Marketing Mix Variables

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Chapter 11

• Marketing Mix Variables
• Objective determining the marketing mix
  variables product, price, place and promotion to
  accomplish the objectives

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Strategies Tactics

• Marketing strategies are plans of action that
  shows how marketing mix variables will be used to
  accomplish annual objectives and grand
  strategies.
• Marketing action plans or in other words,
  tactics include the specifics of how the
  marketing mix variables will be used to implement
  the strategies. Tactics give answers to what
  will be done? Where will it be done? When and how
  will it be promoted? Who will be responsible for
  implementation? And how much will be budgeted?

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Philosophies of Strategy Preparation

• There are two contrasting philosophies of
  strategy preparation top-down and bottom-up.
• Top-down strategies are developed by upper
  management
• Bottom-up strategies are developed with input
  from all staff personnel, unit managers,
  first-line supervisors, and line employees,
  though orchestrated by the top management. E.g.
  waiters.
• It is not possible to develop effective
  strategies without input from the personnel,
  since they will be implementing them.

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Market Driven versus Product Driven

• The actual and potential customers for any given
  product or service should be the primary
  consideration in strategy formulation.
• Market Driven Firm
• Research focus environmental (PEST AND PECCS)
  and the companys abilities to extract the
  maximum advantage from it.
• Product focus based on customers wants. But
  the aim of marketing is to make selling
  superfluous. The aim of marketing is to know and
  understand the customer so well that the product
  or service sells itself (Drucker, 1974)

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• Product Driven Firm
• Research focus company
• Product focus based on making an excellent
  product. I know what the customers want. If
  you build mousetrap, the world will only beat a
  path to your door if they need a better
  mousetrap. Product driven firms generally stay
  with the same product offering (a successful one
  by accident) too long.

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Development Process

• First, present strategies should be reviewed to
  see which are compatible with new objectives and
  which are not.
• The amount of required new strategies will vary
  based on
• the dynamics of the environment and
• the desire for change on the part of management.
• In many instances, there will be few changes.
• However, whatever the decision, it will determine
  the basic direction of the firm for the coming
  years.

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• Generally, management, financial (the desired
  debt-to-equity ratio, profit and cost goals do
  vary much from year to year) and grand strategies
  related to marketing may not need drastic
  changes.
• However, functional marketing strategies
  represent the greatest area of change, since
  there are more factors to consider PEST and
  PECCS, grand strategies, and the 4Ps which are
  subject to greater fluctuations than those for
  operations or financial strategies.
• Restaurants, since they need to keep their menus
  current, generally have more changes that do
  hotels. thinking outside the box

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Pretesting Strategies

• Managers can test their strategies in any of
  three ways
• Conceptual or intuitively, based on the personal
  experience and judgment.
• Theoretically, based on published research on the
  topic (public domain research)
• Empirically, by trying them out (lab or field
  test).

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Causes of Ineffective Strategies

• limited cross-functional cooperation
• overambitious management
• product driven, rather than market driven
• subjective, rather than objective, appraisal of
  the environment or the abilities of the business
• too many strategic plans ignore threats
  (generally the emphasis put on the opportunities)
• not seeking consensus among those who will carry
  out the strategies
• forgetting that the ultimate objective is to win
  the war,
• not every battle
• rubberstamping of strategies
• not setting effective policies and action plans

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Products and Services

• Here, the decisions include new products or
  services to be offered changes to be made in
  existing products and services, packaging, and
  design of the physical facilities, such as
  exterior appearance and internal atmosphere and
  the firms brand (its name and logo)
• In the grand strategies section, the concern was
  on the possible changes in the firms offering
  here, it is on the action plan on the specific
  changes to implement.

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• When searching for new products and services, one
  should not forget that customers are usually much
  more concerned with the professional execution of
  the basics (clean room, a comfortable bed,
  friendly service) than with innovative new
  services or differentiation (McCleary, Weaver,
  1992 West, Olson, 1990)

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Typical Considerations for Product Strategies

• Are new products designed for a particular market
  necessary?
• Are improvements in product quality necessary?
• Where does the company stand as far as its
  relative perceived product/service quality (RPPQ)
  and relative perceived value (RPV), and what
  changes should be considered to reach the desired
  RPPQ or RPV ratings?
• Which products and services have the greatest
  gross margin?

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• What USPs will be offered, such as fresh-baked
  bread or desserts, large platters for entrees,
  extensive wine list r drink menu, signature
  appetizers or entrees, free movies, an inroom
  stocked bar, or internet availability?
• Does the name of the company, and its products
  and services, create the type of image that is
  sought? What graphic form should the name or logo
  take?
• What USPs related to décor, such as an exhibition
  kitchen, bakery, or fish tank, might be
  incorporated in the design of the hotel or
  restaurant?
• Should the layout be changed to improve
  efficiency?

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• What type of music should be played, background
  (soft, without words), foreground (with or
  without words) or recreational (dominates room)
  Should it be varied, depending on the meal or day
  of the week? Is live music a consideration?
• What colors should be used in the lobby, guest
  rooms, dining room, bar, and kitchen?
• Should plants be used as a focal point, or as a
  complement to the design? What type of plants
  will be used? How large and how many?

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• What aromas will customers be smelling while they
  are in the building or around it? Which have the
  greatest impact on customers? Most restaurants
  have a distinctive smell? The scientific term for
  the utilization of aromas is olfactory-evoked
  recall. This refers to the relationship between
  the aroma/smell, ones experience with it, and
  its physiological effect on individuals. E.g.
  lavender tends to be relaxing, jasmine can be
  stimulating.

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Price

• In the marketing plan, it is acceptable to
  combine prices with the product sections. E.g.
  the menu could be included with its price or
  hotel rooms and suites with their applicable rate
  schedule.
• Pricing decisions reflect the businesss overall
  and specific marketing objectives. Charging too
  much, too little, or not knowing if the current
  price is suitable for the firms market, can
  develop a serious problem.

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• The frequency of changing prices vary
  considerably. Restaurants normally have stable
  prices for menu items. Each six months or so,
  managers review the cost of each item sold, its
  current price, and various other internal and
  environmental concerns, then determine whether
  the price should be increased, left as is, or
  lowered.
• The prices of the hotel business are quite
  flexible. Most prices for a hotel room would be
  negotiated between the buyer and seller. Yield
  management a method of balancing price with
  demand, is an important concern for hotel rooms.

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Pricing Strategies

• They are the easiest of the strategies to change,
  therefore, the most abused.
• Dramatic changes should be avoided because price
  is generally one of the most sensitive issues for
  the customer.

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Raising or Lowering Prices

• There are several basic rules that can be
  followed in changing prices. They apply to
  different circumstances
• Try not to raise prices by more than about 10.
  Raising a price more than 10 is quite noticeable
  to a regular customer. If the increase is
  necessary, then adjustments (plate presentation,
  accompaniments etc) should be considered to make
  the implementation easier. However, the 10 rule
  does hold true for hotels, since they need to
  adjust their prices based on the time of year and
  occupancy level.

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• When price increase are unavoidable, spread the
  increase over several items rather than
  increasing only one or e few items.
• Keep in mind that, each price point will have a
  different meaning to each target customer group,
  depending on such factors as income level,
  frequency of purchases and whether their company
  is paying.
• Two other suggestions for pricing
• Even-dollar pricing can be applied when
  increasing room prices. A price of 74,00 sound
  better than 73,60 or 74,50.
• For restaurants, it is better to end prices with
  the numbers 5, 9, or 0. This is what people are
  used to.

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Reactions to Changes in a Competitor's Price

• Generally, in the hospitality business, a company
  should react to a competitors price changes if
  it foresee it is going to lose sales or if it
  does begin to lose sales.
• Prices should not be lowered if it is not
  necessary.
• wait and see what happens to reservations
• find out why the competitor lowered its prices
• is it a temporary reduction?
• do the customers care about this new pricing?
• do our customers care about this new pricing?

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• are present occupancy and future reservations
  satisfactory to keep sales?
• has this happened before? If so how did it affect
  sales?
• Typically, when a restaurant lowers its prices,
  the reaction will depend on the competitiveness
  of the market and the level of service. Fast-food
  restaurants tend to follow price changes casual
  dining and fine dining restaurants generally
  disregard changes, unless they begin to affect
  sales. For them, the total package is more
  important than the price.

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Typical Considerations for Pricing

• What is the desired food cost percentage,
  alcoholic beverage, labor, or any other major
  applicable cost categories that must be factored
  into the price?
• Are costs controlled at the lowest effective
  level (purchasing, finance, accounting,
  operations and marketing)?
• Should prices be adjusted upward or downward,
  based on costs, customer perception, or
  competitors price structure?

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• Does the hotel or restaurant take surveys to find
  out what customers think of its prices (pricing
  strategies)?
• Can the company economically afford seasonal
  discounts or can other, more creative options be
  sought?
• How can individual prices be adjusted to yield
  the greatest profit?
• How sensitive are customers to changes in price
  (elastic very sensitive or inelastic not
  very sensitive)?

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Place

• Place includes all factors relating to the
  distribution of the product to the customer.
• It refers to where the business is in the
  distribution or marketing channel. In the
  hospitality industry, hotels and restaurants are
  considered to be retailers.
• The primary consideration for a retailer in
  regard to the marketing channel is its location
  so it becomes the main issue to be addressed.
• In addition to its normal distribution channels,
  hospitality businesses will need to determine
  alternative means of delivering the
  product/service.

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• One alternative is offering food for delivery
  through the Internet. Some hotels are offering
  discounted rooms through the Internet. Even many
  casual and fine dining concepts have implemented
  delivery strategies. Recently, all kinds of
  restaurants are adding catering to their
  marketing channel.

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Typical Considerations for Place Strategies

• What geographic areas are compatible with the
  businesss concept?
• Should new types of locations or distribution
  channels such as pizza restaurants opening up in
  convenience stores or smaller hotels in niche
  markets, be sought out?
• What stage in its cycle is the location?

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Promotion

• Promotion refers to decisions on how the business
  will communicate its offering to its customers.
• In the strategic marketing plan, this is the
  creation of the promotional campaign.
• The focus will be on the effective and efficient
  use of the promotional mix variables of
  merchandising, advertising, personal selling,
  public relations, and sales promotion. None of
  them are mutually exclusive.
• Merchandising primarily in-house promotion of
  products and services

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• Advertising nonpersonal promotion through a mass
  medium, by an identified sponsor
• Personal selling promotion of products and
  services through personal communication channels
• Public relations promotion of the companys
  image, rather than its products and services
• Sales promotion short-term incentives to
  increase sales, customer counts, and customer
  loyalty

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Promotional Misconception

• A common misconception in marketing is that low
  sales can be rectified almost exclusively by
  promotion. This occurs because hotel or
  restaurant managers often fail to recognize and
  identify the root cause of the problem.
• Promotion is a tool that when wisely used can
  complement the businesss execution of the other
  marketing mix variables product, price, and
  place. If these are not satisfactory, then
  promotion will not save the firm. The rule is
  execute the first 3Ps effectively, then promote.

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Hotel Promotion

• Hotels, because of their wide spread of target
  customers, need to use heavy promotion than most
  restaurants.
• Often, the decision makers for a hotel stay are
  meeting planners, corporate travel planners, and
  travel agents who make travel plans for entire
  firms or associations. They must be contacted
  personally by the hotels sales staff through
  personal selling.
• Since individual business travels come from
  various locations, using various types of sales
  promotions and advertising is a necessity. Not
  only to attract them, but to keep the brand name
  and image in the minds of these customers

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Restaurant Promotion

• Restaurants are generally in a much different
  position than hotels.
• Fast-food restaurants, because of their locations
  and relatively undifferentiated products, must
  continually advertise to keep their brands on the
  minds of the customers and to convince them that
  their offerings is best.
• For the majority of cause and fine dining
  concepts, the primary (or ideal) promotional
  vehicle is their target customers or
  word-of-mouth advertising. Since the major reason
  why customer select these restaurants

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• is for a higher level of quality and service,
  quality should be the primary focus of their
  business. The same principle should be followed
  when choosing the primary method of promotion.
  Since the objective is to keep present customers
  returning and bringing their friends, promotions
  would preferably focus on public relations or
  keeping the brand name in the public eye.

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Typical Considerations for Promotional Strategies

• Which products or services should be promoted?
• Where should each menu item be positioned/placed
  on the menu or menu board?
• How important is the overall design of the menu
  to the customer's perception of quality and
  value?
• Should food be displayed any manner?
• Will incentives be offered to promote
  customer/guest satisfaction or to increase sales?
• Is there a promotional message or slogan needed?

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• Which of the promotional mix options
  merchandising, advertising, personal selling,
  public relations, sales promotion will be used?
  Basically, what are the most effective methods of
  reaching the firms target customers?
• What type of media will be used print,
  broadcast, display?
• What percentage of the budget will be spent in
  each selected medium and on selected target
  customers?
• What percentage of the budget will be spent on
  mass media broadcast, print, and display and
  how much on personal communications
  point-of-purchase promotions, merchandising, and
  personal selling?