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Chapter 11 Marketing Mix Variables Objective: determining the marketing mix variables: product, price, place and promotion to accomplish the objectives Strategies & Tactics Marketing strategies; are plans of action that shows how marketing mix variables will be used to accomplish annual objectives and grand strategies. Marketing action plans or in other words, tactics; include the specifics of how the marketing mix variables will be used to implement the strategies. Tactics give answers to: what will be done? Where will it be done? When and how will it be promoted? Who will be responsible for implementation? And how much will be budgeted? Philosophies of Strategy Preparation There are two contrasting philosophies of strategy preparation; top-down and bottom-up. Top-down strategies are developed by upper management Bottom-up strategies are developed with input from all staff personnel, unit managers, first-line supervisors, and line employees, though orchestrated by the top management. E.g. waiters. It is not possible to develop effective strategies without input from the personnel, since they will be implementing them. Market Driven versus Product Driven The actual and potential customers for any given product or service should be the primary consideration in strategy formulation. Market Driven Firm Research focus: environmental (PEST AND PECCS) and the company’s abilities to extract the maximum advantage from it. Product focus: based on customers’ wants. “But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service sells itself ” (Drucker, 1974) Product Driven Firm Research focus: company Product focus: based on making an excellent product. “I know what the customers want”. “If you build mousetrap, the world will only beat a path to your door if they need a better mousetrap”. Product driven firms generally stay with the same product offering (a successful one by accident) too long. Development Process First, present strategies should be reviewed to see which are compatible with new objectives and which are not. The amount of required new strategies will vary based on; the dynamics of the environment and the desire for change on the part of management. In many instances, there will be few changes. However, whatever the decision, it will determine the basic direction of the firm for the coming years. Generally, management, financial (the desired debt-toequity ratio, profit and cost goals do vary much from year to year) and grand strategies related to marketing may not need drastic changes. However, functional marketing strategies represent the greatest area of change, since there are more factors to consider – PEST and PECCS, grand strategies, and the 4P’s – which are subject to greater fluctuations than those for operations or financial strategies. Restaurants, since they need to keep their menus current, generally have more changes that do hotels. “thinking outside the box” Pretesting Strategies Managers can test their strategies in any of three ways; Conceptual or intuitively, based on the personal experience and judgment. Theoretically, based on published research on the topic (public domain research) Empirically, by trying them out (lab or field test). Causes of Ineffective Strategies 1. 2. 3. 4. 5. 6. 7. 8. 9. limited cross-functional cooperation overambitious management product driven, rather than market driven subjective, rather than objective, appraisal of the environment or the abilities of the business too many strategic plans ignore threats (generally the emphasis put on the opportunities) not seeking consensus among those who will carry out the strategies forgetting that the ultimate objective is to win the war, not every battle rubberstamping of strategies not setting effective policies and action plans Products and Services Here, the decisions include new products or services to be offered + changes to be made in existing products and services, packaging, and design of the physical facilities, such as exterior appearance and internal atmosphere and the firm’s brand (its name and logo) In the grand strategies section, the concern was on the possible changes in the firm’s offering; here, it is on the action plan – on the specific changes to implement. When searching for new products and services, one should not forget that customers are usually much more concerned with the professional execution of the basics (clean room, a comfortable bed, friendly service) than with innovative new services or differentiation (McCleary, Weaver, 1992; West, Olson, 1990) Typical Considerations for Product Strategies Are new products designed for a particular market necessary? Are improvements in product quality necessary? Where does the company stand as far as its relative perceived product/service quality (RPPQ) and relative perceived value (RPV), and what changes should be considered to reach the desired RPPQ or RPV ratings? Which products and services have the greatest gross margin? What USPs will be offered, such as fresh-baked bread or desserts, large platters for entrees, extensive wine list r drink menu, signature appetizers or entrees, free movies, an inroom stocked bar, or internet availability? Does the name of the company, and its products and services, create the type of image that is sought? What graphic form should the name or logo take? What USPs related to décor, such as an exhibition kitchen, bakery, or fish tank, might be incorporated in the design of the hotel or restaurant? Should the layout be changed to improve efficiency? What type of music should be played, background (soft, without words), foreground (with or without words) or recreational (dominates room) Should it be varied, depending on the meal or day of the week? Is live music a consideration? What colors should be used in the lobby, guest rooms, dining room, bar, and kitchen? Should plants be used as a focal point, or as a complement to the design? What type of plants will be used? How large and how many? What aromas will customers be smelling while they are in the building or around it? Which have the greatest impact on customers? Most restaurants have a distinctive smell? The scientific term for the utilization of aromas is “olfactory-evoked recall”. This refers to the relationship between the aroma/smell, one’s experience with it, and its physiological effect on individuals. E.g. lavender tends to be relaxing, jasmine can be stimulating. Price In the marketing plan, it is acceptable to combine prices with the product sections. E.g. the menu could be included with its price or hotel rooms and suites with their applicable rate schedule. Pricing decisions reflect the business’s overall and specific marketing objectives. Charging too much, too little, or not knowing if the current price is suitable for the firm’s market, can develop a serious problem. The frequency of changing prices vary considerably. Restaurants normally have stable prices for menu items. Each six months or so, managers review the cost of each item sold, its current price, and various other internal and environmental concerns, then determine whether the price should be increased, left as is, or lowered. The prices of the hotel business are quite flexible. Most prices for a hotel room would be negotiated between the buyer and seller. Yield management – a method of balancing price with demand, is an important concern for hotel rooms. Pricing Strategies They are the easiest of the strategies to change, therefore, the most abused. Dramatic changes should be avoided because price is generally one of the most sensitive issues for the customer. Raising or Lowering Prices There are several basic rules that can be followed in changing prices. They apply to different circumstances; Try not to raise prices by more than about 10%. Raising a price more than 10% is quite noticeable to a regular customer. If the increase is necessary, then adjustments (plate presentation, accompaniments etc) should be considered to make the implementation easier. However, the 10% rule does hold true for hotels, since they need to adjust their prices based on the time of year and occupancy level. When price increase are unavoidable, spread the increase over several items rather than increasing only one or e few items. Keep in mind that, each price point will have a different meaning to each target customer group, depending on such factors as income level, frequency of purchases and whether their company is paying. Two other suggestions for pricing; Even-dollar pricing can be applied when increasing room prices. A price of $74,00 sound better than $73,60 or $74,50. For restaurants, it is better to end prices with the numbers 5, 9, or 0. This is what people are used to. Reactions to Changes in a Competitor's Price Generally, in the hospitality business, a company should react to a competitor’s price changes if it foresee it is going to lose sales or if it does begin to lose sales. Prices should not be lowered if it is not necessary. wait and see what happens to reservations find out why the competitor lowered its prices is it a temporary reduction? do the customers care about this new pricing? do our customers care about this new pricing? are present occupancy and future reservations satisfactory to keep sales? has this happened before? If so how did it affect sales? Typically, when a restaurant lowers its prices, the reaction will depend on the competitiveness of the market and the level of service. Fast-food restaurants tend to follow price changes; casual dining and fine dining restaurants generally disregard changes, unless they begin to affect sales. For them, the total package is more important than the price. Typical Considerations for Pricing What is the desired food cost percentage, alcoholic beverage, labor, or any other major applicable cost categories that must be factored into the price? Are costs controlled at the lowest effective level (purchasing, finance, accounting, operations and marketing)? Should prices be adjusted upward or downward, based on costs, customer perception, or competitor’s price structure? Does the hotel or restaurant take surveys to find out what customers think of its prices (pricing strategies)? Can the company economically afford seasonal discounts or can other, more creative options be sought? How can individual prices be adjusted to yield the greatest profit? How sensitive are customers to changes in price (elastic – very sensitive; or inelastic – not very sensitive)? Place Place includes all factors relating to the distribution of the product to the customer. It refers to where the business is in the distribution or marketing channel. In the hospitality industry, hotels and restaurants are considered to be retailers. The primary consideration for a retailer in regard to the marketing channel is its location; so it becomes the main issue to be addressed. In addition to its normal distribution channels, hospitality businesses will need to determine alternative means of delivering the product/service. One alternative is offering food for delivery through the Internet. Some hotels are offering discounted rooms through the Internet. Even many casual and fine dining concepts have implemented delivery strategies. Recently, all kinds of restaurants are adding catering to their marketing channel. Typical Considerations for Place Strategies What geographic areas are compatible with the business’s concept? Should new types of locations or distribution channels such as pizza restaurants opening up in convenience stores or smaller hotels in niche markets, be sought out? What stage in its cycle is the location? Promotion Promotion refers to decisions on how the business will communicate its offering to its customers. In the strategic marketing plan, this is the creation of the promotional campaign. The focus will be on the effective and efficient use of the promotional mix variables of merchandising, advertising, personal selling, public relations, and sales promotion. None of them are mutually exclusive. Merchandising: primarily in-house promotion of products and services Advertising: nonpersonal promotion through a mass medium, by an identified sponsor Personal selling: promotion of products and services through personal communication channels Public relations: promotion of the company’s image, rather than its products and services Sales promotion: short-term incentives to increase sales, customer counts, and customer loyalty Promotional Misconception A common misconception in marketing is that low sales can be rectified almost exclusively by promotion. This occurs because hotel or restaurant managers often fail to recognize and identify the root cause of the problem. Promotion is a tool that when wisely used can complement the business’s execution of the other marketing mix variables – product, price, and place. If these are not satisfactory, then promotion will not save the firm. The rule is: execute the first 3P’s effectively, then promote. Hotel Promotion Hotels, because of their wide spread of target customers, need to use heavy promotion than most restaurants. Often, the decision makers for a hotel stay are meeting planners, corporate travel planners, and travel agents who make travel plans for entire firms or associations. They must be contacted personally by the hotel’s sales staff through personal selling. Since individual business travels come from various locations, using various types of sales promotions and advertising is a necessity. Not only to attract them, but to keep the brand name and image in the minds of these customers Restaurant Promotion Restaurants are generally in a much different position than hotels. Fast-food restaurants, because of their locations and relatively undifferentiated products, must continually advertise to keep their brands on the minds of the customers and to convince them that their offerings is best. For the majority of cause and fine dining concepts, the primary (or ideal) promotional vehicle is their target customers or word-of-mouth advertising. Since the major reason why customer select these restaurants is for a higher level of quality and service, quality should be the primary focus of their business. The same principle should be followed when choosing the primary method of promotion. Since the objective is to keep present customers returning and bringing their friends, promotions would preferably focus on public relations or keeping the brand name in the public eye. Typical Considerations for Promotional Strategies Which products or services should be promoted? Where should each menu item be positioned/placed on the menu or menu board? How important is the overall design of the menu to the customer's perception of quality and value? Should food be displayed any manner? Will incentives be offered to promote customer/guest satisfaction or to increase sales? Is there a promotional message or slogan needed? Which of the promotional mix options – merchandising, advertising, personal selling, public relations, sales promotion – will be used? Basically, what are the most effective methods of reaching the firm’s target customers? What type of media will be used – print, broadcast, display? What percentage of the budget will be spent in each selected medium and on selected target customers? What percentage of the budget will be spent on mass media – broadcast, print, and display – and how much on personal communications – point-of-purchase promotions, merchandising, and personal selling?