Targeting

5
Segmentation, Targeting, Positioning and

Strategic Marketing
L. Moutinho
Introduction the resources of the tourism company and

the market opportunities) and the planning
Marketing management is the process of and execution of marketing activities
analysing, planning, implementing, coordi- required to meet the goals. When carried out
nating, and controlling programmes effectively, tourism marketing management
involving the conception, pricing, promo- results in creating and satisfying customers
tion, and distribution of products, services in a manner acceptable to society and leads
and ideas designed to create and maintain to profitable growth for the organizations.
beneficial exchanges with target markets for As the practice of marketing enters the
the purpose of achieving organizational 21st century its role in business practice is
objectives. The foundation for contempo- clearly critical. Rapid change and intense
rary marketing management is the global competition exist in many markets.
marketing concept. It is a customer-oriented Deregulation in key industries such as trans-
philosophy implemented and integrated portation and communications has led to
throughout an organization so as to serve the need for market-driven strategies. Buy-
customers better than competitors do and ers of tourism services increasingly demand
thereby to achieve specified goals. System- products that meet their specific needs. Sur-
atic implementation of the marketing vival and growth in a turbulent environment
concept can revolutionize an otherwise stag- are more and more difficult to achieve with-
nant organization. out professional marketing practices.
Tourism marketing involves discovering Because markets and market opportunity
what tourists want (market research), devel- are greatly affected by worldwide environ-
oping suitable tourist services (product mental forces, marketing plays a leading role
planning), telling them what is available in designing and implementing strategic
(advertising and promotion), and giving business plans. Marketing management
instruction where they can buy the services should be viewed as an enterprise-spanning
(channels of distribution: tour operators and activity, not restricted to the marketing or
travel agents) so they will receive value sales department. Broadly defined, market-
(pricing), and the tourist organization will ing is a responsibility of the entire
make a profit and attain its goals (marketa- organization.
bility). Tourism marketing management is Substantial progress is occurring in
the setting of marketing goals (considering advancing the state-of-the-art of marketing
© CAB International 2000. Strategic Management in
Tourism (ed. L. Moutinho) 121
122 L. Moutinho
management practice. Strategic market con- ● Differentiated marketing (multiple mar-

cepts, behavioural and analytical ket segmentation) is when an
techniques, and systematic approaches to organization chooses more than one tar-
marketing decision-making are dramatically get market segment and prepares
increasing the impact of marketing in tour- marketing mixes for each one. The deci-
ism organizations. The consumer’s sion influences are:
perspective centres around the needs a tour- 1. competitive conditions
ist product or service satisfies or fulfils. But 2. corporate objectives
the tourist buying decision is unique in sev- 3. available resources
eral ways: 4. alternative marketing opportunities.
● Customized marketing is when a market
1. There is no tangible rate of return on the
is so diverse that the company attempts
investment.
to satisfy each customer’s unique set of
2. The expenditure is often considerable
needs with a separate marketing mix.
in terms of the after-tax income earned
during the year.
Tourist markets can be segmented or sub-
3. The purchase is not spontaneous.
divided in many different ways. Geographic
4. The expenditure is prepared and plan-
segmentation, demographics, geodemo-
ned through savings made over a
graphics, psychographics, benefit
considerable time.
segmentation, usage rate, and price sensitiv-
Marketing research should help pinpoint ity are some of the most commonly used
target markets, help determine the property segmentation techniques in the tourism
tourist marketing mix, and help make most industry. The various elements in the mar-
effective use of marketing efforts and expen- keting mix and plans are designed in order
ditures. The concept of market segmentation to exploit the different elasticities of
arises from the recognition that consumers demand for travel and tourism of the various
are different. Market segmentation is a strat- segments.
egy of allocation of marketing resources The segments should then be ranked
given a heterogeneous tourist population. according to their economic value (substan-
tially), by the level of demand for various
tourist product opportunities, by the vari-
Market Segmentation ance in responsiveness among market
segments to available opportunities, by the
accessibility of market segments in terms of
There are four strategies for market segmen-
communication strategies, growth potential,
tation (Fig. 5.1):
and by the degree of competitive vulnerabil-
● Undifferentiated marketing is when ity. Market segmentation contributes to the
marketers determine that there is little synchronization of the marketing mix with
diversity among market segments. Note: the tourist customer, to delineation of differ-
Even the undifferentiated market may ent demand curves, to a focused form of
be segmented based on ‘secondary’ promotion and to greater tourist product
desires. loyalty because of the tailoring of the prod-
● Concentrated marketing is when a mar- uct to fit the market. Linked with market
keter selects one segment, develops an segmentation and market targeting is the
appropriate marketing mix, and directs concept of product positioning, which is the
its marketing efforts and resources act of formulating a competitive positioning
toward that market segment exclu- for the tourist product and a detailed mar-
sively. A competitive advantage can keting mix.
then be established by the marketer. The Once the target markets have been deter-
dangers are: (i) the selected marketing mined, the marketing mix must be defined.
segment is too narrow; and (ii) the In formulating a marketing mix, one must
wrong target market is selected. make sure that the elements are not con-
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Segmentation, Targeting, Positioning and Strategic Marketing 123
Fig. 5.1. Levels of market segmentation.
sidered in a vacuum but are, instead, Demographic Segmentation

considered as they are affected by changes
in tourist attitudes, habits, changes in com- There is work which relates demographic
petition, changes in the economic outlook characteristics to patterns of decision-
and changes in government activity. making for vacations (e.g. Jenkins, 1978;
Smith, 1979; Cosenza and Davis, 1981; Todd
and Lawson, 1991). Geography is being used
as a proxy variable for a variety of demo-

124 L. Moutinho
graphic, cultural and socioeconomic It is generally accepted that these relation-

characteristics which render the behaviour ships still hold today though the relative
of the British different from Australians, dif- emphasis on some characteristics may have
ferent from US citizens, different from changed. Trends towards greater female
Japanese and so on. employment have brought more dual-
Analysis of the US tourist market reveals, income families into being and consequently
among other characteristics, the changing the full nest periods may not be quite so
age structure of the population. Like other financially stringent for all families.
Western countries, the United States has a Empty nest 2 and retired solitary sur-
‘greying’ population and those people over vivors may have high levels of income
65 are regarded as having more money, more available for discretionary expenditure.
leisure time and more needs to be addressed Also improvements in medical science and
than other age segments. Age is a crucial part environmental health have extended life
of the definition of markets and is partic- expectancies and extended the length of the
ularly important for developing linkages later stages of the life cycle. Both these last
with media usage in order to promote the changes emphasize the growing significance
tourist destination. of these older groups as target markets for
For general tourism the most common tourism. Expenditure patterns and types of
distinction that is made concerning family holiday vary considerably across the stages
size relates to whether children are present of the life cycle.
or not. In the accommodation sector it Traditionally the evaluation of market
should be noted that family or group size is segments takes place using three criteria:
also critically linked to pricing structures.
● measurability; i.e. definition in usable
There is a general expectation that econo-
terms
mies of scale gained from a large family
● substantiability; i.e. size
grouping will be passed on to the tourist
● accessibility; i.e. ability to promote and
through a marginal pricing policy.
obtain distribution.
If these are correct, then it is argued that
Family Life Cycle profitability naturally follows. If considered
in terms of these basic criteria, demograph-
This concept is rather more complex than ics may be seen to potentially offer
most of the fundamental demographic substantial benefits over many other seg-
issues discussed so far. The family life cycle mentation characteristics; especially
is a processual variable which describes the lifestyles and benefit segmentation schemes.
history of a family from its formation The one important facet of measurability
through to the death of both partners. pertaining to demographics is that they are
Usually eight or nine stages are identified generally easy to obtain; often by observa-
which are defined by critical points such as tion or as standard material required for
marriage, birth of the first child, children accommodation and travel bookings.
leaving home, and retirement. The most With respect to substantiability, demo-
commonly quoted classification in the gen- graphics also usually perform well in two
eral marketing literature is a scheme devised respects. Firstly, segment sizes based
by Wells and Gubar (1966). Nine stages are around demographics are normally large
identified which represent an amalgam of because they parcel total populations into a
factors concerned with the ages of different limited number of groups. The second
family members, family size, discretionary aspect of substantiability of demographic
income and time. The Wells and Gubar clas- segmentation refers to endurance. Many of
sification emphasizes vacations and leisure the relationships established between dem-
expenditure in four phases: Bachelor, ographics and tourist behaviour have fairly
Newly Married, Full Nest 3, and Empty fundamental roots, such as physical con-
Nest 1. straints on activities imposed by age or the

presence of young children. These are product; a different positioning will appeal
enduring features and, where they exist, to a different segment.
they tend to the substantiability of segments
over time.
On the accessibility criteria, demograph- Psychographic Segmentation
ics also tend to perform well. Because basic
demographics are so established, media Market segmentation based on benefits
selection is easy in any market. This can be assumes that consumers buy a product for
in contrast to benefit segmentation schemes the potential benefit experienced from using
or specific travel lifestyle segmentation it. Its focus is on product attributes which
schemes. consumers perceive to have goal-satisfying
The recognized limitation of demo- capabilities and this method usually
graphic segmentation is that it gives little or employs some psychographic variables.
no explanation for differences in consump- Psychographics, also referred to as data on
tion patterns. As psychographics or lifestyles and on activities, interests and
lifestyles, demographics say nothing regard- opinion (AIOs), attempt to provide a
ing motivations and the value structures detailed understanding of consumers in
which guide people’s behaviour. To express terms of their way of living. They take into
it a different way, demographics are often account how people spend their time (daily
correlated to behaviour but have little to do activities, hobbies, entertainment), what
with causation. they place importance on (interests, com-
Demographic criteria are the most widely munity involvement) and their opinions
applied of all segmentation bases. They are and attitudes towards various types of
easy to understand and to apply and have vacations.
the practical advantage of established rela- In the travel literature a number of other
tionships with media profiles. Of all methods of market segmentation have been
demographic variables, the two which offer reported and discussed, i.e. distance trav-
most explanation and are likely to be appli- elled, means of travel, length of stay,
cable to tourism are ethnic identity and the purpose of trip, time of visit, media habits
family life cycle. The former may represent a and exposure, average spending power and
variety of deep-seated cultural values and is others. Segments based on usage level differ-
highly correlated with geography and a vari- entiate heavy buyers from low volume users.
ety of socioeconomic factors. The latter is an The role of situation in tourism has become
amalgam of ages of family members, marital more important leading to a specific situa-
status, and participation in the labour force, tion segmentation. However, these methods
which act in a combined way to influence are often associated with some other ways of
the amount of discretionary income and segmenting, either demographic or psycho-
time available for consuming products such graphic.
as vacations. Demographic and socioeconomic charac-
A basis for segmentation can be any tour- teristics portray the basic differences which
ist characteristic, such as age, sex, income, are the determinants of a traveller’s behav-
occupation, price sensitivity, destination or iour. But they merely describe and do not
tourist product loyalty, product usage, atti- provide an understanding of why buyer seg-
tude toward the country or destination. ments respond to a product the way they do.
Theoretically there is no single correct basis There is increasing evidence that these vari-
for segmentation. The selection of a specific ables are insufficient means of effectively
basis depends on management’s objectives. delineating the market segments. Psycho-
Once a market is segmented into a number of graphics allow a substantially deeper grasp
homogeneous segments, the key decision is of the tourists’ psychological make-up.
which segment or segments the tourist Therefore, psychographic segmentation as
organization should pursue. This decision is an analytical tool has been shown to be
strongly related to the positioning of the beneficial both in describing and in under-

126 L. Moutinho
standing the tourist. Although it can be the Haves-Eurocom group. In 1989 this
argued that psychographics are too general research system was established in 15 Euro-
to predict specific behavioural differences, pean countries. The instrument employed
they are useful for marketing communica- comprises five principal dimensions of life-
tion purposes. In a highly competitive styles: (i) objective personal criteria; (ii)
environment psychographic segmentation concrete behaviour; (iii) attitudes; (iv) moti-
leads to specifically directed promotional vations and aspirations; and (v) sensitivities
programmes, more effective positioning and and emotions. The resulting Eurostyle sys-
greater ability to develop recreational tem (different for each country) consists of
opportunities that appeal to distinctive cli- 16 different lifestyle types. When employing
ent groups. the Eurostyle typology, two different modes
can be distinguished: accepting styles as
Examples ready-made market segments, or using
As the market is becoming ever more con- styles as additional criteria to characterize
sumer orientated, changes in consumers’ already defined segments more comprehen-
lifestyles are carefully followed and their sively. The marketer’s task is to combine the
impact on buying habits is monitored. The psychographic characteristics and the stated
European population is changing its out- or observed product preferences of the
look, breaking away from the traditionally focused lifestyle types. He or she can also
sought economic security and status, as well include target groups’ motives and attitudes
as refusing to accept established stereo- into the promotion of the new product.
types, while it seeks individuality, greater Another segmentation scheme is the use
informality, spontaneity and sensitivity in of the concept of ‘Social Milieus’, i.e. groups
contacts with others. The trend towards of people who share a common set of values
European unity has itself generated consid- and beliefs about those things which matter
erable interest among market research in everyday life. A range of Social Milieus
organizations in creating pan-European was identified in the UK, France, Italy and
research programmes, placing greater Germany. The underlying theory is to com-
emphasis on the search for similarities than bine the understanding of the everyday life
on the definition of differences between of consumers in different local cultures with
markets. information about behaviour and attitude
Commercially developed segmentation towards products. Such cultural depth is
schemes, which include a combination of also necessary to detect the dynamics of
variables, have been widely applied by all social and cultural change both within and
economic sectors including the hospitality across countries and how this affects differ-
industry. Psychographic variables, includ- ent markets.
ing geographic and socio-demographic The Young & Rubicam advertising
ones, in that way have become a basic part of agency uses motivation theory as the under-
the research instruments. All the segmenta- lying theoretical concept for its
tion methods which will be briefly segmentation scheme, entitled ‘the 4 C’s sys-
described in the sections to follow share the tem of consumer classification’ (cross
approach of determining a common base for cultural consumer characterization). Trying
segmentation which can be applied cross- to find a similar pattern in culturally dissim-
culturally and across sectors, and which can ilar markets, the main argument behind this
be combined with other variables character- approach is that motivations appear to be
istic for a specific product, segment or quite consistent from one culture to another
situation. and thus the analysis of consumer motiva-
The ‘Eurostyle system’ represents a mul- tions offers an opportunity for an insight
tinational approach to lifestyle beyond the superficial behavioural differ-
segmentation that is being continually ences between cultures, consequently
upgraded since 1972 by the French enter- revealing underlying commonalities
prise Centre de Communication Avance of between them. The resulting types are:

Resigned Poor, Struggling Poor, Mainstream important to find out which psychographic
Aspirer, Succeeder, Transitional, Reformer. characteristics directly influence the prod-
In order to compete successfully in the uct attributes the traveller is evaluating
highly competitive international tourism when making a purchase decision. Thus,
market place it is necessary to sharpen the psychographics allow the creation of a tour-
research tools in an attempt to generate more ism product which is more compatible with
accurate data for strategic tourism develop- the motivation, the attitudes and the opin-
ment and planning. Within this context, the ions of the travellers.
concept and application of psychographics Psychographic segmentation further pro-
has been widely accepted in the field of vides a unique way of viewing the
marketing. Knowledge about relevant seg- tourist/consumer. It starts with people and
ments of travellers, their desires, motives, reveals how they feel about a variety of sub-
attitudes and lifestyles allows travel market- jects. Insight into a vacationer’s personality,
ers to become more focused and effective in attitudes and motivations is gained by
their efforts. asking questions about many aspects of life.
Psychographics enable inferences to be
Usefulness of psychographics drawn from general questions on social sta-
Research based on psychographics may tus, profession or a tourist’s income bracket
offer particularly useful findings for persons and possible travel expenditure levels. It
who will implement the results: developers must be remembered that respondents are
and planners, marketing executives, adver- more often than not unwilling to provide
tising directors and creative types at accurate answers to questions pertaining to
advertising agencies. Proper use of this their income. Therefore, an indirect method
approach in segmenting a consumer market of obtaining such data can be extremely
rests on dividing the total market into finely valuable.
tuned market segments. The objective is to Finally, psychographic research provides
create profiles which carve out character- detailed profiles that allow a marketer to
istics of each segment and at the same time almost visualize the people he or she is try-
substantially differentiate the segments from ing to reach. It seeks to determine why
one another. Psychographics can help in people travel (and why they do not), how
answering some marketing queries such as: they think, what their values and attitudes
are, what types of destinations they want to
● how to make/design the tourist product
visit and what they want to do while staying
(what services and products to offer);
in a destination. When implemented in the
● whom to sell it to (personality character-
segmentation process, it can lead to more
istics); and
effective advertising strategies aimed at each
● how to sell it (distribution and commu-
market segment. Marketing management
nication channels).
attempting to segment travel markets and to
Regarding the first of the above points, psy- develop promotional programmes needs to
chographic segmentation can be a useful rely on information about the lifestyles of
tool in planning and developing product potential travellers as well as on demo-
strategies, such as package tours or theme graphic characteristics.
parks. For example, it would appear that
knowing whether a traveller prefers historic
sites, nightlife, gambling or indoor/outdoor Successful advertising depends on effec-
sport activities can be useful for creating a tively discerning the audience that the
package, or knowing that psychographic marketer can reach. One of the vital points of
characteristics such as impulsiveness in the message development is to understand why
decision-making process, escaping from consumers want the benefit they desire. This
everyday life, enjoying wildlife or physical suggests the copy appeal should reflect the
activities are more correlated with visiting consumer’s desires, expectations, preferen-
National Parks as vacation destinations. It is ces and perceptions about a travel

128 L. Moutinho
destination. Certain special attributes of a through multivariate statistical methods.

place may be more appealing to a specific The results often produce a larger number of
target audience. Also, psychographic vari- segments, the validity and stability of which
ables can be an invaluable aid to media may at times be questionable, making the
research since people with different life- usual methods of result control highly rec-
styles have different media habits. ommendable (split-half, rest-retest). Their
Therefore, psychographics provide valuable interpretation may at times be quite diffi-
information for media selection and sched- cult, and the researcher usually has to find a
uling of advertising time, and for creative concise term to effectively label and
thinking in developing advertising copy or describe the whole group. Some examples of
themes. In that way, promotional messages such terms may be ‘Adventurer’, ‘Planner’,
and travel incentives as well as communica- ‘Impulsive Decision-Maker’, ‘Action-
tion channels can be better tailored to the Orientated Person’, ‘Outdoorsman’,
receptive market segments. ‘Escapist’, ‘Self-Designed Opinion Leader’,
Psychographic segmentation is a etc.
research tool which provides new insights Psychographic segmentation is relatively
into consumer behaviour permitting a better expensive to conduct and while today its
understanding of the market conditions and use is growing, it is still infrequently
an improvement of the marketing strategies. employed in travel and tourism. Compared
It requires three steps: with other industries, the use of psycho-
graphic segmentation in travel and tourism
1. Identification and differentiation can be characterized as being in the initial
between groups/segments which make phases. For example, main tour operators’
up the market. summer ‘Sun and sea’ brochures show little
2. Selection of one or more target seg- discrimination between varying groups of
ments. consumers, as these usually consist of a sim-
3. Development of a marketing strategy to ple description of hotels followed by some
be applied in each of the selected target general information on the destination. So
markets. far the tendency has been to produce
product-orientated travel brochures using
The first two of the outlined steps are to be product-attribute segmentation (campsites,
accomplished through the use of adequate hotel, theme parks, etc.), without consider-
research instruments involving the selec- ing the characteristics of consumers.
tion of an approach/model to be used and
selection of variables. Psychographic seg- The value of psychographic segmentation
mentation represents ‘a posteriori’ type of A review of the literature reveals several
segmentation in which the segments are points of controversy or debate regarding the
obtained after the data analysis has been assessment of psychographic segmentation.
completed. The target segments are selected First among these is the issue of ‘demo-
on the basis of results produced by cluster, graphics vs. psychographics’. Undoubtedly,
factor or some other type of analysis. demographic data has been, by far, the most
The crucial problem seems to be the frequently used technique for identifying
question of identifying the variables which tourist (and other) markets. Demographics
are to be used for the clustering of con- are more readily available than information
sumers. Psychographic segmentation on why a person chooses a particular trip or
usually means administering up to a hun- a particular vacation destination. Further-
dred questions or even more on varied more, demographics are much easier to
topics and a further set on media exposure analyse, understand and operationalize.
and product usage. Therefore, this type of Thus, there have been questions as to
segmentation takes into account a large whether psychographic data adds anything
number of variables, usually measured in beyond demographic analysis which is real,
surveys and interviews and analysed meaningful and relevant. The results of

numerous studies have shown that psycho- results; and (iii) measuring the stability of
graphics do provide some additional the segments over time.
information over and beyond the demo- Psychographic segmentation is an
graphic profile. This, of course, does not approach to tourism market segmentation
imply that lifestyle analysis should replace based on personality characteristics of con-
demographics. Although it is very useful in sumers. In contrast to other ways of market
developing copy and message strategy, psy- segmenting, psychographics examine the
chographics alone, without additional actual motives for travel behaviour and offer
guidelines in selecting the media, cannot answers about why people travel, allowing
help deliver the proper message, in a proper the tourism managers to focus their efforts.
manner, to the proper target. Today, it has As mentioned above, psychographic seg-
become quite clear that a combination of mentation is an ‘a posteriori’ type of
pyschographic and demographic data offers segmentation. Target segments are selected
still greater insights into traveller preferen- based on the results obtained from some of
ces. Further proof of this point are the the multivariate statistical methods, making
questionnaires used in psychographic the usual methods of result control highly
research, which always include a set of recommendable.
demographic variables. Segments based on psychographic vari-
The second question in assessing the ables provide travel marketers with valuable
value of psychographics has been the information for planning, designing, posi-
dilemma of whether the variables employed tioning and distributing tourism products,
are overly general for a meaningful segmen- for promoting and advertising them, as well
tation in tourism. Psychographic variables as for creating copy appeals and selecting
can be considered as subjective variables the proper media. Psychographics also ena-
that are usually measured in surveys and ble the identification of certain segments of
interviews. Recently, it has been recognized tourists, as well as helping to better define
that such personality (subjective) variables the majority of potential consumers, and in
are not very well suited to explaining spe- that way achieve a better effectiveness of
cific behavioural differences. Thus, marketing and promotional budgets. In a
psychographic as general-level segments are competitive environment it is a useful stra-
useful for marketing communication pur- tegic marketing tool.
poses, while specific-level segments are
useful for product improvement. Psycho-
graphic segmentation is of most value when Targeting
it can predict underlying trends and changes
in society which will lead to major shifts in
The target market decision is the choice of
demand for goods and services. However,
which consumers in a product-market
there is a lack of studies in which tourist
towards which a company will aim its mar-
consumer behaviour is linked to general life-
keting programme positioning strategy. This
style variables.
decision is one of management’s most
In psychographic segmentation, as else-
demanding challenges. Should a company
where, the research results, or the output,
attempt to serve all that are willing and able
largely depend on what the researcher has
to buy or selectively focus upon one or more
selected as the input. In contrast with demo-
subgroups? Gaining an understanding of a
graphic analysis, in psychographics there do
product-market is essential to making the
not exist standard categories for different
target market decision. Central to this task is
types of tourists. It is left to the researcher to
defining and analysing the competitive
decide about the input and to create the
arena. The steps in selecting a target market
dimensions from his own point of view.
strategy are as follows:
This reveals the already mentioned ques-
tions of (i) labelling the groups (‘a posteriori’ 1. Decide how to form niches in the
segmentation); (ii) control of the research product-market.

130 L. Moutinho
3. Describe the consumers/organizations 2. After evaluation is completed, those

in each niche. niches which still look attractive as tar-
3. Evaluate target market alternatives. get market candidates should be ranked
4. Select a target market strategy. as to their attractiveness.
3. Finally, management must decide if a
The possibilities for selecting the company’s niche strategy is better than a mass tar-
target group of customers in a product- get market approach.
market range from attempting to appeal to
most of the people in the market (a mass Assuming that niches can be identified in a
market approach) to going after one or more product-market, management has the option
niches (subgroups or segments) within the of selecting one or more niches as a target
market. Management must somehow iden- market or, instead, using a mass strategy
tify possible niches and then, for each niche (Cravens, 1982).
of interest, determine which marketing pro- An undoubted attraction of many niche
gramme positioning strategy will obtain the markets is the scope they offer for premium
most favourable profit contribution net of pricing and above-average profit margins. In
marketing costs. addition, an effective niche strategy has for
many companies provided a convenient
Niche markets jumping off point for entry into a larger
An important question is whether or not market. There is, however, a hidden danger
breaking apart a product-market is worth in looking at what appears to be niche mar-
doing. We need a basis of evaluation the kets. Many strategists with small brands
worth of a particular niche scheme. There often deceive themselves by believing they
are five criteria that are useful for this pur- have a niche product. The reality may in fact
pose (Cravens et al. 1980). be very different with the product being a
vulnerable number four or number five
1. The responsiveness of people in the brand in a mass market. To clarify whether a
product-market to marketing pro- brand is a true market nicher, Davidson
gramme efforts. (1987) therefore suggests posing three ques-
2. It must be feasible to identify two or tions:
more different customer groups.
3. A company must be able to aim an 1. Is the niche or segment recognized by
appropriate marketing programme consumer and distributors, or is it just a
strategy at each target segment. figment of marketing imagination?
4. In terms of revenues generated and cost 2. Is your niche product distinctive, and
incurred, segmentation must be worth does it appeal strongly to a particular
doing. group of consumers?
5. The segments must exhibit adequate 3. Is your product premium-priced, with
stability over time so that the compa- above-average profit margin?
ny’s efforts via segmentation will have
enough time to reach desired levels of Unless the answer to all three of the ques-
performance. tions is ‘yes’, it is unlikely that the brand is a
Once niches are formed, each one of interest true nicher, but is instead a poor performer
to the company should be evaluated to in a far larger market segment.
accomplish three purposes: In sum, the characteristics of the ideal
niche are:
1. Since there is often more than one
promising marketing programme pos- 1. It is of sufficient size to be potentially
itioning strategy that can be used for a profitable.
given niche, a selection of the best alter- 2. It offers scope for an organization to
native is necessary for each niche exercise its distinctive competences.
candidate. 3. It has the potential for growth.

Other characteristics that favour niching 3. The threat of substitute products.

would be patents, a degree of channel con- 4. Buyers and their relative power.
trol and the existence of customer goodwill. 3. Suppliers and their relative power.
Niching should not, however, be seen as a
strategy limited just to small organizations. Having measured the size, growth rate and
structural attractiveness of each segment,
Segment evaluation the marketing manager needs then to exam-
Having decided how best to segment the ine each one in turn against the background
market, the marketing manager is then faced of the organization’s objectives and resour-
with a series of decisions on how many and ces. In doing this, the marketing manager is
which segments to approach. Three factors looking for the degree of compatibility
need to be considered: between the segment and the organization’s
long-term goals. It is often the case, for
1. The size and growth potential of each example, that a seemingly attractive seg-
segment. ment can be dismissed either because it
2. Their structural attractiveness. would not move the organization signifi-
3. The organization’s objectives and cantly forward towards its goals, or because
resources. it would divert organizational energy. Even
where there does appear to be a match, con-
The starting point for this involves examin-
sideration needs to be given to whether the
ing each segment’s size and potential for
organization has the necessary skills, com-
growth. Obviously, the question of what is
petences, resources and commitment
the ‘right size’ of a segment will vary greatly
needed to operate effectively. Without
from one organization to another.
these, segment entry is likely to be of little
In so far as it is possible to develop broad
strategic value.
guidelines, we can say that large companies
The final segmentation decision faced by
concentrate on segments with large existing
the marketing manager is concerned with
or potential sales volumes and quite deliber-
which and how many market segments to
ately overlook or ignore small segments
enter. In essence, five patterns of market
simply because they are rarely worth bother-
coverage exist:
ing with. Small companies, by contrast,
often avoid large segments partly because of
1. Single segment concentration in which
the level of resources needed to operate
the organization focuses on just one seg-
effectively, and partly because of the prob-
ment. Although a potentially high-risk
lems of having to cope with a far larger
strategy in that the company is vulner-
competitor.
able to sudden changes in taste or
With regard to the question of each seg-
preference, or the entry of a larger com-
ment’s structural attractiveness, the
petitor, concentrated marketing along
marketing manager’s primary concern is
these lines has often proved to be attrac-
profitability. It may be the case that a seg-
tive to small companies with limited
ment is both large and growing but that,
funds. Left to itself, an organization
because of the intensity of competition, the
which opts to concentrate on a single
scope for profit is low. Several models for
segment can develop a strong market
measuring segment attractiveness exist,
position, a specialist reputation and
although arguably the most useful is
above average returns for the industry
Michael Porter’s (1979) five-force model.
as a whole.
This model suggests that segment profitabil-
2. Selective specialization. As an alterna-
ity is affected by five principal factors:
tive to concentrating on just one
1. Industry competitors and the threat of segment, the company may decide to
segment rivalry. spread the risk by covering several mar-
2. Potential entrants to the market and the ket segments. These segments need not
threat of mobility. necessarily be related, although each

132 L. Moutinho
should be compatible with the organi- old assumptions are being swept aside. New
zation’s objectives and resources. thinking on the subject is urgently needed.
3. Product specialization in which the
organization concentrates on marketing
a particular product type to a variety of The Rise of Individualism
target markets.
4. Market specialization. Here the organi- For example, take the case of the 15–24 year-
zation concentrates on satisfying the old age group in the UK, some 9 million
range of needs of a particular target people. Whereas in the 1960s a recent Min-
group. Example: Saga Holidays (which tel survey concluded that young people saw
targets the over 50s travel market). themselves as part of a homogeneous mass,
5. Full market coverage. By far the most today they strive to distinguish themselves
costly of the five patterns of market cov- as individuals, posing great problems for
erage, a strategy of full market coverage marketers. This rise of individualism needs
involves serving all customer groups a rapid reappraisal of the way markets are
with the full range of products needed. described. Squeezing British citizens into
six ‘social classifications’ (A, B, C1, C2, E, F)
It is assumed that individual segments or was always a controversial technique, but in
combinations of segments could be inde- this age of the individual, it is one which has
pendently chosen, but this assumption been eclipsed by events. The turmoil is only
ignores synergies that might exist between compounded by the rise of cross-border
various market segments. For example, a marketing within Europe. Is the emergence
market consisting of 12 segments can lead to of a ‘Euro-consumer’ a reality? Yes, there are
the development of supersegments that will common trends within Europe. But the
help a company attain a better efficiency variations of language and culture in
level in terms of its allocation of marketing Europe, a developing and not declining phe-
resources. nomenon, coupled with the widely different
ways products are positioned, resist notions
Targeting is becoming a nightmare for mar- of Euro-homogeneity.
keters who want to spend their marketing In a world of exponential choice, the con-
budgets wisely. Long-established methods sumer is no longer a grateful and passive
of defining markets such as socio- recipient. He or she is an expert and active
demographic classifications may be the core participant in the process, brand-aware but
of television research, but the social founda- demanding a high standard of service and
tions upon which they are built are shifting quality, and seeking dialogue and a relation-
and their relevance is increasingly question- ship. Data driven marketing is the means by
able. Now, almost each week, new ways of which we can make sense of ever-
classifying potential target markets are pre- fragmenting markets. In a marketing
sented. Acorn-style geodemographics was database, proposals can be made to individ-
once the rage. Now, for some, the way for- ual consumers that fit their lifestage, their
ward lies in information technology. You lifestyle and their needs. By carefully col-
need to get your targeting exactly right by lecting data, moreover, we can amass for the
working out exactly who buys your product. company one of the most effective sources of
NDL promises to categorize people by up to marketing research, a ‘model of our market-
70 different buying/lifestyle attributes. Oth- place’. We may have hundreds of thousands
ers, like Applied Future, are slicing the of customer records in our database, we may
population in novel ways and lumping be updating them on a weekly basis, and
many millions of people, ‘doing all sorts of have at our disposal an all-encompassing
jobs from management to physical labour, snapshot of all the important parameters of
earning salaries from vast to marginal’ our marketplace: pricing, promotion, dis-
together as ‘inner directed’. tribution and product design. The customer
Only one overriding trend is clear: that marketing database becomes the essential

source of information of how to do busi- the changing wants and needs of individual
ness. customers. Long-term growth is dependent
Much effort in today’s ultra-competitive not on economies of scale, but rather econo-
world is expended in gathering information mies of scope: the application of a single
for marketing databases (Coad 1992). For process to produce a greater variety of prod-
example, new target marketing techniques ucts or services more cost effectively and
allow the credit marketers greater scope to more quickly.
define and target appropriate potential cus-
Mass customization is a
tomers. The Lifestyle Network employs both
holistic approach to
the geodemographic marketing techniques
bringing products and
and the lifestyle techniques of today to pro-
services to market with the
vide the state-of-the-art in direct marketing.
customer at the centre of
Applying the capabilities of Infolink’s
every aspect of the organization.
Define and NDL’s Lifestyle Selector to the
electoral roll for name and address selection The customer becomes the catalyst for
allows marketers to access and target the change in the organization; the organization
maximum mailable universe. The Lifestyle exists to produce what customers want and
Network allows the direct marketer to use value. Mass customization is a holistic
customer profile analysis to score individ- approach to bringing products and services
uals according to their similarity to that to market with the customer at the centre of
marketer’s existing best customers. Look- every aspect of the organization.
alikes are then selected from InfoLink’s Moving towards mass customization will
Electoral Roll for use in direct marketing vary depending on the extent of market tur-
campaigns. bulence in any given industry. Some
Outbound telemarketing has proven its companies may move incrementally
worth in a wide variety of industries. towards mass customization. Others may
Whether a company is selling, servicing, or completely transform existing businesses or
surveying, telemarketing is a tool to help create new ones. Rapid development, flex-
reach customers and prospects. The key to ible production, individualized marketing,
its success lies in understanding when to and instant delivery can each provide a sus-
use it. In some instances, outbound tele- tained competitive advantage; together they
marketing is effectively used to follow up can leave the competition in the dust.
leads generated from other direct response If you are fortunate to be a low-cost pro-
media. In other instances, it can be used as a ducer of tourist services, you will probably
prequalifier with a mailing to follow up for have an opportunity to win a high share of
qualified respondents. Whatever the appli- the market and enjoy a comfortable profit
cation, it is essential to know who is being margin. If, on the other hand, you are a small
called and why. New predictive dialling sys- producer of tourist services with no reason-
tems can double the efficiency of outbound able hope of beating the big competitors,
calling and ease the burden of routine, time- your best opportunity is to specialize in both
consuming tasks, such as waiting on ringing tourist products and markets. This strategy
telephones and redialling busy signals. of segmentation is termed ‘niche-picking’
Effective outbound telemarketing cam- and, nowadays, many marketing minded
paigns have proven their usefulness for a tourist managers are learning to position
number of purposes, such as seasonal sales their products as true specialities with sig-
(Simon, 1991). nificant competitive advantages built in. By
focusing on specific end-user tourists and
their distributors, they can concentrate on
Mass Customization products where quality and service are more
important, competitively, than price, and
Fundamentally, mass customization is the where continuing satisfaction brings repeat
ability to respond quickly and profitably to business.

134 L. Moutinho
Positioning a Destination: Problems short break holiday requires the expenditure

and Challenges of valuable leisure time, at a time when there
are ever-increasing demands on disposable
Positioning a destination presents a number leisure time. Therefore, although this short
of challenges, two of which are inherent in break may involve relatively little financial
marketing a service ‘product’, namely intan- outlay, the level of expectation may be quite
gibility and inseparability. Intangibility high. Zeithaml supports her study of risk
leads to customer uncertainty. Unlike a good with two additional hypotheses: consumers
which Lovelock describes as an ‘object, a adopt innovations in services more slowly
device, a thing’, the service product can be than they adopt innovations in goods; and
more aptly described as a ‘deed, a perform- consumers seek and rely more on informa-
ance, an effort’. When considering tion from personal sources than from
destination marketing, the word ‘experi- non-personal sources when evaluating ser-
ence’ could be added, as the destination vices prior to purchase. Consumers are
marketer is effectively selling tourist experi- naturally more cautious when purchasing
ences. However, Ryan (1995, pp. 40–44) something which they cannot touch, experi-
makes a distinction between holidays and ence, test or experiment with and which is
other services. The tourist has a degree of unlikely to come with a guarantee or war-
control over the purchase, in that he or she ranty.
can dictate their level of involvement with Because of the intangible nature of a des-
different elements of the service, for exam- tination, an explicit positioning strategy is
ple, destination attributes, activities and valuable in helping prospective visitors to
people. In this way the tourism purchase get a ‘mental fix’ on a destination that may
differs from, say, a retail service situation otherwise be amorphous. The challenge
and enables the tourist to maintain a more posed by intangibility is compounded by the
equitable balance in their levels of cognitive lack of consistency in buyer behaviour
dissonance (an uncomfortable psychological within market segments. Visitor expecta-
state – the person attempts to reduce it either tions can vary radically. For example, two
by changing his or her position, or by down- families on an identical short break package
grading the validity of incoming may record very different levels of satisfac-
information, or by seeking material, adver- tion with the holiday because they had
tisements that will support the decision). different expectations and were looking for
Despite the higher level of consumer par- different benefits from the package. This is
ticipation in the tourism purchase, the in contrast to most consumer goods where
holiday-maker will still perceive an element the product has a given set of attributes and
of risk during the initial buying process. In customers’ expectations can be more readily
her study of the consumer evaluation proc- identified.
ess, Zeithaml hypothesized that consumers The second challenge relates to the insep-
perceive greater risks when buying services arability of the service production and
than when buying goods (Zeithaml, 1990). It consumption processes. This can result in
needs to be added, however, that the degree inconsistencies in the quality of the product
of perceived risk is dependent on the price and its delivery. The supplier of manufac-
of the purchase, the benefits which the con- tured goods can put the product through a
sumer expects to derive from a purchase, rigorous test period before distribution and
and whether or not the consumer has pur- consumption. This helps to avoid costly
chased the same or a similar service in the mistakes arising from customer dissatisfac-
past. According to marketing theory derived tion with the product. The tourism supplier
from the 1960s, if the price of the service is does not have this opportunity as the pro-
low then the perceived risk of financial loss duction and consumption of the product
is low. It is arguable, however, in the case of takes place simultaneously. This potential
tourism that the cost of the purchase cannot for inconsistency in delivering the destina-
be measured in financial terms alone. Even a tion product is compounded by the high

level of human involvement in the produc- in 1991. This form of benefit-related seg-
tion process. The challenge posed by mentation has been studied in depth by
inseparability is arguably stronger for the Vavrik and Mazanec (1990) who also refer to
destination marketer than for the service it as a posteriori segmentation. Using multi-
product marketer, due to the lack of control variate statistical techniques, individuals
which is exercised over the many suppliers are aggregated into groups which seek sim-
of the tourism product. The multitude and ilar benefits. This kind of analysis is useful,
diversity of tourism suppliers in the destina- as the tourism manager is likely to be inter-
tion makes quality control and cohesion a ested in determining which group or
difficult task. segments would support a given product
category; how the segments differ in their
responsiveness to a range of product offer-
Positioning in Other Tourism Sectors ings (brands, destinations, etc.) within that
category; and how they differ in their expec-
Key players from the hospitality and tour tations (Calantone and Mazanec, 1991).
operating sectors have pursued major repo- Several distinct brands were created
sitioning and product development under the Forte umbrella. One of the overall
strategies. Both the processes and the results aims of the Forte re-branding exercise was to
of these strategies provide potential insights provide reassurance to customers when
for the regional tourist boards (RTBs). The choosing hotels in different destinations
development of ‘Courtyard’ by the Marriott (Connell, 1994). In other words, the re-
hotel group pioneered the use of new branding of hotels attempted to reduce
research and product development techni- consumers’ perceived risk when purchasing
ques. The development process involved a Forte product. Two further objectives of
the following stages: selection of a product the Forte re-branding exercise were, firstly,
development team; environment and com- to offer a clear position in an expanding
petitor analysis; customer analysis; idea international market and, secondly, to help
generation; product refinement; product employees identify themselves better with
positioning; and monitoring of results. The the company and to make them understand
environment and competitor analysis iden- their contribution towards the corporate
tified a gap in the market. The remaining effort. This second objective recognizes the
stages were underpinned by extensive con- inseparability of the production and the
sumer research, based around defining consumption processes and the integral part
preferred product attributes and benefits. which hotel staff represent in the delivery of
Seven sets of attributes were identified: the overall product. Connell observes that as
external factors; rooms; food-related servi- a result of the re-branding Forte is now able
ces; lounge facilities; services; leisure to communicate the differences between
facilities; and security factors. A range of brands to make it easier for customers to
individual product attributes were devel- choose the hotel they need.
oped within each of these sets. A range of Any repositioning process will require
multivarious and inferential statistical ana- change, particularly in the culture of the
lyses were used by Marriott, including organization and management attitudes. It is
conjoint, cluster analysis, multidimensional to some extent a ‘chicken and egg’ situation
scaling and multiple discriminant analysis. as many companies cite organizational fac-
The exercise has proved a success for Mar- tors when talking of the benefits of
riott with the Courtyard brand expanding repositioning. Clear product positioning
from three test hotels in 1983 to more than must be an integral part of any destination
200 in 1994. marketing strategy, due to the inherent char-
Forte Hotels also harnessed internal and acteristics of the destination product and the
external expertise to research the market increasingly complex needs of the tourist.
and identify key benefit-seeking market seg- Key players in the hospitality, tour operator
ments as part of their restructuring process and airline sectors have pursued successful

136 L. Moutinho
positioning strategies which have been ment are making use of methodologies that
driven by effective market segmentation and are quite common tools in marketing such as
brand management (Alford, 1998). those relating to segmentation and percep-
tual mapping approaches. Methodologies
such as multidimensional scaling, cluster
Building Perceptional Maps analysis, and other techniques have been
extensively used in market analyses.
There are different market-preference pat- Multivariate analyses are widely used in
terns such as clustered, diffused and strategic marketing because of the wide vari-
homogeneous preferences. In some cases, ety of flexible analytical techniques
the basis market-preference pattern shows available to analyse large and complex data-
distinct preference clusters, called natural sets. They can be defined simply as the
market segments. A company in this market application of methods that deal with rea-
has three options: (i) position itself in the sonably large numbers of measurements (i.e.
centre hoping to appeal to all the groups variables) made on each object in one or
(undifferentiated marketing); (ii) position more samples simultaneously. What follows
itself in the largest market segment (concen- is a brief description of how some of those
trated marketing); and (iii) develop several techniques can be used to help analyse mar-
brands, each positioned in a different seg- keting management problems related to
ment (differentiated marketing). segmentation, targeting and positioning.
In contrast, in a diffused preference mar-
ket, a company faces three different options: Cluster analysis
(i) to tap preferences of one of the corners, a Cluster analysis provides a set of procedures
single-niche strategy, which is useful for that seek to separate the component data
small companies; (ii) two or more products into groups. The goal in such applications is
can be introduced to capture two or more to arrive at clusters of objects that display
parts of the market, a multiple-niche strat- small within-cluster variation relative to the
egy; and (iii) to tap the middle of the market, between-cluster variation. The goal in using
a mass-market strategy. A product located in cluster analysis is to identify a smaller num-
the centre minimizes the sum of the dis- ber of groups such that objects belonging to a
tances of existing preferences from the given group are, in some sense, more similar
actual product. It will minimize total dis- to each other than to objects belonging to
satisfaction. other groups. Thus, cluster analysis
If a company enters into a market con- attempts to reduce the information on the
taining a large entrenched competitor, whole set of n objects, to information about,
instead of entering with a me-too product, or say, g subgroups where g < n.
with a single-segment product, it can intro- One of the major problems in strategic
duce a succession of products aimed at marketing consists of the orderly classifica-
different segments, providing that the com- tion of the myriad data that confront the
pany has the necessary resources. Each researcher. Clustering techniques look for
product entry will create a loyal following classification of attributes or subjects on the
and take some business away from the major basis of their estimated resemblance. Cluster
competitor. The company should try to find analysis is an exploratory method that seeks
market gaps where there is more profit patterns within data by operating a matrix of
potential and less risk. independent variables. Usually objects to be
The techniques of market segmentation, clustered are scored on several dimensions
product positioning and perceptual map- and are grouped on the basis of the likeness
ping represent early applications of of their scores. The primary value of cluster
methodologies such as cluster analysis analysis lies in the preclassification of data,
which are now thought to have some poten- as suggested by ‘natural’ groupings of the
tial for identifying strategic groups. data itself. The major disadvantage of these
Researches in the area of strategic manage- techniques is that the implicit assumptions

of the researcher can seriously affect cluster tion pertaining to perceived similarities or
results. Cluster analysis can be applied in dissimilarities among a set of objects such as
strategic marketing for clustering buyers, products, buyers, competitors, etc. The
products, markets, as well as key competi- main objective of using the technique is to
tors. It has been found to be a particularly obtain a configuration showing the relations
useful aid to market segmentation, experi- among the various variables analysed. The
mentation and product positioning (Hair et attitudinal or perceived similarities (or dis-
al., 1995). similarities) among a set of objectives are
Several questions need to be answered statistically transformed into distances by
with respect to a given cluster solution, placing these objects in a multidimensional
including: (i) how the clusters differ; (ii) space.
what is the optimal (i.e. correct) number of Multidimensional scaling, especially
clusters; and (iii) how good is the fit of the non-metric scaling (NMS) has been applied
solution for a pre-specified level of clusters. in strategic marketing in areas such as prod-
The first question concerns the distinctive- uct positioning, market segmentation,
ness of cluster profiles. The second question large-scale new product development mod-
concerns the trade-off between parsimony, els, the modelling and evaluation of buying
in the sense of fewer clusters, and some behaviour and the determination of more
measure of increase in within-cluster homo- effective marketing mix combinations. NMS
geneity resulting from having more clusters may also be applied in the product develop-
in the solution. The third question concerns ment process by finding consumer attitudes
cluster recovery which can be viewed in towards various product attributes. In such
terms of the fit between the input data and applications the technique can (i) construct
the resulting solution. This should be high. a product space; (ii) discover the shape of
the distribution of consumers’ ideal points
Discriminant analysis throughout such a space; and (iii) identify
Discriminant analysis is a useful technique to likely opportunities for new or modified
differentiate within groups and predict group products.
membership characteristics. Applications
include uncovering characteristics of groups Conjoint analysis
most likely to purchase products and deter- Conjoint analysis is concerned with the joint
mining the qualities of first-time customers to effect of two or more independent variables
predict repeat business. Discriminant analy- on the ordering of dependent variables. It is
sis involves deriving linear combinations of rooted in traditional experimentation. A
the independent variables that will discrim- definition of conjoint analysis must proceed
inate between a priori defined groups in such from its underlying assumption that a com-
a way that the misclassification error rates are position rule may be established to predict a
minimized. Discriminant analysis is the response variable from two or more pre-
appropriate statistical technique when the dictor variables. Conjoint analysis, like
dependent variable is categorical (nominal or multidimensional scaling, is concerned
non-metric) and the independent variables with the measurement of psychological
are metric. Discriminant analysis is widely judgements, such as consumer preferences.
used in market segmentation, studies of the Conjoint (trade-off) analysis products are
diffusion and adoption of new products and essentially bundles of attributes such as
consumer behaviour analysis. However, price and colour. Conjoint analysis software
enough attention has not been accorded to generates a deck of cards each of which
the assumptions which underlie its applica- combine levels of these product attributes.
bility. Respondents are asked to sort the cards gen-
erated into an order of preference. Conjoint
Multidimensional scaling analysis then assigns a value to each level
Multidimensional scaling, unlike the other and produces a ‘ready-reckoner’ to calculate
multivariate methods, starts with informa- the preference for each chosen combination.

138 L. Moutinho
Conjoint analysis can be used to design various aspects of marketing strategy are lis-
packaging, establish price, rank a hypothet- ted below:
ical product against existing competitors
already in the market and suggest modifica- ● Market scope. For example, a tourism
tions to existing products which would help company may serve an entire market or
to strengthen a product’s performance. dissect it into key segments on which to
It seems that various types of marketing concentrate its major effort.
planning models and other procedures ● The geographical dimensions of a mar-
using judgemental estimates in a formal ket. A company may focus on a local,
manner might benefit from the utilization of regional, national or international mar-
conjoint models in additive or, more gen- ket.
erally, polynomial form. Moreover, buyer ● Time of entry into a market. A tourism
preferences for multiattribute items may company may be the first among the first
also be decomposed into part-worth evalu- few, or among the last to enter a mar-
ations in a similar manner. Potential areas of ket.
application for conjoint analysis include ● Commitment to a market. This commit-
product design, new product concept ment can be to achieve market
descriptions, price–value relationships, atti- dominance, to become a major player in
tude measurement, promotional congruence the market, or merely to play a minor
testing and the study of functional versus role in it.
symbolic product characteristics. The out- ● Dilution of a part of the market.
put of conjoint analysis is frequently In summary form, the following 16 strategies
employed in additional analyses. Since constitute the major market strategies that a
most studies collect full sets of data at the company may pursue. The presentation
individual respondent level, individual structure of these strategies follows the same
utility functions and importance weights framework of analysis: definition, objective,
can be computed. This fosters two addi- requirements and expected results.
tional types of analyses: (i) market
segmentation; and (ii) strategic simulation 1. Single-minded strategy
of new factor-level combinations. Definition: Concentration of efforts in a
single segment.
Correspondence analysis Objective: To find a segment currently
Correspondence analysis is a visual or being ignored or observed inadequately
graphical technique for representing multi- and meet its needs.
dimensional tables. It can often be Requirements: (i) Serve the market
impossible to identify any relationships in a wholeheartedly despite initial difficul-
table and very difficult to account for what is ties; (ii) avoid competition with
happening. Correspondence analysis unrav- established firms.
els the table and presents data in an Expected results: (i) Low costs; (ii)
easy-to-understand chart. This technique is higher profits.
particularly useful to identify market seg- 2. Multimarket strategy
ments, track brand image, position a product Definition: Serving several distinct
against its competition and determine who markets.
non-respondents in a survey most closely Objective: To diversify the risk of serv-
resemble. ing only one market.
Requirements: (i) Careful selection of
segments to serve; (ii) avoid confronta-
Dimensions of Market Strategies tion with companies serving the entire
market.
Market strategies deal with the perspectives Expected results: (i) Higher sales; (ii)
of markets to be served. These perspectives higher market share.
can be determined in different ways and the 3. Total-market strategy

Objective: To compete across the board Requirements: (i) Top management

in the entire market. commitment; (ii) capital resources; (iii)
Definition: Serving the entire spectrum understanding of international mar-
of the market by selling differentiated kets.
products to different segments in the Expected results: (i) increased growth;
market. (ii) increased market share; (iii)
Requirements: (i) Employ different increased profits.
combinations of price, product, promo- 8. First-in strategy
tion, and distribution strategies in Definition: Entering the market before
different segments; (ii) top management all others.
commitment to embrace entire market; Objective: To create a lead over com-
(iii) strong financial position. petition that will be difficult for them to
Expected results: (i) Increased growth; match.
(ii) higher market share. Requirements: (i) Willingness and abil-
4. Local-market strategy ity to take risks; (ii) technological
Definition: Concentration of efforts in competence; (iii) strive to stay ahead;
the immediate vicinity. (iv) heavy promotion; (v) create primary
Objective: To maintain control of the demand; (vi) carefully evaluate
business. strengths.
Requirements: (i) Good reputation in Expected results: (i) Reduced costs via
the geographical area; (ii) good hold on experience; (ii) increased growth; (iii)
requirements of the market. increased market share; (iv) increased
Expected results: Short-term success; profits.
ultimately must expand to other areas. 9. Early-entry strategy
5. Regional-market strategy Definition: Entering the market in quick
Definition: Operating in two or three succession after the leader.
states or over a region of the country Objective: To prevent the first entrant
(e.g. New England). from creating a stronghold in the mar-
Objectives: (i) To diversify risk of ket.
dependence on one part of a region; (ii) Requirements: (i) Superior marketing
to keep control centralized. strategy; (ii) ample resources; (iii)
Requirements: (i) Management commit- strong commitment to challenge the
ment to expansion; (ii) adequate market leader.
resources; (iii) logistical ability to serve Expected results: (i) Increased profits;
a regional area. (ii) increased growth; (iii) increased
Expected results: (i) Increased growth; market share.
(ii) increased market share; (iii) 10. Laggard-entry strategy
increased profitability. Definition: Entering the market towards
6. National-market strategy the tail end of growth phase of during
Definition: Operating nationally. maturity phase. Two modes of entry are
Objective: To seek growth. feasible: (i) Imitator-entering market
Requirements: (i) Top management with me-too product; (ii) initiator-
commitment; (ii) capital resources; (iii) entering market with unconventional
willingness to take risks. marketing strategies.
Expected results: (i) increased growth; Objective: Imitator: To capture that part
(ii) increased market share; (iii) of the market that is not brand loyal.
increased profitability. Initiator: To serve the needs of the mar-
7. International-market strategy ket better than present firms.
Definition: Operating outside national Requirements: Imitator: Market
boundaries. research ability. Initiator: (i) Market
Objective: To seek opportunities research ability; (ii) ability to generate
beyond domestic business. creative marketing strategies.

140 L. Moutinho
Expected results: Imitator: Increased 15. Key-markets strategy

short-term profits. Initiator: (i) Put mar- Definition: Focusing efforts on selected
ket on a new growth path; (ii) increased markets.
profits; (iii) some growth opportun- Objective: To serve the selected markets
ities. extremely well.
11. Strong-commitment strategy Requirements: (i) Gain good knowledge
Definition: Fighting off challenges of the chosen markets; (ii) concentrate
aggressively by employing different all energies on these markets; (iii)
forms of product, price, promotion and develop unique strategies to serve the
disribution strategies. chosen markets.
Objective: To defend position at all Expected results: (i) Increased profits;
costs. (ii) increased market share in the selec-
Requirements: (i) Operate optimally by ted markets.
realizing economies of scale in promo- 16. Harvesting strategy
tion, distribution, manufacturing, etc. Definition: Deliberate effort to let mar-
(ii) refuse to be content with present ket share slide.
situation or position; (iii) ample resour- Objective: (i) To generate additional
ces; (iv) willingness and ability to take cash flow; (ii) to increase short-term
risks. earnings; (iii) to avoid antitrust action.
Expected results: (i) Increased growth; Requirement: High-market share.
(ii) increased profits; (iii) increased Expected result: Sales decline but use-
market. ful revenues still come in.
12. Average-commitment strategy
Definition: Maintaining stable interest
in the market. Marketing Mix Strategies
Objective: To maintain the status quo.
Requirement: Keep customers satisfied
The marketing objectives and strategy for a
and happy.
particular tourist product-market must be
Expected result: Acceptable profitabil-
consistent with the direction and resources
ity.
provided by the company’s corporate and
13. Light-commitment strategy
business-unit strategies. On the other hand,
Definition: Having only a passing inter-
a major part of the marketing manager’s job
est in the market.
is to monitor and analyse customers’ needs
Objective: To operate in the black.
and wants and emerging opportunities and
Requirement: Avoid investing for any
threats posed by competitors and trends in
long-run benefit.
the external environment. Marketing man-
Expected result: Maintenance of status
agers must determine whether there are
quo (no incease in growth, profits or
different segments for potential customers
market share).
for their products and marketing pro-
14. Pruning-of-marginal-markets strategy
grammes and how those segments might be
Definition: Weeding out markets that do
best defined, described and appealed to.
not provide acceptable rates of return.
Objective: To divert investments in
growth markets.
Requirements: (i) Gain good knowledge Formulating Strategic Marketing
of the chosen markets; (ii) concentrate Programmes
all energies on these markets; (iii)
develop unique strategies to serve the Designing an effective strategic marketing
chosen markets. programme for a tourist product-maket
Expected results: (i) Long-term growth; involves three interrelated sets of deci-
(ii) improved return on investment; (iii) sions:
decrease in market share.

1. The manager must set specific objec- determining the character of the marketing
tives to be accomplished within the mix. It affects the nature and scope of the
target market, such as sales volume, other elements: price (level), channels of
market share and profitability goals. distribution (activities required) and promi-
Those objectives must be consistent tion (message).
with the company’s corporate and Product mix decisions require an ongo-
business-unit strategic objectives, yet ing analysis of individual products and their
specific enough to enable management markets. The total view of tourist products is
to monitor and evaluate the tourist highly relevant to the marketing decisions
product-market’s performance over taken by individual producers, especially in
time. establishing the interrelationships and
2. The manager must decide on an overall scope for cooperation between suppliers in
marketing strategy to appeal to custom- different sectors of the industry. To stay
ers and to gain a competitive advantage ahead of the competition, proactive market-
in the target market. The strategy must ing managers are constantly involved in
be consistent with the company’s capa- tourist product innovation.
bilities, its corporate and business-unit
strategies and the tourist product-
market objectives. Tourist Product Life Cycle
3. The manager must then make decisions
about each element of the tactical mar- Overview
keting programme used to carry out the The product life cycle (PLC) describes the
strategy. These decisions must be inter- evolution of a product as it passes through
nally consistent and integrated across the stages of introduction, growth, maturity
all elements of the marketing pro- and decline with the growth of product sales
gramme. following an S-shaped pattern (which has its
basis in biological studies). It hypothesizes
The strategic marketing programme for a
that products require different marketing
particular tourist product-market should
strategies at each stage. On the other hand,
reflect market demand and the competitive
despite its logical and intuitive appeal, it is
situation within the target market. As
difficult to operationalize and use the PLC
demand and competitive conditions change
for, say, forecasting or decision taking. Not
over time, the marketing strategy should
all growth curves follow the standard S-
also be adjusted. A final critical determinant
shape and a number of variants exist.
of a strategy’s success is the company’s abil-
The extended PLC has an extended matu-
ity to implement it effectively. The
rity stage with high repeat purchases
evaluation and control process provides
providing a stable volume of sales (and little
feedback to managers and serves as a basis
loss of sales to other competitors). In the
for a market opportunity analysis in the next
tourism field products which exhibit this
planning period.
pattern include luxury hotels, holidays and
food service outlets.
Although it could be argued that the tour-
Product Mix ism product is the sum of travel experiences
from anticipation to recall, the destination is
Once a tourism company decides which a key element of the product. Destinations
markets to target, the single most important go through a cycle of evolution similar to the
activity is product development. To a con- product life cycle. Some writers suggest
siderable extent, success here determines three stages to this tourism area life cycle of
the company’s profitability, both short and evolution – discovery, local response and
long term. In many cases, the tourist product initiative, and institutionalized ‘institution-
serves as the basis for gaining a sustainable alization’ – but a more detailed framework is
competitive advantage. It is a strong force in now generally accepted. This begins with

142 L. Moutinho
‘exploration’ by small numbers of visitors reached and the destination is no longer

who are adventurous by nature and tend to fashionable. It relies on repeat visits and
shun institutionalized travel. They are business use of its extensive facilities and
attracted by the natural beauty or culture at major efforts are needed to maintain the
the destination but numbers are restricted number of visitors. The destination may by
by lack of access and facilities. At this stage now have environmental, social and eco-
the attraction of the destination is that it is as nomic problems. The Costa Brava typifies
yet unchanged by tourism and contact with this stage.
local people will be high. Parts of Latin In decline visitors are lost to newer
America and the Canadian Arctic are exam- resorts and the destination becomes
ples here. dependent on a smaller geographical catch-
In the involvement stage local initiatives ment for day trips and weekend visits.
to provide for visitors and later advertise the Alternatively, the authorities may recognize
destination result in increased and regular this stage and decide to rejuvenate by chang-
numbers of visitors. A tourist season and ing the attractions. Similarly, some
market area emerges and pressure may be destinations capitalize on previously
placed on the public sector to provide infra- unused natural resources, such as winter
structure. The smaller, less-developed sports, to extend the season and attract a
Pacific and Caribbean islands are examples new market. These facility developments
of this stage. often reflect joint public/private sector ven-
The development stage sees large num- tures to seek new markets and invest in the
bers of visitors arriving, at peak periods destination in order to reach a cycle/recycle
perhaps equalling or exceeding the numbers pattern.
of local inhabitants. The organization of As with the PLC the shape of the curve
tourism begins to change as control is will vary, but in this case is dependent on
passed out of local hands and external com- the rate of development, access, government
panies emerge to provide up-to-date policy and competing destinations, each of
facilities, which may alter the appearance of which can delay or accelerate progress
the destination. However, in this very suc- through the various stages. In turn, the
cess lies the roots of failure. With increasing length of each stage, and of the cycle itself, is
numbers and popularity the destination variable.
may suffer problems of over-use and deteri- The true test of the PLC or tourist area life
oration of facilities. Regional and national cycle is whether they can be operationalized
planning and control will have become nec- as a tool for planning and managing prod-
essary in part to ameliorate problems but ucts or tourist areas. Both are useful as
also to market to the international tourist- descriptive tools to provide a versatile orga-
generating areas as visitors become more nizing framework for product planning and
dependent on travel arrangements booked strategy. The main determinant of strategy is
through the trade. Parts of Mexico and the expected market growth, and other factors
north and west African coasts exemplify this include distribution of market shares,
stage. degree of comptition and profitability. Each
In the consolidation stage the rate of visi- of these varies at a different stage of the PLC
tors has declined though total numbers are and a different marketing mix is appropri-
still increasing and exceed permanent resi- ate. They can also be used as forecasting
dents. The destination is now fully-fledged tools though here they are less successful
part of the tourism industry with all the because of the differing lengths of the stages
major franchises and chains represented and the difficulty of obtaining standardized
and there is an identifiable recreational busi- sales histories or long runs of visitors arriv-
ness district. Many Caribbean and northern als data. Tourist destinations are dynamic,
Mediterranean destinations are examples with changing provision of facilities and
here. access matched by an evolving market in
At stagnation peak numbers have been both quantitative and qualitative terms.

Implementation geneity of customers and given explicit

There are two basic, though interrelated, consideration of marketing decisions or the
uses of the life cycle: as a guide for strategic competition. Forecasts can be successful if
decision-taking and as a forecasting tool. these limiting assumptions are acceptable
The life cycle approach can be used to char- and sales data are available to give stable
acterize the main marketing challenges at parameter estimates.
each stage. At introduction concern is with Frustratingly for forecasters, retrospec-
building up a strong market position and tive studies have shown that much sales
developing experience and economies of data fit this PLC. This empirical evidence
scale before competitors enter. In the growth can be summarized as: sales of most prod-
stage emphasis changes to building market ucts follow the PLC pattern: profits peak
share through increased use of the product during rapid growth and problems of com-
and pre-empting competitors’ customers. As petition increase as the cycle progresses; the
maturity approaches defence of share average length of the PLC is decreasing;
against competitors becomes important, as there is now regularity in the length of the
does maintaining margins and cash flow by stages of the PLC; and the PLC can be tempo-
cost control and avoiding price wars. How- rarily bent by heavy promotional
ever, once sales or visitor numbers stabilize, expenditure.
management should not await decline as
inevitable, but should seek to revitalize sales Criticisms of the life cycle approach
or visits. The danger here is that the market- Other more detailed criticisms include:
ing effort involved in such activities may be
better placed elsewhere in the portfolio of ● The danger of reacting to warning signs
products (i.e. resources should be allocated which may have been misinterpreted.
to where they generate the greatest contribu- The PLC is often criticized as a pre-
tion). By decline the task switches to scriptive tool because there is poor
preventing a cash drain in products with no empirical validation for shape or length.
future. Clearly the life cycle approach is
The overall lesson here is for companies product- or destination-specific, and
to have a portfolio of products at different each stage is variable in length and the
stages of the PLC so that, for example, shapes and patterns differ.
mature products generate the cash needed ● Its main uses for decision-making and
for investment in new products. forecasting are in doubt. In particular,
Some argue that it is erroneous to assume the wisdom of pursuing a standardized
that the determinant of marketing strategy is marketing strategy at each stage has
stage in the life cycle and the task is to been questioned and it is also imprecise
utilize the stages of the life cycle to develop as a forecasting tool and difficult to cali-
and evaluate marketing strategy. This can be brate because of the lack of long runs of
done in two basic ways: data on visitor numbers or sales.
● The difficulties of identifying stages and
1. Life extension is a planned series of
turning points. Identification of turning
actions to ensure that sales or numbers
points is important in the later stages of
of visitors and profitability is sustained
the cycle given the increased cost of
for as long as possible.
reacting as the need for change becomes
2. Incorporation of other inputs such as
more obvious. Turning points can be
data on market share, the competitive
identified by use of leading indicators
environment and profitability.
such as growth rate of sales or visits;
Use of the life cycle approach as a forecast- level of ownership or visits compared
ing tool depends upon the ability to isolate with market potential; percentage of
and predict the forces driving it. Most fore- first-time buyers or visitors; number of
casts assume a constraint on long-run competitors; levels of prices and profits;
growth, an S-shaped diffusion curve, homo- advertising; promotional and price elas-

144 L. Moutinho
ticity; and emergence of new products Branding in Tourism

meeting customer needs more effec-
tively. The variety of possible shapes of Branding is one of the decisions involved in
the curve and acceleration or delay due developing a tourism marketing strategy. It
to external factors make it difficult to is an important part of product planning. A
identify the stage reached by a destina- brand is a name, design or symbol (or combi-
tion or product. This can be done by nation of these) which is used to identify a
plotting rate of change of sales or visi- service provided by an institution or organi-
tors. For destinations, other measures zation. The branding process in tourism
may be visitor expenditure, type of tour- involves researching, developing and
ist, market share or profitability. implementing an organization’s brand deci-
● The level of aggregation is unclear. Dif- sions. Branding decisions involve the
ferent shapes of the PLC emerge for determination of a word or letter/number to
product categories and forms (where identify the tourism service (brand name), a
external influences are important) com- symbol, design or distractive colouring or
pared with brands (where company lettering, and personified brand mark (trade
decisions are dominant). Geographical character). When a brand name, brand mark
scale is important for the tourist area life or trade character is given legal protection, it
cycle as each country is a mosaic of is referred to as a trademark. Unless brand
resorts and tourist areas (which in turn names, brand mark and trade characters are
contain hotels, theme parks, etc.) and registered as trademarks, competitors can
depending on the scale taken each may use them. There are numerous examples of
be at a different stage in the cycle (com- branding in the tourism and hospitality
pare for example resorts in northern and industry (e.g. hotel chains, rental car com-
southern France). The unit of analysis is panies, cruise lines, tour companies and
therefore crucial and should be deter- airlines).
mined by the intended use of the The significance of banding in tourism
information. can be explained by five factors:
● The life cycle assumes a homogeneous
market but the market can be divided 1. As firms in the hospitality industry
into many segments and a perfectly logi- jockey for global market share, it is crit-
cal stance would be for, say, a ical to carry over the positive images of
destination to introduce segments established names from country to
sequentially. Equally, geographical seg- country. For instance, US hotel chains
mentation would produce differing such as Marriott, Days Inns and
curves for, say, domestic and interna- Embassy Suites are aggressively seeking
tional visitors, etc. foreign markets and hope to capitalize
● For the tourist area life cycle, decline is on established reputations.
rooted in visitor numbers exceeding 2. Repeat business represents an impor-
capacity levels at the destination. But tant source of the tourism industry
capacity is a notoriously difficult con- income, and repeat business depends
cept to operationalize, particularly as it on satisfied customers and recognizable
is possible to ‘manage’ a capacity. Also, brand name. In other words, product
no single capacity threshold exists for a acceptance is improved when brand
destination – physical, environmental names are popularized.
and psychological capacity may each be 3. Considering the vast majority of new
different – and, of course, this takes no brand introduction (from cruise lines,
account of spatial or temporal varia- to car rental companies, to tour package
tions, such as seasonality with the companies, to hotels), the consumer can
attraction of crowd-tolerant visitors in only be bemused and confused. The
the peak season and others in the rapid rate of new brand introduction
quieter off-peak. complicates the tasks of travel agents

and highlights the importance of suggests a more exclusive image than

obtaining customer brand recognition. Carnival Cruise Lines.
4. The choice of a brand has implications 3. The brand name does not just create an
for the firm’s marketing mix consisting image for the product or service, it also
of product strategies, promotional strat- suggests one for the firm. The producers
egies, pricing strategies and of unbranded items cannot be identi-
distribution strategies. fied, therefore customers do not have
5. Customer loyalty in tourism is difficult the opportunity to form an image of the
to establish, but critical. A number of firm.
studies have shown that even when cus- 4. Brand names enable customers to make
tomers are reasonably satisfied with a fewer price comparisons. If a brand is
travel experience, curiosity would unique, the customer will associate a set
attract them to try other alternatives. of marketing attributes to it. Thus it is
Vacationers and tourists continuously easier for the customer to make deci-
seek out new experiences, new loca- sions among brands that are closely
tions, new airlines and new hotels. The related and not compare those that are
more diverse the customers and tourism not related. This is especially true when
adventures, the richer their experience. special characteristics are attributed to
For all these reasons, brand loyalty is different brands. For the firm in the
difficult to obtain and hence branding is travel industry, the brand name enables
very important. it to advertise its sources and associate a
brand and its characteristics in the
Branding in tourism is a decision that is minds of the customers. For instance,
integrated with other marketing mix deci- Carnival Cruise Lines associates the
sions. The examples (from the lodging characteristic of ‘fun ships’ with its
industry) discussed below show how firms brand name, while the QE2 associates
are progressively developing unique brand ‘unique experience’ with its promo-
names to serve different makets. tional theme: ‘For once in your life,
Branding is critical to creating unique live’.
images to different niche markets. That is, it 5. Simply having a brand name increases
enhances market segmentation efforts. The social visibility and product prestige. It
branding decision in tourism is very impor- shows the firm is willing to stand
tant for a variety of reasons: behind its service.
6. Consumers experience less risk when
1. Brand names enable customers to iden- purchasing a brand that is familiar and
tify the product or service. A customer towards which they have a favourable
can then request the service by name; attitude.
for example, a West German tourist may 7. Branding is a critical element of the
prefer the airline Lufthansa. Recogniz- firm’s marketing plan since it helps seg-
ability is important for patronage, ment markets. By using multiple
implying that the name should be fairly brands, different market segments can
simple and distinctive. From this prem- be attracted. The Hilton Hotels group
ise, Western International Hotels uses the Waldorf-Astoria brand name to
changed its name to Westin Hotels. attract the elite and politically influen-
2. Brand name assures the customer of a tial, while the Hilton brand name is
certain product quality. Related to the used to attract business executives and
issue of quality is image: brand name frequent lodgers.
suggests a product image. The Waldorf- 8. A well-known brand name helps
Astoria in New York suggests high increase television channel coopera-
quality, while Comfort Inns suggests tion. A strong brand increases control of
reasonable cost and economy. The the distribution channel, a particularly
Queen Elizabeth 2 (QE2) cruise liner important factor in very competitive

146 L. Moutinho
markets. The tourism and travel indus- exclusively. Brand extension, which is used
try is a highly competitive industry, in the lodging industry, involves attaching a
extremely dependent on travel agents name extension to what would be a family
and tour companies. A strong brand name. For instance, Marriott uses the exten-
name is easily remembered by the cus- sions Hotels, Resorts, Courtyard, Marquis
tomer and travel agent; travel agents are and Suites.
quick to recommend strong brand A good brand name should increase the
names to their clients. changes of consumer preference. ‘Brand-
9. Brands can be used to sell an entire line name hype’ only cannnot lead to sales unless
of products. The Holiday Corporation backed by other substantive actions. While
uses the brand names Holiday Inn measuring sales is easy, the extent to which
Hotels, Residence Inn, HI Crowne increased sales can be attributed to a good
Plaza, Hampton Inn, Embassy Suites brand name is difficult. The effectiveness of
Hotel and Granada Royale to market its branding decisions can ultimately be meas-
line of lodging services. ured on insistence on (or aversion to) the
10. Branding can be used to enter new mar- product. Brand loyalty, however, depends on
kets and to serve new customer satisfaction with product performance.
groups. Branding is a very important decision for
firms in the tourism industry. The develop-
Branding decisions need to start with an ment of brand name over time can offer the
understanding of market segments to be tar- firm a competitive edge, but the firm needs
geted. In fact, target markets need to be to plan and effectively execute a branding
considered when making other branding decision to ensure this benefit. Integration of
decisions. Typically, implementation of the branding decisions into the marketing
branding decisions involves five steps: the mix programme can result in considerable
choice of corporate symbols, creation of a synergistic effects. A brand cannot be trea-
branding philosophy, selection of a brand ted as simply a name, rather it is an integral
name and deciding to seek legal protection. part of the firm’s efforts to establish a unique
Corporate symbols are a firm name, logo image that is saleable to customers. Image
and trade character. Although corporate building in service industries is significant
symbols are designed or chosen to have ele- because word of mouth advertising is a
ments of permanency, changes frequently major form of promotion. A firm operating
have to be made. The firm operates in a in the tourism industry should pay special
dynamic environment, therefore no corpo- attention to its branding decisions. Brand
rate symbol can serve all purposes at all loyalty and patronage may very well depend
times. Situations that call for a change, rede- on a familiar brand name or symbol.
sign and/or change of name are expansion of
product lines to currently unrelated fields;
going into new geographical markets; reali- Dimensions of Product Strategies
zation that the current name is indistinct,
unwieldly or confusing; or starting a com- The implementation of tourism product
pletely new line. Corporate symbols have an strategies requires cooperation among dif-
impact on a firm’s marketing strategy and ferent groups: finance, operations, the
consequently should not be developed with- corporate staff and marketing. This level of
out considering elements of the marketing integration makes tourism product strate-
mix. Embassy Suites Hotel has successfully gies difficult to develop and implement. In
used Garfield the cat as its corporate sym- many tourism companies, to achieve proper
bol. coordination among diverse business units,
Confidence and reliability are of signifi- product strategy decisions are made by top
cant concern to travellers. Even when price management. In some companies, the over-
competition is a significant form of competi- all scope of tourism product strategy is laid
tion, the product is not emphasized out at the corporate level, whereas actual

design is left to business units. These tour- Definition: Reviewing the current pos-
ism companies contend that this alternative itioning of the product and its
is more desirable than other arrangements marketing mix and seeking a new posi-
because it is difficult for top management to tion for it that seems more appropriate.
deal with the details of product strategy in a Objectives: (i) To increase the life of the
diverse tourism company. Some nine key product; (ii) to correct an original pos-
product strategies are recognized here and itioning mistake.
each strategy is examined from the point of Requirements: (i) If this strategy is
view of a strategic business unit (SBU). directed towards existing customers,
repositioning is sought through promo-
1. Perspectives of product strategies:
tion of more varied uses of the product.
product-positioning strategy
(ii) If the business unit wants to reach
Definition: Placing a brand in that part
new users, this strategy rquires that the
of the market where it will have a
product be presented with a different
favourable reception compared with
twist to the people who have not been
competing brands.
favourably inclined towards it. In doing
Objectives: (i) To position the product
so, care should be taken to see that, in
in the market so that it stands apart from
the process of enticing new customers,
competing brands; (ii) to position the
current ones are not alienated. (iii) If
product so that it tells customers what
this strategy aims at presenting new
you stand for, what you are, and how
uses of the product, it requires search-
you would like customers to evaluate
ing for latent uses; there are products
you. In the case of positioning multiple
that may be used for purposes not origi-
brands: (i) To seek growth by offering
nally intended.
varied products in differing segments of
Expected results: (i) Among existing
the market; (ii) to avoid competitive
customers: increase in sales growth and
threats.
profitability; (ii) among new users:
Requirements: Use of marketing mix
enlargement of the overall market, thus
variables, especially communication
putting the product on a growth route,
efforts. (i) Successful management of a
and increased profitability; (iii) new
single brand requires positioning the
product uses: increased sales, market
tourism brand in the market so that it
share and profitability.
can stand competition from the tough-
est rival and maintaining its unique
position by creating the aura of a dis-
product-overlap strategy
tinctive tourism product. (ii) Successful
Definition: Competing against one’s
management of multiple tourism
own brand through introduction of
brands requires careful positioning in
competing products, use of private
the market so that multiple tourism
labelling.
brands do not compete with or canni-
Objectives: (i) To attract more custom-
balize each other. Thus it is important
ers to the product and thereby increase
to be careful in segmenting the market
the overall market; (ii) to work at full
and to position an individual tourism
capacity and spread overhead; (iii) to
product as uniquely suited to a partic-
sell to competitors, to realize economies
ular segment through promotion.
of scale and cost reduction.
Expected results: (i) Meet as far as possi-
Requirements: (i) Each competing prod-
ble the needs of the specific segment of
uct must have its own marketing
the market; (ii) limit sudden changes in
organization to compete in the market;
sales; (iii) make customers faithful to
(ii) private brands should not become
the brands.
profit drains; (iii) each brand should
2. Perspectives of product strategies: find its special niche in the market. If
product-repositioning strategy that doesn’t happen, it will create con-

148 L. Moutinho
fusion among customers and sales will and standard product with modifica-
be hurt. (iv) In the long run, one of the tions.
brands may be withdrawn, yielding its Objectives: (i) Standard product: to
position to the other brand. increase economies of scale of the com-
Expected results: (i) Increased market pany; (ii) customized product: to
share; (ii) increased growth. compete against mass producers of
standardized products through
4. Perspectives of product strategies: product-design flexibility; (iii) standard
product-scope strategy product with modifications: to combine
Definition: The product-scope strategy the benefits of the two previous strate-
deals with the perspectives of the prod- gies.
uct mix of a company. The Requirements: Close analysis of
product-scope strategy is determined product/market perspectives and envi-
by taking into account the overall mis- ronmental changes, especially
sion of the business unit. The company technological changes.
may adopt a single-product strategy, a Expected results: Increase in growth,
multiple-product strategy or a system- market share and profits. In addition,
of-products strategy. the third strategy allows the company to
Objectives: (i) Single product: to keep close contacts with the market and
increase economies of scale by develop- gain experience in developing new
ing specialization; (ii) multiple standard products.
products: to cover the risk of potential
obsolescence of the single product by 6. Perspectives of product strategies:
adding additional products; (iii) system product-elimination strategy
of products: to increase the dependence Definition: Cuts in the composition of a
of the customer on the company’s prod- company’s business unit product port-
ucts as well as to prevent competitors folio by pruning the number of products
from moving into the market. within a line or by totally divesting a
Requirements: (i) Single product: com- division or business.
pany must stay up-to-date on the Objectives: To eliminate undesirable
product and even become the technol- products because their contribution to
ogy leader; (ii) multiple products: fixed cost and profit is too low, because
products must complement one another their future performance looks grim, or
in a portfolio of products; (iii) system of because they do not fit in the business’s
products: company must have a close overall strategy. The product-
understanding of customer needs and elimination strategy aims at shaping the
uses of the products. best possible mix of products and bal-
Expected results: Increased growth, ancing the total business.
market share and profits with all three Requirements: No special resources are
strategies. With system-of-products required to eliminate a product or a
strategy, the company achieves division. However, because it is impos-
monopolistic control over the market, sible to reverse the decision once the
and enlarges the concept of its product/ elimination has been achieved, an in-
market opportunities. depth analysis must be done to
determine (i) the causes of current prob-
5. Perspectives of product strategies: lems; (ii) the possible alternatives, other
product-design strategy than elimination, that may solve prob-
Definition: The product-design strategy lems (e.g. are any improvements in the
deals with the degree of standardization marketing mix possible?); and (iii) the
of a product. The company has a choice repercussions that elimination may
among the following strategic options: have on remaining products or units
standard product, customized product, (e.g. is the product being considered for

elimination complementary to another same customers); and (iii) conglomerate

product in the portfolio? What are the diversification (products are entirely
side effects on the company’s image? new).
What are the social costs of an elimina- Objectives: Diversification strategies
tion?) respond to the desire for (i) growth
Expected results: In the short run, cost when current products/markets have
savings and in some cases an improved reached maturity; (ii) stability by
return on investment can be expected. spreading the risks of fluctuations in
In the long run, the sales of the remain- earnings; (iii) security when the com-
ing products may increase because pay may fear backward integration from
more efforts are now concentrated on one of its major customers; and (iv)
them. credibility to have more weight in capi-
tal markets.
7. Perspectives of product strategies: new-
Requirements: In order to reduce the
product strategy
risks inherent in a diversification strat-
Definition: A set of operations that
egy, a business unit should (i) diversify
introduces (i) within the business, a
its activities only if current product/
product new to its previous line of
market opportunities are limited; (ii)
products; (ii) on the market, a product
have good knowledge of the area in
that provides a new type of satisfaction.
which it diversifies; (iii) provide the
Three alternatives emerge from the
products introduced with adequate
above: product improvement/
support; and (iv) forecast the effects of
modification, product imitation and
diversification on existing lines of
product innovation.
products.
Objectives: To meet new needs and to
Expected results: (i) Increase in sales;
sustain competitive pressures on exist-
(ii) greater profitability and flexibility.
ing products. In the first case, the
new-product strategy is an offensive
one; in the second case, it is a defensive
value-marketing strategy
one.
Definition: The value-marketing strat-
Requirements: A new-product strategy
egy concerns delivering on promises
is difficult to implement if a ‘new prod-
made for the product or service. These
uct development system’ does not exist
promises involve product quality, cus-
within a company. Five components of
tomer service and meeting time
this system should be assessed: (i) cor-
commitments.
porate aspirations toward new
Objectives: Value-marketing strategies
products; (ii) organizational openness
are directed towards seeking total cus-
to creativity; (iii) environmental favour
tomer satisfaction. It means striving for
towards creativity; (iv) screening
excellence to meet customer expecta-
method for new ideas; and (v) evalu-
tions.
ation process.
Requirements: (i) Examine customer
Expected results: Increased market
value perspectives; (ii) design pro-
share and profitability.
grammes to meet customer quality,
8. Perspectives of product strategies: service and time requirements; (iii)
diversification strategy train employees and distributors to
Definition: Developing unfamiliar prod- deliver on promises.
ucts and markets through (i) concentric Expected results: This strategy enhan-
diversification (products introduced are ces customer satisfaction, which leads
related to existing ones in terms of mar- to customer loyalty and, hence, to
keting or technology); (ii) horizontal higher market share. This strategy
diversification (new products are unre- makes the firm less vulnerable to price
lated to existing ones but are sold to the wars, permitting the firm to charge

150 L. Moutinho
higher prices and, thus, earn higher 4. Customer characteristics. Different

profits. touristic destinations will appeal differ-
ently to various income groups and
social classes, who will have different
Tourism Pricing patterns of spending, of length of stay,
and different sensitivities.
5. Competition. Fluctuating levels of
Tourism pricing is a complex decision,
demand and overall business condi-
made even more so by the variability of the
tions.
product, the high degree of competition in
certain tourist markets, and difficulties in Pricing in tourism can be employed to
accurately forecasting the level of demand. attract new customers into the market or
The latter may vary not only due to the entice them from competitors. In areas
special characteristics of this industry, but where customers find it difficult to assess
also due to factors such as weather, terror- quality in advance of purchase, price can act
ism, strikes, etc. As a result, there is no one as an indication of quality. As a result of
universally accepted pricing method, and this, some hoteliers, for example, have
the approach can vary considerably from expressed the view that pricing can also be
one tourism organization to another. Despite used as a device to control the marketing
this, tourism pricing has received and con- thrust of a hotel. For instance, if a hotel
tinues to receive increasing attention in wants to get out of a particular market and
recent research and publications. concentrate on another type of business, it
A number of basic characteristics of the can adjust its rates accordingly.
tourist industry affect pricing, for example: Another possibility is price discrimina-
tion by time. Now nearly all the major hotel
1. Perishability. As the touristic product
groups, airlines, travel organizations, etc.,
cannot be stored for future use, this
offer various sorts of ‘bargain’ holidays, at
means that an unsold service/product is
discounts of up to 50% of the normal price.
revenue lost, which cannot be recouped
Weekend packages are the most popular, but
later. This will influence the profitabil-
with the trend for increased holiday entitle-
ity of the tourism organization/
ments, mini-holidays in spring and autumn
establishment, especially when the high
are growing in popularity and the long-term
fixed costs incurred by the industry are
trend is developing for second and third
considered.
holidays.
2. Intensive capital investment. In most
Tourism pricing affects and is affected by
investments in touristic facilities, up to
future demand, so the impact must be con-
90% of the capital is invested in fixed
sidered carefully: should one use a low price
assets. Consequently, the level of fixed
initially to encourage long-run demands,
costs is very high in relation to other
and as a weapon aimed at capturing market
industries. This affects pricing deci-
share from existing competitors and dis-
sions as explained below.
couraging potential ones from entering?
3. The costs of intensive staff employed.
Alternatively, if the market situation is
The quality of the product of the tour-
monopolistic (this does happen, due to loca-
ism industry depends, to a large extent,
tion, for example), should the price be high,
on the number and quality of the staff
aiming at gaining short-term profits and risk-
employed, and the special and profes-
ing attracting potential competitors? There
sional skills they need to deal with
are four basic factors that influence pricing
guest/staff relationships. Another prob-
decisions:
lem here is that most of the tourism
establishments and facilities are very 1. Cost structure. In the long term, the
dependent on occupancy levels at off- price of a touristic product or service
peak times, in order to justify the must be higher than the full costs incur-
retention of staff at these periods. red by the tourism organization.

2. Competition prices. These should be 3. Survival. This objective is applicable

taken into account in formulating price where low levels of demand are experi-
strategies. enced due to seasonality, intense or
3. The price the customers/guests are superior competition, economic reces-
‘willing to pay’, i.e. their relative elas- sion, etc. Examples include cheap
ticities of demand for the particular holiday packages for off-season periods,
tour, holiday, touristic experience, etc. and cost cutting exercises such as the
This factor has recently been labelled ones undertaken by, say, Spanish hotels
‘customer focus’ (Schliessel and Cha- following a period of very high labour
sin, 1991). However, in using the inflation which resulted in a trend
customer focus approach, due consid- towards self-service buffets, instead of
eration should be given to the level of the usual sit-down meals.
demand that correlated with the break- 4. Volume of sales.
even point, when fixing the price level. ● Maximizing occupancy. This is
Also the customers’ price-demand closely connected with profitability;
schedule should be established. unsold beds mean lost profits. The
4. Tourism organization’s objectives. yield and management approach
Prior to deciding the pricing objectives, (see Table 5.1) is particularly rele-
the tourist organization must identify vant here.
and quantify the potential demand for ● Stable occupancy. Again this is
the particular tourist establishment. In aimed at achieving high sales which
order to achieve this, a market feasi- are connected with profitability, but
bility study must be conducted which in this case increased occupancy
should examine a number of factors may have to be achieved through
such as: the nature and extent of exist- low rates and special discounts for
ing facilities in a particular location, long stays; certain hotels offer par-
socioeconomic structure of potential ticularly low rates to guests staying
visitors, potential business from indus- long periods during the winter sea-
tries and other sources, infrastructure, son; airport hotels operate special
the form of existing and proposed trans- (lower) prices at weekend when
port networks, etc. Market research occupancy tends to fall sharply.
must also be conducted to identify who
are, or will be, the customers at whom Implementation
its strategies will eventually be targeted, In the tourism industry, fixed costs are noto-
and what needs they have in terms of riously high, therefore the strategic pricing
standard of services, facilities, atmos- is high. Yet, in periods of recession, tourist
phere, location, etc. establishments often use pricing as a tactical
short-term strategy, too. It should therefore
The main pricing objectives in the tourism be expected that the pricing systems used in
industry are: practice are found to be market oriented.
Traditionally this has not been the case, as
1. Profit maximization. This is the most more formal cost-oriented pricing structures
commonly cited pricing objective, have been used, such as those outlined
because it (i) acts as a measurement of below.
management efficiency; (ii) provides
cashflows; and (iii) in the hotel indus- Cost-plus
try, it can be used to compensate for This method calculated the price on the
lower income in the off-peak season. basis of variable costs to which is added a
2. Maximization of return on investment. certain percentage which is regarded as cov-
This is very important in the tourism ering other fixed costs and providing a
industry, which normally has a very satisfactory profit margin. Typically an
high level of fixed costs. operator will set this percentage on known

152 L. Moutinho
Table 5.1. The main tourism pricing methods.
Pricing method(s) Content Advantages Limitations
Cost-plus Calculates the price by Easy to use and apply Not very appropriate for
totalling the variable the hotel industry
costs incurred and because of the high
adding a certain xed costs: costs
percentage for pro t dependent on
and xed costs occupancy levels, but
these depend on prices
(i.e. are affected by the
level of costs allocated);
not suitable for use by
market-oriented
establishments
Rate of return Calculates the pro ts Suitable in particular for Estimates are based on
generated in relation to calculating rooms rate: forecasted business/
the capital invested problematic when there guests numbers:
are several interrelated provides only an
service facilities approximate gure for
the mark-up required;
ignores partially the
importance of sales
volume, the market and
the customer
Backward pricing Adjusts the levels of Takes into consideration Requires substantial
service and product competitors prices, as research in order not to
components (costs) to a well as customers ‘dilute the tourism
certain predetermined attitudes, wants and product quality and
market price needs via market consequently lose
research studies custom, create
dissonance, etc.
Marginal pricing or The price should ‘cover Suitable particularly to Rather dif cult to apply in
contribution analysis the additional variable hotels or similar the catering industry,
(or direct) costs and establishments, with e.g. restaurants,
contribute towards the high xed costs, high because of dif culty in
xed costs competition, and elastic identifying clearly direct
demand. This method costs, on each/different
permits a more menu products (as these
aggressive pricing are interchangeable).
policy including Marginal pricing
adjustments/ exibility requires constant
to low/high demand calculations as variable
and seasonality costs change over time
Flexible pricing Takes into consideration Relies heavily on Requires constant
market demand and segmentation and attention, and control of
suggests changes in market demand marketing factors in the
prices (i.e. price analysis. Handles market place
discrimination) changes in customers,
according to time, demand. Very much a
place, product version market-oriented method
or volume of sales

Table 5.1. continued
Pricing method(s) Content Advantages Limitations
Trial and error pricing Raising or lowering the Takes account of the Customers reactions do
price on a random competition; attempts to not occur in a
basis, while optimize pro ts in the suf ciently short period
continuously short term of time to facilitate
monitoring customers adequate changes in
reactions and adapting prices. In practice, it is
the price accordingly in dif cult to assess
order to maximize customers attitudes to
departmental prices as their
contribution perceptions change
over time
Market penetration Setting prices at a level Offer economies of scale The tourism organization
pricing lower than the market both in production and should or could expect
in order to capture the in marketing ‘retaliation from
market share competitors; if the
market penetration is
not successful, low
levels of pro tability
will be achieved.
Skimming pricing Setting a particularly highSuitable when there is a It is very dif cult to
price to indicate a strong inelastic demand operate this price policy
highly differential for, say, a certain for a long period of
product tourism facility, with time, as alternatives are
limited (or weak) developed by
competitors competitors
Yield and revenue Evaluate sales and pricing Increase the amount of Is ineffective for long-term
alternatives in terms of money (income) from pricing decisions
revenue maximization existing demand (see
Dunn and Brooks,
1990)
industry practice or by analysis and projec- enterprise, be it an airline or a restaurant, is

tion of the market conditions. This method to provide a satisfactory return on the capi-
is easy to use and apply, but it has a number tal invested. Therefore, whereas the
of drawbacks, especially so for the accom- cost-plus method concentrates on the costs
modation sector of the tourism industry. associated with running the business, the
The cost-plus method does not take into rate of return method concentrated on the
account demand for the product/service. profits generated in relation to the capital
This method of pricing is appropriate for invested. The criticism of rate of return pric-
cost-oriented industries, but not so for ing is that it is a rather mechanistic, rigid
market-oriented ones. There is little justifi- and unduly profit-oriented approach. It
cation in using it for hotel rooms, for ignores more factors influencing pricing pol-
example, since a room selling for, say, £96 icy, e.g. the importance of sales volume. Its
may have a direct cost of less than £16. approach to pricing problems is therefore
too simple to be realistic. Its greatest failure
is that it loses sight of the customer and
Rate of return market demand generally. Thus in a market-
Those concerned with financial analysis oriented business it cannot be wholly
will argue that the true function of a tourist acceptable.

154 L. Moutinho
Backward pricing Flexible pricing

This method of pricing adopts the procedure This method takes into consideration the
of going from price (normally that of a com- market demand and enables discrimination
petitor) to cost. It starts with a according to time, place, version or volume.
predetermined market price and a given Although clearly the most profitable way to
specified profit, and it then attempts to ach- price is according to what the market will
ieve the latter by adjusting variable service bear, it is not always easy to discover the
and qualitative aspects to reduce costs. As correct level, and in the process, some costly
such it must be used with care, as a thorough mistakes may be made. ‘Charging what the
analysis of attitudes, psychology and market will bear’ comes down to segmenting
requirements of the tourist customer must the market and producing different prices
be made before price selection, while mak- for the different segments based on will-
ing allowance for existing or potential ingness and ability to pay. In other words,
competition and for the psychological this is price discrimination. Several types of
effects of pricing in implying quality lev- discrimination are possible in the hotel
els. industry.
Marginal pricing 1. Discrimination by time. This is applica-

The marginal cost approach to pricing deci- ble where there are peaks and troughs of
sions recognizes that decision-making is demand, e.g. hotels and airlines charge
essentially a process of choosing between more at peak holiday times and may be
competing alternatives, each with its own prepared at off-peak to accept low pri-
combination of income and costs. By esti- ces that merely make a contribution to
mating the demand curve for a particular the necessary costs of keeping a hotel
product, it is possible to see what would ready for business. This is a way of
happen to total profits if the selling prices maintaining necessary services and
are raised or lowered. retaining reliable and quality staff.
Such an approach could be useful in a Additionally, it can be argued that sig-
highly competitive industry with corre- nificant amounts of business can be
sponding elastic demand and a high ratio of generated in other departments, e.g.
fixed to variable costs. In such an industry, it from sales of food or beverages, result-
is possible to set a range of prices all of ing from accommodation bookings, and
which are economically possible, i.e. each thus it might even be feasible to accept
price generates enough revenue to cover accommodation tariffs below variable
total costs and provide some profit. The cru- costs.
cial question to be answered here is, what 2. Discrimination by place. An example of
price would maximize total contribution to this could be hotel rooms with a bal-
fixed costs and profits? This is a useful tech- cony overlooking the sea, commanding
nique for industries with high fixed costs, higher prices than the ones overlooking
like tourism. Marginal pricing has been the service yard or in close proximity to
recently used extensively by certain small the hotel’s disco.
and middle sized hotels that were badly 3. Discrimination by product/service ver-
affected by the world recession and falling sion. Hotel rooms with a bath can be
demand. charged at a higher rate than those
Marginal pricing permits a more aggres- without.
sive pricing policy, by segmenting the 4. Discrimination by volume. Here we are
market and using product differentiation to concerned with volume and quantity
gain advantage of the different layers of con- discounts where end-users are con-
sumer demand, and for selecting the most cerned, e.g. in the case of tour operators,
profitable pricing when capacity is limited, care must be taken that the actual book-
as, for example, in the peak season. ings reach their promised level,

otherwise concessions are not related to value is in determining lower limits of

the size of the booking. price.
Although the pricing element is the most
Market penetration important one of the marketing mix in terms
This involves setting a price below that of of profitability, pricing cannot be seen in
the market of competition to capture cus- isolation from the other elements. Pricing
tomers in the hope that prices may be raised must be viewed as an integral part of the
at a later date while retaining a high propor- market process and the interrelationship
tion of the custom that has been built up. with the other elements in the mix must be
This approach offers economies of scale taken into consideration. Recently, the infla-
both in production and in marketing. tion impact on tourism pricing has received
Skimming some attention (Arbel and Woods, 1991).
The hotel industry, for example, was con-
In tourism this may be applied to a very
sidered to be inflation proof, because of its
differentiated product, such as new trans-
ability to raise room rates. Obviously, in
portation method, or a new destination,
today’s economy, hotels should try to avoid
where premium prices may be charged.
simplistic approaches. Instead, they could
Indeed, this pricing policy could be adopted
employ yield and revenue management
only in circumstances where a strong (or
(Dunn and Brooks, 1990).
inelastic) demand exists for the touristic
Some of the pricing methods presented
products offered. Ownership of a certain
above are particularly suitable to small tour-
unique location often offers an opportunity
ist enterprises and operators; examples are
to charge particularly high prices.
the cost-plus method, marginal pricing tech-
Yield and revenue nique and market penetration pricing.
This method attempts to maximize revenue However, even small tourism businesses, in
by increasing the revenue from the existing developing a pricing policy, must carry out
level of demand. It is suitable (and used) the following before arriving at a decision.
particularly as a short-term approach.
1. Undertake a market feasibility study
Assessment and market research to determine:
An assessment of the various pricing meth- ● the customers and the nature of the
ods and techniques available in tourism is demand;
presented in Table 5.1. Pricing is one of the ● the quality/quantity of the product/
most important elements in the tourism service required and its costing
marketing mix. Tourism customers rate the elements;
product at a price and without price there is ● the nature of the competition;
no indication of value. Pricing decisions are ● the price that the customers are
therefore essential for the profitability of the ‘willing to pay’ for the product in
tourist establishment, as it has a tremendous question.
impact on demand and sales volume. Pric- 2. Set clear pricing objectives (e.g. attain a
ing is also often considered to be an certain level of return/profitability,
indication of quality. sales/volume occupancy level(s), sur-
Setting the price is a critical decision for vival, etc.).
any tourism establishment. It is easy to dis- 3. The price strategies selected depend
cover when a product is underpriced. The highly on the customers serviced, the
psychology of price is important in deter- small tourist organization strengths and
mining a person’s price/value relationship. weaknesses, the opportunities and
Attitudes to price also relate very closely to threats in the market place, the competi-
the amount of risk the buyer feels is tion, and certain tourism
involved in the purchasing decision. For all non-controllable marketing variables,
these reasons, cost-based methods of setting e.g. weather, government intervention
tourism prices can be dangerous; their real and regulation of tourism activities,

156 L. Moutinho
economic circumstances (e.g. inflation, price during the initial stage of a prod-
unemployment), etc. uct’s life.
Objectives: (i) To serve customers who
With the increase in computerization, an
are not price conscious while the mar-
increasing number of hotels and restaurants
ket is at the upper end of the demand
analyse the profitability of operations by
curve and competition has not yet
individual menu items, meal periods (e.g.
entered the market; (ii) to recover a sig-
breakfast vs. banquet business), or catego-
nificant portion of promotional and
ries of menus. A ‘profit and loss’ account for
research and development costs
every meal can be developed. This approach
through a high margin.
is particularly suitable for relatively small
Requirements: (i) Heavy promotional
establishments and enables the manager to
expenditure to introduce product, edu-
keep an eye on the profitability of the restau-
cate consumers, and induce early
rant business (Meidan, 1994).
buying; (ii) relatively inelastic demand
at the upper end of the demand curve;
Dimensions of pricing strategies (iii) lack of direct competition and sub-
Strategically, the function of pricing has stitutes.
been to provide adequate return on invest- Expected results: (i) Market segmented
ment. Thus, the timeworn cost-plus method by price-conscious and not so price-
of pricing and its sophisticated version, conscious customers; (ii) high margin
return-on-investment pricing, have histor- on sales that will cover promotion; (iii)
ically been the basis for arriving at price. opportunity for the firm to lower its
Pricing is an important part of marketing price and sell to the mass market before
strategy. Despite the importance attached to competition enters.
it, effective pricing is not an easy task, even 2. Penetration pricing
under the most favourable conditions. A Definition: Setting a relatively low price
large number of internal and external vari- during the initial stages of a product’s
ables must be studied systematically before life.
price can be set. For example, the reactions Objective: To discourage competition
of a competitor often stand out as an impor- from entering the market by quickly tak-
tant consideration in developing pricing ing a large market share and by gaining a
strategy. Simply knowing that a competitor cost advantage through realizing econo-
has a lower price is insufficient; a price strat- mies of scale.
egist must know how much flexibility a Requirements: (i) Product must appeal
competitor has in further lowering price. to a market large enough to support the
This presupposes a knowledge of the com- cost advantage; (ii) demand must be
petitor’s cost structure. highly elastic in order for the firm to
In the dynamics of today’s environment, guard its cost advantage.
however, where unexpected economic Expected results: (i) High sales volume
changes can render cost and revenues pro- and large market share; (ii) low margin
jections obsolete as soon as they are on sales; (iii) lower unit costs relative to
developed, pricing strategy is much more competition due to economies of scale.
difficult to formulate. This section now pro-
vides a composite of pricing strategies for Perspectives on pricing strategies: price
products. Each of five strategies is examined strategies for established products
for its underlying assumptions and rele- 3. Maintaining the price
vance in specific situations. Definition: The price is kept at exactly
the same level.
Perspectives on pricing strategies: price Objectives: (i) To maintain position in
strategies for new products the marketplace (i.e. market share, prof-
1. Skimming pricing itability, etc.); (ii) to enhance public
Definition: Setting a relatively high image.

Requirements: (i) Firm’s served market Promotion

is not significantly affected by changes
in the environment; (ii) uncertainty The pattern of international travel and tour-
exists concerning the need for or result ism demand, and its change over time, is
of a price change. quite pronounced. The determinants of this
Expected results: (i) Status quo for the pattern are potentially many and varied, as
firm’s market position; (ii) enhance- evidenced by the large number of empirical
ment of the firm’s public image. studies which have been undertaken over
4. Reducing the price the last three decades. Destinations attempt
Definition: The price is decreased from to influence this pattern through their pro-
a previous level. motional activities in foreign countries.
Objectives: (i) To act defensively and Many countries have substantially
cut price to meet the competition; (ii) to increased their spending on such promo-
act offensively and attempt to beat the tions in recent years as international tourism
competition; (iii) to respond to a cus- has become much more lucrative and com-
tomer need created by a change in the petitive.
environment. The promotion of countries as tourist
Requirements: (i) Firm must be finan- destinations has intensified considerably. In
cially and competitively strong to fight more recent years, however, national tour-
in a price war if that becomes necessary; ism organizations (NTOs) in particular have
(ii) must have a good understanding of come under increased scrutiny to demon-
the demand function of its product. strate the success of their promotional
Expected results: Lower profit margins campaigns and thereby to justify industry
(assuming costs are held constant). and government funding. However, the link
Higher market share might be expected, between promotion and demand is not easy
but this will depend on the price change to measure. Organizations which must com-
relative to competitive prices and on pete for their survival know that promotion
price elasticity. is important, but only vaguely understand
5. Increasing the price how promotion works. There is a sense that,
Definition: The price is increased com- while some promotion can be highly effec-
pared with a previous level. tive, promotion involves much guess-work,
Objectives: (i) To maintain profitability ‘gut feel’, and trial and error. Indeed, some
during an inflationary period; (ii) to take promotion is probably quite ineffective, but
advantage of product differences, real it is very difficult to really know what does
or perceived; (iii) to segment the current and doesn’t work because so many influ-
served market. ences can affect demand that, unless the
Requirements: (i) Relatively low price promotion is subject to experimental con-
elasticity but relatively high elasticity trol, it is almost impossible to apportion the
with respect to some other factor such variance in demand to its possible causes.
as quality or distribution; (ii) reinforce-
ment from other ingredients of the The promotion of international tourism
marketing mix; for example, if a firm International tourism is promoted in a wide
decides to increase price and differen- variety of ways by a wide variety of organi-
tiate its product by quality, then zations. Airlines, travel agents, tour
promotion and distribution must operators, resorts, convention and visitor
address product quality. bureaux, hotels and NTOs, for example,
Expected results: (i) Higher sales mar- promote international travel and tourism
gin; (ii) segmented market (price individually and in collaborative arrange-
conscious, quality conscious, etc.); (iii) ments.
possibly higher unit sales, if differentia- Promotion might be targeted at either
tion is effective. consumers or the travel trade. Consumer

158 L. Moutinho
promotions have typically relied on bro- sales promotion activities in tourism are
chures and print advertising in newspapers even more effective when supplemented by
and magazines. For some time airlines have publicity and personal selling.
used television as the medium and more
recently, the budgets of NTOs have enabled Developing advertising strategies
the mass television advertising of destina- A number of factors must be considered in
tions. Publicity has been used to great effect developing advertising strategies. One
as well. Many countries operate a pro- model of advertising strategy identifies five
gramme for visiting journalists. Such key elements, presented below:
programmes have been found to be partic-
1. Driving force: the value orientation of
ularly cost-effective, and can generate
the advertising strategy; the end goal or
publicity which, in value, exceeds the total
value on which the advertising is
annual budget of the sponsoring NTO.
focused.
Trade promotions have also become
2. Consumer benefits: the key positive
increasingly important. Travel trade shows,
consequences for the consumer that are
and corporate, incentive, and convention
to be communicated in the advertise-
travel markets have grown in significance.
ment, either visually or verbally.
Governments have opened travel offices in
3. Message elements: the concrete or
major origin markets, hence, the full promo-
abstract product attributes or features
tional mix (advertising, sales promotion,
that are to be communicated in the
personal selling, and publicity) is now used
advertisement, either verbally or visu-
extensively to promote international travel
ally.
and tourism.
4. Leverage point: the specific way in
The main marketing function of NTOs is
which the value or end goal is linked to
the promotion of inbound international
the specific features of the advertise-
tourism, although promotion is only one
ment; the ‘hook’ that activates or taps
element of the marketing mix. As interna-
into the driving force.
tional travel and tourism has grown, the
5. Executional framework: all the details
promotional budgets of NTOs have risen
of the advertising execution – models,
significantly (Lavery, 1992). The entire pro-
clothes used, setting – as well as the
motion programme – objectives, creative
overall scenario or action plot; the
content of messages and format, selection of
advertisement’s overall theme or style;
media and the budget – should follow
the vehicle for communicating the
directly from marketing objectives and help
means-end message.
to achieve them. In this way, the marketing
plan ensures that promotion is coordinated Each of these advertising strategy factors
with marketing strategy. Advertising should requires many decisions by marketing and
influence the tourist’s assessment of the advertising agency personnel. As we have
tourist product’s performance on a given seen, the first step in developing an advertis-
attribute, or on the combination of product ing strategy is to analyse the
attributes regarded as ‘ideal’. The messages consumer/product relationship. Means-end
must create or reinforce existing positive measures of consumers’ knowledge struc-
attitudes or images and correct negative tures are useful for this purpose. From a
attributes or image elements. means-end perspective, the end goals or
In terms of media planning, the tourist values that consumers seek to achieve are
company should deal with a basic question: the key to developing effective advertising
which medium delivers the most key pro- strategies. The marketer must select the key
spects at the lowest cost within a supportive value, end state, goal or benefit to be com-
editorial environment? The relative cost- municated in the advertisement. Then, the
effectiveness of the different marketer must determine how the advertise-
communication channels is also an impor- ment will communicate that the product can
tant factor to be evaluated. Advertising and achieve or satisfy this end goal or value.

The attribute, consequence and value message and maintain a long-term cordial
levels of product knowledge in a means-end relationship with the organization. Promo-
chain are directly related to three of the tional strategies must also be properly
major decision elements of advertising strat- matched with product, price and distribu-
egy. Knowing consumers’ salient product tion perspectives.
attributes help marketers decide which mes- The amount that a tourism company may
sage elements to include in an spend on its total promotional effort, which
advertisement. Data about the important consists of advertising, sales promotion and
functional consequences consumers per- personal selling, is not easy to determine.
ceive can help identify the key consumer There are no unvarying standards to indi-
benefits to be communicated. Values or end cate how much should be spent on
goals are directly related to the driving force promotion in a given tourist product/market
of the advertising strategy. situation. This is so because decisions about
Finally, developing the executional promotion expenditure are influenced by a
framework and the leverage point requires complex set of circumstances. This section
selecting and putting together the specific now provides a set of promotion strategies.
executional aspects of an advertisement – Four strategies are examined for their under-
the product attributes mentioned or shown, lying assumptions and relevance.
the models used, the camera angles, the plot,
1. Perspectives on distribution strategies:
the various cuts to different scenes, etc. – to
promotion-expenditure strategy
effectively communicate the connection
Definition: Determination of the
between the product and the basic goals and
amount that a company may spend on
values the consumer is seeking. These deci-
its total promotional effort, which
sions require creative imagination that can
includes advertising, personal selling
be guided by means-end data. This is a con-
and sales promotion.
venient framework that organizes and gives
Objective: To allocate enough funds to
focus to the many decisions. Generally, it
each promotional task so that each is
should produce more coherent and effective
utilized to its fullest potential.
advertising that communicates complete
Requirements: (i) Adequate resources to
means-end meanings.
finance the promotion expenditure; (ii)
Dimensions of promotion strategies understanding of the products/services
sales response; (iii) estimate of the dura-
Promotion strategies are concerned with the
tion of the advertising effect; (iv)
planning, implementation and control of
understanding of each product/market
persuasive communication with customers.
situation relative to different forms of
The first strategic issue involved here is how
promotion; (v) understanding of com-
much money may be spent on the promotion
petitive response to promotion.
of a specific tourism product/market. The
Expected result: Allocation of sufficient
distribution of the total promotional budget
funds to the promotional tasks to
among advertising, sales promotion and per-
accomplish overall marketing objec-
sonal selling is another strategic matter. The
tives.
formulation of strategies dealing with these
two issues determines the role that each 2. Perspectives on distribution strategies:
type of promotion plays in a particular sit- promotion mix strategy
uation. Definition: Determination of a judicious
Clear cut objectives and sharp focus on mix of different types of promotion.
target customers are necessary for an effec- Objective: To adequately blend the
tive promotional programme. An integrated three types of promotion to comple-
marketing communication plan consisting ment each other for a balanced
of various promotional methods should be promotional perspective.
designed to ensure that customers in a tour- Requirements: (i) Product factors: (a)
ist product/market cluster get the right nature of product, (b) perceived risk; (ii)

160 L. Moutinho
market factors: (a) position in the life Definition: Designing the content of an
cycle, (b) market share, (c) industry con- advertisement.
centration, (d) intensity of competition, Objective: To transmit a particular
and (e) demand perspectives; (iii) cus- product/service message to a particular
tomer factors: (a) household versus target.
business customers, (b) number of cus- Requirements: (i) Eliminate ‘noise’ for a
tomers, and (c) concentration to clear transmission of message; (ii) con-
customers; (iv) budget factors: (a) finan- sider importance of (a) source
cial resources of the organization, and credibility, (b) balance of argument, (c)
(b) traditional promotional perspec- message repetition, (d) rational versus
tives; (v) marketing mix factors: (a) emotional appeals, (e) humour appeals,
relative price/relative quality, (b) dis- (f) presentation of model’s eyes in pic-
tribution strategy, (c) brand life cycle, torial ads, and (g) comparison
and (d) geographic scope of the market; advertising.
(vi) environmental factors. Expected result: The intended message
Expected result: The three types of pro- is adequately transmitted to the target
motion are assigned roles in a way that audience.
provides the best communication.
3. Perspectives on distribution strategies: Tourism Distribution

media-selection strategy
Definition: Choosing the channels The main function of a distribution system
(newspapers, magazines, television, is to extend the number of points of sale or
radio, outdoor advertising, transit access, away from the location at which ser-
advertising, and direct mail) through vices are performed or delivered. In this
which messages concerning a product/ sense at least, the function of distribution is
service are transmitted to the targets. the same for tourism products as it is for
Objective: To move customers from physical goods. Still, an important second-
unawareness of a product/service, to ary function of services distribution is to
awareness, to comprehension, to con- facilitate the purchase of products in
viction, to the buying action. advance of their production.
Requirements: (i) Relate media- The most crucial question for tourism
selection objectives to product/market distribution analysis is what channels are
objectives; (ii) media chosen should the most productive and whether a new
have a unique way of promoting the channel strategy is needed. A distribution
business; (iii) media should be strategy involves determining the best way
measure-minded not only in frequency, in which the industry will try to sell its
in timing, and in reaching the target products to designated end markets. The
audience but also in evaluating the leading factors for a tourism distribution
quality of the audience; (iv) base media policy to be effective are the market cov-
selection on factual not connotational erage, the costs of distribution involved, and
grounds; (v) media plan should be opti- the effectiveness in generating sales in terms
mistic in that it takes advantage of the of motivation and image of the channels.
lessons learned from experience; (vi) The distribution strategy must be supported
seek information on customer profiles by information services, publicity material,
and audience characteristics. training seminars, joint special promotions
Expected result: Customers are moved and trade advertising.
along the desired path of the purchase The allocation of available marketing
process. funds among the various components of the
tourism marketing mix (advertising, public-
4. Perspectives on distribution strategies: ity, travel agents’ commissions, discount
advertising-copy strategy coupons, pre-opening campaigns, new

product development, research, etc.) should umes than single service providers. Second,
be determined. For tomorrow’s tourism mar- given the high price elasticity of demand for
keting strategies, the name of the game will, international travel, the ability of tour opera-
above all, be how to achieve a sustainable tors to obtain low cost charters is crucial
competitive advantage. and, finally, tour operators can arrange pack-
ages that can be mass marketed on the basis
The evolving role of tour operators of their brand name and quality assurance.
Tour operators function as intermediaries in In other words, tour operators are able to
the tourism distribution system linking pro- reduce economic distance (low cost char-
ducers and consumers. Their expertise in ter), cultural distance (providing complete
packaging tourism products allows for more packages), and increase quality of host ser-
offerings to a wider range of tourists. Tour vices (brand name and quality assurance).
operators handle all the details of foreign The resistance component of demand is
travel allowing the foreignness of the desti- thereby reduced, resulting in an increase in
nation to be observed but not truly total demand.
experienced. Tour operators often negotiate Another important role of tour operators
discount fares for package tours with metro- is as a gatekeeper of information. Tour
politan enterprises. operators provide information about desti-
The ability of tour operators to combine nations even if travellers do not choose to
travel products and offer them to customers use their services. This source of informa-
at prices generally lower than those avail- tion can be considered as an induced image
able to individuals provides travel economy formation agent critical to the perceptions
and convenience for a significant segment of travellers hold about different destination
tourists. Product packaging and selling areas. Murphy (1983) agrees that informa-
through operators represents a significant tion dissemination by tour operators
portion of the international travel business. contributes to the image travellers hold
A tour operator will have more influence in about certain areas. McLellan and Foushee
the travel decision process and hence (1983) argue that country images to a great
become more important both to the traveller extent work to influence the image held by
and destination area the greater the distance tour operators and ultimately their clients.
from point of visitor origin to destination. The role tour operators provide by distribut-
They are often the first and most influential ing information organizes the information
link in the tourist flow chain. search process for the individual. External
The dependence of developing countries sources of information are minimized for the
on foreign tour operators derives fundamen- individual if they choose to use the services
tally from the expertise of these operators as of a tour operator.
producers and wholesalers of tourism- In most industries the supplier or pro-
related services, their knowledge of the ducer has full or at least decisive control
market, particularly the international mar- over the product including pricing, quality
ket, and their access to the relevant and the manner in which it is distributed.
complementary services whereby a total Tourist service providers are an exception.
package of tourism-related services can be According to Hawkins and Hudman (1989),
provided. For example, tourists depend on the distribution sector of tourism is much
tour operators as sources of, presumably, stronger and travel intermediaries have far
expert information about product quality greater power to influence and direct con-
and consumption expectations. sumer demand when compared with their
We can identify three areas where tour counterparts in other industries. The dis-
operators provide necessary services to both tribution channel in tourism creates the link
travellers and developing countries. Tour between the producers of tourism services
operators are considered specialists in mar- and their customers. Often tour operators
keting and distribution of tourist-related are the distribution link and the channel
services and can achieve higher sales vol- between producers and consumers of inter-

162 L. Moutinho
national tourism products. Since tourism Travel intermediaries and the impact of
products are experiential and consumed on information technology
site, tour operators are an integral link in the Computer reservation systems affiliated
distribution system (Morrison, 1989). with vendor airlines have become known as
Unlike other products which flow from pro- global distribution systems (GDSs) and
ducer to consumer, tourists flow to the those affiliated with non-vendor airlines are
product. This inverted distribution system called computer reservation systems (CRSs).
relies on intermediaries to perform much All GDSs provide important electronic dis-
more than simple delivery services. tribution channels for a variety of travel
In competing for customers, tour opera- products. Travel agents are the most ubiqui-
tors must include destination attractiveness tous travel intermediaries varying in size
as one of the intangible qualities they market from multinational, multi-branch mega-
(Whipple and Thach, 1988). However, the agencies to small, independently owned
operators are concerned about the overall offices.
tourism experience for their clients and this Travel agencies have an unusual relation-
can be affected by inefficient in-country ser- ship with the Internet. It is both a threat
vices. Also, difficulty in obtaining services, since it could remove much of their busi-
which have higher than expected prices, ness, but it also provides additional
may lead to destination substitution. Tour- business opportunities. Some travel agen-
ism demand could be increased by reducing cies offer services on the World Wide Web,
economic distance for tour operators. The giving them a much broader geographic con-
more difficult it is to obtain needed informa- sumer base than if they operated
tion, reserve domestic airline space or book traditionally. Travel agents can also use it as
blocks of hotel rooms, the more time- an important research tool in addition to
consuming and expensive it becomes for their GDS. This may be particularly impor-
tour operators. tant in the future as some travel products
Questions that need to be addressed become available only via the Internet. Of
immediately include: United States travel agents, 60% use the
Internet to research products and destina-
● Are there measures which can be under- tions, 55% use it to receive e-mail from
taken to improve the services for clients, and 23% use it to make bookings for
international tour operators? clients. In addition, 29% have set up a home
● Are there opportunities for govern- page on the Web and 42% access news
ments in particular and all developing groups through the Internet (Harris, 1996).
countries in general to provide informa- Tour packages are traditionally distrib-
tion and assistance in obtaining needed uted using brochures. Computers can assist
services directly to tour operators, in in-house brochure creation with the use
thereby reducing dependency on metro- of desktop publishing software. Brochures,
politan enterprises? however, represent a significant expense for
● Are tour operators’ expectations of dis- agents and so many are looking to distribute
count fares and preferential bookings brochures to agents electronically using
realistic and in keeping with sustain- high band width data communications
able development policies? lines, thus allowing full colour pictures and
● What role does the government and pri- text to be transmitted to an agent’s terminal.
vate sector play in the provision of Integrated services digital network (ISDN) is
services to international tour opera- an example of a technology that could facili-
tors? tate electronic brochure distribution.
Reservations are then transmitted back to
As an operator increases their business in the tour operator reservation system directly
the country they are more likely to be con- from the travel agent’s terminal.
fronted with increasing problems of Electronic distribution of tour packages
securing adequate services. can also be done with CD-ROMs, videotext,

GDS, or the World Wide Web. Many tour screens are a vast improvement over
operators also place their inventory on the typed interfaces, but voice input and
GDS as a way of facilitating travel agent recognition is the next step in making
bookings. Tour operators with their own res- communication with a computer easier.
ervation system can connect to systems such Research has shown that video confer-
as Tourlink, Tour Source or Leisure Shop- encing is expected to decrease the
per, which are features accessible to GDS demand for domestic air travel in the
users. On-line bookings for tour packages USA by 12–16% by 2030. A European
are likely to be small because of the sig- study estimates similar trip reductions
nificant financial outlay that many tour of 13–23%.
packages represent compared with other ● Electronic auctions. For example,
travel products. United Airlines uses electronic auctions
Much debate has ensued in the last few to sell seats due to overbooking or when
years about the continued viability of travel it has empty capacities on its flights.
intermediaries, particularly in the light of
new technological developments. Con- Vertical integration is also occurring as
sumer access to travel databases creates an travel agents and tour operators are acquir-
immediate threat to the existence of travel ing airlines, and airlines are acquiring
intermediaries as consumers book and hotels, for example. This vertical integration
research their own trips. The rapid growth may be prompted by information technol-
of the Internet, the World Wide Web and ogy in the sense that companies may want to
other public access networks is having a leverage their investments in computer res-
profound impact on travel product distribu- ervation technology across numerous and
tion and therefore on travel intermediaries. diverse operations.
Travel intermediaries can respond to this If future decisions on technology are
threat in numerous creative ways. For exam- based solely on cost and convenience, more
ple, many travel agents and tour operators technology than is appropriate may be
now offer their services to consumers on the implemented, leaving the industry less
Internet, significantly increasing their geo- effective in the long run. All sectors of tour-
graphical reach. Some travel agencies exist ism must carefully examine their
solely on the Internet, realizing that physical operations, strategic direction and customer
location is irrelevant in today’s electronic needs when deciding to implement new
market place. In the future, as consumer technologies. Over time, trends will cer-
booking over the networks becomes easier, tainly emerge. At the present time, the
travel intermediaries will have to continu- proportion of travellers using electronic
ously redefine themselves. Travel is the channels is currently in the minority. How-
Internet’s second largest convenience area ever fast the growth, it seems there will
after computer technology. always be a significant proportion who con-
Additional methods allowing consumers tinue to choose to use travel agents
to access travel information and databases (Sheldon, 1997).
are:
Dimensions of distribution strategies
● Automated ticket machines (ATMs). Distribution strategies are concerned with
● Interactive television. This is a relative the channels a tourism company may
of videotext, except that the commu- employ to make its services available to cus-
nication links are faster and able to tomers. Channels are organized structures of
handle multimedia information which buyers and sellers that bridge the gap of time
is not the case with videotext. Inter- and space between the supplier and the cus-
active TV systems are still in the tomer. Which travel intermediary should
development phase, but offer significant the supplier select to bring tourism services
potential for the travel industry. The close to the customer? Who should perform
graphical user interfaces and touch the concentration and dispersion tasks: the

164 L. Moutinho
tourism supplier or travel intermediaries? intensive distribution and selective

These questions are central to tourism dis- distribution.
tribution strategies. Objective: To serve chosen markets at a
Other strategy-related matters include minimal cost while maintaining
scope of distribution (i.e. how widespread desired product image.
distribution may be), use of multiple chan- Requirements: Assessment of (i) cus-
nels to serve different segments, modi- tomer buying habits; (ii) gross
fication of channels to accommodate envi- margin/turnover rate; (iii) capability of
ronmental shifts and use of vertical systems dealer to provide service.
to institute control over tourism channels. Expected results: (i) Exclusive distribu-
Five approaches are now examined for their tion: (a) strong loyalty, (b) high degree
relevance in different circumstances. of control, (c) good forecasting capa-
bility, (d) sales promotion assistance,
(e) possible loss in sales volume; (ii)
channel-structure strategy
selective distribution: (a) extreme com-
Definition: Using perspectives of inter-
petition in marketplace, (b) price
mediaries in the flow of services.
discounting, and (c) pressure from
Distribution may be either direct or
channel members to reduce number of
indirect.
outlets; (iii) intensive distribution: (a)
Objective: To reach the optimal number
low degree of control, (b) higher sales
of customers in a timely manner at the
volume, (c) wide customer recognition,
lowest possible cost while maintaining
(d) high turnover, and (e) price dis-
the desired degree of control.
counting.
Requirements: Comparison of direct
versus indirect distribution on the basis
of (i) cost; (ii) product characteristics;
multiple-channel strategy
(iii) degree of control; and (iv) other
Definition: Employing two or more dif-
factors.
ferent channels for distribution of
Costs: (i) Distribution costs; (ii) oppor-
services. Multiple-channel distribution
tunity costs incurred because product
is of two basic types: complementary
not available.
(each channel handles a different non-
Product characteristics: (i) Gross mar-
competing market segment) and
gin; (ii) service requirements; (iii)
competitive (two different and compet-
search time.
ing channels sell the same product).
Degree of control: Greater when direct
Objective: To achieve optimal access to
distribution used.
each individual market segment to
Other factors: (i) Adaptability; (ii) tech-
increase business. Complementary
nological changes (e.g. computer
channels are used to reach market seg-
technology); (iii) social/cultural
ments otherwise left unserved;
values.
competitive channels are used with the
Expected results: (i) Direct distribution:
hope of increasing sales.
(a) high marketing costs, (b) large degree
Requirements: (i) Market segmentation;
of control, (c) informed customers, and
(ii) cost/benefit analysis. Use of com-
(d) strong image; (ii) indirect distribu-
plementary channels promoted by (i)
tion: (a) lower marketing costs, (b) less
geographic considerations; (ii) volume
control, and (c) reduced channel man-
of business; and (iii) saturation of tradi-
agement responsibilities.
tional distribution channels. Use of
2. Perspectives on distribution strategies: competitive channels can be a response
distribution-scope strategy to environmental changes.
Definition: Establishing the scope of Expected results: (i) Different services,
distribution, that is, the target custom- prices, and support provided to differ-
ers. Choices are exclusive distribution, ent segments; (ii) broader market base;

(iii) increased sales; (iv) control prob- programming; (iv) achievement of oper-
lems; (v) possible over-extension. ating economies; (v) maximum market
Overextension can result in (i) decrease impact; (vi) increased profitability; (vii)
in quality/service and (ii) negative elimination of inefficiencies.
effects on long-run profitability.

References and Further Reading
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5

Segmentation, Targeting, Positioning and

Introduction the resources of the tourism company and

management practice. Strategic market con- ● Differentiated marketing (multiple mar-

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Fig. 5.1. Levels of market segmentation.

sidered in a vacuum but are, instead, Demographic Segmentation

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graphic, cultural and socioeconomic It is generally accepted that these relation-

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destination. Certain special attributes of a through multivariate statistical methods.

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3. Describe the consumers/organizations 2. After evaluation is completed, those

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Other characteristics that favour niching 3. The threat of substitute products.

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Positioning a Destination: Problems short break holiday requires the expenditure

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Objective: To compete across the board Requirements: (i) Top management

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Expected results: Imitator: Increased 15. Key-markets strategy

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‘exploration’ by small numbers of visitors reached and the destination is no longer

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Implementation geneity of customers and given explicit

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ticity; and emergence of new products Branding in Tourism

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and highlights the importance of suggests a more exclusive image than

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elimination complementary to another same customers); and (iii) conglomerate

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higher prices and, thus, earn higher 4. Customer characteristics. Different

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2. Competition prices. These should be 3. Survival. This objective is applicable

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Table 5.1. The main tourism pricing methods.

Pricing method(s) Content Advantages Limitations

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Table 5.1. continued

Pricing method(s) Content Advantages Limitations

industry practice or by analysis and projec- enterprise, be it an airline or a restaurant, is

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Backward pricing Flexible pricing

Marginal pricing 1. Discrimination by time. This is applica-