Module No.1-Intro-To-Tourism-And-Hospitality-Marketing

Marketing is so basic that it cannot be considered a separate function.
It is the whole business seen from

the point of view of its final result, that is, from the customer’s point of view. . . . Business success is not
determined by the producer but by the customer.
—Peter Drucker
Introduction:
Marketing for
Hospitality and
Tourism
Objectives
Chipotle Mexican Grill
After reading this chapter, you
Chipotle opened in 1993 with the goal of serving fresh, gourmet-quality food at should be able to:
reasonable prices. Over 1,200 restaurants and several million burritos later, the
goal remains the same. 1. Understand the relationships
Chipotle is the dream and creation of Steve Ells. A graduate of the Culinary between the world’s hospitality
Institute of America, Steve learned the philosophy and skills of classical French and travel industry.
cooking. After graduation, Steve had no intention of opening a business but in- 2. Define marketing and outline
stead moved to San Francisco where he worked for the renowned Star Restau- the steps in the marketing
rant under the direction of Jeremiah Tower. process.
The many tacquerias of San Francisco opened Steve’s eyes to opportunity. 3. Explain the relationships
He watched how the employees handled the lines of customers. Steve then started between customer value and
crunching the numbers napkin.1 Realizing the profit potential of the restaurant, he satisfaction.
decided to open a quick-service Mexican restaurant.
He found an old ice cream parlor near the University of Denver. With the support 4. Understand why the marketing
of his father who invested $85,000 and a real estate broker, he was able to open the concept calls for a customer
first Chipotle, which opened in July 1993.2 orientation.
The principles upon which Chipotle operates are discussed below. 5. Understand the concept of the
lifetime value of a customer
and be able to relate it to cus-
Food with Integrity (FWI): The Cornerstone tomer loyalty and retention.
of Chipotle’s Vision
Chipotle sources food that is sustainably raised, has great taste, great nutrition,
and great value. When possible they use animals raised without antibiotics, and
locally produced produce (ideally organice).3
Fresh Ingredients
True to the tradition of French cooking, Steve insists on fresh products—not
canned, frozen, or freeze-dried.
Organic, Naturally Raised Foods

With an emphasis on great-tasting food, quality, and simplicity, Steve entered the
natural food niche in restaurant operations. The aim was to review each ingredi-
ent used in Chipotle and explore the possibility of incorporating as many organic
or naturally raised foods as possible.
3
Introduction: Marketing for Hospitality and Tourism
In 2001, Chipotle teamed up with Niman Ranch to provide free-range pork for the
carnitas used in each restaurant. An additional 200 family farms have since agreed to
Chipotle’s standards for raising hogs.
Chipotle posters describe how today’s corporate agriculture has replaced the prac-
tices of family farmers with what Steve described as the “senseless exploitation” of farm
animals.
Steve said that dining is about the senses so that when Chipotle makes an emotional
appeal, it wins with customers. He believes that once customers know about the Niman
Ranch association, some will buy Chipotle because of taste, others because Niman does
not use antibiotics, and others to support the family farmers. It doesn’t matter to those at
Chipotle what the reason might be because all support the cause of providing food with
integrity (FWI).
Chipotle requires the chickens it buys be fed an all-vegetarian diet, are not given an-
tibiotics, and be raised in more humane cages than large producers use. Chipotle’s size
means that it also must buy food from large producers, as well as small ones. Tyson devel-
oped a farm just for Chipotle to supplement the smaller growers.4
Restaurant Environment
Many Mexican food restaurants look alike with photos of Pancho Villa or other decorations
that the public has come to expect as normal. A Chipotle restaurant is different!
The kitchen and food preparation areas are right in front of the customers and were
designed to appeal to the senses. Customers observe freshness, cleanliness, and variety at
the same time they smell spices and hear the sizzle of meat on the grill. All of this stimu-
lates the appetite and blends the ambience of food preparation with food consumption.
The most crowded part of any home during a party always seems to be the kitchen. Steve
put this knowledge to work when planning the restaurant.
Instead of settling for serapes on the wall, Steve asked sculptor friend Bruce Gueswel
to design artwork appropriate to the environment. This led to a unique line of original art-
work and furniture using a variety of materials, including welded steel, corrugated metal,
and wood to depict what has been described as modern renditions of ancient Mayan hi-
eroglyphics. Chipotle is the only quick-service restaurant that commissions original art for
each location. It’s an example of the attention to detail that defines Chipotle.
Chipotle restaurants have been given awards for design by the American Institute
of Architects. The style, known as “cantina moderne,” employs metals, plywood, con-
crete, and glass to provide a sophisticated postindustrial feel with exposed duct work
and pipes.
Each piece of music played within a Chipotle restaurant was self-selected by a team
from Chipotle management. Described as “Funky Cool Groovish,” each CD is designed for
self-destruction after a set period of time to ensure freshness in the music as well as the
food.
Pricing
Unlike most quick-service restaurant chains, Chipotle offers no coupons or specials. At
Chipotle all food all the time is either full price or free.
Prices are comparatively reasonable but do vary by the marketplace. A typical crowd
in the Denver restaurant included two police officers, young career professionals, and a
woman with a baby. Most were dressed in casual attire. Thousands of promotional “bucks”
for one free burrito are given away during the year. These are numbered and bear the en-
graving of a Maya prince with the words “In Burritos We Trust” above the picture and “Vaya
Con Tacos” below. Free burrito promotions have proven to be very popular and productive
in new markets. From there, word of mouth supported by free publicity in newspapers and
magazines serves as the principal means of promotion.
Loyalty
Repeat visits by customers have proven to be very high within Chipotle restaurants. So
too has staff loyalty. Chipotle’s restaurant and kitchen designs intentionally place crew
4
members up front. Managers encourage restaurant employees to have genuine interac-

tions with customers no matter their job, whether preparing food or serving customers
during our busiest period. They focus on attracting and retaining people who can deliver
a great experience for each customer. This requires employees give customers individual
attention and make every effort to respond to customer suggestions and concerns in a hos-
pitable way. Chipotle feels its focus on creating a positive and interactive experience helps
build loyalty and enthusiasm for its brand among restaurant managers, crew members,
and customers alike.5
Social Networking
Social networks such as youtube.com and myspace.com are a relatively new, yet powerful
form of media that many companies are trying to incorporate into their marketing plans. Chi-
potle has mastered the use of social networks. Several years ago it launched a Facebook page
that now has over 1½ million friends. Chipotle offered a $30,000 prize to the universities or
college teams that could produce the best Chipotle advertisement. Chipotle received forty-five
entries from eighteen colleges and universities. The winners received air time in regional tel-
evision and movie theaters. But many of the advertisements ended up on youtube.com and
myspace.com. Some have received over a million hits. The ads were created by the generation
that uses this media and were both an effective and an efficient way for Chipotle to penetrate
this media.
This is one of the reasons why Chipotle spends less than 1 percent on advertising,
whereas other restaurant chains average 4 percent. Steve Ells states, “Advertising is not
believable.” Chipotle prefers to create satisfied customers who will go out and tell their
friends great things about Chipotle.
Over 1½ million people have given Chipotle’s Facebook page a thumbs-up, indicating
they like it. One of the characteristics of social media is that the content is authentic. Not
everything posted on Chipotle’s wall is positive. However, a representative of Chipotle re-
sponds to both the positive and negative comments, usually within the hour. Chipotle uses
social media to engage its customers.
Steve Ells realized that a successful restaurant had to have a great atmosphere, a good
product, effective marketing communications, and talented people in addition to good
food. Chipotle created an integrated marketing program that delivers superior value, build-
ing customer relationships and delight. Chipotle’s customers responded by patronage and
advocacy for Chipotle. This is the essence of marketing.6
■■■ Your Passport to Success

As a manager in a global economy, marketing will greatly assist your personal ca-
reer and the success of the enterprise you manage. In today’s hospitality/travel
industry, the customer is global and is king or queen. This title is bestowed not
because of hereditary rights but because customers have the ability to enhance or
damage your career through the purchase choices they make and the positive or
negative comments they make to others.
The travel industry is the world’s largest industry and the most international
in nature. International travel has receipts of over $1 trillion and over 1 billion
travelers.7 China’s 1.3 billion people take over 2.1 billion domestic trips each year,
spending US $237 billion. The rapid growth of domestic tourism in China, com-
bined with over 135 million inbound tourists, has led to a rapid growth of hotels,
resorts, airport facilities, and other facilities to support tourism.8 Thirty years ago
there was nothing in Dubai but a creek, a sheik’s palace, and a reputation as a
smuggling capital of the Arabian Gulf. Today Dubai boasts some of the world’s best
hotels. One of the tourism projects is DUBAILAND, a US $70 billion tourism com-
plex covering almost 70,000 acres that will include theme parks, resorts, shopping,
sports facilities, and cultural venues. Some of the project is complete and attract-
ing visitors; when the entire project is complete, it will attract 15 million visitors a
5
year.9 When many people think of Dubai, they think of an economy driven by oil.
Yet today 30 percent of Dubai’s gross domestic product (GDP) comes from travel
and tourism.10 The neighboring city of Abu Dhabi wants to take a slower approach
to tourism so it can preserve its Arab culture. It has been building world-class tour-
ist attractions such as Ferrari World theme park and attracting sporting events
such as the Volvo Ocean. Its planned approach to tourism growth also includes the
Environmental Health and Safety Management System (EHSMS). The goals of this
system include reducing landfill waste by 20 percent, water usage by 20 percent,
and energy by 10 percent.11
The title “The World’s Best Airport” is not held by an American or European
airport but by Hong Kong, a city with such land scarcity that the new airport was
built in the bay on a largely manufactured island. Hong Kong International Airport
boasts the world’s largest enclosed space, with a terminal eventually capable of
handling 87 million visitors per year. The world’s best hotel is Jack’s Camp in Bot-
swana. Countries that were locations of the top-rated hotels included the Maldives,
Italy, Hong Kong, Australia, France, India, and the Seychelles. The best interna-
tional airline is Qatar Airlines.12
The world’s travel industry is alive, exciting, and challenging. Hospitality com-
panies and tourism planning/promotion departments are filled with college gradu-
ates from across the globe. Competition is strong and getting tougher each day. Yet
opportunities are greater than ever before.
Welcome to marketing! Your passport to success!
Today marketing isn’t simply a business function: It’s a philosophy, a way of
thinking, and a way of structuring your business and your mind. Marketing is much
more than a new ad campaign. The task of marketing is never to fool the customer
or endanger the company’s image. Marketing’s task is to provide real value to tar-
geted customers, motivate purchase, and fulfill consumer needs.
Marketing, more than any other business function, deals with customers. Cre-
ating customer value and satisfaction is at the heart of hospitality and travel indus-
try marketing. Many factors contribute to making a business successful. However,
today’s successful companies at all levels have one thing in common: They are
1 http://www. strongly customer focused and heavily committed to marketing. Accor has become
oberoihotels.com/ one of the world’s largest hotel chains by delivering L’esprit Accor, the ability to
Go to the Udaivilas,
anticipate and meet the needs of its guests, with genuine attention to detail.13 Ritz-
by selecting it from the leisure
hotels button at the top of the
Carlton promises and delivers truly “memorable experiences” for its hotels’ guests.
page. Notice how the quality McDonald’s grew into the world’s largest restaurant chain by providing its guests
and selection of the photographs with QSC&V (quality, service, cleanliness, and value). These and other successful
establishes the image of a world- hospitality companies know that if they take care of their customers, market share
class hotel. and profits will follow.
The Oberoi Udaivilas, in

Udaipur, India, was chosen
as the world’s best hotel by
Travel and Leisure magazine.
Courtesy of Robert Harding
Picture Library Ltd/Alamy.
6
As a manager, you will be motivating your employees to create superior value

for your customers. You will want to make sure that you deliver customer satisfac-
tion at a profit. This is the simplest definition of marketing. This text will start you
on a journey that will cause your customers to embrace you and make marketing
your management philosophy.
■■■ Customer Orientation

The purpose of a business is to create and maintain satisfied, profitable custom-
ers.14 Customers are attracted and retained when their needs are met. Not only do
they return to the same cruise line, hotel, rental car firm, and restaurant, but they
also talk favorably to others about their satisfaction.
“What about profits?” Some hospitality managers act as if today’s profits are
primary and customer satisfaction is secondary. This attitude eventually sinks a
firm as it finds fewer repeat customers and faces increasingly negative word of
mouth. Successful managers understand that profits are best seen as the result of
running a business well rather than as its sole purpose. When a business satisfies
its customers, the customers will pay a fair price for the product. A fair price in-
cludes a profit for the firm.
Managers who forever try to maximize short-run profits are short-selling both
the customer and the company. Consider the following episode:
A customer arrived at a restaurant before closing time and was greeted

with “What do you want?” Somewhat surprised, the customer replied
that he would like to get a bite to eat. A surly voice informed the
customer that the restaurant was closed. At this point, the customer
pointed to a sign on the door stating that the restaurant was open until
9 p.m. “Yeah, but by the time I clean up and put the food away, it’ll be
nine, so we’re closed.” The customer left and went to another restau-
rant a block away and never returned to the first restaurant.
Let’s speculate for a moment. Why was the customer treated in such a shabby
manner? Perhaps,
• the employee wanted to leave early.

• the employee was suffering from a headache.
• the employee had personal or family problems.
What really happened in the restaurant episode is that this employee once
served a customer immediately before closing time, resulting in the employee
working until 10:30 p.m. Instead of the corporate office thanking her for serving
the customer and staying late, it reprimanded her for putting in extra time. The
corporate office wanted to keep down overtime expenses. The employee’s response
was to close the business by 9 p.m. whatever the cost. Now the corporate office is
happy—they just don’t realize they are losing customers and future business. Much
of the behavior of employees toward their customers is the result of management
philosophy.
The alternative management approach is to put the customer first and reward
employees for serving the customer well. Marriott’s vice president of sales and mar-
keting services said, “We used to reward restaurant managers for things that were
important to us, such as food costs. When have you heard a customer ask for the
restaurant’s food costs? You have to reward for what customers want from your
business.”15
It is wise to assess the customer’s long-term value and take appropriate ac-
tions to ensure a customer’s long-term support. Two studies document this. The
Forum Company found that the cost of retaining a loyal customer is just 20 percent
of the cost of attracting a new one.16 Another study found that an increase of five
7
Cruise ships have traditionally

been competition for resorts.
The Disney Fantasy and other
Disney ships, complement
Disney’s resorts drawing on
the Disney brand to create
additional value for their
guests. Courtesy of Jonathan
Atkin/Sipa USA/Newscom.
percentage points in customer retention rates yielded a profit increase of 25 to 125

percent.17 Accordingly, a hotel that can increase its repeat customers from 35 to 40
percent should gain at least an additional 25 percent in profits.18 The former presi-
dent of Scandinavian Airlines summed up the importance of a satisfied customer:
Look at our balance sheet. On the asset side, you can still see so-and-so
many aircraft worth so-and-so many billions. But it’s wrong; we are fooling
ourselves. What we should put on the asset side is the last year SAS car-
ried so-and-so many happy passengers. Because that’s the only asset we’ve
got—people who are happy with our service and willing to come back and
pay for it once again.19
Without customers, assets have little value. Without customers, a new multi-
million-dollar restaurant will close, and without customers, a $300 million hotel
will go into receivership, with the receivers selling the hotel at a fraction of its book
value.
Starbucks Coffee has created

customer loyalty, allowing
it to open shops around the
world. In this photo, Starbucks
customers sit in a café in
Bucharest, Romania. Courtesy
of Dudau/Dreamstime.
8
■■■ What Is Hospitality and Tourism Marketing?

In the hotel industry, marketing and sales are often thought to be the same, and no
wonder: The sales department is one of the most visible in the hotel. Sales manag-
ers provide prospective clients with tours and entertain them in the hotel’s food
and beverage outlets. Thus the sales function is highly visible, whereas most of the
nonpromotional areas of the marketing function take place behind closed doors.
In the restaurant industry, many people confuse marketing with advertising and
sales promotion. It is not uncommon to hear restaurant managers say that they
“do not believe in marketing” when they actually mean that they are disappointed
with the impact of their advertising. In reality, selling and advertising are only two
marketing functions and often not the most important. Advertising and sales are
components of the promotional element of the marketing mix. Other marketing
mix elements include product, price, and distribution. Marketing also includes re-
search, information systems, and planning.
The four-P framework calls on marketing professionals to decide on the
product and its characteristics, set the price, decide how to distribute their
product, and choose methods for promoting their product. For example, Mc-
Donald’s has a fast-food product. It uses quality ingredients and developed
products that it can sell at prices people expect to pay for fast food. Most people
will not spend more than 15 minutes to travel to a McDonald’s restaurant. As
part of its distribution plan, McDonald’s must have restaurants that are con-
veniently located to its target market. Finally, McDonald’s appeals to different
market segments and has many units throughout a city. This allows McDonald’s
to make effective use of mass media, such as television. The marketing mix must
be just that—a mix of ingredients to create an effective product/service package
for the target market. Some critics feel the four Ps omit or underemphasize cer-
tain important activities.
If marketers do a good job of identifying consumer needs, developing a good
product, and pricing, distributing, and promoting it effectively, the result will be
attractive products and satisfied customers. Marriott developed its Courtyard con-
cept; Darden designed the Olive Garden Italian Restaurant. They designed differ-
entiated products, offering new consumer benefits. Marketing means “hitting the
mark.” Peter Drucker, a leading management thinker, put it this way: “The aim of
marketing is to make selling superfluous. The aim is to know and understand cus-
tomers so well that the product or service fits them and sells itself.”20
This does not mean that selling and promotion are unimportant, but rather that
they are part of a larger marketing mix, a set of marketing tools that work together to
produce satisfied customers. The only way selling and promoting will be effective
is if we first define customer targets and needs and then prepare an easily acces-
sible and available value package.
Companies such as Sonic have

brought strong marketing skills
to the restaurant industry.
Courtesy of Andrew Woodley/
Alamy.
9
■■■ Marketing in the Hospitality Industry

Importance of Marketing
As we have seen, the hospitality industry is one of the world’s major industries. In
the United States, it is the second largest employer. In more than half of the fifty
states, it is the largest industry.
Marketing has assumed an increasingly important role in the restaurant sector
of the hospitality industry. The entrance of corporate giants into the hospitality
market transformed it from a mom-and-pop industry, where individually owned
restaurants and hotels were the norm, to an industry dominated by chains. These
chains operate in a highly competitive environment where aggressive marketing
skills are used to win customers. Twenty-four companies now account for over
a third of all restaurants in the United States. McDonald’s leads the restaurant
group, with over 30,000 restaurants in 119 countries serving 52 million customers
each day.
The hotel industry is undergoing a consolidation, with companies such as
Accor, Blackstone, and Starwood buying hotel chains and operating different
brands under one organization. The marketing expertise of these large firms has
created a competitive marketing environment. In response to growing competitive
pressures, hotel chains are relying more on the expertise of the marketing director.
While the marketing director is a full-time marketer, everyone else must be a part-
time marketer. All managers must understand marketing.
Tourism Marketing
The two main industries that comprise the activities we call tourism are the hospi-
tality and travel industries. Successful hospitality marketing is highly dependent
on the entire travel industry. Meeting planners choose destinations based on the
Visitors to international cost of getting to the destination, the value of the hotels, the quality of restaurants,
destinations, such as these and evening activities for their attendees.
tourists on the Brazilian side The success of cruise lines is really the result of coordinated marketing by
of Iguacu Falls, often purchase many travel industry members. For example, the Port of Boston wanted to attract
packages that include more cruise line business. Massport (the port authority) aggressively marketed
international airfare, ground Boston to cruise lines. Having convinced them to come, they then promoted Bos-
transportation, and hotel ton to key travel agents. This was critical because travel agents account for 95
accommodations. Courtesy of
percent of all cruise line business. The result was that Boston doubled the num-
Demetrio Carrasco
ber of port calls by cruise lines and added $17.3 million to the local economy
© Dorling Kindersley.
through this combined marketing
effort.
That’s only the beginning of
travel industry marketing coopera-
tion to promote cruise lines. Airlines,
auto rental firms, and passenger rail-
ways cooperatively develop pack-
ages with cruise lines. This requires
coordination in pricing, promotion,
and delivery of those packages. Like
Massport, government or quasi-
government agencies play an impor-
tant role through legislation aimed at
enhancing the industry and through
promotion of regions, states, and
nations.21
10
Marketing Highlight
1 As the guest’s taxi pulled away, Roy Dyment, a door-

man at Toronto’s Four Seasons, noticed the guest’s
briefcase still sitting near the entrance to the hotel. Dyment
go that extra mile and respond with concern and dedica-
tion to customer needs. Employees are never penalized for
trying to serve the customer.
phoned the guest in Washington, D.C., to let him know According to a study by Peat Marwick McClintock,
that he had found the briefcase. He learned that the brief- Four Seasons is an oddity because many hotel firms
case contained key documents for an important meeting place profitability or growth as their number one goal.
in the morning. Dyment knew one sure way of getting the This, in part, explains why this hotel company has won
briefcase to Washington before the morning meeting— an international reputation for customer service. Four
take it himself. He caught a plane and delivered the brief- Seasons has also shown that putting the customer first
case. His first concern was taking care of the guest. He leads to profits with above-average financial performance
didn’t worry about getting his boss’s approval. Upon his and profit percentages that many hotel chains only
return, instead of getting reprimanded or terminated, he dream about.
was made employee of the year. Four Seasons is one of
the world’s great hotel chains that practice the marketing
Sources: Patricia Sellers, “Getting Customers to Love You,”
concept. Isadore Sharp, founder and chairman of Four Fortune (March 3, 1989): 38–41; Isadore Sharp, “Quality for All
Seasons Hotels and Resorts, states that the company’s top Seasons,” Canadian Business Review, 17, no. 1 (spring 1990):
priority is a satisfied guest. Concern for the customer starts 21–23: Four Seasons Hotels and Resorts Web site, accessed July
with top management and flows through the operation. 11, 2011, from http://www.fourseasons.com/about_us/corporate_
Four Season’s corporate culture encourages employees to bios/isadore_sharp/.
Few industries are as interdependent as travel–hospitality. This interdepend-

ence will increase in complexity. The travel industry will require marketing pro-
fessionals who understand the big picture and can respond to changing consumer
needs through creative strategies based on solid marketing knowledge.
Definition of Marketing
Marketing must be understood in the sense of satisfying customer needs. If the mar-
keter understands customer needs; develops products that provide superior cus-
tomer value; and prices, distributes, and promotes them effectively, these products
will sell easily. Here is our definition of marketing: Marketing is the process by
which companies create value for customers and society, resulting in strong cus-
tomer relationships that capture value from the customers in return.
Figure 1
A simple model of the
marketing process. The Marketing
Create value for customers and build Process
customer relationships
Figure 1 presents a simple five-step
Understand the Design a Construct an
marketplace and customer-driven integrated marketing
model of the marketing process.
customer needs marketing program that delivers In the first four steps, companies
and wants strategy superior value work to understand consumers,
create customer value, and build
strong customer relationships. In
Capture value from the final step, companies reap the
customers in return rewards of creating superior cus-
Capture value Build profitable tomer value. By creating value for
from customers to relationships and customers, they in turn capture
create profits and create customer value from customers in the form
customer equity delight of sales, profits, and long-term cus-
tomer equity.
11
■■■Understanding the Marketplace

and Customer Needs
As a first step, marketers need to understand customer needs and wants and the
marketplace within which they operate. We now examine five core customer and
marketplace concepts: (1) needs, wants, and demands; (2) marketing offerings (tan-
gible products, services, and experiences); (3) value and satisfaction; (4) exchanges
and relationships; and (5) markets.
Customer Needs, Wants, and Demands

Needs
The most basic concept underlying marketing is that of human needs. A human
need is a state of felt deprivation. Included are the basic physical needs for food,
clothing, warmth, and safety, as well as social needs for belonging, affection, fun,
and relaxation. There are esteem needs for prestige, recognition, and fame, and
individual needs for knowledge and self-expression. These needs were not invented
by marketers, but they are part of the human makeup.
Wants
The second basic concept to marketing is that of human wants, the form human
needs take as they are shaped by culture and individual personality. Wants are how
people communicate their needs. A hungry person in Papua New Guinea needs
food but wants taro, rice, yams, and pork. A hungry person in the United States
needs food but wants a hamburger, french fries, and a Coke. Wants are described
in terms of objectives that will satisfy needs. As a society evolves, the wants of
its members expand. As people are exposed to more objectives that arouse their
interest and desire, producers try to provide more want-satisfying products and ser-
vices. Restaurants were once able to serve generic white wine by the glass. Today,
customers are more sophisticated; restaurants now serve chardonnay, sauvignon
blanc, and pinot grigio by the glass. Today’s restaurant customers want and expect
a good selection of wine.
The $625 billion U.S. restaurant industry is facing a dramatic shift in the way
customers purchase meals. Many customers want the restaurant to prepare the
meal, but they want to eat it in their own home. Well over half the meals purchased
at the nation’s 960,000 restaurants are “takeouts” to be eaten at home, the office, in
the car, or other locations.22
This dramatic change in eating habits has caused some restaurants to change
their delivery and even food preparation area. Most U.S. restaurants must be cogni-
zant of this trend and plan for it. In 1955 about 25 percent of the money Americans
spent for food was in restaurants, but in 2010 it was 49 percent.
Many sellers often confuse wants with needs. A manufacturer of drill bits may
think that customers need a drill bit, but what the customer really needs is a hole.
These sellers suffer from “marketing myopia.”23 They are so taken with their prod-
ucts that they focus only on existing wants and lose sight of underlying customer
needs. They forget that a physical product is only a tool to solve a consumer prob-
lem. These sellers get into trouble if a new product comes along that serves the
need better or cheaper. The customer will then have the same need but want a new
product.
Demands
People have almost unlimited wants, but limited resources. They choose products
that produce the most satisfaction for their money. When backed by buying power,
wants become demands.
Outstanding marketing organizations go to great lengths to learn about and
understand their customer’s needs, wants and demands. They conduct customer
research. Smart companies also have employees at all levels—including top
management—stay close to customers. For example, at Southwest Airlines, all
12
senior executives handle bags, check in passengers, and serve as flight attendants
once a quarter. All Disney World managers spend one week per year on the front
line—taking tickets, selling popcorn, or loading and unloading rides. Understand-
2 http://www. ing customer needs, wants, and demands in detail provides important input for de-
fourseasons.com/ signing marketing strategies. The city of Santa Fe, New Mexico, has a beautiful and
Click on the
historic opera house, but only a small percentage of the population participated in
Careers tab at the bottom of the
page. If you desired a job with
operas. As Catherine Zacher, president of Sante Fe Economic Development, Inc.,
Four Seasons, how would the said, “Most Americans don’t enjoy being yelled at in Italian.” However, they did
information in this section help want other forms of entertainment. When the opera house was made available for
you market yourself to Four a variety of musical concerts, the demand created for this contemporary entertain-
Seasons? ment sold all available seats.24
Market Offerings: Tangible Products, Services, and

Experiences
Consumer needs and wants are fulfilled through a market offering: a product that is
some combination of tangible, services, information, or experiential product com-
ponents. We often associate the word product with a tangible product or one that
has physical properties (e.g., the hotel room or the steak we receive in a restaurant).
In the hospitality industry, the intangible products including customer service and
experiences are more important than the tangible products. Managers of resorts re-
alize that their guests will be leaving with memories of their stay. They try to create
experiences that will generate pleasant memories. At a Ritz-Carlton resort every
evening at sunset managers set up chairs on the beach, hire a cellist to play relax-
ing music, and serve champagne to guests. They realize this event not only creates
value for the guest, but it is also an experience that will create a lasting memory of
their stay. Marriott provides Dolphin safaris at its Newport Beach property and a
water rafting trip at its Utah property. Marriott uses the resources of the destination
to create guest experiences that the guest remembers for a lifetime.
Non-U.S. airlines have created a new level of luxury market offering for first-
class passengers. Both Lufthansa and Air France created a personalized first-class
service above regular first class. Personalized first-class passengers at Frankfurt can
The Gamboa Rainforest Resort
arrive at the airport early and enjoy a gourmet meal and a private meeting with
offers an experience of a business associates in a separate facility. They can enjoy a bubble bath, smoke a
lifetime, allowing guests to cigar, and be driven directly to the airplane in a Mercedes or Porsche and board
explore Panama’s rainforest the plane through a separate staircase. This personalized service proved so popular
and then relax at the resort that first-class ticket sales increased more than 40 percent.25
enjoying a meal while A market offering includes much more than just physical goods or services.
watching ships traverse the Consumers decide which events to experience, which tourist destinations to visit,
Panama Canal. Courtesy of which hotels to stay in, and which
Bern Hotels and Resorts. restaurants to patronize. To the con-
sumer these are all products.
Customer Value and

Satisfaction
Customer value is the difference be-
tween the benefits that the customer
gains from owning and/or using a
product and the costs of obtaining
the product. Costs can be both mon-
etary and nonmonetary. One of the
biggest nonmonetary costs for hos-
pitality customers is time. Luxury
hotels in Hong Kong such as the
Shangri-La do not expect “executive
guests” to stand in line to register.
Instead, they are escorted to their
room where hot tea is waiting. The
13
70 65 registration is completed for guests

63
by the hostess. Domino’s Pizza saves
60
the customer time and provides con-
50 venience by delivering pizza. Lim-
ited-service hotels provide value to
Percent
40 the overnight traveler by offering a

Definitely
30 Recommend free continental breakfast. One of
30 25 Definitely Return the biggest challenges for manage-
20 ment is to increase the value of its
8 10 product for its target market. To do
10 this, managers must know their cus-
0 tomers and understand what creates
1 2 3 value for them. This is an ongoing
1 = Very Satisfied, 4 = Neither Satisfied process, as customers and competi-
nor Dissatisfied, 7 = Very Dissatisfied tion change over time.
Even though 3 is still a "positive" score on the above Customer expectations are based
7-point scale, few customers giving that rating will return. on past buying experiences, the opin-
ions of friends, and market informa-
Figure 2 tion. If we meet customer expectations, they are satisfied. Marketers must be careful
Scores of 1, 2, and 3 are all to set the right level of expectations. If they set expectations too low, they may satisfy
on the satisfaction side of those who buy but fail to attract new customers. If they raise expectations too high,
the scale; that is, they are
buyers will be disappointed.
all better than a score of 4,
which is “neither satisfied
In the hospitality industry it is easy to set high expectations because guests will
nor dissatisfied.” You can not be able to judge the product until after they have consumed it. For example, an
see that satisfying the guest owner can advertise that his or her restaurant serves the best seafood in the city. If this
is not enough. Only when is not true, many customers will leave dissatisfied; the experience did not meet their
guests leave very satisfied expectations. However, if one sets expectations too low, there will be no customer
are they likely to come back. demand. For example, we would not want to advertise that we are an average seafood
As a manager, your goal is restaurant. We must understand how we create value for our market and communi-
to have all guests leave very cate that to our customers and potential customers. For example, we might specialize
satisfied. in fresh locally caught seafood. Customer satisfaction depends on a product’s per-
ceived performance in delivering value relative to a buyer’s expectations. If the prod-
uct’s performance falls short of the customer’s expectations, the buyer is dissatisfied.
If performance matches expectations, the buyer is satisfied. If performance exceeds
expectations, the buyer is delighted. Smart companies aim to delight customers by
promising only what they can deliver and then delivering more than they promise.
Managers must realize the importance of creating highly satisfied customers,
rather than just satisfied customers. On a 7-point scale, with 1 very satisfied and 7
very dissatisfied, most managers are happy to receive a 2. However, from Figure 2,
which shows the results of a guest survey at a Boston hotel,26 you can see the huge
gap between a guest who rates a hotel a 1 and one who rates it a 2. Think of the last
time you went to a restaurant and were just satisfied. Would you go back? Probably
not. But when you walk out of a restaurant and say, “Wow, that was great!” you will
probably return and tell others about your discovery.
Exchanges and Relationships

Marketing occurs when people decide to satisfy needs and wants through ex-
change. Exchange is the act of obtaining a desired object from someone by offering
something in return. Marketing consists of actions taken to build and maintain de-
sirable exchange relationships with target markets. Beyond simply attracting new
customers and creating transactions, the goal is to retain customers and grow their
business with the company. Marketers want to build strong relationships by con-
sistently delivering superior customer value.
Markets
The concept of transactions leads to the concept of a market. A market is a set of
actual and potential buyers of a product. These buyers share a particular need or
want that can be satisfied through exchange relationships.
14
Marketing means managing markets to bring about profitable customer rela-

tionships. However, creating these relationships takes work. Sellers must search
for buyers, identify their needs, design good market offerings, set prices for them,
promote them, and deliver them. Activities such as product development, research,
communication, distribution, pricing, and service are core marketing activities.
■■■Designing Customer-Driven
Marketing Strategy
Once it fully understands consumers and the marketplace, marketing manage-
ment can design a customer-driven marketing strategy. We define marketing
management as the art and science of choosing target markets and building prof-
itable relationships with them. The marketing manager’s aim is to find, attract,
keep, and grow target customers by creating, delivering, and communicating su-
perior customer value. To design a winning marketing strategy, the marketing
manager must answer two important questions: What customers will we serve
(what’s our target market)? and How can we serve these customers best (what’s
our value proposition)?
Selecting Customers to Serve

One way Olive Garden Italian The company must first decide who it will serve. It does this by dividing the market
Restaurants differentiates into segments of customers (market segmentation) and selecting which segments
itself is by freshly grating
it will go after (target marketing). Some people think of marketing management as
cheese for the guest. Courtesy
of Jeff Greenberg/Alamy
finding as many customers as possible and increasing demand. But marketing man-
Images. agers 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. For example,
Ritz-Carlton Hotels profitably target affluent travelers;
McDonald’s restaurants profitably target families.
Choosing a Value Proposition

The company must also decide how it will serve tar-
geted customers—how it will differentiate and posi-
tion itself in the marketplace. A company’s value
proposition is the set of benefits or values it promises
to deliver to consumers to satisfy their needs.
Such value propositions differentiate one brand
from another. They answer the customer’s question,
“Why should I buy your brand rather than a competi-
tor’s?” Companies must design strong value proposi-
tions that give them the greatest advantage in their
target markets.
Marketing Management
Orientations
Marketing management wants to design strategies that
will build profitable relationships with target consum-
ers. But what philosophy should guide these marketing
strategies? What weight should be given to the inter-
ests of customers, the organization, and society? Often,
these interests conflict with each other. There are five
alternative concepts under which organizations design
and carry out their marketing strategies: production,
product, selling, marketing, and marketing 3.0.
15
The Production Concept

The production concept is one of the oldest philosophies guiding sellers. The pro-
duction concept holds that consumers will favor products that are available and
highly affordable, and therefore management should focus on production and dis-
tribution efficiency. The problem with the production concept is that management
may become so focused on production systems that they forget the customer.
A visitor was staying at a hotel in the Swiss Alps with a beautiful view of Lake
Geneva. The dining room had an outdoor balcony to experience the beauty of the
surroundings. Enjoying breakfast on the balcony was a perfect way to start a summer
day. To the guest, the balcony was a great benefit; to the hotel, it was a nuisance.
The balcony was at the edge of the dining room and thus the farthest spot from the
kitchen. There were no service stations near the balcony, so all supplies had to come
from the dining room. There was only one entrance to the balcony, making access
difficult. Simply put, serving customers on the balcony was not efficient.
The hotel discouraged customers from eating on the balcony by not setting up
the tables. If one asked to eat on the balcony, he or she received a pained expression
from the service person. One then had to wait 15 minutes for the table to be set. Once
the food was served, the service person disappeared, never to be seen again. This was
the hotel’s way of reminding the guest that no one should eat on the balcony. Yet the
3 http://www. hotel should have viewed the balcony as providing a competitive advantage.
myswitzerland.com/ Every reader has surely experienced a common production-oriented restaurant
Switzerland after normal dining hours. The restaurant may be a third filled, yet all customers
attracts people
are forced to cluster in one section of the restaurant, thus creating unnecessary den-
who love the outdoors.
Hospitality companies need
sity and customer dissatisfaction. This is usually done to facilitate cleaning or to
to understand why tourists enable the wait staff to provide service with a minimum of walking.
are visiting their destination, Unionization of service staff is another reason for a production mentality. Hos-
and then meet or exceed their pitality workers who are unionized tend to work in accordance with union work
expectations. rules, which often conflict with customer needs.
The Product Concept

The product concept, like the production concept, has an inward focus. The prod-
uct concept holds that consumers will favor products that offer the most in qual-
ity, performance, and innovative features. Under this concept, marketing strategy
focuses on making continuous product improvements.
Product quality and improvement are important parts of most marketing strat-
egies. However, focusing only on the company’s products can lead to marketing
myopia. Consumers are trying to satisfy needs and might turn to entirely different
products to better satisfy those needs, such as B&Bs instead of hotels or fast-food
outlets in student centers instead of cafeterias.
Victoria Station was a restaurant chain that specialized in excellent prime rib. It
was very successful and expanded quickly into a fifty-restaurant chain. Management
focused on how to make its product better and at a lower cost. It came up with the
right number of days to age its beef. The rib roasts were slow cooked to maintain the
juices and avoid shrinkage. It had an excellent product and became a popular restau-
rant brand. Unfortunately, customer wants changed; red meat became less popular.
Victoria Station did not keep up with these changes in the wants of its guests. It still
produced great prime rib, but many of its customers no longer wanted prime rib.
Victoria Station had a product orientation when it should have had a marketing ori-
entation. Its customer counts declined, and it ended up filing for bankruptcy.
The Selling Concept

The selling concept holds that consumers will not buy enough of the organization’s
products unless the organization undertakes a large selling and promotion effort.
The aim of a selling focus is to get every possible sale, not to worry about satisfac-
tion after the sale or the revenue contribution of the sale.
The selling concept does not establish a long-term relationship with the cus-
tomer because the focus is on getting rid of what one has rather than creating a
product to meet the needs of the market. Restaurants often advertise when sales
start to drop, without first analyzing why sales are dropping. They do not try to
change their product to fit the changing market. They sell harder, pushing their
16
products on the customer through increased advertising and couponing. Eventu-

ally, they go out of business because their product no longer satisfies the needs of
the marketplace.
The selling concept exists within the hospitality industry. A major contribut-
ing factor is overcapacity. Virtually every major sector of this industry has suffered
from overcapacity. When owners and top management face overcapacity, the ten-
dency is to sell, sell, sell. Why do major sectors such as hotels, resorts, airlines,
cruise lines, and even restaurants continuously face overcapacity?
• Pride in being the biggest, having the most capacity.

• A false belief that economies of scale will occur as size increases.
• Tax laws that encourage real estate developers to overbuild properties because
of the generous tax write-offs.
• New technology, such as new products from aircraft manufacturers that offer
higher productivity through larger seating capacity despite adequate existing
capacity.
• Failure to merge revenue management with sales/marketing management.
• Economic incentives by governments to build a larger tourism/hospitality in-
frastructure to create economic growth.
• Poor or nonexistent forecasting and planning by owners, consultants, financial
organizations, and governments.
The Marketing Concept

The marketing concept is a more recent business philosophy and one that has been
adopted in the hospitality industry. The marketing concept holds that achieving
organizational goals depends on determining the needs and wants of target mar-
kets and delivering the desired satisfaction more effectively and efficiently than
competitors.
Amazingly, niche opportunities sometimes remain available long after suppli-
4 http://www.
swamedia.com/If
ers recognize the need. This is probably due to difficulties in changing the behavior
you browse of those who supply the products, such as the wait staff in a restaurant. The Ameri-
through the photos can Association of Retired Persons (AARP) conducted a survey of readers of its
and videos on the Web site, magazine, Modern Maturity. Fifty-nine percent replied that they frequently ate in
you will get a sense of the a restaurant alone; another 18 percent replied that they sometimes did. Eighty-four
importance of employees at percent replied that the service they receive is worse than if they had other people
Southwest Airlines. at the table. Some restaurants have established special seating areas for singles with
round tables that encourage single diners to sit together. This provides an oppor-
tunity for the diners to engage in conversation with other diners and allows the
Figure 3
restaurant to conserve seating space. Other restaurants have deuces that face each
The selling and marketing
concepts contrasted.
other, again encouraging conversation if it is desired. These restaurants value the
single diner and have built up a
Starting profitable segment. But many res-
Point Focus Means Ends taurants still continue to provide
Selling subpar service to people who dine
Existing Profits through
Factory and alone.27 The marketing concept
products sales volume
promoting starts with a well-defined market,
focuses on customer needs, and
integrates all the marketing activi-
The selling concept ties that affect customers. It meets
the organizational goals by creat-
ing long-term customer relation-
Profits through ships based on customer value
Customer Integrated
Market customer and satisfaction. As Herb Kelleher,
needs marketing
satisfaction former CEO of Southwest Airlines,
stated, “We don’t have a Market-
ing department: we have a Cus-
The marketing concept tomer department” (Figure 3).
17
Marketing 3.0
Marketing 3.0 is concept developed by Philip Kotler, Hermawan Kartajaya, and
Iwan Setiawan.28 Marketing 3.0 holds that instead of treating people simply as con-
sumers, marketers approach them as whole human beings with minds, hearts, and
spirits. Increasingly, consumers are looking for solutions to their anxieties about
making the world a better place. Missionary tourism is growing, so are farmer mar-
kets to support local producers of food products. Sustainable hotel rooms sell at a
premium price and hotel guests willingly reuse towels.
Customers are no longer passive or isolated from other customers. TripAdvisor
is a powerful tool consumers use to choose hotels or restaurants based on reviews
of other customers. A customer who has received poor service can go to TripAdvi-
sor and release his or her frustration.
To understand marketing 3.0 better, let us examine three major forces that
shape the business landscape toward marketing 3.0: the age of participation and
collaboration, the age of globalization, and the age of creative society. These three
major forces cause consumers to be more collaborative, cultural, and human spirit
driven. These forces are both growing and enduring. We feel marketing concept
will evolve into marketing 3.0. Smart managers will start making the transition to
marketing 3.0.
PArTIcIPATIon And collAborATIon Social media has enabled customers to partici-

pate and collaborate with each other and companies. JetBlue celebrated its 10th
anniversary by traveling around the east coast and giving away hundreds of free
round-trip tickets. In order to get a ticket, you had to show up a specific location
with a specific gift for JetBlue. At one location it was a birthday card; at another
location it was a piece of blue clothing. The locations were tweeted to people
who followed a hashtag “10JB” with an abbreviation of the city, so New York was
#JB10NY. JetBlue was able to mobilize thousands of fans through the dialogue the
fans created with as a result of their excitement over the chance to get free airline
tickets.29 This was a brilliant campaign by JetBlue that created publicity and cus-
tomer goodwill. JetBlue’s loyal customers who followed it on social media made
this promotion possible. What a fun and interactive way to celebrate JetBlue’s 10th
anniversary.
Social media is not always positive. Dave Carroll created a song, “United
Breaks Guitars,” after baggage handlers broke his guitar and no one at United
Airlines seemed to be concerned. He posted his song on YouTube and within two
years he had over 10 million hits. Two years later viewers who saw the video for
the first time were commenting they would never fly United again. No one will
ever know the amount of business United lost because some baggage handlers did
not respect a customer’s property. Today when a company fails to treat custom-
ers as whole human beings with minds and spirits, customers have the ability to
make their case public, where it can go viral. This creates a greater need for mar-
keters to make sure they treat customers with respect and work to resolve their
problems.
Employee communities are bringing employees of multinational companies
together. Hilton Hotels, H360, Web site connects Hilton team members across
the globe. Team members share best practices and Hilton builds a strong culture
amongst its team members. Team members also participate in worldwide contests,
showing their outcomes through photos and videos posted on the site. Social media
is changing how people communicate, participate, and collaborate. The customer
has become very powerful. One can tap into customer power and enable the cus-
tomer to help design and shape products. These practices use customer power in
a positive way. If companies provide poor products, have no service recovery, or
abuse customers, customer power will be a very destructive force. Conversely, if
companies provide excellent products and treat customers with respect, customer
power can be a very positive force.
GlobAlIzATIon Today it is possible to travel half way around the world for about
$1,000. International travel is affordable to an ever-growing middle class. One of
the outcomes of travel is an understanding of other people and their culture. One of
18
the best experiences hospitality students can have is spending a term in a country
where they do not know the language or culture. In this environment, they will
often make embarrassing mistakes due to the inability to read directions and a lack
of understanding of the local culture. They will also rely on locals to help them
understand menus, directions, and other written and spoken forms of communica-
tion in the local language. Once they have gone through this experience, they will
treat international customers in their own hotels or restaurants with more empathy,
respect, and dignity.
Travelers have also experienced the paradoxes of travel. They may stay in
a luxury hotel with its restaurants frequented by wealthy locals, while in a taxi
only blocks from the hotel they are approached by a 10-year-old beggar. Or they
may pass by brothels where teenage girls have been sold by their parents because
the family was desperate for money. After seeing these situations first hand, many
customers are more likely to deal with companies that have created and/or are
involved in projects that support social, economic, or environmental issues in
society.
Globalization also means that the world is connected. A call center may be
located in India, creating cost advantages for the firm but displacing workers in
other countries. As China becomes more industrialized and uses more resources,
the price of raw materials around the globe increases. As gasoline prices increase in
the United States, consumers spend what used to be discretionary income on gaso-
line, reducing the amount they have to spend on dining in restaurants.
creATIve SocIeTy Throughout the text we will discuss actions that businesses can
take to help them follow the concepts of marketing 3.0. For example, fast-food
restaurants will pursue more environmentally sound packaging and produce foods
with more nutritional value. The National Restaurant Association, with the help of
Ted Turner (founder of CNN), is developing an initiative to reduce waste and the
carbon footprint of restaurants. A carbon footprint is a measure of the greenhouse
gases produced by burning fossil fuels for heating, cooking, electricity, transpor-
tation, and so on. It is usually measured in tons or kilograms of carbon dioxide
equivalent.30 Restaurants are the retail world’s largest energy user, and almost 80
percent of the energy a restaurant uses is lost due to inefficient food cooking, hold-
ing, and storage, according to one energy supplier. The average restaurant has a
huge footprint, producing the equivalent of 490 tons of carbon dioxide per year.31
Those companies that can reduce this footprint will make a better place to live for
their customers, their employees, and their community. This is not about public
relations; it is about weaving values into the corporate business. Profit will re-
sult from customers’ appreciation of those companies that contribute to human
well-being.
■■■ Preparing an Integrated Marketing Plan

The company’s marketing strategy outlines which customers the company will
serve and how it will create value for these customers. Next, the marketer develops
an integrated marketing program that will actually deliver the intended value to
target customers. The marketing program builds customer relationships by trans-
forming the marketing strategy into action. It consists of the firm’s marketing mix,
the set of marketing tools the firm uses to implement its marketing strategy.
The major marketing mix tools are classified into four broad groups, called the
four Ps of marketing: product, price, place, and promotion. To deliver on its value
proposition, the firm must first create a need-satisfying market offering (product).
It must decide how much it will charge for the offer (price) and how it will make
the offer available to target consumers (place). Finally, it must communicate with
target customers about the offer and persuade them of its merits (promotion). The
firm must blend all of these marketing mix tools into a comprehensive, integrated
marketing program that communicates and delivers the intended value to chosen
customers.
19
■■■ Building Profitable Customer Relationships

The first three steps in the marketing process—understanding the marketplace and
customer needs, designing a customer-driven marketing strategy, and preparing
an integrated marketing plan—all lead up to the fourth and most important step:
building profitable customer relationships.
What specific marketing tools can a company use to develop stronger customer
relationships? It can adopt any of three customer value-building tools.32 The first
relies primarily on adding financial benefits to the customer relationship. For ex-
ample, airlines offer frequent-flyer programs, hotels give room upgrades to their
frequent guests, and restaurants have frequent-diner programs. Although these re-
ward programs and other financial incentives build customer preference, they can
be imitated easily by competition and thus may fail to differentiate the company’s
offer permanently. Frequency programs often used tiered programs to encourage
guests’ preference for one brand. For example, Marriott has gold (15 nights), black
(50 nights), and platinum (75 nights). Hilton has silver (10 nights), gold (36 nights),
and diamond (60 nights). As guests move up in into higher tiers, they gain more
benefits.33
The second approach is to add social as well as financial benefits. Here com-
pany personnel work to increase their social bonds with customers by learning
individual customers’ needs and wants and then individualizing and personalizing
their products and services. They turn their customers into clients: Customers may
be nameless to the institution; clients cannot be nameless. Customers are served as
part of the mass or as part of larger segments; clients are served on an individual
basis. Customers are served by anyone who happens to be available; clients are
served by the professional assigned to them.34 For example, a server recognizes
repeat guests and greets them by name. A salesperson develops a good relationship
with his or her clients. Both these people have developed social bonds with their
clients. This keeps the client coming back, but it also often means clients will fol-
low that person when he or she changes jobs. Managers of hospitality and travel
organizations want to make sure that their key clients have social bonds with multi-
ple people in the organization. The general manager, front-desk manager, food and
beverage manager, convention services manager, banquet manager, and restaurant
manager should all know key clients. In fact, general managers should go on sales
calls to key clients. If this is done, when the salesperson leaves, clients feel like
they still know key people in the hotel and are not dependent on the salesperson.
The third approach to building strong customer relationships is to add struc-
tural ties, as well as financial and social benefits. For example, airlines have de-
veloped lounges for their first-class customers, and some will send a limousine
to deliver them to the airport. Airline customers who have elite status can choose
their seat including exit rows, which are sold at a premium price to nonelite status
customers. Sheraton developed flexible check-in and checkout times for their best
customers. Hilton is using technology to provide a personalized welcome message
on the guest’s television. Structural changes are difficult to implement, but they are
harder for competitors to match and create a competitive advantage until they are
matched.
When it comes to relationship marketing, you don’t want a relationship with
every customer. In fact, there are some bad customers. A company should develop
customer relationships selectively: Figure out which customers are worth cultivat-
ing because you can meet their needs more effectively than anyone else.35 One
of the purposes of customer frequency is to help companies track purchases so
they know the characteristics of their customers and can classify them by their
purchasing characteristics. Table 1 breaks customers into categories based on their
frequency of purchase and their profitability. Those customers who are high on
profitability and frequency deserve management attention. These are Marriott’s
Platinum members and Hilton’s Diamond members. The customers high on prof-
itability but low on frequency sometimes can be developed in higher frequency
customers. Some of these customers are spreading their business across several dif-
ferent providers of the same service. If we can make our company the preferred pro-
vider for this type of customer, then we can turn them into our best customers. For
20
TAble 1
Types of Customers
Low Frequency High Frequency
High Profitability Try to get these customers to These are your best
come more often. customers; reward them.
low Profitability These customers will follow Some of these guests have
promotions. Make sure your the potential to become
promotions make money. more profitable.
some of the high-frequency, low-profitability customers, there is a chance to moti-

vate them to purchase by showing the value of additional purchases. For example,
hotels can show a business traveler the advantage of staying on the concierge floor
where there is a lounge to work in when he or she wants to take a break from work-
ing in his or her office. The concierge lounge also provides a quick and accessible
breakfast, saving the guest time. Those guests who see the value in concierge floors
are willing to pay the extra $40 a night. The guests who are in the low-frequency,
low-profitability quadrant are often bargain hunters. They come when there is a
promotion and avoid paying full price at all costs. It is very difficult to build a rela-
tionship with these price-sensitive customers. Knowing your customers helps you
select the customers you want to develop a relationship with and to strengthen the
relationship over time.
Customer Relationship Management

Customer relationship management (CRM) is perhaps the most important con-
cept of modern marketing. Until recently, CRM has been defined narrowly as a
customer data management activity. By this definition, it involves managing de-
tailed information about individual customers and carefully managing customer
“touch points” in order to maximize customer loyalty. A customer touch point
is any occasion on which a customer encounters the brand and product—from
actual experience to personal or mass communications to casual observation. For
a hotel, the touch points include reservations, check-in and checkout, frequent-
stay programs, room service, business services, exercise facilities, laundry service,
restaurants, and bars. For instance, the Four Seasons relies on personal touches,
such as a staff that always addresses guests by name, high-powered employees who
understand the needs of sophisticated business travelers, and at least one best-in-
region facility, such as a premier restaurant or spa.
Sometimes touch points are where you least expect, such as in customer bill-
ing. Meeting planners expect to have prompt and accurate billing. Reviewing the
bill with the meeting planner during a multiday meeting can help build trust and a
strong relationship.
CRM enables companies to provide excellent real-time customer service
through the effective use of individualized information. Based on what they know
about each valued customer, companies can customize market offerings, services,
programs, messages, and amenities. CRM is important because a major driver of
company profitability is the aggregate value of the company’s customer base.
A pioneer in the application of CRM techniques is Harrah’s Entertainment.
In 1997 Harrah’s Entertainment, Inc., in Las Vegas, launched a pioneering loyalty
program that pulled all customer data into a centralized warehouse and provided
sophisticated analysis to better understand the value of the investments the casino
makes in its customers. Harrah’s has fine-tuned its Total Rewards system to active
near-real-time analysis: As customers interact with slot machines, check into casi-
nos, or buy meals, they receive reward offers based on the predictive analyses. The
company has now identified hundreds of customer segments among its more than
40 million slot players. By targeting offers to highly specific customer segments, the
company was able to almost double its share of customers’ gaming budgets in just
eight years.36
21
More recently, however, CRM has taken on a broader meaning. In this broader
sense, CRM is the overall process of building and maintaining profitable customer
relationships by delivering superior customer value and satisfaction. It deals with
all aspects of acquiring, keeping, and growing customers.
The Changing Nature of Customer Relationships

Significant changes are occurring in the ways in which companies are relating to
their customers. Yesterday’s big companies focused on mass marketing to all cus-
tomers at arm’s length. Today’s companies are building deeper, more direct, and
lasting relationships with more carefully selected customers. Here are some impor-
tant trends in the way companies and customers are relating to one another.
Relating with More Carefully Selected Customers

Few firms today still practice true mass marketing—selling in a standardized way
to any customer who comes along. Today, most marketers realize that they don’t
want relationships with every customer. Instead, they target fewer, more profit-
able customers. It is just as important to know which customers you do not want
as well as those customers which you want. One of the most important lessons in
marketing is that when you select customers you want to target, you also are se-
lecting those you do not want to target. Chuck E. Cheese is an entertainment venue
featuring pizza and games for young children. Even though Chuck E. Cheese might
be slow on a Monday night, promoting a wine and pizza night for young couples
would be ineffective, because by choosing to target families with young children
it has chosen not to market to singles, couples, and families with older children.
Many companies now use customer profitability analysis to pass up or weed
out losing customers and target winning ones for pampering. One approach is to
preemptively screen out potentially unprofitable customers. For example, custom-
ers who have just a soup and salad in a busy restaurant on Saturday nights will be
unprofitable because they take up seating capacity that could have been used to
create a higher guest check. By requiring a minimum charge per person, the res-
taurant will lose these guests, but it will not lose the more profitable customers it
is targeting. The trend is for companies to target fewer, more profitable customers,
called selective relationship management. Many companies now use profitability
analysis to weed out unprofitable customers and to target winning ones for pamper-
ing. Once they identify profitable customers, firms can create attractive offers and
special handling to capture these customers and earn their loyalty.
Relating More Deeply and Interactively

Beyond choosing customers more selectively, companies are now relating with
chosen customers in deeper, more meaningful ways. Rather than relying on one-
way, mass-media messages only, today’s marketers are incorporating new, more
interactive approaches that help build targeted, two-way customer relationships.
New technologies have profoundly changed the ways in which people relate to one
another. New tools for relating include everything from e-mail, Web sites, blogs,
cell phones, and video sharing to online communities and social networks, such
as Facebook, LinkedIn, YouTube, and Twitter. This changing communications en-
vironment also affects how companies and brands relate to customers. The new
communications approaches let marketers create deeper customer involvement and
a sense of community surrounding a brand—to make the brand a meaningful part
of consumers’ conversations and lives. “Becoming part of the conversation between
consumers is infinitely more powerful than handing down information via tradi-
tional advertising,” says one marketing expert. Says another, “People today want a
voice and a role in their brand experiences. They want co-creation.”37
However, at the same time that the new technologies create relationship-building
opportunities for marketers, they also create challenges. They give consumers greater
power and control. Today’s consumers have more information about brands than
22
ever before, and they have a wealth of platforms for airing and sharing their brand
views with other consumers. Thus, the marketing world is now embracing not only
customer relationship management but also customer managed relationships.
Greater consumer control means that, in building customer relationships, com-
panies can no longer rely on marketing by intrusion. Instead, marketers must prac-
tice marketing by attraction—creating market offerings and messages that involve
consumers rather than interrupt them. Hence, most marketers now augment their
mass-media marketing efforts with a rich mix of direct marketing approaches that
promote brand–consumer interaction.
For example, many brands are creating dialogues with consumers via their own
or existing online social networks. To supplement their marketing campaigns, com-
panies now routinely post their latest ads and made-for-the-Web videos on video-
sharing sites. They join social networks. Or they launch their own blogs, online
communities, or consumer-generated review systems, all with the aim of engaging
customers on a more personal, interactive level.
Take Twitter, for example. Organizations ranging from JetBlue Airways and
Dunkin’ Donuts to the Chicago Bulls and NASCAR have created Twitter pages and
promotions. They use “tweets” to start conversations with Twitter’s more than 150
million registered users, address customer service issues, research customer reac-
tions, and drive traffic to relevant Web sites, contests, videos, and other brand ac-
tivities. Similarly, almost every company has something going on Facebook these
days. Starbucks has more than 7 million Facebook “fans.”38
Most marketers are still learning how to use social media effectively. The prob-
lem is to find unobtrusive ways to enter consumers’ social conversations with en-
gaging and relevant brand messages. Simply posting a humorous video, creating
a social network page, or hosting a blog isn’t enough. Successful social network
marketing means making relevant and genuine contributions to consumer conver-
sations. “Nobody wants to be friends with a brand,” says one online marketing
executive. “Your job [as a brand] is to be part of other friends’ conversations.”39
Consumer-Generated Marketing
A growing part of the new customer dialogue is consumer-generated marketing, by
which consumers themselves are playing a bigger role in shaping their own brand
experiences and those of others. This might happen through uninvited consumer-
to-consumer exchanges in blogs, video-sharing sites, and other digital forums. But
increasingly, companies are inviting consumers to play a more active role in shap-
ing products and brand messages.
Some companies ask consumers for new product ideas. For example, Coca-Cola’s
Vitaminwater brand recently set up a Facebook app to obtain consumer suggestions
for a new flavor, promising to manufacture and sell the winner (“Vitaminwater was
our idea; the next one will be yours.”). The new flavor—Connect (black cherry-lime
with vitamins and a kick of caffeine)—was a big hit. In the process, Vitaminwater
doubled its Facebook fan base to more than 1 million.40
Other companies are inviting customers to play an active role in shaping ads.
For example, PepsiCo and Southwest Airlines have run contests for consumer-
generated commercials that have been aired on national television. However,
harnessing consumer-generated content can be a time-consuming and costly pro-
cess, and companies may find it difficult to glean even a little gold from all the
garbage. For example, when Heinz invited consumers to submit homemade ads
for its ketchup on its YouTube page, it ended up sifting through more than 8,000
entries, of which it posted nearly 4,000. Some of the amateur ads were very good—
entertaining and potentially effective. Most, however, were so-so at best, and others
were downright dreadful. In one ad, the would-be filmmaker brushed his teeth,
washed his hair, and shaved his face with Heinz’s product.41
Consumer-generated marketing, whether invited by marketers or not, has be-
come a significant marketing force. Through a profusion of consumer-generated
videos, blogs, and Web sites, consumers are playing an increasing role in shaping
their own brand experiences. Beyond creating brand conversations, customers are
having an increasing say about everything from product design, usage, and packag-
ing to pricing and distribution.
23
Partner Relationship Management

When it comes to creating customer value and building strong customer relation-
ships, today’s marketers know that they can’t go it alone. They must work closely
with a variety of marketing partners. In addition to being good at customer rela-
tionship management, marketers must be good at partner relationship management.
Major changes are occurring in how marketers partner with others inside and out-
side the company to jointly bring more value to customers.
Partners Inside the Company

Traditionally, marketers have been charged with understanding customers and
representing customer needs to different company departments. The old thinking
was that marketing is done only by marketing, sales, and customer-support peo-
ple. However, in today’s more connected world, every functional area can inter-
act with customers, especially electronically. The new thinking is that—no matter
what your job is in a company—you must understand marketing and be customer
focused. One CEO said, “Marketing is far too important to be left only to the market-
ing department.”42
Today, rather than letting each department go its own way, firms are linking
all departments in the cause of creating customer value. Rather than assigning only
sales and marketing people to customers, they are forming cross-functional cus-
tomer teams. Necessary?
Marketing Partners Outside the Firm

Changes are also occurring in how marketers connect with their suppliers, chan-
nel partners, and even competitors. Most companies today are networked compa-
nies, relying heavily on partnerships with other firms. Their partners include food
wholesalers, event planners, bakers, office supply companies, and others who sup-
ply products the company needs to carry out its business.
The supply chain describes a channel that stretches from raw materials to com-
ponents to final products that are carried to final buyers. For example, the supply
chain for a seafood diner consists of fishermen, the seafood processor, transporter
of the seafood from southeast Asia to the distributor, the distributors, and the res-
taurant that prepares the meal.
Through supply chain management, many companies today are strengthen-
ing their connections with partners all along the supply chain. They know that
their fortunes rest not just on how well they perform. Success at building customer
relationships also rests on how well their entire supply chain performs against
competitors’ supply chains. These companies don’t just treat suppliers as vendors.
They treat both as partners in delivering customer value. It is also important for
foodservice suppliers that they are viewed as partners and do their part to make the
restaurant more profitable.
■■■ Capturing Value from Customers

The first four steps in the marketing process outlined in Figure 1 involve build-
ing customer relationships by creating and delivering superior customer value.
The final step involves capturing value in return in the form of current and future
sales, market share, and profits. By creating superior customer value, the firm cre-
ates highly satisfied customers who stay loyal and buy more. This, in turn, means
greater long-run returns for the firm. Here, we discuss the outcomes of creating cus-
tomer value: customer loyalty and retention, share of market and share of customer,
and customer equity.
Customer Loyalty and Retention

Good customer relationship management creates customer delight. In turn, de-
lighted customers remain loyal and talk favorably to others about the company and
its products. Studies show big differences in the loyalty of customers who are less
24
satisfied, somewhat satisfied, and completely satisfied. Even a slight drop from
complete satisfaction can create an enormous drop in loyalty. Thus, the aim of
customer relationship management is to create not only customer satisfaction but
also customer delight.
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 patron-
age. For example, here is a dramatic illustration of customer lifetime value (LTV).
Stew Leonard, who operates a highly profitable four-store supermarket in Con-
necticut and New York, says he sees $50,000 flying out of his store every time he
sees a sulking customer. Why? Because his average customer spends about $100
a week, shops 50 weeks a year, and remains in the area for about 10 years. If this
customer has an unhappy experience and switches to another supermarket, Stew
Leonard’s has lost $50,000 in revenue. The loss can be much greater if the dis-
appointed customer shares the bad experience with other customers and causes
them to defect. To keep customers coming back, Stew Leonard’s has created what
the New York Times has dubbed the “Disneyland of Dairy Stores,” complete with
costumed characters, scheduled entertainment, a petting zoo, and animatronics
throughout the store. From its humble beginnings as a small dairy store in 1969,
Stew Leonard’s has grown at an amazing pace. It has built 29 additions onto the
original store, which now serves more than 300,000 customers each week. This
legion of loyal shoppers is largely a result of the store’s passionate approach to
customer service. “Rule #1: The customer is always right. Rule #2: If the customer
is ever wrong, re-read rule #1.”43
Stew Leonard is not alone in assessing customer LTV. Lexus, for example,
estimates that a single satisfied and loyal customer is worth more than $600,000
in lifetime sales. Ritz-Carlton Hotels puts the LTV of a guest at more than
$120,000. Domino’s Pizza puts the LTV of a customer at more than $10,000.44 A
company can lose money on a specific transaction but still benefit greatly from
a long-term relationship. This is one of the reasons successful companies em-
power employees to resolve customer complaints. The company wants to main-
tain the relationship with the customer. And that relationship keeps customers
coming back.
Growing Share of Customer

Beyond simply retaining good customers to capture customer LTV, good customer
relationship management can help marketers increase their share of customer—
the share they get of the customer’s purchasing in their product categories. Thus,
restaurants want to get more “share of stomach” and airlines want greater “share
of travel.” To increase share of customer, firms can offer greater variety to current
customers, for example, a coffee house can expand its selection of flavored teas and
add smoothies. Or they can create to cross-sell pastries and other snacks and/or up-
sell from brewed coffee to blended drinks to market more products and services to
existing customers.
We can now see the importance of not only acquiring customers but also keep-
ing and growing them. One marketing consultant puts it this way: “The only value
your company will ever create is the value that comes from customers—the ones
you have now and the ones you will have in the future. Without customers, you
don’t have a business.”45
What Is Customer Equity?

The ultimate aim of customer relationship management is to produce high cus-
tomer equity.46 Customer equity is the total combined customer LTVs of all of the
company’s current and potential customers. Therefore, it’s a measure of the future
value of the company’s customer base. Clearly, the more loyal the firm’s profitable
customers, the higher its customer equity. Customer equity may be a better measure
of a firm’s performance than current sales or market share. Whereas sales and mar-
ket share reflect the past, customer equity suggests the future.
25
Building the Right Relationships

with the Right Customers
Companies should manage customer equity carefully. They should view customers
as assets that must be managed and maximized. But not all customers, not even
all loyal customers, are good investments. Surprisingly, some loyal customers can
be unprofitable, and some disloyal customers can be profitable. Which customers
should the company acquire and retain?
The company can classify customers according to their potential profitability
and manage its relationships with them accordingly. One classification scheme de-
fines four relationship groups based on potential profitability and projected loyalty:
strangers, butterflies, true friends, and barnacles.47 Each group requires a differ-
ent relationship management strategy. For example, “strangers” show low potential
profitability and little projected loyalty. There is little fit between the company’s
offerings and their needs. The relationship management strategy for these custom-
Casino de Lac Leamy in ers is simple: Don’t invest anything in them.
Quebec is socially responsible. “Butterflies” are potentially profitable but not loyal. There is a good fit between
It is recognized as a leader in the company’s offerings and their needs. However, like real butterflies, we can
the fight against compulsive enjoy them for only a short while and then they’re gone. An example is stock mar-
gambling. Courtesy of Alan ket investors who trade shares often and in large amounts but who enjoy hunting
Keohane © Dorling Kindersley.
out the best deals without building a regular
relationship with any single brokerage com-
pany. Efforts to convert butterflies into loyal
customers are rarely successful. Instead, the
company should enjoy the butterflies for
the moment. It should create satisfying and
profitable transactions with them, capturing
as much of their business as possible in the
short time during which they buy from the
company. Then it should cease investing in
them until the next time around.
“True friends” are both profitable and
loyal. There is a strong fit between their needs
and the company’s offerings. The firm wants
to make continuous relationship investments
to delight these customers and nurture, re-
tain, and grow them. It wants to turn true
friends into “true believers,” those who come
back regularly and tell others about their
good experiences with the company.
“Barnacles” are highly loyal but not very
profitable. There is a limited fit between their
needs and the company’s offerings. An exam-
ple is smaller bank customers, who bank reg-
ularly but do not generate enough returns to
cover the costs of maintaining their accounts.
Like barnacles on the hull of a ship, they
create drag. Barnacles are perhaps the most
problematic customers. The company might
be able to improve their profitability by sell-
ing them more, raising their fees, or reducing
service to them. However, if they cannot be
made profitable, they should be “fired.”
The point here is an important one: Dif-
ferent types of customers require different
relationship management strategies. The goal
is to build the right relationships with the
right customers.
26
Building Customer Equity

Customer equity is the discounted LTVs of all the company’s current and potential
customers. The best approach to customer retention is to deliver products that cre-
ate high customer satisfaction and high perceived value, resulting in strong cus-
tomer loyalty. Clearly, the more loyal the firm’s profitable customers, the higher
the firm’s customer equity. Customer equity may be a better measure of a firm’s
performance than current sales or market share. Whereas sales and market share
reflect the past, customer equity suggests the future.48
■■■ Marketing’s Future

A technology executive stated, “The pace of change is so rapid that the ability to
change has now become a competitive advantage.” Rapid changes can quickly
make yesterday’s winning strategies out of date. As management thought leader
Peter Drucker once observed, a company’s winning formula for the last decade will
probably be its undoing in the next decade. When we wrote the last edition, compa-
nies were trying to figure out how to use social media. Now social media has made
an impact on marketing that has been a major driver of a new concept, marketing
3.0. Social media will forever change how we do marketing.
The worldwide growth of the travel industry has created a shortage of manag-
ers, as much so that in some regions projects are put on hold because the devel-
oper does not have and cannot acquire a management staff. These are truly great
times for those entering the hospitality industry, but they are not without their
challenges.
We are faced with rising oil prices, making travel more difficult to afford. Etha-
nol is seen by some as the answer to foreign oil; however, it is removing crops that
are used to produce food, increasing food prices. The restaurant is faced with pass-
ing higher food costs on to the customers. In challenging times, good management
is always sought.
This text is not just for students who desire a successful career in marketing; it
is for students who desire a successful career. Marketing with its customer orienta-
tion has become the job of everyone and your passport to success.
■■■ KEY TERMS

customer equity. The discounted lifetime values of all the demands. Human wants that are backed by buying power.
company’s current and potential customers. exchange. The act of obtaining a desired object from some-
customer expectations. Expectations based on past buy- one by offering something in return.
ing experiences, the opinions of friends, and market Hospitality industry. Made up of those businesses that offer
information. one or more of the following: accommodation, prepared
customer relationship management (crM). It involves man- food and beverage service, and/or entertainment.
aging detailed information about individual customers and Human need. A state of felt deprivation in a person.
carefully managing customer “touch points” in order to
Human want. The form that a human need takes when
maximize customer loyalty.
shaped by culture and individual personality.
customer touch point. Any occasion on which a customer
lifetime value (lTv). The lifetime value of a customer is the
encounters the brand and product—from actual expe-
stream of profits a customer will create over the life of his or
rience to personal or mass communications to casual
her relationship to a business.
observation.
Market. A set of actual and potential buyers of a product.
customer value. The difference between the benefits that
the customer gains from owning and/or using a product and Marketing. The art and science of finding, retaining, and
the costs of obtaining the product. growing profitable customers.
27

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Marketing is so basic that it cannot be considered a separate function.

It is the whole business seen from

Organic, Naturally Raised Foods

members up front. Managers encourage restaurant employees to have genuine interac-

■■■ Your Passport to Success

The Oberoi Udaivilas, in

As a manager, you will be motivating your employees to create superior value

■■■ Customer Orientation

A customer arrived at a restaurant before closing time and was greeted

• the employee wanted to leave early.

Cruise ships have traditionally

percentage points in customer retention rates yielded a profit increase of 25 to 125

Starbucks Coffee has created

■■■ What Is Hospitality and Tourism Marketing?

Companies such as Sonic have

■■■ Marketing in the Hospitality Industry

1 As the guest’s taxi pulled away, Roy Dyment, a door-

Few industries are as interdependent as travel–hospitality. This interdepend-

■■■Understanding the Marketplace

Customer Needs, Wants, and Demands

Market Offerings: Tangible Products, Services, and

Customer Value and

70 65 registration is completed for guests

40 the overnight traveler by offering a

Exchanges and Relationships

Marketing means managing markets to bring about profitable customer rela-

Selecting Customers to Serve

Choosing a Value Proposition

The Production Concept

The Product Concept

The Selling Concept

products on the customer through increased advertising and couponing. Eventu-

• Pride in being the biggest, having the most capacity.

The Marketing Concept

PArTIcIPATIon And collAborATIon Social media has enabled customers to partici-

■■■ Preparing an Integrated Marketing Plan

■■■ Building Profitable Customer Relationships

Low Frequency High Frequency

some of the high-frequency, low-profitability customers, there is a chance to moti-

Customer Relationship Management

The Changing Nature of Customer Relationships

Relating with More Carefully Selected Customers

Relating More Deeply and Interactively

Partner Relationship Management

Partners Inside the Company

Marketing Partners Outside the Firm

■■■ Capturing Value from Customers

Customer Loyalty and Retention

Growing Share of Customer

What Is Customer Equity?

Building the Right Relationships

Building Customer Equity

■■■ Marketing’s Future

■■■ KEY TERMS

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