Market Market Segmentation, Segmentation, Targeting and Targeting and

Positioning for Travel Positioning for Travel and Tourismand TourismObjective: Introducing the meaning of marketing

implications of segmentation, targeting and

positiong for travel and tourism.

Marketing ManagementMarketing Management

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

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

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

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

To design a winning marketing To design a winning marketing strategy, the marketing manager strategy, the marketing manager must answer two important must answer two important questions: questions: What customers will we serve (what’s What customers will we serve (what’s

our target market)?our target market)? How can we serve these customers best How can we serve these customers best

(what’s our value proposition)?(what’s our value proposition)?

Selecting Customers to Selecting Customers to ServeServe

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

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

Steps in Target Steps in Target MarketingMarketing

1. 1. Market segmentationMarket segmentation; dividing a market into ; dividing a market into distinct groups of buyers with different distinct groups of buyers with different needs, characteristics or behaviors who needs, characteristics or behaviors who might require separate products or might require separate products or marketing mixes. marketing mixes.

2. 2. Market targetingMarket targeting; evaluating each market ; evaluating each market segment’s attractiveness and selecting one or segment’s attractiveness and selecting one or more of the market segments to enter.more of the market segments to enter.

3. 3. Market positioningMarket positioning; setting the competitive ; setting the competitive positioning (difference) for the product and positioning (difference) for the product and creating a detailed marketing mix.creating a detailed marketing mix.

Benefits of market Benefits of market segmentationsegmentation

More effective use of the marketing budget,More effective use of the marketing budget, Clearer understanding of the needs and Clearer understanding of the needs and

wants of selected customer groups, wants of selected customer groups, Easier creation of a place in the minds of Easier creation of a place in the minds of

potential customers within target markets potential customers within target markets about the product, about the product,

Greater accuracy in selecting promotional Greater accuracy in selecting promotional vehicles and techniques (e.g. advertising vehicles and techniques (e.g. advertising media, sales promotion methods, media, sales promotion methods, geographic placement)geographic placement)

Tour operatorsTour operators Young people 18-30 Young people 18-30 Families with Families with

children children Retired/senior Retired/senior

citizens citizens Activity/sports Activity/sports

seekers seekers Culture seekersCulture seekers

Destination Destination attractionsattractions

Local residents in Local residents in the area the area

Day visitors from Day visitors from outside local area outside local area

Domestic tourists Domestic tourists Foreign tourists Foreign tourists School parties School parties Note that most businesses deal not Note that most businesses deal not

with one segment, but several with one segment, but several

segments.segments.

Methods Used to Segment Methods Used to Segment Markets in Travel and Markets in Travel and

TourismTourism There are seven main ways of dividing There are seven main ways of dividing

up markets for segmentation purposes, up markets for segmentation purposes, all of which are used in practice in the all of which are used in practice in the travel and tourism industry. The main travel and tourism industry. The main methods of segmentation are:methods of segmentation are: Purpose of travelPurpose of travel Buyer needs, motivations, and benefits soughtBuyer needs, motivations, and benefits sought Buyer behavior (characteristics) of product usageBuyer behavior (characteristics) of product usage Demographic, economic, and geographic profileDemographic, economic, and geographic profile Psychographic profilePsychographic profile Geodemographic profileGeodemographic profile PricePrice

Segmentation by purpose of Segmentation by purpose of traveltravel

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

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

Multiple segments for Multiple segments for producers in producers in travel and travel and

tourismtourismHotelsHotels Business clients Business clients Group tours Group tours Independent Independent

vacationers vacationers Weekend/midweek Weekend/midweek

package breaks package breaks Conference Conference

delegates delegates

Transport Transport operatorsoperators

First class First class passengers passengers

Club class Club class passengers passengers

Economy class Economy class passengers passengers

Charter groups Charter groups

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

Segmentation by buyer Segmentation by buyer needs and benefits soughtneeds and benefits sought

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

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

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

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

Segmentation by buyer Segmentation by buyer behaviorbehavior

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

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

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

cycle characteristicscycle characteristics By using previous segmentation By using previous segmentation

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

Segmentation by Segmentation by psychographic psychographic

characteristics and lifestylecharacteristics and lifestyle Dependent on sophisticated market Dependent on sophisticated market

research techniques.research techniques. Psychographics aims to define Psychographics aims to define

consumer on attitudinal or consumer on attitudinal or psychological rather than physical psychological rather than physical dimensions. dimensions.

Geodemographic Geodemographic segmentationsegmentation

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

Segmentation by priceSegmentation by price

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

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

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

Yield management; segment targeted Yield management; segment targeted tactical pricing.tactical pricing.

Market Targeting Market Targeting Evaluating Market Evaluating Market

SegmentsSegments After segmenting the whole market, the firm has After segmenting the whole market, the firm has

to evaluate these segments and decide how to evaluate these segments and decide how many and which ones to target. The company many and which ones to target. The company should enter segments only where it can offer should enter segments only where it can offer superior value and gain advantages over superior value and gain advantages over competitors.competitors.

In evaluating different market segments, a firm In evaluating different market segments, a firm must look at three factors:must look at three factors: segment size and growthsegment size and growth; companies try to select the ; companies try to select the

segment with “right size and growth” for themselves. segment with “right size and growth” for themselves. Some companies prefer to target segments with large Some companies prefer to target segments with large current sales, a high growth rate, and a high profitcurrent sales, a high growth rate, and a high profit

margin. But smaller companies may find these large margin. But smaller companies may find these large segments too competitive and may find themselvessegments too competitive and may find themselves

having lack of skills and resources, therefore, prefer having lack of skills and resources, therefore, prefer to target smaller segments to target smaller segments

segment structural attractivenesssegment structural attractiveness; a segment may ; a segment may have the right size, but not offer attractive profits if have the right size, but not offer attractive profits if (1) there are strong competitors; (2) actual or (1) there are strong competitors; (2) actual or potential substitute products - may limit prices and potential substitute products - may limit prices and profits; (3) buyers with power - buyers may have profits; (3) buyers with power - buyers may have strong bargaining power relative to sellers so that strong bargaining power relative to sellers so that they may force prices down, demand more quality, they may force prices down, demand more quality, set competitors against another; (4) powerful set competitors against another; (4) powerful suppliers - can control prices, reduce quality.suppliers - can control prices, reduce quality.

company objectives and resourcescompany objectives and resources; a segment may ; a segment may have the right size with attractiveness but may not have the right size with attractiveness but may not suit with the long-run objectives of the company. suit with the long-run objectives of the company.

Selecting Market Selecting Market SegmentsSegments

The company must decide which and The company must decide which and how many segments to serve, in other how many segments to serve, in other words, the company must decide which words, the company must decide which market-coverage strategy to adopt.market-coverage strategy to adopt.

There are three market-coverage There are three market-coverage strategies:strategies: undifferentiated marketingundifferentiated marketing differentiated marketingdifferentiated marketing concentrated marketingconcentrated marketing

Undifferentiated MarketingUndifferentiated Marketing

A market-coverage strategy in which a A market-coverage strategy in which a firm decides to ignore market segment firm decides to ignore market segment differences and go after the whole differences and go after the whole market with one offer.market with one offer.

Here, the offer focus on what is common Here, the offer focus on what is common in the needs of consumers rather than on in the needs of consumers rather than on what is different. what is different.

The company designs a product and a The company designs a product and a marketing program that appeal to marketing program that appeal to largestlargest

number of buyers. It relies on mass number of buyers. It relies on mass advertising and a superior image in advertising and a superior image in people’s minds. people’s minds.

Provides cost effectiveness because of its Provides cost effectiveness because of its low production, inventory, transportation, low production, inventory, transportation, advertising, marketing research costs.advertising, marketing research costs.

Have difficulties in (1) developing a Have difficulties in (1) developing a product or brand that satisfies all product or brand that satisfies all consumers; (2) keeping a strong place in consumers; (2) keeping a strong place in the market and making profit, when the market and making profit, when several firms follow this strategy heavy several firms follow this strategy heavy competition develops; (3) satisfying competition develops; (3) satisfying smaller segments.smaller segments.

Differentiated MarketingDifferentiated Marketing

A coverage strategy in which a firm decides A coverage strategy in which a firm decides to target several market segments and to target several market segments and designs separate offers for each. E.g. Nike designs separate offers for each. E.g. Nike offers athletic shoes for different sports offers athletic shoes for different sports such as running, aerobics, cycling, baseball, such as running, aerobics, cycling, baseball, basketball, tennis…basketball, tennis…

These companies hope for (1) higher sales; These companies hope for (1) higher sales; (2) a strong place within each market (2) a strong place within each market segment; (3) more loyal customers because segment; (3) more loyal customers because the firm’s offerings match each segment’s the firm’s offerings match each segment’s desires better.desires better.

Creates better total sales, but Creates better total sales, but increases the costs - developing increases the costs - developing separate marketing plans for the separate marketing plans for the separate segments requires extra separate segments requires extra marketing research, sales analysis, marketing research, sales analysis, promotional planning, channel promotional planning, channel management. management.

Because of the high costs involved in Because of the high costs involved in this approach, the company must this approach, the company must compare increased sales with compare increased sales with increased costs when deciding to use increased costs when deciding to use differentiated marketing strategy. differentiated marketing strategy.

Concentrated MarketingConcentrated Marketing

A market-coverage strategy in which a firm A market-coverage strategy in which a firm goes after a large share of one or a few goes after a large share of one or a few submarkets.submarkets.

Suitable for smaller companies to achieve a Suitable for smaller companies to achieve a strong market place in the segments (or strong market place in the segments (or niches) that it serves because of its greater niches) that it serves because of its greater knowledge of the segment’s needs.knowledge of the segment’s needs.

Involves higher-than-normal risks because the Involves higher-than-normal risks because the target may not respond or larger competitors target may not respond or larger competitors may decide to enter the same market but offers may decide to enter the same market but offers operating economies because of specialization operating economies because of specialization in production, distribution, and promotion.in production, distribution, and promotion.

Choosing a Market-Coverage Choosing a Market-Coverage StrategyStrategy

Factors needed to be considered when Factors needed to be considered when choosing a market-coverage strategy are;choosing a market-coverage strategy are; company resourcescompany resources; when the firm’s ; when the firm’s

resources are limited, concentrated resources are limited, concentrated marketing is the better.marketing is the better.

product variabilityproduct variability; for uniform products e.g. ; for uniform products e.g. grapefruit or steel, undifferentiated grapefruit or steel, undifferentiated marketing is more suitable. But for products marketing is more suitable. But for products that vary in design e.g. cameras or that vary in design e.g. cameras or automobiles, differentiated or concentrated automobiles, differentiated or concentrated is more suitable.is more suitable.

product’s stage in the life cycleproduct’s stage in the life cycle; when the ; when the product is new, it is better to produce only one product is new, it is better to produce only one version of the product - undifferentiated or version of the product - undifferentiated or concentrated marketing. For mature products, concentrated marketing. For mature products, differentiated marketing makes more sense.differentiated marketing makes more sense.

market variabilitymarket variability; when buyers have the same ; when buyers have the same tastes and react the same way to marketing tastes and react the same way to marketing efforts, undifferentiated marketing is suitable. efforts, undifferentiated marketing is suitable.

competitor’s marketing strategiescompetitor’s marketing strategies; when ; when competitors use segmentation, undifferentiated competitors use segmentation, undifferentiated marketing can be suicidal. On the contrary, marketing can be suicidal. On the contrary, when competitors use undifferentiated when competitors use undifferentiated marketing, a firm can gain an advantage by marketing, a firm can gain an advantage by using differentiated or concentrated marketing.using differentiated or concentrated marketing.

Positioning for Positioning for Competitive AdvantageCompetitive Advantage

Once a company has decided which Once a company has decided which segments to enter, it must decide segments to enter, it must decide what “positions” it wants to occupy what “positions” it wants to occupy in those segments.in those segments.

A product’s position is the place the A product’s position is the place the product has in consumer’s minds product has in consumer’s minds relative to competing products. relative to competing products.

Choosing a Value Choosing a Value PropositionProposition

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

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

Such value propositions differentiate Such value propositions differentiate one brand from another. one brand from another.

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

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

Essentials for Effective Essentials for Effective PositioningPositioning

Information on the needs of customers Information on the needs of customers in target markets and the benefits they in target markets and the benefits they look forlook for,,

A knowledge of the organization’s A knowledge of the organization’s competitive strengths and weaknessescompetitive strengths and weaknesses,,

A familiarity with competitors’ strengths A familiarity with competitors’ strengths and weaknessesand weaknesses,,

Information on how customers perceive Information on how customers perceive the organization relative to competitorthe organization relative to competitor..

Six Positioning Six Positioning ApproachesApproaches

Positioning on Specific Product FeaturesPositioning on Specific Product Features physical attribute differentiationphysical attribute differentiation service differentiationservice differentiation personnel differentiationpersonnel differentiation location differentiationlocation differentiation image differentiationimage differentiation

Positioning on Benefits, Problem Solution, or Positioning on Benefits, Problem Solution, or NeedsNeeds

Positioning for Specific Usage OccasionsPositioning for Specific Usage Occasions Positioning for User CategoryPositioning for User Category Positioning Against Another ProductPositioning Against Another Product Positioning by Product Class DissociationPositioning by Product Class Dissociation

Useful Links and Useful Links and SourcesSources

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

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

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

http://www.hotelsmag.comhttp://www.hotelsmag.com http://www.tourism.bilkent.edu.tr/~edahttp://www.tourism.bilkent.edu.tr/~eda