Marketing for Hospitality and Tourism

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Marketing for Hospitality and Tourism

Kotler Bowen Make

Sixth Edition

Pearson Education Limited

Edinburgh Gate

Harlow

Essex CM20 2JE

England and Associated Companies throughout the world

Visit us on the World Wide Web at: www.pearsoned.co.uk

© Pearson Education Limited 2014

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted

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British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Printed in the United States of America

ISBN 10: 1-292-02003-2

ISBN 13: 978-1-292-02003-7

ISBN 10: 1-292-02003-2

ISBN 13: 978-1-292-02003-7

Table of Contents

PEARSON C U S T O M LIBRA R Y

I

1. Introduction: Marketing for Hospitality and Tourism

1

Philip R. Kotler 1

2. Service Characteristics of Hospitality and Tourism Marketing

35

Philip R. Kotler 35

3. The Marketing Environment

61

Philip R. Kotler 61

4. The Role of Marketing in Strategic Planning

93

Philip R. Kotler 93

5. Marketing Information Systems and Marketing Research

123

Philip R. Kotler 123

6. Consumer Markets and Consumer Buying Behavior

163

Philip R. Kotler 163

7. Organizational Buyer Behavior of Group Market

193

Philip R. Kotler 193

8. Market Segmentation, Targeting, and Positioning

217

Philip R. Kotler 217

9. Designing and Managing Products

247

Philip R. Kotler 247

10. Internal Marketing

285

Philip R. Kotler 285

11. Pricing Products: Pricing Considerations, Approaches, and Strategy

311

Philip R. Kotler 311

12. Distribution Channels

349

Philip R. Kotler 349

13. Promoting Products: Communication and Promotion Policy and Advertising

379

Philip R. Kotler 379

II

14. Promoting Products: Public Relations and Sales Promotion

423

Philip R. Kotler 423

15. Professional Sales

453

Philip R. Kotler 453

16. Direct and Online Marketing: Building Customer Relationships

495

Philip R. Kotler 495

17. Destination Marketing

529

Philip R. Kotler 529

18. Next Year's Marketing Plan

567

Philip R. Kotler 567

Appendix: The Five-Gap Model of Service Quality

601

Philip R. Kotler 601

Appendix: Forecasting Market Demand

605

Philip R. Kotler 605

613

Index 613

Introduction: Marketing

for Hospitality and Tourism

From Chapter 1 of Marketing for Hospitality and Tourism, Sixth Edition. Philip Kotler, John T. Bowen,

James C. Makens. Copyright © 2014 by Pearson Education, Inc. All rights reserved.

1

Falls Church, VA, USA—August 19, 2011: Chipotle Mexican

Grill sign. Chipotle Mexican Grill, Inc. (NYSE: CMG), is a chain

of restaurants in the United States, United Kingdom, and Canada

specializing in burritos and tacos. The name derives from chipotle,

the Mexican Spanish name for a smoked, dried jalapeño chili pepper.

The company currently has more than 1,000 locations. Courtesy of

Marcnorman/Dreamstime.

2

Introduction:

Marketing for

Hospitality and

Tourism

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

Chipotle Mexican Grill

Chipotle opened in 1993 with the goal of serving fresh, gourmet-quality food at

reasonable prices. Over 1,200 restaurants and several million burritos later, the

goal remains the same.

Chipotle is the dream and creation of Steve Ells. A graduate of the Culinary

Institute of America, Steve learned the philosophy and skills of classical French

cooking. After graduation, Steve had no intention of opening a business but in￾stead moved to San Francisco where he worked for the renowned Star Restau￾rant under the direction of Jeremiah Tower.

The many tacquerias of San Francisco opened Steve’s eyes to opportunity.

He watched how the employees handled the lines of customers. Steve then started

crunching the numbers napkin.1 Realizing the profit potential of the restaurant, he

decided to open a quick-service Mexican restaurant.

He found an old ice cream parlor near the University of Denver. With the support

of his father who invested $85,000 and a real estate broker, he was able to open the

first Chipotle, which opened in July 1993.2

The principles upon which Chipotle operates are discussed below.

Food with Integrity (FWI): The Cornerstone

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.

Objectives

After reading this chapter, you

should be able to:

1. Understand the relationships

between the world’s hospitality

and travel industry.

2. Define marketing and outline

the steps in the marketing

process.

3. Explain the relationships

between customer value and

satisfaction.

4. Understand why the marketing

concept calls for a customer

orientation.

5. Understand the concept of the

lifetime value of a customer

and be able to relate it to cus￾tomer loyalty and retention.

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

Introduction: Marketing for Hospitality and Tourism

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

Introduction: Marketing for Hospitality and Tourism

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

strongly customer focused and heavily committed to marketing. Accor has become

one of the world’s largest hotel chains by delivering L’esprit Accor, the ability to

anticipate and meet the needs of its guests, with genuine attention to detail.13 Ritz￾Carlton promises and delivers truly “memorable experiences” for its hotels’ guests.

McDonald’s grew into the world’s largest restaurant chain by providing its guests

with QSC&V (quality, service, cleanliness, and value). These and other successful

hospitality companies know that if they take care of their customers, market share

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.

1 http://www.

oberoihotels.com/

Go to the Udaivilas,

by selecting it from the leisure

hotels button at the top of the

page. Notice how the quality

and selection of the photographs

establishes the image of a world￾class hotel.

6

Introduction: Marketing for Hospitality and Tourism

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

Introduction: Marketing for Hospitality and Tourism

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.

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.

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

Introduction: Marketing for Hospitality and Tourism

■■■ 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

Introduction: Marketing for Hospitality and Tourism

■■■ 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

cost of getting to the destination, the value of the hotels, the quality of restaurants,

and evening activities for their attendees.

The success of cruise lines is really the result of coordinated marketing by

many travel industry members. For example, the Port of Boston wanted to attract

more cruise line business. Massport (the port authority) aggressively marketed

Boston to cruise lines. Having convinced them to come, they then promoted Bos￾ton to key travel agents. This was critical because travel agents account for 95

percent of all cruise line business. The result was that Boston doubled the num￾ber of port calls by cruise lines and added $17.3 million to the local economy

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

Visitors to international

destinations, such as these

tourists on the Brazilian side

of Iguacu Falls, often purchase

packages that include

international airfare, ground

transportation, and hotel

accommodations. Courtesy of

Demetrio Carrasco

© Dorling Kindersley.

10