CHAP02

Marketing for Hospitality and Tourism, Fifth EditionBy Philip Kotler, John Bowen and James Makens

© 2010 Pearson Higher Education, Inc.Pearson Prentice Hall - Upper Saddle River, NJ 07458

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Managers do not control the quality of the product whenthe product is a service.

The quality of the service is ina precarious state—it is in the hands of the service workerswho “produce” and deliver it.

— KARL ALBRECHT

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After reading this chapter, you should be able to:

OBJECTIVES



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• Describe a service culture.

After reading this chapter, you should be able to:

OBJECTIVES

• Identify four service characteristics that affect the marketing of a hospitality or travel product.

• Explain marketing strategies that are useful in the hospitality and travel industries.



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• Ritz-Carlton is renowned for outstanding service. – the chain of eighty-five luxury hotels around the world,

caters to the top 5 percent of corporate & leisure travelers

• In surveys of departing guests, some 95 percent report they’ve had a truly memorable experience.

• At Ritz-Carlton, exceptional service encountershave become almost commonplace. – when Nancy & Harvey Heffner’s son became sick, hotel

staff brought him hot tea & honey at all hours of the night

• Such personal, high-quality service has also made the Ritz-Carlton a favorite among conventioneers.

Taking Care of those Who Take Care of Customers

Ritz Carlton

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• The company’s credo sets lofty service goals…


Ritz Carlton

• …more than just words, as Ritz-Carlton delivers!

– “The Ritz-Carlton Hotel is a place where the genuinecare and comfort of our guests is our highest mission.”

– “We pledge to provide the finest personal service and facilities for our guest, who will always enjoy a warm, relaxed, yet refined ambience.”

– “The Ritz-Carlton experience enlivens the senses, instills well-being,and fulfills even the unexpressed wishes and needs of our guests.”

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• Since incorporation in 1983, Ritz-Carlton Company has received all the major awards hospitality industry & consumer organizations bestow.

• Rewards are important, and at Ritz-Carlton, service quality has resulted in high customer retention:– more than 90 percent of Ritz-Carlton customers return

– despite hefty room rates, the chain enjoys occupancyrates at 70%, almost 9 points above industry average

• Most of the responsibility for keeping guests satisfied falls to Ritz-Carlton’s customer-contact employees.


Ritz Carlton

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• The chain takes great care in selecting its personnel. – “We want only people who care about people,” noted the

company’s vice president of quality

• Employees are given intensive training in the artof coddling customers. – new employees attend a two-day orientation in the

“20 Ritz-Carlton Basics”

– Basic number one: “The Credo will be known, owned, and energized by all employees.”

• The 25,000 worldwide employees are taught to do everything they can to never to lose a guest.


Ritz Carlton

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• The staff learns that anyone who receives a customer complaint owns that complaint until it’s resolved. – they are trained to drop what they’re doing to help a

customer—no matter what they’re doing or what their department

• Each employee can spend up to $2,000 to redress a guest grievance and is allowed to break from his/her routine for as long as needed to make a guest happy. – “We master customer satisfaction at the individual level.”

– “This is our most sensitive listening post . . . our early warning system.”


Ritz Carlton

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• Ritz-Carlton instills a sense of pride in its employees.– “You serve,” they are told, “but you are not servants.”

– the company motto states, “We are ladies and gentlemen serving ladies and gentlemen.”

• To ensure guest satisfaction, no detail is too small. – customer-contact people are taught to greet guests warmly

and sincerely, using guests’ names when possible, to answer the phone within three rings, with a “smile”

– employees are urged to escort a guest to another areaof the hotel rather than pointing out directions

– pride and care in personal appearance is emphasized


Ritz Carlton

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• Ritz-Carlton recognizes and rewards employeeswho perform feats of outstanding service.

• Outstanding performers are nominated by peers & managers to receive plaques at dinners celebrating their achievements.– for on-the-spot recognition, managers award coupons for

items in the gift shop & free weekend stays at the hotel

• Ritz-Carlton’s employees appear to be just as satisfied as its customers, as employee turnoveris less than 30 percent a year– compared with 45 percent at other luxury hotels


Ritz Carlton

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• Ritz-Carlton’s success is based on a simple philosophy:– to take care of customers, you must take care of

those who take care of customers

– satisfied customers, in turn, create sales and profitsfor the company

• Ritz-Carlton is an example of a great service company.


Ritz Carlton

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• Marketing initially developed in connection with selling physical products.

• Today, a major trend is swift growth of services,or products with little or no physical content.– in most developed countries, services account for

a majority of the gross domestic product (GDP)

– in developing countries a majority of nonagricultural workers are often employed in hospitality and travel

• Growth of service industries has created a demand for research into their operation and marketing.

Development & Growth

Marketing Service Industries

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• Some managers think of their operations only in terms of tangible goods. – managers of fast-food restaurants who think they sell

only hamburgers may have “slow, surly service personnel, dirty unattractive facilities, and few return customers.”

• A most important task of a hospitality business isto develop the “service” side of the business.– specifically, a strong service culture

• Service culture focuses on serving & satisfying the customer, starts with top management & flows down.

Introduction

The Service Culture

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• This means the business mission (to be discussedin Chapter 3) contains a service vision.

• It means hiring employees with a customer service attitude, and working to instill the concept of service.

• The outcome of these efforts is employees who provide service to the customers.

• The culture of Ritz-Carlton lets the employees know they are expected to deliver service to the guest.– and provides them with the tools & support they need

to deliver good service.

Introduction

The Service Culture

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• Service marketers must be concerned with four characteristics of services: – intangibility, inseparability, variability, and perishability

Characteristics of Service Marketing

Figure 2-1Four service characteristics.

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• Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before purchase. – prior to boarding, airline passengers have nothing but

a ticket & promise of safe delivery to their destination

– a sales force cannot take a hotel room with them ona sales call, and when guests leave, they have nothingto show for the purchase but a receipt

• Robert Lewis observed that someone who purchases a service may go away empty-handed, but they do not go away empty-headed.– they have memories that can be shared with others

Intangibility


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• To reduce uncertainty caused by service intangibility, buyers look for tangible evidence that will provide information and confidence about the service. – tangibles provide signals as to the quality of the

intangible service

– condition of the grounds & overall cleanlinessprovide clues as to how well a restaurant is run

• As a niche segment of the hospitality-lodging industry, conference centers face a continuousneed to make their products tangible. – they must differentiate themselves from resorts & hotels

Intangibility


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• Product features that conference centers use to differentiate themselves include the following:– dedicated meeting rooms that cannot be used for other

purposes

– twenty-four-hour use, which offers clients security & personalization (computers, briefcases, etc., can be leftin the room)

– continuous coffee, not just coffee breaks

– all-inclusive pricing, a set price per day, per attendee

• The International Association of Conference Centers offers an online database for travel planners.

Intangibility - Conference Centers


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• In most hospitality services, both service provider & customer must be present for the transaction to occur. – food in a restaurant may be outstanding, but if the service

person has a poor attitude or provides inattentive service, customers will not be satisfied with their experience

• Service inseparability also means that customers are part of the product. – having chosen a restaurant because it is quiet & romantic,

a couple will be disappointed if a group of loud, boisterous conventioneers is seated in the same room

• Managers must manage their customers so they do not create dissatisfaction for others.

Inseparability


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• Another implication is that customers & employees must understand the service delivery system because they are coproducing the service.

• This means hospitality and travel organizations have to train customers just as they train employees.– customers must understand the menu items in a

restaurant so that they get the dish they expect

– hotel customers must know how to use the phone system and express checkout on the television

– casinos know they must train customers how to play certain table games such as blackjack or craps

Inseparability


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• Customer coproduction also means organizations must select, hire, and train customers.

• The benefits provided to the guest by becoming an “employee” include increased value, customization, and reduced waiting time.– fast-food chains train customers to get their own drinks

– hotels, restaurants, airlines & rental car companies train customers to use the electronic check-in and the Internetto get information and to make reservations

• Inseparability requires hospitality managers to manage both their employees and their customers.

Inseparability


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• Services are produced & consumed simultaneously, and quality depends on who provides them and when & where they are provided. – fluctuating demand makes it difficult to deliver

consistent products during periods of peak demand

• A high degree of contact between the service provider and the guest means product consistency depends on the service provider’s skills and performance at the time of the exchange. – a guest can receive excellent service one day and

mediocre service from the same person the next day

Variability


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• Lack of communication and heterogeneity of guest expectations also lead to service variability. – a customer ordering a medium steak may expect it to be

cooked all the way through, where the person working the broiler may define medium as having a warm pink center

• Since the guest will be disappointed when he/she cuts into the steak and sees pink meat, restaurants have developed common definitions of steak doneness.– they communicate them to the employees and customers

– sometimes verbally & sometimes printed on the menu

Variability


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• Customers usually return to a restaurant because they enjoyed their last experience. – when the product they receive is different & does not meet

their expectations on the next visit, they often don’t return

• Product variability or lack of consistency is a major cause of customer disappointment in the hospitality.

• Consistency is one of the key factors in the success of a service business, and means customers receive the expected product without unwanted surprises. – consistency is one of the major reasons for the

worldwide success of McDonald’s

Variability


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• Here are three steps hospitality firms can take to reduce variability and create consistency.

• Step One - Invest in good hiring & training procedures. Recruiting the right employees & providing them with excellent training is crucial.– whether highly skilled professionals or low-skilled workers

• Step Two - Standardize the service-performance process throughout the organization.– diagramming service delivery can map the service process,

points of customer contact & evidence of service from a customer point of view

Variability - Three Steps to Consistency


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• Figure 2–2 shows the service blueprint for a guest spending a night at a hotel. – the line of interaction represents the guest’s contact

with hotel employees

– the line of visibility represents areas visible to the guest & which provide tangible evidence of the hotel’s quality

– the line of internal interaction represents internalsupport systems that are required to service the guest

• Visually representing the service can help understand the process and see potential design flaws while the service delivery system is still in the design stage.



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Figure 2-2

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• Step Three - Monitor customer satisfaction, using suggestion & complaint systems, customer surveys, and comparison shopping.

• Hospitality companies know their customers, and have e-mail addresses of those who purchase from our Web sites, making it easy to send customer satisfaction surveys after a guest has departed. – travel intermediaries like travelocity.com contact guests to

see if they were satisfied with a hotel booked on their site

• Firms can also develop customer databases to permit personalized, customized service, especially online.



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• Services cannot be stored. A 100-room hotel that sells only 60 rooms on a given night can’t inventory 40 unused rooms and sell 140 rooms the next night. – revenue lost from not selling the 40 rooms is gone forever

• Because of service perishability, airlines and some hotels charge guests holding guaranteed reservations when they fail to arrive. – restaurants are also starting to charge a fee to

customers who do not show up for a reservation

• If hospitality companies are to maximize revenue, they must manage capacity and demand.

Perishability


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• Good service firms use marketing to position themselves strongly in chosen target markets.– services differ from tangible products & often

require additional marketing approaches

• In a product business, the products are fairly standardized & sit on shelves waiting for customers. – in a service business, customer and frontline service

employee interact to create the service

• Effective interaction depends on skills of frontline service employees and on service production and support processes backing these employees.

Introduction

Management Strategies for Service Businesses

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• Successful service companies focus their attention on both their employees and customers.

• They understand the service-profit chain, which links service firm profits with employee and customer satisfaction, and consists of five links:– healthy service profits and growth

– satisfied and loyal customers

– greater service value

– satisfied and productive service employees

– internal service quality

Service-Profit Chain


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Service Marketing


Figure 2-3 Three typesof marketing in serviceindustries.

• Service marketing requires more than just traditional external marketing using the four Ps. – service marketing also requires both internal marketing

and interactive marketing.

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• Internal marketing means the service firm must effectively train & motivate its customer-contact employees and all the supporting service people to work as a team to provide customer satisfaction. – for the firm to deliver consistently high service quality,

everyone must practice customer orientation

• It is not enough to have a marketing department doing traditional marketing while the rest of the company goes it own way. – everyone in the organization must also practice marketing

– internal marketing must precede external marketing

Internal Marketing


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• Interactive marketing means that perceived service quality depends heavily on the quality of the buyer–seller interaction during the service encounter. – service quality depends on both the service

deliverer and the quality of the delivery

– the customer judges service quality not just on technical quality (food quality) but also on functional quality (service provided in the restaurant)

• Service companies face the task of increasing three major marketing areas: competitive differentiation, service quality, and productivity.

Interactive Marketing


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• When customers view services of different providers as similar, they care less about provider than price.

• The solution is to develop differentiated offerings, with innovative features that set a company apart. – airlines offer Internet access in flight, seats that turn

into flat beds, showers & cooked-to-order breakfasts

• Though innovations are copied easily, the service company that innovates regularly usually gains a succession of temporary advantages.– and an innovative reputation that may help it keep

customers who want to go with the best

Managing Differentiation


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• Service companies can differentiate their service delivery in three ways: – through people, physical environment, and process

• A company can distinguish itself by having more able, reliable customer-contact people.

• It can develop a superior physical environment & process in which the service product is delivered.

• Finally, service companies can also differentiate their images through symbols and branding. – familiar symbols would be McDonald’s golden arches

– familiar brands include Hilton, Shangri-La, and Sofitel

Managing Differentiation


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• A service firm can differentiate itself by delivering consistently higher quality than competitors. – with hospitality products, quality is measured by

how well customer expectations are met

• Expectations are based on past experiences, word-of-mouth, and service firm advertising. – if perceived service of a given firm exceeds expected

service, customers are apt to use the provider again

• A service firm’s ability to retain customers depends on how consistently it delivers value to them.– customer retention is perhaps the best measure of quality

Managing Service Quality


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– top service companies are “customer obsessed”

– well-managed service companies have a history oftop management commitment to quality

– the best service providers set high service-quality standards

– the top service firms watch service performance closely, both their own and that of competitors

Managing Service Quality


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• Studies of well-managed service companies show they share common virtues regarding service quality.



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• Problems inevitably occur, for as hard as they try, even the best companies have an occasional late delivery, burned steak, or grumpy employee. – a company cannot always prevent service problems,

but it can learn from them

• Good service recovery can turn angry customers into loyal ones, and can win more customer purchasing & loyalty than if things had gone well in the first place.

• Companies should take steps not only to provide good service every time but also to recover from service mistakes.

Resolving Customer Complaints


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• To have effective complaint resolution, managers must empower frontline service employees.– to give them authority, responsibility, and incentives they

need to recognize, care about, and tend to customer needs

• Resolving customer complaints is a critical component of customer retention.

• A study by the Technical Research Programs Institute found that if a customer has a major complaint, 91 percent will not buy from you again,– but if it was resolved quickly, 82 percent of those

customers will return



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• There are two important complaint resolution factors: – first, if you resolve a complaint, do it quickly—the longer

it takes to resolve, the higher the defection rate– second, seek out customer complaints

• Complaints by letter should be responded to quickly, with most effective resolution being via telephone. – a call allows personal contact with the guest and allows

the manager to find out exactly what happened

• The worst thing a company can do is send out a form letter that shows no empathy to the guest’s problem.– or not respond at all



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• Another critical area in complaint resolution is that most customers do not complain. – they do not give managers a chance to resolve their

problem; they just leave and never come back

• When a customer does complain, management should be grateful.– it gives them a chance to resolve the complaint

and gain the customer’s repeat business

• Most complaints come from loyal customers who want to return, but they also want management to fix the problem so it will not occur on their next visit.



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• Managers must develop methods to encourage customers to complain.– customer hotlines encourage calls about problems

– comment cards encourage customers to discuss problems

– trained employees can look out for guests who appear dissatisfied and try to determine their problems

– a service guarantee is a way to get customers to complain; to invoke the guarantee, they have to complain

• Customer complaints are one of the most available yet underutilized sources of customer and market information.



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• Promotional material, employees’ appearance, and the service firm’s physical environment all help tangibilize service. – a hotel’s promotional material might include a meeting

planner’s packet, photographs of the hotel’s public area, guest rooms, and meeting space

• A banquet salesperson for a fine restaurant can make the product tangible by taking pastry samples on morning sales calls. – this creates goodwill and provides the prospective client

with some knowledge about the restaurant’s food quality

Tangibilizing the Product


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• The salesperson may be the prospective customer’s first contact with that business. – one who is well groomed, dressed appropriately and who

answers questions in a prompt, professional manner can do a great deal to help develop a positive image of the hotel



Uniforms provide tangible evidence that the person delivering this service is professional. Courtesy of Paul Kenward © Dorling Kindersley

• Everything about a hospitality company communicates something.



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• Managers work hard provide their guests with positive reinforcement, and physical evidence thatis not managed properly can hurt a business.

• Negative messages communicated by poorly managed physical evidence include:– signs that continue to advertise a holiday special two

weeks after the holiday has passed

– signs with missing letters or burned-out lights

– parking lots & grounds unkempt and full of trash

– employees in dirty uniforms at messy workstations

• Such signs send negative messages to customers.



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• Physical surroundings should be designed to reinforce product position in the customer’s mind.– front-desk staff in a luxury hotel should dress in

professional apparel, such as a conservative suit, while staff at a tropical resort might wear Hawaiian-style shirts

• A firm’s communications should also reinforce their positioning. – Ronald McDonald is great for McDonald’s, but a clown

would not be appropriate for a Four Seasons hotel

• A service organization should review all tangible evidence to ensure it delivers the desired image.



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• In the hospitality industry, employees are a critical part of the product and marketing mix.

• This means the human resources and marketing departments must work closely together– in restaurants without a human resources department, the

restaurant manager serves as the human resource manager

• The manager must hire friendly, capable employees and formulate policies that support positive relations between employees and guests. – even minor details related to personnel policy can have

a significant effect on the product’s quality

Managing Employees as Part of the Product


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• Customers of hospitality products experience anxiety because they cannot experience the product first.

• Consider a salesperson whose manager asks her to set up a regional sales meeting. – if the meeting goes well, her sales manager will be

favorably impressed; if it goes badly, she may be blamed

– in arranging the meeting, the salesperson has to trust the hotel’s salesperson

• Good hotel salespeople alleviate client fears by letting them know they have arranged hundredsof successful meetings.

Managing Perceived Risk


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• A way to combat concern is to encourage the client to try the hotel or restaurant in a low-risk situation. – hotels and resorts offer familiarization (or fam) trips to

meeting planners and travel agents

– airlines often offer complimentary flight tickets because they are also interested in creating business

– fam trips reduce a product’s intangibility by letting the intermediary customer experience the hotel beforehand

• The high risk people perceive when purchasing hospitality products increases loyalty to companies that have provided a consistent product in the past.



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• Meeting planners sometimes select the hotel fora client’s meeting.– or are quite influential in the decision

• Planners feel there is less personal risk in selectinga highly rated hotel, particularly in the event of unforeseen problems.

• It is not surprising that many select four - or five-star-rated hotels.– even though other, equally suitable hotels may be

available at lower costs



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• Corporate management is responsible for matching capacity with demand on a long-term basis.– unit managers are responsible for matching capacity

with fluctuations in short-term demand

• Managers have two major options for matching capacity with demand: change capacity or change demand.– airlines swap small aircraft for larger aircraft on

flights that are selling out faster than normal

– if a larger plane is not available, they can reduce demand by eliminating discounted fares & charging a higher fare

Managing Capacity and Demand


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• Getting the customer involved in service operations expands the number of people one employee can serve, increasing the capacity of the operation.

• Self-service technologies (SSTs) allow the customer to serve as the company’s employee.

• Adoption of SSTs that increase customer satisfaction represents one of the biggest opportunities for the travel and hospitality industry. – a common example is a self-service soft drink dispenser

in a fast-food restaurant

Involving the Customer in the Service Delivery

Capacity Management

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• A more sophisticated SST is an online ordering site for a restaurant.– the order is placed automatically in the cooking queue at

the proper time so it will be ready at the time the customer requested

• Many convention hotels have self-service food and beverage operations featuring premade sandwiches & salads, enabling the staff to build a buffer inventory.– when a meeting breaks and a number of the participants

want a meal or snack, these operations have the capacityto serve many people quickly

Involving the Customer in the Service Delivery

Capacity Management

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• In a hotel, the demand for all services does not rise and fall in unison. – one outlet may experience sudden strong demand

while other areas enjoy normal levels

– a hotel restaurant doing 30-40 covers a night cannot justify more than two service people, though it may have 80 seats

• Having front-desk staff and banquet staff trained inà la carte service means the restaurant manager has a group of employees that can be called on if demand for the restaurant on any particular night exceeds the capacity of two service people.

Cross-Training Employees

Capacity Management

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• Managers can use part-time employees to expand capacity during an unusually busy day, meal period or during busy months of the seasonal business year.

• Summer resorts hire part-time staff to work during the summer period, reducing staff at slower times.– and reduce staff further or close during the low season

• Part-time employees can be used on an on-call basis.– hotels usually have a list of banquet staff to call for events

• Part-time employees give an organization flexibility to adjust the number of employees to the level required to meet demand.

Part-Time Employees

Capacity Management

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• Catering firms often purchase only the amount of equipment they use regularly. – when they have a busy period, they rent equipment

• Businesses can rent, share, or even move groups to outside facilities to increase capacity to meet short-term demand.– an opportunity to book a Tuesday to Thursday meeting

may be lost because function space is booked Wednesday evening, leaving no space for the group’s dinner

• A creative solution would be to suggest the group go outside the hotel for a unique dinner experience.

Renting or Sharing Extra Facilities and Equipment

Capacity Management

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• One way to decrease capacity to match the lower demand is to schedule repairs and maintenance during the low season.

Schedule Downtime During Periods of Low Demand

Capacity Management

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• Because services are perishable, managing capacity & demand is a key function of hospitality marketing.

• Mother’s Day is traditionally a restaurant’s busiest day of the year, with peak time from 11 am to 2 pm.– this three-hour period presents restaurateurs with one

of their greatest sales opportunities

• To take full advantage of this opportunity, restaurant managers must accomplish two things: – they must adjust their operating systems to enable the

business to operate at maximum capacity

– remember their goal of creating satisfied customers

Change the Service Delivery System

Capacity Management

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• Many restaurants feature Mother’s Day buffets, which has numerous benefits: – an attractive buffet creates a festive atmosphere

– it provides an impression of variety and value

– expedites service by eliminating prepared-to-order food

• Customers provide their own service, with the service staff providing the beverage and check.– which frees the staff to wait on more customers.

• This increases turnover of tables, further increasing the restaurant’s capacity.


Capacity Management

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• The buffet also allows the restaurant to create a buffer inventory, although 3 hours’ worth of food cannot be kept on a steam table without a reduction in quality and attractiveness. – food can be cooked in batches that will last 20-30 minutes

• Facilities can increase capacity by extending hours– a hotel coffee shop that is full by 7:30 am may find it

useful to open at 6:30 am instead of 7:00 am

– Leaps and Bounds, a children’s entertainment center normally closed at night, offers all-night parties forgroups of twenty or more


Capacity Management

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• All successful hospitality businesses become capacity constrained. – during a citywide convention, a hotel may receive

requests for rooms that exceed its capacity

– the Saturday before Christmas, a restaurant could book more banquets if it had space

– during a summer holiday a resort could sell more roomsif it had them

• Capacity management allows a business to increase its capacity, but it does not prevent situations where demand exceeds capacity.

Introduction

Demand Management

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• Pricing is one method used to manage demand.– to create demand, restaurants offer specials on slow days – resorts lower prices during the off-season

• Managers must make sure that the market segments attracted by the lower price are their desired targets.

• When demand exceeds capacity, managers raise prices to lower demand. – on New Year’s Eve, many restaurants & nightclubs offer set

menus & packages that exceed a normal average check

• They realize that even with higher prices, demand remains sufficient to fill to capacity.

Using Price to Create or Reduce Demand

Demand Management

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• Hotels and restaurants often use reservations to monitor demand. – when it appears demand will exceed capacity, managers

can save capacity for the more profitable segments

– reservations can also limit demand by allowing managers to refuse further reservations when capacity meets demand

• While reservations in restaurants can help manage demand, they can also decrease capacity. – this is why high-volume mid-priced restaurants do not

usually take reservations

– estimated times of customer arrival/departure may not fit precisely, resulting in empty tables for 20 minutes or more

Using Reservations

Demand Management

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• In high-priced restaurants, guests expect to reserve a table and have it ready when they arrive.

• Customers of mid-priced restaurants have different expectations.– allowing popular restaurants to increase capacity by

having customers queue & wait for an available table

• Queues allow managers to inventory demand for short periods of time and fill every table immediately when it becomes available.– eliminating dead time

Using Reservations

Demand Management

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• To maximize capacity, some restaurants accept reservations for seating at designated times.– when customers call, they are made aware of the seating

times and informed the table is theirs for up to 2 hours

– after 2 hours, another party will be waiting to use the table

• Seatings increases capacity by ensuring the restaurant will have three turns, and by shifting demand. – as the 8 o’clock seating fills, managers can shift demand

to 6 or 10, depending on the customer’s preference

Using Reservations

Demand Management

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• Disneyland has come up with its own form of reservations, Fastpass®. – on rides offering the Fastpass® service Guests can

obtain a reservation to come at a certain time

• When the guests come back, they bypass the waiting line and move to the Fastpass® line, saving wait time. – the beauty of Fastpass® is that rather than waiting in line,

guests can now spend money in the restaurants and shops

• By handling demand with Fastpass®, Disney has created a more satisfying customer experience and also created the opportunity for more sales.

Disney and Fastpass®

Demand Management

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• In cases where demand is greater than capacity, guests can be asked to prepay or make a deposit.

• By requiring an advance payment, managers help ensure that revenue matches capacity. – some New Year’s Eve parties at hotels & restaurants

require that guests purchase their tickets in advance

– resorts often require a nonrefundable deposit with a reservation, so if a customer fails to arrive, the resortdoes not lose revenue

Deposits

Demand Management

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• Managers who limit reservations to the number of available rooms are often left with empty rooms. – not everyone who reserves a table or a room shows up

– plans change & people with reservations become no-shows

• Overbooking is a method hotels, restaurants, and airlines use to match demand with capacity, and it must be managed carefully

• It is better to leave a room unoccupied than to fail to honor a reservation and risk losing future businessof guests whose reservations are not honored– and possibly of their companies and travel agents

Overbooking

Demand Management

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• Developing a good overbooking policy minimizes the chance of walking a guest, but requires knowing the no-show rate of different types of reservations. – groups who reserve rooms should be checked to see what

percentage of their room block they have filled in the past – with the help of well-designed software systems we can

develop an accurate overbooking policy

• Hotels that are careless in handling their reservations can be held liable.

Overbooking

Demand Management

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• Some hotels do nothing for the traveler whose reservation is not honored.

• Well-managed hotels will help find alternative accommodations, provide transportation to, andpay for one night’s stay at the new hotel.– they may also give the guest a free phone to inform

those back home of the new arrangements

– and keep the guest’s name on their information rack to forward any calls the guest may receive to the new hotel

• Smart managers try to get turned-away guests backby offering a free night’s stay at their hotel.

Overbooking

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• Price is inversely related to demand for most products. – managers create more demand by lowering price &

lower demand by raising price

• Managers are using price, reservation history, and overbooking to develop a sophisticated approach to demand management called revenue management.

• The concept grew out of yield management, which was introduced in the 1980s.– it is a methodological approach to allocating a perishable

and fixed inventory to the most profitable customers

Revenue Management

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• Well-designed revenue management bases pricing decisions on data, and can increase revenue by 8%.

• Many large business-class and luxury hotels have added full-time revenue managers to their staff. – ability to maximize revenue has become so important

that corporate revenue managers are being promotedto the corporate vice president of marketing

• One 200-room hotel was able to add $600,000 to itstop line after implementing revenue management.– their system was designed to maximize RevPAR (revenue

per available room)

Revenue Management

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• Revenue management techniques have also been designed for restaurants, designed to maximize revenue per available seat (RevPASH). – seat utilization along with off-peak pricing are

among the tools used to maximize RevPASH

• Properly designed revenue management systems value the business or repeat customers.

• The frequent loyal guest’s business is valued, and some hotel companies have developed corporate rates for these guests that do not fluctuate with the demand for business.

Revenue Management

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• When capacity exceeds demand and guests are willing to wait, queues form. – sometimes guests make the decision to wait, as when a

restaurant has a 20-minute wait & he/she decides to wait– in other cases they have no choice, as when hotel guests

with a reservation find themselves waiting to check-in

• Voluntary queues, such as waits at restaurants, are a common and effective way of managing demand.

• Good management of the queue makes the wait tolerable; always overestimate the wait. – when estimated wait is 30-minutes, it is better to tell guests

it will be a 35-minute wait, rather than a 20-minute wait

Use Queuing

Demand Management

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• Once customers have accepted the wait time, they may sit down and have a drink– they tend to keep their eyes on their watches

– when their names have not been called in the allottedtime, they ask the host where they are on the list

• When guests wait longer than told they would, they go to their dining table upset and in a mood that makes them tend to look for other service failures. – it can be difficult for the restaurant to recover from this

initial failure, and many guests leave with memories ofan unsatisfactory experience

Use Queuing

Demand Management

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• If the host tells guests it will be a 35-minute waitand seats them in 30, the guests will be delighted.

• In general, the higher the level of service, the longer the guest is willing to wait. – twenty minutes for sit-down service might be acceptable

– a five-minute wait at a fast-food restaurant, unacceptable

• Fast-food restaurants must raise their capacity to meet demand or lose customers.

Use Queuing

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• David Maister, a service expert, provides the following tips for the management of a waiting line:

• Unoccupied time feels longer than occupied time. – entertainment parks have characters who talk to kids in

waiting lines, occupying time making the wait pass faster – restaurants send customers waiting for a dinner table into

their cocktail lounge, to make the time pass more quickly

• Unfair waits are longer than equitable waits. – guests can become upset and preoccupied with a wait

if they feel they are being treated unfairly– the service provider must make vigorous efforts to ensure

waiting rules match with the customer’s sense of equity

Use Queuing

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• It is often possible to shift the demand for banquets and meetings. – a sales manager may want to set up a sales meeting and

knows that when the hotel is called to check availability,a date must be given

• If the date is flexible, the manager shifts the dateto a period when the hotel is not projected to sellout and needs the business.

Shifting Demand

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• The object of promotion is to increase demand.– or as we will learn later, to shift the demand curve

to the left

• During slow periods, creative promotions canbe an effective way of building business.

Promotional Events

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• Interactive marketing. Marketing by a service firm that recognizes perceived service quality depends heavily on the quality of the buyer–seller interaction.

• Internal marketing. Marketing by a service firm to train effectively and motivate its customer-contact employees and all the supporting service people to work as a team to provide customer satisfaction.

• Organization image. The way a person or group views an organization.

KEY TERMS

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• Physical evidence. Tangible clues such as promotional material,employees of the firm,and the physical environment of the firm.

• Revenue management. A pricing method using price as a means of matching demand with capacity.

• Service culture. A system of values and beliefs in an organization that reinforces the idea that providing the customer with quality service is the principal concern of the business.

KEY TERMS

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• Service inseparability. A major characteristic of services;they are produced and consumed at the same time and cannot be separated from their providers, whether the providers are people or machines.

• Service intangibility. A major characteristic of services; they cannot be seen, tasted, felt, heard,or smelled before they are bought.

• Service perishability. A major characteristic of services; they cannot be stored for later use.

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• Service-profit chain. A model that shows the relationships between employee satisfaction, customer satisfaction, customer retention, value creation, and profitability.

• Service variability. A major characteristic of services; their quality may vary greatly, depending on who provides them and when, where, and how they are provided.

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• Perishability is very important in the airline industry; unsold seats are gone forever. With computerized ticketing, airlines can use pricing to deal with perishability & variations in demand.

EXPERIENTIAL EXERCISES

Try One !

• A. Go to the Web site of an airline and get a fare for an eight-day stay between two cities they serve. Get prices on the same route for sixty days in advance, two weeks, one week, and tomorrow. – is there a clear pattern to the fares?



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• Perishability is very important in the airline industry; unsold seats are gone forever. With computerized ticketing, airlines can use pricing to deal with perishability & variations in demand.

EXPERIENTIAL EXERCISES

Try One !

• B. When a store is overstocked on ripe fruit, it may lower the price to sell out quickly. What are airlines doing to their prices as the seats get close to “perishing”? tomorrow. – why are tomorrow’s fares often higher?



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Support for this exercise can be found on the Web site for Marketing for Hospitality and Tourism, www.prenhall.com/kotler

INTERNET EXERCISES

Try This !

• Visit the Web site of a hotel chain. • What does the Web site do to make the

product tangible for the customer?• Does anything in the site deal with the

characteristic of perishables, for example, specials at some of the properties?



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Support for this exercise can be found on the Web site for Marketing for Hospitality and Tourism, www.prenhall.com/kotler

INTERNET EXERCISES

Try This !

• Visit the Web site of a tourism destination; it can either be a city or a country.

• Explain how the site provides tangible evidence relating to the experiences a visitor to the destination can expect.



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END

CHAPTER END

CHAP02

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