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“Marketing” Creating Customer Value and Satisfaction. Objective : Defining what marketing is and introducing its basic concepts. What is Marketing?. Marketing is not selling or advertising.

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Marketing creating customer value and satisfaction

“Marketing”Creating Customer Value and Satisfaction

Objective: Defining what marketing is and introducing its basic concepts.

What is marketing

What is Marketing?

  • Marketing is not selling or advertising.

  • Marketing is the management of creating and exchanging products and value in order to satisfy the needs and wants of the customers.

  • Marketing involves building profitable, long-term relationships with customers.

  • The goal of marketing is to satisfy customers at a profit.

What is marketing 3f

  • If the marketer does a good job of understanding consumer needs, develops products that provide superior value, and prices, distributes, and promotes them effectively, these products will sell easily.

  • Thus, selling and advertising are only part of a larger `marketing mix` - a set of marketing tools that work together to affect the marketplace.

  • Marketing, more than any other business function, deals with customers. Creating customer value and satisfaction are at the heart of hospitality and travel industry marketing.

The marketing process

The Marketing Process

  • Managers must realize that they cannot satisfy all customers; they have to choose their customers carefully.

  • Companies work to (1) understand consumers, (2) construct marketing programs to create superior value for the customer, (3) build profitable relationships and create customer delight, and in turn (4) capture value from customers in the forms of sales, profits and long-term customer equity.

Core marketing concepts

Core Marketing Concepts

  • Customer needs, wants & demands

  • Marketing offers – products, services and experiences

  • Customer value and satisfaction

  • Exchanges and relationships

  • Markets

Needs wants and demands

Needs, Wants, and Demands

  • Consumers have needs (physical, social, individual etc.) wants, and demands to be satisfied. Consumers view products as bundles of “benefits” and choose products that give them the best value for their money and most satisfaction. E.g. Fairfield Inn → comfortable bed, clean room, low price; JW Marriott Hotels & Resorts → fine dining, luxury, comfort and productivity

Understanding needs and wants

Understanding needs and wants

  • What are people looking for when they visit different destinations?

  • Why would a tourist choose to holiday in Florida rather than Spain – what variables are at work apart from cost?

  • Why would he choose to travel with British Airways, but not with Lufthansa?

  • Why would he buy an independent inclusive tour, but not a group tour?

Need satisfaction theory

Need Satisfaction Theory

  • All consumer purchases, including choice of travel destination, are made to satisfy aneed of the consumer. The individual has a desire for something?????

  • Do people travel just to travel?

  • People do not travel just to travel. Travel fills some need in each consumer. Travelers’ needs differ.

Do we really need

Do we really need?

  • Often people talk about what they need, say a new television set, a new dress, or a holiday. But do they really need these things? Or are they just expressing a desire for more?

  • Due to today’s increased material consumption patterns, it is becoming difficult to distinguish wants (e.g. reference group influence)from needs.

Maslow s hierarchy of needs

Maslow’s hierarchy of needs


(e.g. self-fulfillment, etc.)

Ego needs

(e.g. self-respect, status, success, etc.)

Social needs

(e.g. affection, love, friendship, etc.)

Safety needs

(e.g. security, protection, etc.)

Physiological needs

(e.g. food, water, air, etc.)

What is marketing 3f

  • According to Maslow, the more basic needs have to be satisfied (satisfied according to the needs of our cultural group) before our interest will focus on higher level needs.

  • However, according to Alderfer, and his ERG (existence, relatedness, and growth needs) theory, (1) more than one need may be operative at the same time, (2) if the satisfaction of a higher level need is frustrated, the desire to satisfy a lower level need increases.

The main motives for travel and tourism

The Main Motives for Travel and Tourism

  • Motivation for travel and tourism can be categorized as;

    • Physical motivations

    • Cultural motivations

    • Personal motivations

    • Prestige and Status motivations

      (Mathieson and Wall, 1993)

Physical motivations

Physical motivations

  • refreshment of body and mind (rest and relaxation) – beach holidays, lakes and mountains, etc.;

  • for health purposes (i.e. either medically prescribed or undertaken voluntarily) – spas, etc.;

  • for participation in sports – skiing, canoeing, safari parks, ponytrekking, etc.;

  • pleasure, - fun, excitement, romance and entertainment, to shop.

Cultural motivations

Cultural motivations

  • curiosity about foreign countries, people and places;

  • interests in art, music, architecture, folklore – music festivals, theatre visits, etc.;

  • interest in historical places (remains, monuments, churches);

  • experiencing specific international and national events - Olympic Games, Oktoberfest, etc.

Personal motivations

Personal motivations

  • visiting relatives and friends;

  • meeting new people and seeking new friendships;

  • seeking new and different experiences in different environments – sailing etc.;

  • escaping from one’s own permanent social environment (i.e. desire for a change)

  • personal excitement of traveling;

  • visiting places and people for spiritual reasons (i.e. pilgrimages)

  • traveling for travel’s sake

Prestige and status motivations

Prestige and Status motivations

  • pursuit of hobbies – craft or painting holidays etc.;

  • continuation of education or learning- study tours etc.;

  • seeking of business contacts and professional goals – fairs, etc.;

  • conference and meetings;

  • ego enhancement and sensual indulgence;

  • fashion



  • A product (persons, places, organizations, activities, ideas) is anything that can satisfy a need or want. Producers must see themselves as providing a solution to a need (benefits) rather than just selling a product. Otherwise, when a new product satisfies the needs better or less expensively, they would not make money.

  • Research is a must to understand the needs and wants of the customers to produce the right product.E.g. At Disney World, each manager spends a day in the park in a Mickey costume or work on the front line - taking tickets, selling pop-corn.

What is marketing 3f

Disney World, Orlando

Customer value and satisfaction

Customer Value and Satisfaction

  • How do customers choose among these many products? Consumers make choices based on;

    • Value; is the difference between owning the product and the cost of obtaining the product, in a way “profit” to the customer. Customers do not judge product values objectively, on the contrary they act on perceived value. E.g. Is Hilton really the best hotel company?

What is marketing 3f

  • Satisfaction; is the difference between the product’s performance and buyer’s expectations. If the product’s performance falls short of expectations, the buyer is dissatisfied. If the performance matches or exceeds expectations, the buyer is satisfied. Smart companies aim to satisfy customers by promising only what they can give, then giving more than they promise. Benefits of satisfying customers: Customer satisfaction create an emotional tie (customer loyalty) to a product. Highly satisfied customers make (1) repeat purchases, (2) are less price sensitive, (3) talk positively to their friends.

What is marketing 3f

  • Quality; simply quality can be defined as “freedom from defects”. Today, most companies define quality in terms of customer satisfaction. E.g. according to Motorola “if the customer doesn’t like the product, it’s a defect”. Quality starts with customer needs and ends with customer satisfaction. The concept of “total quality management” is in a away “total customer satisfaction”. Improving the quality of a product that customers want increases customer satisfaction, therefore increases profit.

Exchanges and relationships

Exchanges and Relationships

  • Marketing occurs when people decide to satisfy needs and wants through exchange.

  • Exchange (transaction) is the act of getting a desired object (product, service, idea …) from someone by giving something in return.

  • Marketing should create mutually beneficial relationships (good for both parties) to generate profitable transactions.



  • A market is the set of actual and potential buyers of a product. These buyers share a particular need or want that can be satisfied through exchanges and relationships.

  • Marketing means managing markets to bring about profitable customer relationships.

What is marketing 3f

  • Creating these relationships takes work. Sellers must search for buyers, identify their needs, design right marketing offers (products), set right prices, promote and deliver (place) the products in the right ways (4Ps of Marketing). These are the core marketing activities.

Marketing management

Marketing Management

  • Marketing management is the art and science of choosing target markets and building profitable relationships with them.

  • The marketing manager’s aim is to find, attract, keep, and grow target customers by creating, delivering, and communicating superior customer value.

What is marketing 3f

  • Marketing management is in a way, demand (customer) management.

  • A company’s demand comes from two groups: new customers and repeat customers. Marketing management deals with finding ways (1) to attract new customers and create transactions with them and also (2) to retain current customers and build lasting customer relationships.

What is marketing 3f

  • To design a winning marketing strategy, the marketing manager must answer two important questions:

    • What customers will we serve (what’s our target market)?

    • How can we serve these customers best (what’s our value proposition)?

Selecting customers to serve

Selecting Customers to Serve

  • The company must first decide who it will serve. It does this by diving the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing).

What is marketing 3f

  • Some people think of marketing management as finding as many customers as possible and increasing demand. But marketing managers should know that they cannot serve all customers in every way. By trying to serve all customers, they may not serve any customers well. Instead, the company wants to select only customers that it can serve well and profitably.

Methods used to segment markets in travel and tourism

Methods Used to Segment Markets in Travel and Tourism

  • There are seven main ways of dividing up markets for segmentation purposes, all of which are used in practice in the travel and tourism industry. The main methods of segmentation are:

    • Purpose of travel

    • Buyer needs, motivations, and benefits sought

    • Buyer behavior (characteristics) of product usage

    • Demographic, economic, and geographic profile

    • Psychographic profile

    • Geodemographic profile

    • Price

Segmentation by purpose of travel

Segmentation by purpose of travel

  • E.g. Conference markets require different products to those supplied to other business travelers and meetings for groups of different sizes require special provision.

  • For a tour operator, customer’s purpose and product needs will differ according to whether they are looking for; main summer holiday, additional holidays and short breaks, winter sun, winter sports.

What is marketing 3f

  • Within the broad categories of main and additional holidays, typical subsidiary purposes would include sea and beach holidays (with and without children), cultural interests, walking and other activity interests and an interest in exotic destinations.

Segmentation by buyer needs and benefits sought

Segmentation by buyer needs and benefits sought

  • Within purpose of travel, the next logical consideration for segmentation is to understand the needs, wants and motivations of particular customer groups (as discussed).

  • The range and perceived importance of benefits sought by customer segments are not easy to understand. They can only be discovered by market research among identified target groups.

What is marketing 3f

  • Segmentation by benefits, makes it possible for marketing managers to fine tune their products.

  • Focusing on promoting the benefits sought is a logical objective for brochures and other marketing communications.

Segmentation by buyer behavior

Segmentation by buyer behavior

  • Within purpose and benefits sought, there is scope for refining the segmentation process according to the types of behavior or characteristics of use of products that customers exhibit. E.g. frequency of usage of products.

  • Frequent users (high frequency, high spending high loyal); may represent only 10% of individual customers in a year but up to 60% of revenue for some hotel groups and airlines.

Segmentation by demographic economic geographic and life cycle characteristics

Segmentation by demographic, economic, geographic and life-cycle characteristics

  • By using previous segmentation processes, considerable knowledge can be obtained. However, for the purposes of efficient promotion and distribution of products, especially to prospective new customers rather than to existing ones, it is important to know the demographic profile (e.g. age, sex, occupation, income, place of residence) and other defining characteristics (life-cycle) of their target customers, including potential users.

Segmentation by psychographic characteristics and lifestyle

Segmentation by psychographic characteristics and lifestyle

  • Dependent on sophisticated market research techniques.

  • Psychographics aims to define consumer on attitudinal or psychological rather than physical dimensions.

Geodemographic segmentation

Geodemographic segmentation

  • A very powerful and productive segmentation tool; developed through combining an analysis of census data with the postal area (zip) codes that identify group of households in the country.

Segmentation by price

Segmentation by price

  • In leisure travel and tourism markets in all countries, buyers are highly price-sensitive.

  • It is not a segmentation variable of the same kind as the others.

  • There are segments of customers to be identified and located who respond to different price bands.

  • Yield management; segment targeted tactical pricing.

Choosing a value proposition

Choosing a Value Proposition

  • The company must also decide how it will serve targeted customers – how it will differentiate and position itself in the marketplace.

  • A company’s value proposition is the set of benefits or values it promises to deliver to customers to satisfy their needs. E.g. Northwest Airlines punctual, friendly, fun flight; Singapore Airlines luxurious, prestigious, special flight

What is marketing 3f

  • Such value propositions differentiate one brand from another.

  • They answer the customer’s question “Why should I buy your brand rather than a competitor’s?”

  • Companies must design strong value propositions that give them the greatest advantage in their target markets.

Marketing management philosophies

Marketing Management Philosophies

  • There are five alternative concepts under which organizations conduct their marketing activities: the production, product, selling, marketing and societal marketing concepts.

    • The Production Concept; holds that consumers will favor products that are available and highly affordable. Here, the management focus on improving production and distribution. This oldest philosophy is useful in two types of

What is marketing 3f

situation. (1) when the demand for a product exceeds the supply (2) when the product’s cost is too high and improved productivity is needed to bring it down. E.g. Henry Ford’s “Model T”, TI watches.

  • The Product Concept; holds that consumers favor products that offer the most quality, performance and innovative features. Here, the organization should focus on making continuous product improvement.

  • The Selling Concept; holds that consumers do not buy enough products if there are not large-scale selling and promotion effort. Most

What is marketing 3f

companies use the selling concept when they have overcapacity. This concept focuses on creating sales transactions rather than on building long-term, profitable relationships with customers.

  • The Marketing Concept; holds that achieving organizational goals (making profit) depends on understanding the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do. Relies heavily on research. E.g. Disney, McDonald’s, Ritz-Carlton Hotels… are customer-driven companies.

What is marketing 3f

  • The Societal Marketing Concept; holds that the organization should not only satisfy the needs and wants but also improve both customer’s and society’s well-being. This newest philosophy focus on customer long-term welfare, since today we have environmental problems, resource shortages, population growth etc. E.g. Critics against fast-food restaurants that food has a lot of fat and salt harmful for health, a lot of packaging increasing waste and pollution. Here, the companies try to balance (1) company profits, (2) consumer wants, (3) society’s interests.

Customer relationship management

Customer Relationship Management

  • CRM is perhaps the most important concept of modern marketing.

  • Until recently, CRM has been defined narrowly as a customer data management activity. It involves managing detailed information about individual customers in order to maximize customer loyalty.

What is marketing 3f

  • More recently, CRM is defined as the overall process of building and maintaining profitable customer relationships by delivering superior value and satisfaction. It deals with all aspects of acquiring, keeping and growing customers.

  • Relationship building blocks: customer perceived value and satisfaction.

  • A company can always increase customer satisfaction by lowering its price or increasing its services. But this may result in lower profits.

What is marketing 3f

  • Companies can build customer relationships at many levels. E.g. frequent-flier programs, club marketing programs.

  • Yesterday’s companies focused on mass marketing to all customers at arm’s length. Today’s companies are building more direct and lasting relationships with more carefully selected customers.

  • Today’s companies do not want relationships with every customer. Companies are targeting fewer, more profitable customers.

Capturing value from customers

Capturing Value from Customers

  • By creating superior customer value, the firms creates highly satisfied customers who stay loyal and buy more. This, in turn, means greater long-run returns for the firm.

  • Good customer relationship management creates customer delight. In turn, delighted customers remain loyal and talk favorable to others about the company and its products.

What is marketing 3f

  • Customer life-time value: the value of the entire stream of purchases that the customer would make over a lifetime of patronage.

  • Losing a customer means losing more than a single sale. It means losing the entire stream of purchases that the customer would make over a lifetime of patronage.

  • Customer equity: The total combined customer lifetime values of all of the company’s customers.

Product formulation in tourism

Product Formulation in Tourism

Objective: In response to the knowledge and forecasts on the customer’s needs and wants, discussing how products are put together.

Understanding tourism products

Understanding Tourism Products

  • There are two different dimensions for understanding tourism products;

    • The overall tourism product; as far as the tourist is concerned, the product covers the complete experience from the time he leaves home to the time he returns to it.

    • The product of individual tourism businesses; organizations in the industry have a much narrower view of the products they sell, they focus primarily on their own services.

Components of the overall tourism product

Components of the Overall Tourism Product

  • From the standpoint of a potential customer, the product may be defined as a bundle or package of tangible and intangible components.

  • The packaged is perceived by the tourist as an experience.

    • Destination attractions and environment

    • Destination facilities and services

    • Accessibility of the destination

    • Images of the destination

    • Price to the customer

Destination attractions and environment

Destination attractions and environment

  • They determine customer choice and influence prospective buyers’ motivations.

  • They include;

    • Natural attractions

    • Built attractions (e.g. The World)

    • Cultural attractions

    • Social attractions

Destination facilities and services

Destination facilities and services

  • They make it possible for visitors to stay and in other ways enjoy and participate in attractions.

  • They include;

    • Accommodation units

    • Restaurants, bars and cafes

    • Transport at the destination

    • Sports (interest) activity

    • Other facilities (e.g. language schools)

    • Retail outlets

    • Other services (e.g. information services)

Accessibility of the destination

Accessibility of the destination

  • These are the private and public transport aspects of the product that determine the cost, speed and convenience.

  • They include;

    • Infrastructure (roads, airports etc)

    • Equipment (size, speed of transport etc)

    • Operational factors (routes, frequency etc)

    • Government regulations

Images and perceptions of the destination

Images and perceptions of the destination

  • The attitudes and images customers have towards products strongly influence their buyer decision.

  • Destination images are not necessarily grounded in experience or facts but they are always powerful motivators in leisure and travel and tourism.

  • Closely linked in prospective customers’ minds.

What is marketing 3f

  • All destinations have images, often based on historic rather than current events

  • It is an essential objective of destination marketing to sustain, alter, or develop images in order to influence prospective buyers’ expectations.

  • The images of tourism businesses within destinations are often closely related to the destination image (e.g. Las Vegas)

Price to the customer

Price to the customer

  • Most destinations offer a range of products and appeal to a range of segments, price in the travel and tourism industry covers a very wide range.

  • Price varies by season, by choice of activities and internationally by exchange rates as well as by distance traveled, transport mode and choice of facilities and services.

Components of specific products

Components of Specific Products

  • Core product; essential service or benefit designed to satisfy the identified needs of target customer segments.

  • Tangible product; the specific offer for sale slating what a customer will receive for his money.

  • Augmented product; comprises all the forms of added value to the formal product offers to make them more attractive.

Branding and product positioning

Branding and Product Positioning

  • Image, typically communicated by branding, is identified as one of the components in the overall tourism product and as a vital element within the augmented product development and marketed by individual businesses in the industry.

  • Tourism products are essentially intangible and need to be communicated in ways that influence consumers’ perceptions.

What is marketing 3f

  • Branding provides the core attributes of;

    • Statement of ownership.

    • Means of identifying a product or service for purchasers and distinguishes it from that of competitors.

    • Symbol of shorthand device to which expectations of quality could be attached.

  • A brand is defined as “a name, symbol, design or some combination, which identifies the ‘product’ of a particular organization as having a sustainable differential advantage”.

What is marketing 3f

  • In practice, a strong brand has to exist in the minds of consumers as a fusion of readily understood values and benefits.

  • A brand offers the consumer relevant added value, a superior proposition that is distinctive from competitors (competitive advantage).

  • Consumers are prepared to pay a price premium for strong brands.

  • Forms the basis of the “positioning”.

Advantages of branding for travel and tourism

Advantages of Branding for Travel and Tourism

  • Helps reduce medium and long-term vulnerability to the unforeseen external events

  • Reduces risk for the consumer, offers guarantee, signals expected quality and performance of an intangible product

  • Provides a common understanding and some unity of purpose for staff etc

  • Branding is a strategic weapon for long-range planning in tourism

Service characteristics of hospitality and tourism marketing

Service Characteristics of Hospitality and Tourism Marketing

Objective: discussing four distinguishing characteristics of services and several things management of service firms can do to increase the effectiveness of their business.

Services marketing

Services Marketing

  • Service industries are quite varies: governmental services - courts, hospitals, police, fire departments, postal services, schools etc; private nonprofit organizations - museums, colleges, hospitals etc; business organizations - airlines, hotels, restaurants, advertising, real estate etc.

Satisfying the customers

Satisfying the Customers

  • The aim of the service organizations is also serving and satisfying the customer.

  • The belief that customer comes first is reinforced in Four Seasons Hotels where employees who go to extraordinary efforts to satisfy the customer are entitled to be the “Employee of the Year”, story of Ron Dyment, doorman in Toronto.

Nature and characteristics of services

Nature and Characteristics of Services

There are four distinguishing characteristics of services. They are;

  • Intangibility

  • Inseparability

  • Variability

  • Perishability

Service intangibility

Service Intangibility

  • means that unlike physical products, services cannot be seen, tasted, felt, heard or smelled before they are bought.

  • Buyers look for “signals” or “tangible evidences” like the place, people, price, equipment and information about the service in order to reduce uncertainty caused by intangibility before they pay the price. E.g. the cleanliness of the restaurant, employee uniforms of the hotel, Heublein vs Smirnoff.

Service inseparability

Service Inseparability

  • means that services cannot be separated from their both (1) providers and (2) other customers.

  • If a service employee provides the service, then the employee is part of the service. E.g. the food in the restaurant may be outstanding, but if the service person is rude, customers will downrate the overall service of the restaurant.

  • the other customers affect the service outcome as well. E.g. a couple may choose a restaurant but if a group of loud customers is seated next to them, the couple will be disappointed.

Service variability

Service Variability

  • means that the quality of services depends on who provides them, plus, when, where, and how they are provided. E.g. within a given hotel chain, one reception desk agent may be cheerful and efficient one day but would be unpleasant and slow the other day.

  • Service providers’ service quality depends on his energy and his frame of mind at the time of each customer encounter.

  • Fluctuating demand makes it difficult to deliver consistent services during periods of peak demand.

  • Variability or lack of consistency is the major cause of customer disappointment in the industry.

Service perishability

Service Perishability

  • means that services cannot be stored for later sale or use. E.g. if a 100 room hotel can sell only 40 rooms today, selling the remaining 60 is gone forever.

  • If service providers are to maximize revenue, they must manage capacity and demand. E.g. hotels charge lower rates in the off-season to attract more guests; restaurants hire part-time employees to serve during peak periods; tour operators and airline companies have last-minute sales.

  • Service perishability is a serious problem when demand fluctuates.

Management strategies for service businesses

Management Strategies for Service Businesses

  • Services are different from tangible products, that is why, different marketing strategies are needed to market services. Those strategies are;

    • Managing Differentiation

    • Managing Service Quality

    • Tangibilizing the Service

    • Managing Employees

    • Managing Risk

    • Managing Capacity and Demand

    • Managing Consistency

Managing differentiation

Managing Differentiation

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

  • The solution to price competition is to develop a differentiated offer, delivery and image.

  • Service companies can differentiate their service delivery in three ways, through;

    • People

    • Physical evidence

    • Process

What is marketing 3f

Four Seasons, Istanbul

Ritz-Carlton, Istanbul

Managing service quality

Managing Service Quality

  • Service quality will always vary, depending on the interactions between employees and customers.

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

  • If a customer has a major complaint, 91% will not buy again, if it is resolved quickly, 82% of those customers will return (study by Technical Research Programs Institute).

  • “Complaint is a Gift”.

Tangibilizing the service

Tangibilizing the Service

Tangible evidences such as promotional materials (e.g. brochures), employees’ appearance, and the service firm’s physical environment help tangibilize the services.

  • trade dress; is the distinctive nature of a hospitality industry’s total visual image and overall appearance. For example, McDonald’s golden arch, restaurant décor… To compete effectively, marketing managers must design a distinctive trade dress.

What is marketing 3f

  • employee uniform and costumes; have an important and useful role in differentiating one hospitality firm from another and create pride in the employees.

  • physical surroundings; should be designed to reinforce the product’s position in the customer’s mind. For example, the furniture in the lobby of a Four Seasons Hotel should be high quality and expensive looking. Every piece of tangible evidence must deliver the desired organization image to target customers.

Managing employees

Managing Employees

  • In service businesses, the customer and front-line service employees interact. Service providers must interact effectively with customers to satisfy them. That is why, companies take care of their employees to make profit. Because they believe that only satisfied and productive service employees can create satisfied and loyal customers.

    • Internal marketing: means that the service firm must effectively train and motivate its customer-contact employees to provide customer satisfaction.

Managing risk

Managing Risk

  • People, who will stay in an X hotel or travel with an X airline for the first time, perceive high risk. Because they don’t have any idea about the service quality before they pay the price. There is no guarantee that they will be satisfied.

  • As a result, (1) “image” and reputation of the organization,(2) “word-of-mouth advertising ” and (3) FAM trips become more important in hospitality and travel marketing.

Managing capacity and demand

Managing Capacity and Demand

  • Since services are perishable and can not be reserved and sold in later sale, marketing managers must manage capacity and demand.

  • If demand is less than capacity, hotel rooms and restaurant seats are empty. If demand is higher than capacity, there will be great difficulty in coping with customer numbers. For example, a restaurant must manage its capacity when there is high demand on Mother’s Day.

What is marketing 3f

  • Managers have two major options for matching capacity with demand: change capacity or change demand. For example, an airline can change capacity on a heavily traveled route by assigning a larger plane to the route. If a larger plane is not available, they can reduce demand by eliminating discounted fares. First capacity then demand management will be discussed in the coming sections.

What is marketing 3f

  • In order to cope with high demand, organizations must operate at a maximum capacity and remember that their goal is to create satisfied customers. Here, the problem is that research has shown that customer complaints increase when service firms operate above 80% of their capacity.

What is marketing 3f

Managing Capacity

In order to manage capacity with fluctuations in shortterm demand, the following actions are available;

  • Involve the customer in the service delivery system

  • Cross-train employees

  • Use part-time employees

  • Rent or share extra facilities and equipment

  • Schedule downtime during periods of low capacity

  • Extend service hours

  • Use technology

  • Use price

Involve the customer in the service delivery system

Involve the Customer in the Service Delivery System

  • Getting the customer involved in service operations increases the number of people that one employee can serve, as a result, increasing the capacity of the operation. This method is very useful especially during busy periods.

  • For example, some restaurants have self-service salad bars and vending machines for drinks e.g. Schlotzky Restaurant, or hotels have computerized check-in and -out e.g. Sheraton Hotels which enable the customers to serve themselves and make it possible for employees to handle more customers.

Cross train employees

Cross-train Employees

  • Cross-training employees gives the operation flexibility, allowing the business to increase capacity by shifting employees, and can help to prevent the organization from reducing capacity when an employee calls in sick. For example, front-desk staff or banquet staff when cross-trained can be called on if demand is higher.

Use part time employees

Use Part-time Employees

  • Managers can use part-time employees to increase capacity during an unusually busy day or meal period or during the busy months of the year for seasonal businesses. For example, summer resorts hire part-time staff to work during the summer period. Part-time banquet waiters are called in when there is a large banquet operation.

Rent or share extra facilities and equipment

Rent or Share Extra Facilities and Equipment

  • Businesses do not have to have space or equipment limitations. When they have busy periods, they rent equipment or space.

  • In the hospitality industry, companies can work together and share their resources as well. For example, when X hotel does not have enough rooms, in order to prevent losing customers, it may refer the customers to the sister property. Or when there is not space for a large group in the restaurant, in Istanbul the alternative might be a dinner cruise on Bosphorus.

Schedule downtime during periods of low capacity

Schedule Downtime during Periods of Low Capacity

  • An organization also needs to decrease capacity when there is low demand. One way to do this is to schedule repairs and maintenance during the low season. Employees can take holidays or training programs can be scheduled during low demand.

Extend service hours

Extend Service Hours

  • Restaurants and entertainment facilities can increase capacity by extending their hours. When there the demand is high, the restaurant operations may decide to open one hour early. For example, nowadays fast-food operations have extended their capacity by opening for breakfast.

Use technology

Use Technology

  • Technology can be used to increase the capacity of systems. For example, the automatic wake-up call system in hotels that can make hundreds of wake-up calls in an hour.

Use price

Use Price

  • Price can be used to adjust capacity in companies which especially have mobile products such as car rental companies. Rent-a-car companies may offer low or no drop-off rates to areas where they need cars.

What is marketing 3f

Managing Demand

For managing demand (when demand exceeds capacity), the following strategies are available;

  • Use price to create or reduce demand

  • Use reservations

  • Overbook

  • Use queuing

  • Shift demand

  • Change the salesperson’s assignment

  • Create promotional events

Use pr i ce to create or reduce demand

Use Price to Create or Reduce Demand

  • Pricing is one method used to manage demand.

  • When demand is less than capacity, managers lower prices to create demand. For example, Pizza Hut offers “eat as much as you can” on weekdays between 15:00 to 18:00.

  • When demand is more than capacity, managers raise prices to lower demand. For example, on New Year’s Eve, many restaurants and hotels offer set menus and packages that exceeds the normal prices. Higher prices decrease demand but still be enough to fill the capacity.

Use reservations

Use Reservations

  • Hotels and restaurants use reservations to monitor demand.

  • When there will be more demand than capacity, managers can save capacity for the more profitable segments. For example, hotels do not except reservation requests of travel agencies when they expect high demand from the individual travelers.

  • When capacity meets demand, reservations can also limit demand by letting managers refuse any further reservations.



  • Not everyone who makes reservations comes – no show. As a result hotel rooms remain empty. In order to prevent hotel rooms to remain empty, managers overbook – accept more reservations than capacity. For example,if in an X hotel 20% of the customers with reservations do not come, 10 rooms will be empty out of 50 reservations. If in this hotel, the average rate is $80, this means a potential loss of $292,000.

  • Overbooking must be carefully managed. Otherwise, customers would be walked to another hotel and this destroys the reputation of the hotel.

Use queuing

Use Queuing

  • When capacity exceeds demand and guests want to wait, queues will form.

  • Queues, such as waits at restaurants, are an effective way of managing demand. Good management of queuing can make the wait more tolerable for the guest. It is better to overestimate the wait and tell guests it will take 35 minutes, when the estimated wait is 30 minutes.

  • The following tips are useful for the management of a waiting line;

What is marketing 3f

  • Unoccupied Time Feels Longer Than Occupied Time: Managers can create entertainment to prevent their guests to get bored from waiting. For example, Disney Land has employees who wear Mickey Mouse costumes talk to kids in waiting lines, occupying time and making the wait pass faster.

  • Unfair Waits are Longer Than Equitable Waits: Guests can become upset with a wait if they feel that they are being treated unfairly. For example, after waiting 20 minutes to check-in, one guests may have to wait for another 10 minutes because of a phone call which is supposed to be answered by the front desk clerk. In order to eliminate this problem, Marriott has started a policy of removing phones from the front desk.

Shift demand

Shift Demand

  • It is possible to shift demand for banquets and meetings. For example, if the date of a banquet or meeting is flexible, managers may offer to shift the date to a period (e.g. 3 days before or after the stated date) when the hotel is not forecasted to be full.

Change the salesperson s assignment

Change the Salesperson’s Assignment

  • In hotels, the director of sales assigns salespeople to specific segments.

  • If the hotel is trying to increase its short-term business, then the manager should shift the salespersons from the association market (which books a year or more out) to the corporate market (which can produce bookings in a month or less).

Create promotional events

Create Promotional Events

  • During slow periods, creative promotions can be an effective way of building business. For example, hotels develop special packages and nights, casinos have slot and table game tournaments during their slow periods to build business.

Managing consistency

Managing Consistency

  • Consistency means that customers will receive the same level of services every time they come to the service organization. For example, a cream mushroom soup will taste the same way it tasted 2 weeks ago, a hotel room will look the same way it looked a month ago.

  • In order to manage consistency, a clear company policy must be established. Training the employees the same way and standardizing the production with equipment as in McDonald’s would be helpful to provide consistent service.

Useful links and sources

Useful Links and Sources

  • Kotler, P.; Bowen, J. and Makens, J. (1999). Marketing for Hospitality and Tourism (2nd ed.). Prentice Hall. NJ.

  • Kotler, P. and Armstrong, G. (2006) Principles of Marketing (11th ed.). Prentice Hall. NJ.

  • Middleton, V.T.C. (2004) Marketing in Travel and Tourism (3rd ed). Elsevier. Oxford.



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