B S T M Bachelor of Scienc e in To urism Managem

Prof. Mary Grace B. Sumugat, MSHTM, CTP, CGSP

Contact Information: 09164960030

ND HOSPITALITY MARKETING
MODULE 2

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 Lesson 6
MARKET SEGMENTATION, TARGETING AND POSITIONG

Objectives:
Define the major steps in designing a customer -driven marketing strategy, market segmentation, targeting
Explain how companies’ identity attractive market segments and choose a market- targeting strategy.
Illustrate the concept of positioning the competitive advantage by offering specific examples.

Market Segmentation
A business firm that is non-consumer-oriented will hesitate to differentiate its market
from competitors. A company that is consumer-oriented is never resistant to market
segmentation. Market Segmentation is the process of dividing a market of potential customer
into groups or segments, based on different characteristics. The segments created are
composed of consumers who will respond similarly to marketing and who share traits, as
such similar interests, needs or location.
Figure 1. Steps in segmentation, targeting and positioning
Market Segmentation Market targeting Product positioning
Identify bases for segmenting the market Develop positioning for each target segmen
Develop Develop marketing mix for each target segm
profiles of resulting segments 3. Develops
measures of
segments
attractivenes
s.
4. Select the
target
segments

Market is the set of all actual and potential buyers of a product. It is one of the composition
of systems, institutions procedures, social relations, or infrastructures whereby parties engage
in exchange. While parties may exchange goods and services by barter, most markets rely on
sellers offering their goods and services in exchange of money in buyers.
Three Steps of the Target marketing Process
A. Market Segmentation is the process of dividing a market into distinct groups of
buyers who might require separate products and/or marketing mixes.
B. Market targeting is the process of evaluating each segment’s attractiveness and
selecting one or more of the market segments.
C. Positioning is the process of developing competitive positioning for the product and
an appropriate marketing mix.
Market Segmentation
A. Bases for segmenting a market. There is no single way to segment a market. A
marketer must try different segmentation variables, alone and in combination, hoping
to find the best way to view the market structure.

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 1. Geographic segmentation calls for dividing the market nations, states, regions,
countries, cities, or neighborhoods.
2. Demographic segmentation consists of dividing the market into groups based on
graphics variables such as age, gender, family, life cycle, income, occupation,
education, religion, race, and nationality.
3. Psychographic segmentation divides buyers into different groups based on social
class, lifestyle, and personality characteristics.
4. Behavior segmentation divides buyers into groups based on their knowledge,
attitude, use or response to a product.
Customers who tend to be loyal to a brand will most likely not respond to
a competitor’s price cut, at least, not immediately.
Place or distribution, display and packaging can be critical for self-
conscious buyers of intimate products such as lingerie and condoms.

B. Requirements for Effective Segmentation

1. Measurability. The degree to which the segment’s size and purchasing power
can be measured.
2. Accessibility. The degree to which segments are large or profitable enough to
serve as markets.
3. Substantiality. The degree to which segments are large or profitable enough
to serve as markets.
4. Actionability. The degree to which effective programs can be designed
for attracting and serving segments.

Evaluating Market Segments:

Factors in evaluating segments:
a. Segment size and growth. Companies analyze the segment size and growth and
choose the segment that provides the best opportunity.
b. Segment structural attractiveness. A company must examine major structural
factors that affect long-run segment attractiveness.
c. Company objectives and resources. The company must consider its own objectives
and resources in relation to a market segment

Selecting Target Market

WHO WILL BUY?
Bata/matanda? Age?
Me trabaho? Anong tinapos? Gender?

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Figure 1. Selecting target market
Target
market

Marketing
System
Things to be Marketing
marketed Organization

Defining the target market

A specific way of defining the target market is to identify the primary target that is
the most logical buyers to generate the bulk sales. Secondary target markets must also be
reached through different communications and marketing mixes.
Target market are the buyers of the goods.
They can be present product users or they can be the
prospective buyers being targeted by the marketing
organizations.
Market is shall not mean a “palengke” but
“people with need to satisfy, capacity or money to
spend and willingness to buy. These people are the
target market.

Image by: go.survey.in

The Marketing System

Marketing system deals with identification of major institutional components in an
organization’s environment that interact to produce results in the marketplace.
The marketing organization is defined as the marketers, the sellers of goods or
services who can be either be the producer, the manufacturer, wholesaler or retailer.

Market Positioning
A product’s position is the way the product is defined by consumers on important
attributes-the place the product occupies in consumers’ minds relative to competing products.
A. Positioning Strategies
1. Specific product attributes. Price and product features can be used to position
the product.
2. Needs products fill or benefits products offer. Marketers can position products
by the needs that they fill or the benefits that they offer. For example, a restaurant
can be positioned as a fun place.
3. Certain classes of users. Marketers can also position for certain classes of users,
such as hotel advertising itself as a women’s hotel.

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 4. Against an existing competitor. A product can be positioned against an existing
competitor. In “Burger Wars”, Burger King used its flame-broiled campaign
against McDonald’s claiming that people prefer flame-broiled over fried burgers.

B. Choosing and implementing a position strategy. The positioning tasks consists of

three steps: identifying a set of possible competitive advantages on which to build a
position, selecting the right competitive advantages, and effectively communicating
and delivering the chosen position to carefully selected target market.

C. Product Differentiation
1. Physical Attributes
2. Service
3. Personnel
4. Location
5. Image
Source: Philip T. Kotler, Pearson New International Edition, Marketing for Hospitality and
Tourism, Sixth Edition, 2015

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 Lesson 7
DESIGNING AND MANAGING PRODUCTS

Objectives:
Define the term product, including the core, facilitating, supporting and augmented product.
Understand branding and the conditions that support branding
Explain the new-product development.
Understand how the product lifecycle can be applied to the hospitality industry.

Discussion:
I. What is a Product?
A product is anything that can be offered to a
market for attention, acquisition, use or consumption that
might satisfy a want or need. It includes physical object,
services, place, organizations and ideas.

II. Product Level

A. Core product. It answers the question of what the
buyer is really buying. Every product is a package of problem-
solving services. A core product is a company product or service
that is most directly related to its core companies. (Wikipedia)

B. Facilitating products. These are services or goods that mustbe

present for the guest to use the core product.

C. Supporting products. These are extra products offered to add

value to the core product and to help differentiate it from the
competition.

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 D. Augmented products. An augmented products has
been enhanced by its seller with other features or services to
distinguish it from the same product offered by its competitors.
Augmenting a product involves including intangible benefits or
add-on that go beyond the product itself.

1. Accessibility. This refers to how accessible the product is in terms of location and
hours.
2. Atmosphere. Atmosphere is a critical element in services. It is appreciated through
the senses. Sensory terms provide descriptions for the atmosphere as a particular set
of surroundings. The main sensory channels for atmosphere are sight, sound, scent,
and touch.
3. Customer interactions with the service system. Manager must think about how the
customers use the product in the three phases of involvement, joining, consumption
and detachment.
4. Coproduction. Involving the guest in service delivery can increase capacity, improve
customer satisfaction, and reduce cost.

III. Branding Strategy. Brand is a name, term, sign, symbol, design, or a combination
of these elements that is intended to identify the goods or services of a seller and
differentiate them from those competitors.

A. Building strong brands. Brands are powerful assets that must be carefully
developed and managed

A brand is a word, mark, symbol, or

combination of them used to identify the marketer’s
product or service.

Branding is the process of endowning products and services with the power of brand.
It’s all about creating differences between products.

A brand name is something which can be vocalized or spoken.

A brandmark is a non-registered design, symbol, or product logo.
A tradename is a registered company name.

Characteristics of good brand names:

a. It must be easy to remember. (ex. MILO)
b. It must suggest something about product benefits or use. (ex. Pronto
floor wax – means fast action)
c. It must be distinctive. Symbols, colors must be easily recognized and
not to confusing to consumers.
d. It must be legally protected.

B. Brand equity. It is added value endowed on products and services. It may be

reflected in the way consumers think, feel and act with respect to the brand, as
well as in the prices, market share, and profitability the brand commands for the
firm.

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 C. Branding positioning. Companies can position brands at any of three levels. At
the lowest level, they can position the brand on product attributes. A brand can be
better positioned by associating its name with a desirable benefit. The strongest
brands go beyond attribute or benefit positioning. They are positioned on strong
beliefs and values.

D. Brand portfolios. The brand portfolio is the set of all brands and brand particular
category or market segment. Marketers often need multiple brands in order to
pursue these multiple segments.

Reasons for introducing multiple brands:

e. attracting consumers seeking variety who otherwise have switched to
another brand.
f. increasing internal competition within the firm:
g. yielding economies of scale in advertising, sales, merchandising
and physical distribution.

E. Managing brands. Companies must manage their brands carefully. First, the
brand’s positioning must be continuously communicated to consumers. The
company should carry on internal brand building to help employees understand
and be enthusiastic about the brand promise.

IV. New product Development

A. New Product development process:

Figure 1: Major stages in new product development

Idea Concept Marketing

generation Idea screening development strategy
& testing

Product development Test marketing Commercia lization

Business
analysis

1. Idea Generation. Ideas are gained from internal sources, customers, competitors,
distributors, and suppliers.

2. Idea screening. The purpose of screening is to spot good ideas and drop poor ones as
soon as possible. Idea screening procedures are needed to eliminate ideas generated with
poor or low potential and allow those with superior potential to go further. Developing
products with poor potential can be very costly.

3. Concept development and testing. Surviving ideas must now be developed into
product concepts. These concepts are tested with target customers product idea It is
important to distinguish between a product idea product concept and product image. A
product idea envisions a possible product that company managers might offer to the
market. A product concept is a detailed version of the idea stated in meaningful consumer
terms. A product image is the way that consumers picture an actual or potential.

4. Marketing strategy development. There are 3 parts of marketing strategy

statements. The first part describes the target market, the planned product positioning and
the sales, market share and profit goals for the first two years. The second part outlines
the product’s

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 planned price, distribution, and marketing budget for the first year. The third part describes
the planned long-run sales, profit, and market mix strategy over time.

5. Business analysis. Business analysis involves review of the sales, costs, and profit
projections to determine whether they satisfy the company’s objectives. During business
analysis there 3 important things to be defined:
a. Target market
b. Communication plan
c. Financial analysis and marketing mix plan

6. Product development. Product development turns the concept into a prototype of

the product.
7. Market testing. Market testing is the stage in which the product and marketing
program are introduced into more realistic market settings.
8. Commercialization. The product is brought into the marketplace.
Marketing testing gives management the information it needs to make a final
decision about whether to launch a new product. It will face high costs. It may have
to spend several million dollars for advertising and sales promotion in the first year.
(ex. MCDonald)

V. Product Life-Cycle Stages

In developing new products and in anticipating

future market developments, marketers must consider
what stage of the product life cycle the product is in.
Product life cycle (PLC) shows the process where both
the customers and the suppliers change their behavior
while interacting in the market. The concept
associates’ products to the life cycle of human beings.

Stages in the Product Lifecycle

1. Product development begins when the company finds and develops a new
product idea. During product development, sales are zero and the company’s
investment costs add up.

2. Introduction is a period of slow sales growth as the product is being introduced

into the market. Profits are nonexistent at this stage because of the heavy
expenses of product introduction.

3. Growth is a period of rapid market acceptance and increasing profits. This is

when sales and profits increase at an increasing rate. Product “tryers” are now
repeat buyers. Competitors are now reacting, so the marketing organization must
develop selective demand, thru the use of “buy our brand” strategy by promoting
product benefits, rather than a simple “try our product” strategy.

4. Maturity is of slowdown in sales growth because the product has achieved

acceptance by most of its potential buyers. Although sales are still high, profits
level off or decline because of increased marketing outlays to defend the product
against competition. This stage is divided into 3 phases.

a. Growth maturity. Sales are declines because of distribution saturation,

unwillingness of middlemen to re-sell manufacturers product.
b. Stable maturity. Sales become level-off or at break-even because of market
saturation; unwillingness of market to buy due to loss of interest to the
product.
c. Decaying maturity. Sales continue to decline; customers shift to other
brands or available substitute.
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5. Decline is the period when sales fall off quickly and profits drop. New products
or brands eventually enter the industry. Obsolescence of the company’s products
sets
in. as new concepts come in,
they replace the old ones.

Figure 2: Product Life cycle

Source: Mill and Morrrison: The Tourism system, 1998

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 PRICING PRODUCTS: PRICING CONSIDERATIONS, APPROACHES, AND
STRATEGY
Lesson 8

Objectives:
Outline the internal factors affecting pricing decisions, especially marketing objectives, marketing mix strategy,
Identify and define the external factors affecting pricing decisions, including the effects of the market and deman
Contrast the differences in general pricing approaches and be able to distinguish among cost-plus pricing, target
Identify the new product pricing strategies of market-skimming pricing and market- penetration pricing.
Understand how to apply pricing strategies for existing products, such as price bundling and price-adjustment str
Understand and be able to implement a revenue management system.
Discuss the key issues related to price changes, including initiating price cuts and price increases, buyer and com

Discussion:

PRICING PRODUCTS: PRICING CONSIDERATIONS, APPROACHES, AND

STRATEGY
Lesson 8
Price means the money value of a product or service expressed in terms of peso and
or centavos. Price is also the amount of money needed in order to acquire a product or service
and its accompanying services.
Factors to Consider When Setting Price

External factors: Nature of the market & demand

Internal factors: Competition
Other environmental factors (economy, resellers, government
Marketing objectives Marketing-mix strategy Costs
Pricing decisions
Organization for pricing

A. Internal Factors include the company’s marketing objectives, marketing mix

strategy, costs, and organizational considerations.

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 1. Marketing Objectives
Before establishing price, a company must select product strategy. If the
company has selected a target market and positioned itself carefully, its marketing
mix strategy, including price, will be more precise.

Major Influence of Price

a. Survival. It is used when the economy slumps or a recession is going on. A

manufacturing firm can reduce production to match demand and a hotel can
cut rates to create the best cash flow.
b. Current profit maximization. Companies may choose the price that will
produce the maximum current profit, cash flow, or ROI (Return of
Investment), seeking financial outcomes rather than long-run performance.
c. Market-share leadership. When companies believe that a company with the
largest market share will eventually enjoy low costs and high long-run profit,
they set low opening rates and strive to be market-share holder.
d. Product-quality leadership. Hotel like the Ritz-Carlton chain charge a high
price for their high-cost products to capture the luxury market.
e. Other objectives. Stabilize market, create excitement for new product, and
draw more attention.

2. Marketing Mix Strategy

Pricing decisions vary with product features, distribution,
and promotion decisions. Companies often position their products
on price, wherein it defines the target market, competitors, and
product design. This technique is called target costing, wherein it
starts with identifying ideal price, then targets costs that will
ensure that the price is met.
3. Costs. There are two types of costs
a. Fixed cost. Costs that do not vary with production or sales level.
b. Variable costs. Costs that vary directly with the level of production.
4. Cost subsidization
5. Organizational considerations. Management must decide who within the
organization should set prices. In small companies, this will be top management;
in large companies, pricing is typically handled by a corporate department or by a
regional or unit manager under guidelines established by corporate management.
B. External Factors
1. Nature of the Market and Demand
Different prices create different market demand.
a. Cross-selling. The company’s other products are sold to the guest.
b. Upselling. Sales and reservation employees are trained to offer continuously a
higher-priced product that will better meet the customer’s needs, rather than
settling for the lowest price.

1. Consumer perception of price value. It is the consumer who decides whether a

product’s price is right. The price must be buyer oriented. The price decision requires a
creative awareness of the target market and recognition of the buyer’s differences.

2. Analyzing the price-demand relationship. Demand and price are inversely related, the
higher the price, the lower the demand. Most demand curves slope downward in either a
straight or a curved line. The prestige goods demand curve sometimes slopes upward.

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3. Price elasticity of demand. If demand hardly varies with a small in price, the demand is
inelastic; if demand changes greatly, the demand is elastic. Buyers are less price-sensitive
when the product is unique, or it is high in quality, prestige or exclusiveness. Consumers
are also less price-sensitive when substitute products are hard to find. If demand is elastic,
sellers generally consider lowering their prices to produce more total revenue.

4. Factors Affecting Price-Demand Relations

a. Unique value effect. Creating the perception that offering is different from those
of your competitors avoids price competition
b. Substitute awareness effect. Lack of the awareness of the existence of
alternatives reduces price sensitivity.
c. Business expenditure effect. When someone else pays the bill, the customer
is less price sensitive.
d. End-benefit effect. Consumers are more price-sensitive when the price of
the product accounts for a large share of the total cost of the end benefit.
e. Total expenditure effect. The more someone spends on a product, the more
sensitive he/she is to the product’s price.
f. Price quality effect. Consumers tend to equate price with quality, especially
when lack any prior experience with the product.

5. Competitor’s Price and Offers. When a company is aware of its competitor’s price
and offers, it can be use the information as a starting point for deciding its own
pricing. Example: branded perfume and fragrance vs local brand
6. Other Environmental factors. Other factors include inflation, boom or recession,
interest rates, government purchasing and birth of new technology.

III. General Pricing Approaches

A. Cost-based pricing. This is the simplest pricing method wherein a standard mark-up
is added to the cost of the product. Example: a bottle of wine that costs P250 may sell
for P750, or three times the cost.
B. Break-even pricing. This is also known as target profit pricing. Price is set to break-
even on the costs of making and marketing a product, or to make a desired profit.
Example: Supposing fixed costs is Php30,000, variable cost is Php10.00, at Php 37.50
the company must sell at least 1091 units to break-even.

Break-even volume = fixed cost/price-variable cost

= Php 30,000/37.50-10
= Php 30,000/27.50
= 1091 units

C. Value based pricing. This cost-based approach is also known as buyers-based

approach which considers consumers perceived value on the product. This means that
the price is considered before designing the product or planning for its marketing
program. Pricing begins with analyzing consumers needs and value perceptions, and
price is set to match consumers’ perceived value.
D. Competitive-based pricing. Competition-based price is based on the establishment
of price largely against those competitors, with less attention paid to costs or demand.
In competition-based pricing strategy, there are two common ways in setting prices.
These are:
1. Going Rate. In going rate, marketers work within the prevailing
market price. Commodities like gasoline have similar prices except
for self-service stations, which charge a little less. Thus, firms can
price their products lower than the going rate, or price their product
at parity with competition, and emphasize their other product value.

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 2. Sealed Bid. In sealed bid, marketers’ price their product or service
depending on how competitors are expected to price theirs. Most of
the time, this pricing policy is required by government offices to
ensure they get the best deal.

IV. Pricing Strategies

A. New Product pricing strategies. Pricing strategies usually change as a product pass
through it life cycle. The introductory stage is especially challenging.
1. Prestige pricing. Hotels or restaurants seeking to position
themselves as luxurious and elegant enter the market with a high
price that supports the position.
2. Skim-the cream pricing. This involves setting higher price from
what the market expects. This can be possible since the buyer’s
associate higher prices with better quality goods.
3. Market- penetration pricing. This involves setting a low initial
price for the product or service. Product is priced at minimum that
will generate profit. The aim of this strategy is to target the mass
market immediately and win a large market share. This strategy can
be effective when market is price sensitive, where low price result to
market growth. Production and distribution costs must decline as
sales volume increases. Finally, low price must keep out
competitiveentry, on a longer period for price advantage. Example:
CRD-King sells CDs and related products in various kiosks, saving
on the margins typically given to retailers.

4. Product-bundle pricing. Sellers using product-bundle pricing

combine several of their products and offer the bundle at a reduced
priced. Most use by cruise lines. Example: computer CPU, printer,
scanner, table, and chairs and even cloth covers; hotel prices for
service, room, meal and entertainment
B. Existing-product pricing strategies. The strategies just described are used primarily
when introducing a new product. However, they can also be useful with existingproducts.
The following strategies are ones that can be used with existing products.

1. Price adjustment strategies. Companies usually adjust their basic prices to account
for various customer differences and changing situations.
a. Volume discounts. Hotels have special rates to attract customers who are likely to
purchase a large quantity or hotel rooms, either for a single period or throughout the
year.
b. Discounts based on time of purchase. A seasonal discount is a price reduction to
buyers who purchase services out of season when the demand is lower. Seasonal
discounts allow the hotel to keep demand steady during the year.

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 Discount Policies: Reductions from List prices
1. Quantity discounts are price reductions offered to encourage customers to buy in
large amount.
2. Trade discounts are also known as functional discounts. Reductions in price in
given to certain classes of buyers, usually to compensate them for the performance
of particular marketing functions.
3. Cash discounts are reduction in price allowed the buyer for prompt payment of
his bill.
4. Datings. These refer to the length of time for which sellers extend credit terms to
buyers.

c. Discriminatory pricing. Segmentation of the market and pricing differences

based on price elasticity characteristics of the segments. In discriminatory pricing,
the company sells a product or service at two or more prices, although the
difference in price is not based on differences in cost. It maximizes the amount
that each customer pays.
2. Revenue Management. Revenue management involves upselling, cross-selling and
analysis of profit margins and sales volume for each product-line. A yield-management
system is used to maximize a hotel’s yield or contribution.
3. Psychological Pricing. Also called ‘Noticeable Price Difference”, the Psychological
Pricing technique is used most especially in supermarkets and department stores to create an
impression of “good value”. For instance, a price of Php 2.95 maysell as well as Php 2.75 but
no longer as good if priced at Php 3.05 or above because of easy differentiation. The same is
true for high-ticket items. Example, an LCD projector price at Php 29,500 may sell as well it
priced at Php 29,800 but not as well if the price will be changed to Php 30,350.
4. Promotional Pricing. Hotels temporarily price their products below list price, and
sometimes even below cost, for special occasions, such as introduction or festivities.
Promotional pricing gives guests a reason to come and promotes a positive image for the
hotel.
5. Value Pricing. Value pricing means offering a price below competitors permanently,
which differs from promotional pricing, in which price may be temporarily lowered during a
special promotion. This is also known as buyers-based approach which considers consumers
perceived on the product. This means that the price is considered before designing the
product or planning for its marketing program. Pricing begins with analyzing consumers
needs and value perceptions, and price is set match consumers’ perceived value.

VI. Price Changes/ Adjustments

A. When to Increase Price. Reasons for company to cut price are excess capacity,
inability to increase business through promotional efforts, product improvement,
follow-the-leader pricing, and desire to dominate the market. Some reasons for price
adjustments are:
inflation- a continuing rise in the general price level usually attributed to an
increase in the volume of money and credit relative to available goods and
services. (Merriam Webster since 1828)
foreign exchange- A major change in foreign exchange will necessitate a
review in pricing. If devaluation occurs with the peso, costs of imported raw
materials used for production will also increase. (Principles And practices In
Marketing in Philippine Setting by: Josiah Go and Chiqui Escarael-Go,
November 2017)
shortages -When shortages of raw materials exist: prices normally go jup.
This is the basic law of demand and supply. (Principles And practices In
Marketing in Philippine Setting by: Josiah Go and Chiqui Escarael-Go,
November 2017)

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product repositioning - Brands that are
relaunched and repositioned from a
perceived low-quality brand to a high-
quality brand almost always must change
price to reflect the new value of the
product. Not all brands, however, would
take advantage of this opportunity.

Source image: aptusmarketing.com

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 Name: Score:
Course/Section: Date:

Part III. Caselet: Chicken Marketing

Bounty Agro successfully launched rotisserie chicken Chooks-to-Go without sauce in 2008
and became the market leader within two years, aggressively opening more stores numbering at 1,000
– more than the next 3 competitors combined.
In 2013, Bounty Agro launched another cooked chicken kiosk brand. Uling Roasters, this
time using a charcoal grill similar to early entrants Andok’s, Baliwag and Sr. Pedro. Uling Roasters
even used an unconventional tagline, “Di raw masyadong masarap pero pwede na.”
In 2015, Bounty Fresh launched a third brand, Reyal Litson Manok offering sauce – in fact,
with a tagline, “Masarap pag me sauce”.

Identify who is the target market and what is the value proposition of each of the 3 brands of
Bounty – Chooks-to-Go, Uling Roasters, and Reyal. How are they priced differently?

Chooks-to-Go Uling Roasters Reyal Litson Manok

Target Market

Value Proposition

Pricing

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 DISTRUBUTION CHANNELS

Lesson 9

Objectives:

After reading this chapter, you should be able to:

Describe the nature of distribution channels and tell why marketing intermediaries are used.
Explain the different marketing intermediaries available to the hospitality industry and the benefits each of t
Illustrate the channel management decisions of selecting, motivating, and evaluating channel alternatives
Identify factors to consider when choosing a business location

Discussion:

I. Nature and Importance of Distribution Channels

A distribution channel (or trade channel) is made of marketing intermediaries, or
organizations that assist in moving goods and services from producers to end users or
consumers. Marketing intermediaries are the middle of the distribution process between the
producer and the end user.
The middlemen play a vital role in distribution channel. Middlemen are independent
business concern that operate as links between producers and ultimate consumers or industrial
users.

Middlemen are classified into two:

1. Merchant middlemen. Those who are actually take the title to the goods they
handle. Examples are wholesalers and retailers
2. Agent middlemen. Those who do not take title to the goods but do not
actually assist in the transfer of title. Examples are real estate brokers

Figure 1: Distribution chann

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Flow of Channel of Distribution
Figure 2:

Manufacturer
/
Wholesaler
Retailers

Ultimate consumers

Manufacturing is the processing of raw materials or parts into finished goods through the
use of tools, human labor, machinery and chemical processing. Efficient manufacturing
techniques enable manufactures to take advantage of economies of scale, producing more
units at a lower cost (Feb 5, 2020, www.investopedia.com) A manufacturer is a person that
makes goods to sell. (www.vocabulary.com)
Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial,
commercial, institutional, or other professional business users; or other wholesalers and
related subordinated services. In general, it is the sale of goods to anyone other than a
standard consumer. (en.m.wikipedia.org>wiki) A wholesaler is a person whose business is
buying large quantities of goods and selling them in smaller amounts.
www.collinsdictionary.com) Wholesaler is a merchant middleman because of the presence of
both factors: delivery and payment.
A retailer is a person or business that sells goods to the public in relatively small quantities
for use of consumption rather than resale. (Oxford Language) Retailers typically don’t
manufacturer their own items. They purchase goods from a manufacturer or a wholesaler and
sell these goods to consumers in small quantities.
Middlemen are persons who buy goods from producers and sell them to retailers or
consumers. (Oxford language)
Consumers are people or organizations that purchase products or services. The term also
refers to hiring of goods and services. They are human or other economic entities that use a
good or service. They are the end users in the distribution chain of goods and services. In
fact, sometimes the consumer might not be the buyer.

A. Reasons that marketing intermediaries are used.

The use of intermediaries depends on their greater efficiency in marketing the goods
available to target markets. Through their contacts, experience, specialization and
scale of operation, intermediaries normally offer more than a firm can on its own.

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 B. Distribution channel functions:
A distribution channel moves goods from producers to consumers. It overcomes the
major time, place, and possession gaps that separate goods and services from those who
would use them. Members of the marketing channel perform many key functions:
1. Information: Gathering and distributing marketing research and
intelligence information about the marketing environment
2. Promotion: Developing and spreading persuasive communications about an offer
3. Contact: Finding and communicating with prospective buyers
4. Matching: Shaping and fitting the offer to the buyer’s needs, including such
activities as manufacturing, grading, assembling, and packaging
5. Negotiation: Agreeing on price and other terms of the offer so that the ownership or
possession can be transferred
6. Physical distribution: Transporting and storing goods
7. Financing: Acquiring and using funds to cover the costs of channel work
8. Risk taking: Assuming financial risks such as the inability to sell inventory at
full margin.

II. Hospitality Distribution Channel

Industry consists of contractual agreements and alliances between
independent organizations.
In the hospitality and travel industries, distribution systems move the
customer to the product (ex. The hotel, restaurant, cruise ship,
airplane)
Two types of distribution channel:
a. Direct channel – is a supply chain strategy that delivers product directly
from producer to consumer without intermediaries
b. Indirect channel - means selling wholesale agents or retailers so that they can
distribute the product to you
Figure 3:

Direct Distribution

Producer Indirect Distribution Customer

Producer Intermediaries

Customer

A. Major hospitality distribution channels

Direct booking – is a booking made directly with the supplier of the tour or
activity
Online travel agencies – Examples: Agoda, booking.com
Global distribution systems – is a computerized network that facilitates
transactions between travel service providers and travel agents
(businessdictionary.com Sept 6, 2019)
Travel agents – a private retailer or public service that provides travel and
tourism-related service to general public on behalf or accommodation or travel
suppliers (Wikipedia)

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 Tour wholesalers – operate in a very similar way to wholesalers in other
industries. However, instead of supplying tangible products they supply
touring options including travel, accommodation, and tours. A tour
wholesaler supplies the retail travel agents, they DO NOT sell directly to
consumers. (www.tourismcouncilwa.com.au)

B. Specialist: tour brokers, motivational houses, and junket reps

C. Hotel representatives – a company serving the travel agent channel that serves as
the booking contact for hotel or group of hotels (www.travel-indutry-dictionary.com)
D. National, state, and local tourist agencies
E. Consortia and reservation systems – consortia are Association of marketing
organization which link together to small medium sized independent travel agencies
to leverage purchasing power and marketing opportunities. The consortia rate is
negotiated between the hotels and travel agencies and is only available to contracted
consortia. (www.xotels.com)
F. Concierges – 1) a caretaker of an apartment complex or small hotel, typically one
living on the premises, 2) a hotel employee whose job is to assist guest by arranging
tours, making the theater and restaurant reservations, etc. (Oxford dictionary)
G. Restaurant distribution systems
Traditional telephone
method Call centers
Online or mobile through their own website or applications
Online or mobile through general third-party reservations sites or applications

III. Channel Behavior

Distribution channels are more than simple collections of firms tied together
by various flows. They are complex behavioral systems in which people and
companies interact to accomplish individual, company, and channel goals.
(https://www.scrib.com) July 17, 2015

A. Channel Conflict – occurs when manufacturers (brands) disintermediate their

channel partners, such as distributors, retailers, dealers, and sales representatives, by
selling their products directly to consumers through general marketing methods
and/or over the internet. (http://en.m.wikepedia.org)

1. Horizontal conflict. Conflict between firms at the same level. Example, suppose
a toy manufacturer has deals with two wholesalers, each contracted to sell
products to retailers in different regions.
2. Vertical conflict. Conflict between different levels of the same channel. Example,
if the toy manufacturer discovers its products are arriving at retail stores later than
scheduled, a conflict might develop between the manufacturer and the wholesaler
responsible for shipping to retailers.

IV. Channel Organization. While channels can be very complex, there is a common
set of channel structures that can be identified in most transactions. Each channel
structure includes different organizations. Generally, the organizations that
collectively support the distribution channel are referred to as channel partners.
(https://courses.lumenlearning.com)

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Fig. 4: Comparison of conventional distribution
channel with VMS

A. Conventional marketing system. A

conventional marketing system, producers,
wholesalers, and retailers are separate businesses
that are all trying to maximize their profits. When
the effort of one channel member to maximize
profits comes at the expenses of other members,
conflicts can arise that reduce profits for the entire
channel. (https://www.inc.com>encyclopedia)

B. Vertical marketing system. A vertical

marketing system consists of producers,
wholesalers and retailers acting as a unified system.
VMSs were developed to control channel behavior
and manage channel conflict and its economies
through size, bargaining power and elimination of
duplicated services. The three major types of VMSs
are corporate, administered, and contractual.

Corporate. A corporate VMS combines successive stages of production and

distribution, not through common ownership or contractual ties, but through the
size and power of the parties.
Administered. A coordinated system of distribution channel organization in
which the flow of products from producer to end-user is controlled by the power
and size of one member of the channel system rather than by common ownership
or contractual ties. (https://www.monash.edu)

Contractual. A contractual VMS consists of independent firms at differentlevels

of production and distribution who join through contracts to obtain economies or
sales impact.

a. Franchising. It is based on
marketing concept which can be adopted by an
organization as a strategy for business
expansion. Where implemented, a franchisor
licenses its know-how procedures, intellectual
property, use of its business model, brand and
rights to sell its branded products and services
to franchisee.

b. Alliances. Alliances are developed to allow two organizations to benefit from

each other’s strengths.

C. Horizontal marketing system. It is all about connecting to a broad audience.

This could mean that two or more organizations join together to capitalize on new
opportunities. For instance, a supermarket and a bank could agree to have bank’s
ATMs situated at their supermarket locations. Nov.22, 2018
(https://fabrikbrands.com)
D. Multichannel marketing system. A single firm sets up to two or moremarketing
channels to reach one or more customer segments.

V. Business Location. characteristics There are four (4) steps in choosing alocation:
a. Understanding the marketing strategy. Know the target market of
the company.

22
 b. Regional analysis. Select the geographic market areas
c. Choosing the area within the region. Demographic and psychographic
characteristics and competition are factors to consider.
d. Choosing the individual site. Compatible business, competitors,
accessibility, drainage, sewage, utilities, and size are factors to consider.

Key Terms:
Agent - a wholesaler who represents buyers or sellers on a more permanent
basis, performs only a few functions, and does not take title to the
goods.
Alliances – are developed to allow two organizations to benefit from each
other’s strengths
Broker – a wholesaler who does not take title to goods whose function is to
bring buyers and sellers together and assist in negotiations
Horizontal conflict - conflict between firms at the same level
Junket reps – serve the casino industry as intermediaries for premium players
Retailer - business whose sales come primarily from retailing
Vertical conflict - conflict between different levels of the same channel
Wholesaler – firms engaged primarily in wholesaling activity

References:
Merriam Webster since 1828
https://www.monash.edu
https://www.scrib.com July 17, 2015
www.tourismcouncilwa.com.au
(https://fabrikbrands.com) Nov.22, 2018
https://www.inc.com>encyclopedia)

RUBRIC FOR SHORT ESSAY

3 2 3 1 1 Score

Content The essay The essay The essay The essay The essay
contains the contains the mentioned contains one did not
X1
purpose, purpose, some of the purpose and mention a
information information purpose, with one purpose; any
and and few one or two information information
elaboration of elaborations information but no or
the chosen of the chosen and few elaboration elaboration
topic. All these topic. elaboration of of the about the
are discussed the chosen chosen topic. chosen topic
completely. topic. is not
evident.
Organization The ideas flow There is an One or two More than There is no
freely and effort for ideas flow two ideas free flow of
X1
there are no ideas to flow smoothly but seem to be ideas.
exaggerations. smoothly and there are disconnected Exaggeration
The ideas are there is no exaggerations. and is evident.
coherent. attempt to One or two exaggerated. Ideas are
exaggerate. ideas are More than 3 incoherent.
The ideas are incoherent. ideas are
coherent. incoherent.
Total

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