agreements between partnered airlines is helping to make international air travel simpler and more convenient for travelers.

32. 4. Increased Marketing Budgets. When hospitality and travel organizations agree to cooperate, they increase the total budget amount available for marketing for each individual partner.Similarly four countries (Austria, Germany, Italy, and Switzerland) have combined to promote the Alps, which they all share.

33. 5. Sharing of Facilities and Facility Costs. Teaming up with other organizations may help each partner to provide and afford certain physical facilities. For example, the British Travel Centre in London, the costs of renting office space are shared by several partners, including the British Tourism Authority, Wales Tourism Board. British Rail, and others. A similar arrangement is used by the Scandinavian countries in co-funding the Scandinavian Tourist Boards’ office in New York.

34. 6. Enhanced Image or Positioning. Associating with other hospitality and travel organizations may improve the image or enhance an organization’s positioning. The appointment of Delta as the official airline of Walt Disney World under a joint marketing agreement between the two companies gives the airline an advantageous competitive position for Florida-bound travelers.

35. 7. Access to Partners’ Customer Databases. You have already heard about the increasing importance of database marketing. The sharing of the partners’ proprietary customer databases can be a powerful advantage of cooperation. For example, the tie-ins between airlines, credit card firms, long-distance telephone companies, and hotel chains in frequent traveler programs give each partner the potential to access databases with records on millions of individual customers.

36. 8. Access to Partners’ Expertise. A partnership may be formed because each of the partners has experience or expertise that the other partners want. This experience or expertise may be well-recognized by customers.

37. Section 2 Pricing

40. What does this show have to do with marketing?

41. Pricing The answer may surprise you, very little!

42. Pricing

43. Pricing dual role One of the inherent problems with pricing is that it fulfils two sometimes contradictory roles.

44. The transactional view of the price/quantity relationship

45. High price = high quality? 1. Customers do not have sufficient information or prior experiences to compare features of competitive offerings. 3. Services are perceived as having a certain snob appeal and carry social prestige. 4. The difference between the prices of competitive services is minimal. 2. Services are perceived as complex, and there is a high risk of making a bad choice.

46. High price = high quality?

47. Variable Costs

48. Fixed Costs

49. Break-Even Point

50. Break-Even point Computation

51. Break-Even Point Computation

52. Margin of Safety Margin of safety represents the strength of the business. It enables a business to know what is the exact amount it has gained or lost and whether they are over or below the break even point. margin of safety = (current output - breakeven output) margin of safety% = (current output - breakeven output)/current output x 100)

53. Pricing & Value for Money Is the way that customers compare the amount of money they pay to the quality of the facilities and service they receive. For something to have value. Value is only relevant in the eyes of the beholder.

54. PLANNING PRICING APPROACHES There are three steps involved in planning price s: 2. Select pricing approaches/ strategies 3. Measure & evaluate pricing success 1. Set pricing objectives

55. Setting Pricing Objectives Most pricing objectives can be divided into three categories: 2. Sales-Oriented Pricing Objectives 3. Status-Quo- Oriented Pricing 1. Profit-Oriented Pricing Objectives

56. Pricing Strategies/Approaches

57. 1. Premium Pricing 2. Penetration Pricing 3. Economy Pricing 4. Price Skimming 5. Psychological Pricing 6. Product Line Pricing 7. Optional Product Pricing 8. Captive Product Pricing 9. Product Bundle Pricing 10. Geographical Pricing 11. Value Pricing

58. Premium Pricing Use a high price where there is an uniqueness about the product or service.

59. Penetration Pricing The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased.

60. Economy Pricing This is a no frills low price. The cost of marketing and manufacture are kept at a minimum.

61. Price Skimming Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market

62. Psychological Pricing This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example “price point perspective” 99 cents not one euro.

63. Product Line Pricing Where there is a range of products or services the pricing reflect the benefits or parts of the range. For example car washes. Basic wash could be €2, wash and wax €4, and the whole package €6.

64. Optional Product Pricing Companies will attempt to increase the amount customers spend once they start to buy. Optional extras increase the overall price of the product or service.

65. Captive Product Pricing Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

66. Product Bundle Pricing Here sellers combine several products in the same package. This also serves to move old stocks. Videos and CDs are often sold using a bundle approach.

67. Promotional Pricing Pricing is to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).

68. Geographical Pricing Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping cost increase price.

69. Value Pricing This approach is used where external factors such as recession or increased competition force companies to provide ‘value’ products and services to retain sales e.g. value meals at McDonalds.