Market Segmentation, Targeting and Positioning for Travel and Tourism

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Market Segmentation, Targeting and Positioning
for Travel and Tourism

• Objective Introducing the meaning of marketing
  implications of segmentation, targeting and
  positiong for travel and tourism.

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Marketing Management

• Marketing management is the art and science of
  choosing target markets and building profitable
  relationships with them.
• The marketing managers aim is to find, attract,
  keep, and grow target customers by creating,
  delivering, and communicating superior customer
  value.

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• Marketing management is in a way, demand
  (customer) management.
• A companys demand comes from two groups new
  customers and repeat customers. Marketing
  management deals with finding ways (1) to attract
  new customers and create transactions with them
  and also (2) to retain current customers and
  build lasting customer relationships.

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• To design a winning marketing strategy, the
  marketing manager must answer two important
  questions
• What customers will we serve (whats our target
  market)?
• How can we serve these customers best (whats our
  value proposition)?

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Selecting Customers to Serve

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

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

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Steps in Target Marketing

• 1. Market segmentation dividing a market into
  distinct groups of buyers with different needs,
  characteristics or behaviors who might require
  separate products or marketing mixes.
• 2. Market targeting evaluating each market
  segments attractiveness and selecting one or
  more of the market segments to enter.
• 3. Market positioning setting the competitive
  positioning (difference) for the product and
  creating a detailed marketing mix.

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Benefits of market segmentation

• More effective use of the marketing budget,
• Clearer understanding of the needs and wants of
  selected customer groups,
• Easier creation of a place in the minds of
  potential customers within target markets about
  the product,
• Greater accuracy in selecting promotional
  vehicles and techniques (e.g. advertising media,
  sales promotion methods, geographic placement)

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Note that most businesses deal not with one
segment, but several segments.

• Tour operators
• Young people 18-30
• Families with children
• Retired/senior citizens
• Activity/sports seekers
• Culture seekers

• Destination attractions
• Local residents in the area
• Day visitors from outside local area
• Domestic tourists
• Foreign tourists
• School parties

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Methods Used to Segment Markets in Travel and
Tourism

• There are seven main ways of dividing up markets
  for segmentation purposes, all of which are used
  in practice in the travel and tourism industry.
  The main methods of segmentation are
• Purpose of travel
• Buyer needs, motivations, and benefits sought
• Buyer behavior (characteristics) of product usage
• Demographic, economic, and geographic profile
• Psychographic profile
• Geodemographic profile
• Price

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Segmentation by purpose of travel

• E.g. Conference markets require different
  products to those supplied to other business
  travelers and meetings for groups of different
  sizes require special provision.
• For a tour operator, customers purpose and
  product needs will differ according to whether
  they are looking for main summer holiday,
  additional holidays and short breaks, winter sun,
  winter sports.

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Multiple segments for producers in travel and
tourism

• Hotels
• Business clients
• Group tours
• Independent vacationers
• Weekend/midweek package breaks
• Conference delegates

• Transport operators
• First class passengers
• Club class passengers
• Economy class passengers
• Charter groups

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

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Segmentation by buyer needs and benefits sought

• Within purpose of travel, the next logical
  consideration for segmentation is to understand
  the needs, wants and motivations of particular
  customer groups (as discussed).
• The range and perceived importance of benefits
  sought by customer segments are not easy to
  understand. They can only be discovered by market
  research among identified target groups.

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• Segmentation by benefits, makes it possible for
  marketing managers to fine tune their products.
• Focusing on promoting the benefits sought is a
  logical objective for brochures and other
  marketing communications.

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Segmentation by buyer behavior

• Within purpose and benefits sought, there is
  scope for refining the segmentation process
  according to the types of behavior or
  characteristics of use of products that customers
  exhibit. E.g. frequency of usage of products.
• Frequent users (high frequency, high spending
  high loyal) may represent only 10 of individual
  customers in a year but up to 60 of revenue for
  some hotel groups and airlines.

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

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

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Segmentation by psychographic characteristics and
lifestyle

• Dependent on sophisticated market research
  techniques.
• Psychographics aims to define consumer on
  attitudinal or psychological rather than physical
  dimensions.

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Geodemographic segmentation

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

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Segmentation by price

• In leisure travel and tourism markets in all
  countries, buyers are highly price-sensitive.
• It is not a segmentation variable of the same
  kind as the others.
• There are segments of customers to be identified
  and located who respond to different price bands.
  
• Yield management segment targeted tactical
  pricing.

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Market Targeting Evaluating Market Segments

• After segmenting the whole market, the firm has
  to evaluate these segments and decide how many
  and which ones to target. The company should
  enter segments only where it can offer superior
  value and gain advantages over competitors.
• In evaluating different market segments, a firm
  must look at three factors
• segment size and growth companies try to select
  the segment with right size and growth for
  themselves. Some companies prefer to target
  segments with large current sales, a high growth
  rate, and a high profit

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• margin. But smaller companies may find these
  large segments too competitive and may find
  themselves
• having lack of skills and resources, therefore,
  prefer to target smaller segments
• segment structural attractiveness a segment may
  have the right size, but not offer attractive
  profits if (1) there are strong competitors (2)
  actual or potential substitute products - may
  limit prices and profits (3) buyers with power -
  buyers may have strong bargaining power relative
  to sellers so that they may force prices down,
  demand more quality, set competitors against
  another (4) powerful suppliers - can control
  prices, reduce quality.
• company objectives and resources a segment may
  have the right size with attractiveness but may
  not suit with the long-run objectives of the
  company.

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Selecting Market Segments

• The company must decide which and how many
  segments to serve, in other words, the company
  must decide which market-coverage strategy to
  adopt.
• There are three market-coverage strategies
• undifferentiated marketing
• differentiated marketing
• concentrated marketing

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Undifferentiated Marketing

• A market-coverage strategy in which a firm
  decides to ignore market segment differences and
  go after the whole market with one offer.
• Here, the offer focus on what is common in the
  needs of consumers rather than on what is
  different.
• The company designs a product and a marketing
  program that appeal to largest

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• number of buyers. It relies on mass advertising
  and a superior image in peoples minds.
• Provides cost effectiveness because of its low
  production, inventory, transportation,
  advertising, marketing research costs.
• Have difficulties in (1) developing a product or
  brand that satisfies all consumers (2) keeping a
  strong place in the market and making profit,
  when several firms follow this strategy heavy
  competition develops (3) satisfying smaller
  segments.

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Differentiated Marketing

• A coverage strategy in which a firm decides to
  target several market segments and designs
  separate offers for each. E.g. Nike offers
  athletic shoes for different sports such as
  running, aerobics, cycling, baseball, basketball,
  tennis
• These companies hope for (1) higher sales (2) a
  strong place within each market segment (3) more
  loyal customers because the firms offerings
  match each segments desires better.

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• Creates better total sales, but increases the
  costs - developing separate marketing plans for
  the separate segments requires extra marketing
  research, sales analysis, promotional planning,
  channel management.
• Because of the high costs involved in this
  approach, the company must compare increased
  sales with increased costs when deciding to use
  differentiated marketing strategy.

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Concentrated Marketing

• A market-coverage strategy in which a firm goes
  after a large share of one or a few submarkets.
• Suitable for smaller companies to achieve a
  strong market place in the segments (or niches)
  that it serves because of its greater knowledge
  of the segments needs.
• Involves higher-than-normal risks because the
  target may not respond or larger competitors may
  decide to enter the same market but offers
  operating economies because of specialization in
  production, distribution, and promotion.

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Choosing a Market-Coverage Strategy

• Factors needed to be considered when choosing a
  market-coverage strategy are
• company resources when the firms resources are
  limited, concentrated marketing is the better.
• product variability for uniform products e.g.
  grapefruit or steel, undifferentiated marketing
  is more suitable. But for products that vary in
  design e.g. cameras or automobiles,
  differentiated or concentrated is more suitable.

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• products stage in the life cycle when the
  product is new, it is better to produce only one
  version of the product - undifferentiated or
  concentrated marketing. For mature products,
  differentiated marketing makes more sense.
• market variability when buyers have the same
  tastes and react the same way to marketing
  efforts, undifferentiated marketing is suitable.
• competitors marketing strategies when
  competitors use segmentation, undifferentiated
  marketing can be suicidal. On the contrary, when
  competitors use undifferentiated marketing, a
  firm can gain an advantage by using
  differentiated or concentrated marketing.

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Positioning for Competitive Advantage

• Once a company has decided which segments to
  enter, it must decide what positions it wants
  to occupy in those segments.
• A products position is the place the product has
  in consumers minds relative to competing
  products.

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Choosing a Value Proposition

• The company must also decide how it will serve
  targeted customers how it will differentiate
  and position itself in the marketplace.
• A companys value proposition is the set of
  benefits or values it promises to deliver to
  customers to satisfy their needs. E.g. Northwest
  Airlines punctual, friendly, fun flight
  Singapore Airlines luxurious, prestigious,
  special flight

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• Such value propositions differentiate one brand
  from another.
• They answer the customers question Why should I
  buy your brand rather than a competitors?
• Companies must design strong value propositions
  that give them the greatest advantage in their
  target markets.

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Essentials for Effective Positioning

• Information on the needs of customers in target
  markets and the benefits they look for,
• A knowledge of the organizations competitive
  strengths and weaknesses,
• A familiarity with competitors strengths and
  weaknesses,
• Information on how customers perceive the
  organization relative to competitor.

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Six Positioning Approaches

• Positioning on Specific Product Features
• physical attribute differentiation
• service differentiation
• personnel differentiation
• location differentiation
• image differentiation
• Positioning on Benefits, Problem Solution, or
  Needs
• Positioning for Specific Usage Occasions
• Positioning for User Category
• Positioning Against Another Product
• Positioning by Product Class Dissociation

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Useful Links and Sources

• Kotler, P. Bowen, J. and Makens, J. (1999).
  Marketing for Hospitality and Tourism (2nd ed.).
  Prentice Hall. NJ.
• Kotler, P. and Armstrong, G. (2006) Principles of
  Marketing (11th ed.). Prentice Hall. NJ.
• Middleton, V.T.C. (2004) Marketing in Travel and
  Tourism (3rd ed). Elsevier. Oxford.
• http//www.hotelsmag.com
• http//www.tourism.bilkent.edu.tr/eda