Marketing For Hospitality and Tourism, Fifth Edition

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Marketing for Hospitality and Tourism, Fifth Edition © 2010 Pearson Higher Education, Inc.
By Philip Kotler, John Bowen and James Makens Pearson Prentice Hall - Upper Saddle River, NJ 07458
OBJECTIVES
After reading this chapter, you should be able to:
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Managers do not control the
quality of the product when
the product is a service.
The quality of the service is in

a precarious state—it is in the
hands of the service workers
who “produce” and deliver it.
— KARL ALBRECHT
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OBJECTIVES
After reading this chapter, you should be able to:
• Describe a service culture. I
• 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
Taking Care of those Who Take Care of Customers
• Ritz-Carlton is renowned for outstanding service. I
– 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 encounters
have 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.
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Marketing for Hospitality and Tourism, Fifth Edition
By Philip Kotler, John Bowen and James Makens tab © 2010 Pearson Higher Education, Inc.
Pearson Prentice Hall - Upper Saddle River, NJ 07458
Ritz Carlton
• The company’s credo sets lofty service goals… I
– “The Ritz-Carlton Hotel is a place where the genuine
care 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.”
• …more than just words, as Ritz-Carlton delivers!

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Ritz Carlton
• Since incorporation in 1983, Ritz-Carlton Company I
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 occupancy
rates at 70%, almost 9 points above industry average
• Most of the responsibility for keeping guests satisfied
falls to Ritz-Carlton’s customer-contact employees.
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Ritz Carlton
• The chain takes great care in selecting its personnel. I
– “We want only people who care about people,” noted the
company’s vice president of quality
• Employees are given intensive training in the art
of 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.
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Ritz Carlton
• The staff learns that anyone who receives a customer I
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.”
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Ritz Carlton
• Ritz-Carlton instills a sense of pride in its employees. I
– “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 area
of the hotel rather than pointing out directions
– pride and care in personal appearance is emphasized
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Ritz Carlton
• Ritz-Carlton recognizes and rewards employees I
who 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 turnover
is less than 30 percent a year
– compared with 45 percent at other luxury hotels
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Ritz Carlton
• Ritz-Carlton’s success is based on a simple I
philosophy:
– to take care of customers, you must take care of
those who take care of customers
– satisfied customers, in turn, create sales and profits
for the company
• Ritz-Carlton is an example of a great service
company.
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Marketing Service Industries
Development & Growth
• Marketing initially developed in connection with I
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.
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The Service Culture
Introduction
• Some managers think of their operations only in I
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 is
to 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.
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The Service Culture
Introduction
• This means the business mission (to be discussed I
in 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.
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Characteristics of Service Marketing
• Service marketers must be concerned with four I

characteristics of services:
– intangibility, inseparability, variability, and perishability
Figure 2-1
Four service characteristics. 2
Intangibility
• Unlike physical products, services cannot be seen, I
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 on
a sales call, and when guests leave, they have nothing
to 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
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Intangibility
• To reduce uncertainty caused by service intangibility, I
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 cleanliness
provide clues as to how well a restaurant is run
• As a niche segment of the hospitality-lodging
industry, conference centers face a continuous
need to make their products tangible.
– they must differentiate themselves from resorts & hotels
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Intangibility - Conference Centers
• Product features that conference centers use to I
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 left
in 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.
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Inseparability
• In most hospitality services, both service provider & I
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.
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Inseparability
• Another implication is that customers & employees I
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
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Inseparability
• Customer coproduction also means organizations must I
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 Internet
to get information and to make reservations
• Inseparability requires hospitality managers to manage
both their employees and their customers.
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Variability
• Services are produced & consumed simultaneously, I
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
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Variability
• Lack of communication and heterogeneity of guest I
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
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Variability
• Customers usually return to a restaurant because they I
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
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Variability - Three Steps to Consistency
• Here are three steps hospitality firms can take to I
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
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• Figure 2–2 shows the service blueprint for a guest I
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 internal
support 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 2
• Step Three - Monitor customer satisfaction, using I
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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Perishability
• Services cannot be stored. A 100-room hotel that sells I
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.
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Management Strategies for Service Businesses
Introduction
• Good service firms use marketing to position I
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.
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Service-Profit Chain
• Successful service companies focus their attention on I
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
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Service Marketing
• Service marketing requires more than just traditional I
external marketing using the four Ps.
– service marketing also requires both internal marketing
and interactive marketing.
Figure 2-3 Three types

of marketing in service
industries.
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Internal Marketing
• Internal marketing means the service firm must I
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
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Interactive Marketing
• Interactive marketing means that perceived service I
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.
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Managing Differentiation
• When customers view services of different providers I
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
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Managing Differentiation
• Service companies can differentiate their service I
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
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Managing Service Quality
• A service firm can differentiate itself by delivering I
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
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See this feature on page 43 of your textbook. 2

Managing Service Quality
• Studies of well-managed service companies show I
they share common virtues regarding service quality.
– top service companies are “customer obsessed”
– well-managed service companies have a history of
top 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
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Resolving Customer Complaints
• Problems inevitably occur, for as hard as they try, even I
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.
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• To have effective complaint resolution, managers must I
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: I
– 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 I
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 I
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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Tangibilizing the Product
• Promotional material, employees’ appearance, and I
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
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• The salesperson may be the prospective customer’s I
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
• Everything about a
hospitality company
communicates
something.
Uniforms provide tangible evidence that the
person delivering this service is professional.
Courtesy of Paul Kenward © Dorling Kindersley 2
• Managers work hard provide their guests with positive I
reinforcement, and physical evidence that
is 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 I
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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Managing Employees as Part of the Product
• In the hospitality industry, employees are a critical I
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
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Managing Perceived Risk
• Customers of hospitality products experience anxiety I
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 hundreds
of successful meetings.
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• A way to combat concern is to encourage the client I
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 for I
a client’s meeting.
– or are quite influential in the decision
• Planners feel there is less personal risk in selecting
a 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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Managing Capacity and Demand
• Corporate management is responsible for matching I
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
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Capacity Management
Involving the Customer in the Service Delivery
• Getting the customer involved in service operations I
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
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Capacity Management
Involving the Customer in the Service Delivery
• A more sophisticated SST is an online ordering site I
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 capacity
to serve many people quickly
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Capacity Management
Cross-Training Employees
• In a hotel, the demand for all services does not rise I
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 in
à 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.
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Capacity Management
Part-Time Employees
• Managers can use part-time employees to expand I
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.
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Capacity Management
Renting or Sharing Extra Facilities and Equipment
• Catering firms often purchase only the amount of I
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.
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Capacity Management
Schedule Downtime During Periods of Low Demand
• One way to decrease capacity to match the lower I
demand is to schedule repairs and maintenance
during the low season.
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Capacity Management
Change the Service Delivery System
• Because services are perishable, managing capacity & I
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
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Capacity Management
• Many restaurants feature Mother’s Day buffets, I
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.
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Capacity Management
• The buffet also allows the restaurant to create a I
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 for
groups of twenty or more
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Demand Management
Introduction
• All successful hospitality businesses become I
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 rooms
if it had them
• Capacity management allows a business to increase
its capacity, but it does not prevent situations where
demand exceeds capacity.
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Demand Management
Using Price to Create or Reduce Demand
• Pricing is one method used to manage demand. I
– 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.
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Demand Management
Using Reservations
• Hotels and restaurants often use reservations to monitor I
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
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Demand Management
Using Reservations
• In high-priced restaurants, guests expect to reserve a I
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
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Demand Management
Using Reservations
• To maximize capacity, some restaurants accept I
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
2
Demand Management
Disney and Fastpass®
• Disneyland has come up with its own form of I
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.
2
Demand Management
Deposits
• In cases where demand is greater than capacity, I
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 resort
does not lose revenue
2
Demand Management
Overbooking
• Managers who limit reservations to the number of I
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 business
of guests whose reservations are not honored
– and possibly of their companies and travel agents
2
Demand Management
Overbooking
• Developing a good overbooking policy minimizes I
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.
2
Demand Management
Overbooking
• Some hotels do nothing for the traveler whose I
reservation is not honored.
• Well-managed hotels will help find alternative
accommodations, provide transportation to, and
pay 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 back
by offering a free night’s stay at their hotel.
2
Demand Management
Revenue Management
• Price is inversely related to demand for most products. I
– 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
2
Demand Management
Revenue Management
• Well-designed revenue management bases pricing I
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 promoted
to the corporate vice president of marketing
• One 200-room hotel was able to add $600,000 to its
top line after implementing revenue management.
– their system was designed to maximize RevPAR (revenue
per available room)
2
Demand Management
Revenue Management
• Revenue management techniques have also been I
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.
2
Demand Management
Use Queuing
• When capacity exceeds demand and guests are willing
to wait, queues form.
I
– 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
2
Demand Management
Use Queuing
• Once customers have accepted the wait time, they I
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 allotted
time, 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 of
an unsatisfactory experience
2
Demand Management
Use Queuing
• If the host tells guests it will be a 35-minute wait I
and 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.
2
Demand Management
Use Queuing
• David Maister, a service expert, provides the I
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
2
Demand Management
Shifting Demand
• It is often possible to shift the demand for banquets I
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 date
to a period when the hotel is not projected to sell
out and needs the business.
2
Demand Management
Promotional Events
• The object of promotion is to increase demand. I
– or as we will learn later, to shift the demand curve
to the left
• During slow periods, creative promotions can
be an effective way of building business.
2
KEY TERMS
• Interactive marketing. Marketing by a service firm I

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.
2
KEY TERMS
• Physical evidence. Tangible clues such as I

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.
2
KEY TERMS
• Service inseparability. A major characteristic of I

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.
2
KEY TERMS
• Service-profit chain. A model that shows the I

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.
2
EXPERIENTIAL EXERCISES
Try One !
• Perishability is very important in the airline I
industry; unsold seats are gone forever. With
computerized ticketing, airlines can use pricing to
deal with perishability & variations in demand.
• 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?
2
EXPERIENTIAL EXERCISES
Try One !
• Perishability is very important in the airline I
industry; unsold seats are gone forever. With
computerized ticketing, airlines can use pricing to
deal with perishability & variations in demand.
• 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?
2
INTERNET EXERCISES
Try This !
Support for this exercise can be found on the Web I
site for Marketing for Hospitality and Tourism,
www.prenhall.com/kotler
• 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?
2
INTERNET EXERCISES
Try This !
Support for this exercise can be found on the Web I
site for Marketing for Hospitality and Tourism,
www.prenhall.com/kotler
• 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.
2
END
CHAPTER END 2

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I

The quality of the service is in

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

• Service marketers must be concerned with four I

Figure 2-3 Three types

See this feature on page 43 of your textbook. 2

See this feature on page 45 of your textbook. 2

• Interactive marketing. Marketing by a service firm I

• Physical evidence. Tangible clues such as I

• Service inseparability. A major characteristic of I

• Service-profit chain. A model that shows the I

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