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Market Segmentation, Targeting and Positioning for Travel and Tourism. Objective: Introducing the meaning of marketing implications of segmentation, targeting and positiong for travel and tourism. Marketing Management.
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Market Segmentation, Targeting and Positioning for Travel and Tourism Objective: Introducing the meaning of marketing implications of segmentation, targeting and positiong for travel and tourism.
Marketing Management • Marketing management is the art and science of choosing target markets and building profitable relationships with them. • The marketing manager’s aim is to find, attract, keep, and grow target customers by creating, delivering, and communicating superior customer value.
Marketing management is in a way, demand (customer) management. • A company’s demand comes from two groups: new customers and repeat customers. Marketing management deals with finding ways (1) to attract new customers and create transactions with them and also (2) to retain current customers and build lasting customer relationships.
To design a winning marketing strategy, the marketing manager must answer two important questions: • What customers will we serve (what’s our target market)? • How can we serve these customers best (what’s our value proposition)?
Selecting Customers to Serve • The company must first decide who it will serve. It does this by diving the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing).
Some people think of marketing management as finding as many customers as possible and increasing demand. But marketing managers should know that they cannot serve all customers in every way. By trying to serve all customers, they may not serve any customers well. Instead, the company wants to select only customers that it can serve well and profitably.
Steps in Target Marketing 1. Market segmentation; dividing a market into distinct groups of buyers with different needs, characteristics or behaviors who might require separate products or marketing mixes. 2. Market targeting; evaluating each market segment’s attractiveness and selecting one or more of the market segments to enter. 3. Market positioning; setting the competitive positioning (difference) for the product and creating a detailed marketing mix.
Benefits of market segmentation • More effective use of the marketing budget, • Clearer understanding of the needs and wants of selected customer groups, • Easier creation of a place in the minds of potential customers within target markets about the product, • Greater accuracy in selecting promotional vehicles and techniques (e.g. advertising media, sales promotion methods, geographic placement)
Tour operators Young people 18-30 Families with children Retired/senior citizens Activity/sports seekers Culture seekers Destination attractions Local residents in the area Day visitors from outside local area Domestic tourists Foreign tourists School parties Note that most businesses deal not with one segment, but several segments.
Methods Used to Segment Markets in Travel and Tourism • There are seven main ways of dividing up markets for segmentation purposes, all of which are used in practice in the travel and tourism industry. The main methods of segmentation are: • Purpose of travel • Buyer needs, motivations, and benefits sought • Buyer behavior (characteristics) of product usage • Demographic, economic, and geographic profile • Psychographic profile • Geodemographic profile • Price
Segmentation by purpose of travel • E.g. Conference markets require different products to those supplied to other business travelers and meetings for groups of different sizes require special provision. • For a tour operator, customer’s purpose and product needs will differ according to whether they are looking for; main summer holiday, additional holidays and short breaks, winter sun, winter sports.
Hotels Business clients Group tours Independent vacationers Weekend/midweek package breaks Conference delegates Transport operators First class passengers Club class passengers Economy class passengers Charter groups Multiple segments for producers in travel and tourism
Within the broad categories of main and additional holidays, typical subsidiary purposes would include sea and beach holidays (with and without children), cultural interests, walking and other activity interests and an interest in exotic destinations.
Segmentation by buyer needs and benefits sought • Within purpose of travel, the next logical consideration for segmentation is to understand the needs, wants and motivations of particular customer groups (as discussed). • The range and perceived importance of benefits sought by customer segments are not easy to understand. They can only be discovered by market research among identified target groups.
Segmentation by benefits, makes it possible for marketing managers to fine tune their products. • Focusing on promoting the benefits sought is a logical objective for brochures and other marketing communications.
Segmentation by buyer behavior • Within purpose and benefits sought, there is scope for refining the segmentation process according to the types of behavior or characteristics of use of products that customers exhibit. E.g. frequency of usage of products. • Frequent users (high frequency, high spending high loyal); may represent only 10% of individual customers in a year but up to 60% of revenue for some hotel groups and airlines.
Segmentation by demographic, economic, geographic and life-cycle characteristics • By using previous segmentation processes, considerable knowledge can be obtained. However, for the purposes of efficient promotion and distribution of products, especially to prospective new customers rather than to existing ones, it is important to know the demographic profile (e.g. age, sex, occupation, income, place of residence) and other defining characteristics (life-cycle) of their target customers, including potential users.
Segmentation by psychographic characteristics and lifestyle • Dependent on sophisticated market research techniques. • Psychographics aims to define consumer on attitudinal or psychological rather than physical dimensions.
Geodemographic segmentation • A very powerful and productive segmentation tool; developed through combining an analysis of census data with the postal area (zip) codes that identify group of households in the country.
Segmentation by price • In leisure travel and tourism markets in all countries, buyers are highly price-sensitive. • It is not a segmentation variable of the same kind as the others. • There are segments of customers to be identified and located who respond to different price bands. • Yield management; segment targeted tactical pricing.
Market Targeting Evaluating Market Segments • After segmenting the whole market, the firm has to evaluate these segments and decide how many and which ones to target. The company should enter segments only where it can offer superior value and gain advantages over competitors. • In evaluating different market segments, a firm must look at three factors: • segment size and growth; companies try to select the segment with “right size and growth” for themselves. Some companies prefer to target segments with large current sales, a high growth rate, and a high profit
margin. But smaller companies may find these large segments too competitive and may find themselves having lack of skills and resources, therefore, prefer to target smaller segments • segment structural attractiveness; a segment may have the right size, but not offer attractive profits if (1) there are strong competitors; (2) actual or potential substitute products - may limit prices and profits; (3) buyers with power - buyers may have strong bargaining power relative to sellers so that they may force prices down, demand more quality, set competitors against another; (4) powerful suppliers - can control prices, reduce quality. • company objectives and resources; a segment may have the right size with attractiveness but may not suit with the long-run objectives of the company.
Selecting Market Segments • The company must decide which and how many segments to serve, in other words, the company must decide which market-coverage strategy to adopt. • There are three market-coverage strategies: • undifferentiated marketing • differentiated marketing • concentrated marketing
Undifferentiated Marketing • A market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer. • Here, the offer focus on what is common in the needs of consumers rather than on what is different. • The company designs a product and a marketing program that appeal to largest
number of buyers. It relies on mass advertising and a superior image in people’s minds. • Provides cost effectiveness because of its low production, inventory, transportation, advertising, marketing research costs. • Have difficulties in (1) developing a product or brand that satisfies all consumers; (2) keeping a strong place in the market and making profit, when several firms follow this strategy heavy competition develops; (3) satisfying smaller segments.
Differentiated Marketing • A coverage strategy in which a firm decides to target several market segments and designs separate offers for each. E.g. Nike offers athletic shoes for different sports such as running, aerobics, cycling, baseball, basketball, tennis… • These companies hope for (1) higher sales; (2) a strong place within each market segment; (3) more loyal customers because the firm’s offerings match each segment’s desires better.
Creates better total sales, but increases the costs - developing separate marketing plans for the separate segments requires extra marketing research, sales analysis, promotional planning, channel management. • Because of the high costs involved in this approach, the company must compare increased sales with increased costs when deciding to use differentiated marketing strategy.
Concentrated Marketing • A market-coverage strategy in which a firm goes after a large share of one or a few submarkets. • Suitable for smaller companies to achieve a strong market place in the segments (or niches) that it serves because of its greater knowledge of the segment’s needs. • Involves higher-than-normal risks because the target may not respond or larger competitors may decide to enter the same market but offers operating economies because of specialization in production, distribution, and promotion.
Choosing a Market-Coverage Strategy • Factors needed to be considered when choosing a market-coverage strategy are; • company resources; when the firm’s resources are limited, concentrated marketing is the better. • product variability; for uniform products e.g. grapefruit or steel, undifferentiated marketing is more suitable. But for products that vary in design e.g. cameras or automobiles, differentiated or concentrated is more suitable.
product’s stage in the life cycle; when the product is new, it is better to produce only one version of the product - undifferentiated or concentrated marketing. For mature products, differentiated marketing makes more sense. • market variability; when buyers have the same tastes and react the same way to marketing efforts, undifferentiated marketing is suitable. • competitor’s marketing strategies; when competitors use segmentation, undifferentiated marketing can be suicidal. On the contrary, when competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing.
Positioning for Competitive Advantage • Once a company has decided which segments to enter, it must decide what “positions” it wants to occupy in those segments. • A product’s position is the place the product has in consumer’s minds relative to competing products.
Choosing a Value Proposition • The company must also decide how it will serve targeted customers – how it will differentiate and position itself in the marketplace. • A company’s value proposition is the set of benefits or values it promises to deliver to customers to satisfy their needs. E.g. Northwest Airlines punctual, friendly, fun flight; Singapore Airlines luxurious, prestigious, special flight
Such value propositions differentiate one brand from another. • They answer the customer’s question “Why should I buy your brand rather than a competitor’s?” • Companies must design strong value propositions that give them the greatest advantage in their target markets.
Essentials for Effective Positioning • Information on the needs of customers in target markets and the benefits they look for, • A knowledge of the organization’s competitive strengths and weaknesses, • A familiarity with competitors’ strengths and weaknesses, • Information on how customers perceive the organization relative to competitor.
Six Positioning Approaches • Positioning on Specific Product Features • physical attribute differentiation • service differentiation • personnel differentiation • location differentiation • image differentiation • Positioning on Benefits, Problem Solution, or Needs • Positioning for Specific Usage Occasions • Positioning for User Category • Positioning Against Another Product • Positioning by Product Class Dissociation
Useful Links and Sources • Kotler, P.; Bowen, J. and Makens, J. (1999). Marketing for Hospitality and Tourism (2nd ed.). Prentice Hall. NJ. • Kotler, P. and Armstrong, G. (2006) Principles of Marketing (11th ed.). Prentice Hall. NJ. • Middleton, V.T.C. (2004) Marketing in Travel and Tourism (3rd ed). Elsevier. Oxford. • http://www.hotelsmag.com • http://www.tourism.bilkent.edu.tr/~eda