MARKETING HOSPITALITY INTO THE 21ST CENTURY 21

Marketing Hospitality into the 21st Century

Simon Crawford-Welch

International Journal of Contemporary Hospitality Management, Vol. 3 No. 3, 1991, pp. 21-27 © MCB University Press, 0959-6119

N ine major strategic trends are identified for the forward-looking management.

In the hospitality industry of the 21st century conventional marketing wisdom will lead to a conventional marketing result — failure. The purpose of this article is to outline, discuss and analyse what are believed to be some of the most important and pressing issues facing hospitality marketing as it enters the 21st century.

The article is divided into two main parts. Part one addresses competitive conditions in the hospitality industry, and Part two considers new directions for marketing hospitality into the 21st century.

Competitive Conditions in the Hospitality Industry The operating environment of today's hospitality industry is becoming increasingly volatile, uncertain and complex[l-3]. There can be little doubt that the level of competitive intensity in the hospitality industry of the 1990s is rising to heights never before experienced by industry owners and operators.

The hospitality industry is often characterised as a mature operating environment[4-7]. There are nine characteristics

of a mature environment. These characteristics are falling industry profit margins; a slowdown in industry growth and subsequent increased competition for market share; greater dependence on repeat customers; a competition shift towards greater emphasis on cost and service; a topping-out of industry capacity; changing marketing, distribution, selling and research methods; a decrease in new product development; an increase in international competition; and, an increase in dealers' profits[8]. The hospitality industry of the 1990s exhibits several of the characteristics of a mature industry.

Falling Industry Profit Margins Since the mid 1980s there has been a levelling of industry sales with resulting lower profit margins. Profits are being squeezed. In the American lodging industry, for example, supply is outstripping demand by approximately 0.6 per cent resulting in declining occupancies[9]. The restaurant industry is no different. In 1988, for example, 20 per cent of the top 100 restaurant chains experienced negative real growth in system-wide sales with average unit sales flat at over 20 chains.

Greater Emphasis on Service In today's competitive environment, where consumers are becoming more sophisticated, service has become the main differentiating factor of lodging and restaurant provision. Hotels and restaurants are forced to offer a wide variety of special services to attract today's value-conscious customer.

Greater Emphasis on Price Both the lodging and restaurant industries in the USA are pursuing a strategy of discounting on an uprecedented scale. Resort locations, for example, currently average around 25 per cent discounts on advertised room rates while city centre hotels and airport properties average 24 per cent and 25 per cent discounts on advertised room rates, respectively. Both the lodging and restaurant industries in many cases, have, placed themselves in what could be termed a "profitless prosperity syndrome" whereby they can sell their products but the price is not high enough to ensure adequate profit levels thus intensifying the reliance on high volume turnover.

Topping-out of Industry Capacity There has been a high degree of over-building, with a resulting competitive shake-out. Between 1970 and 1985 American hotel/motel building inventory grew at three times the rate of all non-residential building. Older properties, which cannot afford the high costs of renovation, are being forced out of the marketplace.

Changing Channels of Distribution Franchising, consortiums, affiliations and representative firms have become the main growth vehicle for hospitality

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organisations. These channels of distribution differ significantly in terms of operation from traditional owner and operator channels.

Increase in International Competition International competition is intensifying and foreign investment in the American hospitality industry continues to increase with companies such as Miyako Hotels (Japan), Swissotel Ltd (Switzerland), Forte (UK), and Accor (France) either building or acquiring properties in the USA. The situation is similar throughout Europe with many hospitality corporations investing heavily in foreign markets, e.g. Ladbroke with their Hilton International chain, Queens Moat Houses in Holland, Forte throughout continental Europe among others.

Marketing in general is facing severe challenges in today's intensely competitive environment. These challenges include "demassification" of the marketplace, the changing composition of households, the decline of brand loyalty, deregulation, new and innovative methods to purchase and pay, the development of database marketing, the proliferation of new products, the multiplication of distribution channels, the explosion of coupon offers, and the slippage in network advertising efficiency [10]. Many of these challenges are also relevant to hospitality marketing.

New Directions for Marketing Hospitality into the 21st Century While the following trends are by no means exhaustive, it is believed that they represent the most important and pressing issues facing hospitality marketing as it moves towards the 21st century.

Product Portfolio Marketing vs. One Concept Marketing In the lodging industry of the 1980s we saw the creation of product portfolios, i.e. the development of several different hotel brands operated by one single organisation. Examples include Choice Hotels International (formerly Quality International) with their Sleep Inns, Comfort Inns, Comfort Suites, Quality Inns and Hotels, Quality Suites, Clarion Inns and Resorts, Clarion Carriage House Inns and Clarion Suites brands; and Trusthouse Forte with their Viscount, Little Chef, Travelodge, Exclusive, Forte and Post House brands.

The development of a portfolio approach to hospitality management has some strong theoretical underpinnings. There are three reasons why portfolio management is becoming so popular.

First, conventional wisdom in the field of financial management suggests that firms should develop a portfolio of businesses to balance their earnings stream. Individual

businesses within the portfolio are developed to complement each other so that when one business is experiencing a downturn the other businesses will be up. Second, the development of a product portfolio offers hospitality firms the opportunity to grow in a saturated marketplace. Third, it is often cheaper and financially more astute to build new concepts than to renovate existing inventory. It is in response to this type of theoretical logic that hospitality firms have begun to develop multiple brands or a portfolio of concepts [11].

There exists an abundance of evidence from other industries to suggest that the pursuit of a multi-brand strategy can be successful. For example, the soft drinks industry in the USA has been very successful in reaping the benefits of a multi-brand strategy with organisations like Coke and Pepsi offering multiple brands to multiple markets (e.g. New Coke, Coca-Cola Classic, Diet Coke, Caffeine Free Coke, Caffeine Free Diet Coke, Cherry Coke, Tab, and Fresca). Another industry which has been extremely effective in the development and marketing of multiple brands is the beer industry, e.g. Anheuser Busch with Budweiser, Budweiser Light, Michelob, Michelob Dry and Michelob Light.

In the hospitality industry we have been less successful in the pursuit of multi-brand strategies. There are two primary reasons for this lack of success. First, this is due to confusion between the related, but distinctly different, strategies of market segmentaton, product segmentation and product differentiation. Second, in their attempts to develop multiple brands, many hospitality organisations became too product-oriented.

Product segmentation is a process whereby the product differentiates for the same market, e.g. as in the case of the plethora of brands in the lodging industry. The market is sought to fit the needs of the product rather than vice versa. Product differentiation involves offering a product which is perceived by the customer to differ from its competition along certain physical and/or non-physical attributes[12]. Unfortunately, due to the product orientation of many multi-brand strategies in the hospitality industry, and the lack of sound positioning strategies combined with the suspect use of purely descriptive variables for segmentation purposes, differentiation only serves to confuse the customer. One might also question the astuteness of pursuing a product-oriented multi-brand strategy in the hospitality industry when conventional wisdom suggests that what little brand loyalty exists is decreasing[13]. It has been suggested that brand loyalty may not exist in the hospitality industry, but rather brand preference may be the relevant issue[14].

The success of a multi-brand strategy depends upon creating, and more importantly maintaining, a clear differentiation in the minds of the consumer. Each brand must stand for a unique combination or package of goods

MARKETING HOSPITALITY INTO THE 21ST CENTURY 23

and services. If branding and positioning strategies have been successfully implemented there should be no reason to engage in discounting as a means of creating differentiation within a product class. Discounting has been primarily brought about by a lack of comprehensive and market-oriented segmentation and differentiation strategies. It is detrimental to the industry as a whole in the long run and is no long-term solution to declining occupancies.

As hospitality organisations enter the 21st century they will need to acquire a more acute understanding of the distinctions between the strategies of market segmentation, product segmentation, and product differentiation.

Non-Traditional Marketing vs. Traditional Marketing It is anticipated that the increase in competitive intensity that will be experienced in the hospitality industry of the 21st century will necessitate a greater emphasis on non-traditional forms of marketing.

Non-traditional marketing consists of two major categories: (1) Internal marketing which involves "applying the

philosophies and practices of marketing to people who serve the external customers so that (1) the best people can be employed and retained and (2) they will do the best possible work"[12,p. 52]. One can think of internal marketing as ".. . viewing employees as internal customers, viewing the jobs as internal products, and then endeavoring to offer internal products that satisfy the needs and wants of those internal customers while addressing the objectives of the organization" [15].

(2) Relationship marketing which is " . . . marketing to protect the customer base. It sees the customer as an asset. Its function is to attract, maintain, and enhance customer relationships"[12,p. 63].

It is ironic that many hospitality organisations focus many of their marketing dollars on getting customers into their establishment and once customers are in-house they are neglected. Relationship marketing begins once the customer is inside the establishment where it is possible to engage in direct face-to-face marketing, a far more efficient and effective method of marketing than conventional approaches.

Of course, there is a prerequisite for any organisation that attempts to engage in relationship marketing. They must first have engaged in internal marketing to ensure that their employees have the ability to engage in relationship marketing practices with customers.

Internal marketing means that hospitality organisations, given the internal nature of today's hospitality industry, must furnish their employees with behavioural as opposed

to solely technical skills. In this way, hospitality corporations will be able to successfully pursue a strategy of differentiation through service. In addition, as the industry becomes more global in its focus, there is a need to devote increasing amounts of attention and resources to educating (not training) employees to be aware of and to adapt to the multi-cultural nature of the industry. Multi­cultural education and training through internal marketing is a major issue that the hospitality industry needs to address as we enter the 21st century.

Inferential Market Research vs. Descriptive Market Research Marketing research is the specification, gathering, analysing and interpretation of information by management about its environment, with the goal of better understanding that environment and developing and evaluating courses of marketing action[16]. The hospitality industry is often found wanting in terms of the analysis and interpretation of marketing research data.

The industry has tended to concentrate on the gathering and interpretation of descriptive marketing data. Unfortunately descriptive data by their very nature are of little analytical value. For example, knowing how much an individual earns does not provide an insight into how that individual's income might be spent. Then descriptive statistical categories are not capable of inferring individual or group values nor are they capable of inferring the reasons behind purchase decisions. Therefore, descriptive statistics are not solely able to meet the two main objectives of marketing research:

• to find the determining factors in a consumer choice of one hospitality facility over another;

• to determine consumer perceptions of the hospitality product/service offering[17].

The very definition of market segmentation, which is the process by which an organisation attempts to match a total marketing programme to the unique manner in which one or more customer groups (market segments) behave in the marketplace[18,19], implies, through the use of the word "behaviour", something beyond merely descriptive techniques.

The future of hospitality marketing research lies in the use of multivariate as opposed to univariate statistical techniques, and in the use of inferential as opposed to descriptive statistics. Multivariate techniques are capable of analysing the association among three or more variables while univariate techniques, as the name suggests, simply involves the analysis of one variable. The multivariate approach allows the researcher to gain a whole host of potentially more fruitful knowledge than could ever be gained through the use univariate techniques. The use of inferential statistics will allow the researcher to draw conclusions about a population on the basis of evidence from the sample.

24 INTERNATIONAL JOURNAL OF CONTEMPORARY HOSPITALITY MANAGEMENT 3,3

Perhaps one of the best examples of the benefits of using sophisticated multivariate statistical techniques is the Marriott Corporation's use of conjoint analysis and choice modelling in the design of their Courtyard by Marriott concept. At one time, when industry average occupancy levels were running in the low 60th percentile, Courtyards by Marriott were running in the mid-90th percentile for the simple reason that they, through effective market research, were able to provide the customer with what he wanted at a price he could afford to pay.

What often happens in the field of hospitality research is that hospitality organisations use survey instruments with either five- or six-point scales to determine the importance of selected attributes. The individual scale scores are then aggregated, which results in an overall mean score for each of the attributes in question. These mean scores are then ranked, with the conclusion being that the attribute with the highest overall mean score is the most important in the consumer purchase decision. It is, however, more appropriate to use such techniques as analysis of variance and conjoint analysis. The former enables the researcher to determine the source of the differences and where they are statistically significant at a given level. The latter statistical technique, if framed within an appropriate research design, enables the researcher to uncover the most important discriminating attributes and the trade­offs consumers are willing to make when purchasing a given product. This kind of information is far more useful and is far more powerful in its predictive abilities than simply ranking mean scores.

Computerised Marketing vs. Pen and Paper Marketing The 21st century will see the transformation of hospitality marketing into a highly sophisticated computerised practice. The dramatic increase in the development and use of decision support systems will only serve to supply marketing practitioners with an abundance of information. As we move towards the 21st century, marketing success will not be achieved solely through the gathering of information but through the timely and accurate interpretation of that information.

Database marketing will become the rule for marketing hospitality into the 21st century. Due to increases in the sophistication of current technology, detailed profiles of millions of prospects and customers can be developed using standard descriptive criteria such as geographic location, age, income and sex, combined with more accurate and sophisticated psychographic and benefit profiles. The cost of assessing data has fallen swiftly. For example, in 1973 it cost $7.13 to access 1,000 bits of information (1,000 bits equals about 20 words of data — about enough to record a consumer's name, address, and purchase) while today it costs about one cent to do the same thing[10].

In the 21st century, hospitality corporation databases will become their own private marketplace in which they can promote additional sales, cross-promote, explore new channels of distribution, test new products, add new revenue streams, start new ventures, and build lifetime customer loyalty.

Technology will also have a pervasive and radical impact on marketing channels of distribution. With the evolution of the interactive video system it will be possible to select a hotel room through use of a video disk. The video disk will enable the potential customer to view the room/restaurant/bar before actually making the purchase. In other words, the 21st century will see a progression from the use of a simple toll-free number to the use of a sophisticated video disk-based system which will ultimately be accessible from homes and offices. On a more strategic level, we are already seeing many previously unconnected entities such as hotels and travel agents, or hotels and airlines, joining forces to reap the benefits of large-scale, fully integrated, synergistic systems.

Indirect Channels of Distribution vs. Direct Channels of Distribution A direct channel of distribution both produces and distributes the product, usually simultaneously (e.g. ownership, management, franchising) while an indirect channel of distribution distributes the product only (e.g. consortiums, reservation networks, affiliations, representative firms, incentive houses, travel agents, and tour operators). Traditionally, channels of distribution in the hospitality industry have been confined to direct methods.

The 21st century will see far greater emphasis on indirect channels of distribution. Affiliations between multiple hospitality corporations will increase throughout the industrialised world as corporations learn to take advantage of the benefits of combining forces for the purposes of international marketing. Forerunners of this trend include Movenpick Hotels International of Switzerland, SAS International Hotels of Oslo, and Radisson Hotels of the USA.

Representative firms which market a hotel to a customer base for a fee, such as Utell International, which represents 3,500 properties in 133 countries, will also increase in size and power. Use of travel agents and tour operators will become increasingly important as competition increases and the hospitality industry attempts to attract more and more discerning customers into its facilities. The Spanish chain Sol Hotels, which relies on wholesalers for 95 per cent of their room sales in their resort properties, is an example of this dependence of tour operators and travel agents. The importance of travel agents as a method of indirect distribution for hospitality

MARKETING HOSPITALITY INTO THE 21ST CENTURY 25

products/services cannot be overstated. In the USA alone, there are currently above 200,000 individual travel agents [12].

The 21st century will see four phenomena occurring in the area of distribution channels. First, there will be a growing emphasis on horizontal economic concentration. This means that the control of an increasingly large percentage of industry room capacity will be controlled by an increasingly small number of hotel operators. Second, there will be increasing amounts of vertical economic integration. This refers to the fact that many previously unconnected entities such as hotels and travel agents, or hotels and airlines, are joining forces to reap the benefits of large-scale, fully integrated, synergistic systems. Third, there will be increasing competition among the separate vertical marketing systems. Finally, and this is some cause for concern, owners and operators in the hospitality industry will relinquish ever-increasing amounts of their total capacity to outside organisations such as representative firms. This in turn means that hospitality organisations will have less and less control over the markets they attract and the mix of those markets.

Customisation vs. Standardisation In the hospitality industry mass marketing is a vestige of the past:

the mass market has split into ever-multiplying, ever-changing sets of mini-markets that demand a continually expanding range of options, models, types, sizes, colors, and customizations[20,p. 248]. ...the 1980s — a decade of unprecedented diversity... advertisers are forced to direct products to perhaps a million clusters of people who are themselves far more individualistic and who have a wide range of choices in today's world. The multi-option society is a new ball game, and advertisers know that they must win consumers market by market... [21, pp. 231-2 ].

"Demassification" means that hospitality corporations are having to become increasingly sophisticated and precise in the simultaneous segmenting and targeting of multiple target markets. The future of hospitality marketing will not be mass marketing but micro-marketing.

There are six elements to micro-marketing: (1) The organisation will have to become and remain

"close to the customer". (2) Hospitality organisations will have to engage in

greater degrees of customisation. Product/services will have to be tailored to meet individual needs and tastes or, at a minimum, corporations will have to ensure that their provision has enough inherent flexibility to adapt to the needs and wants of very specific target markets.

(3) Greater use will be made of targeted and new media. In order to reach micro-markets, hospitality

organisations will have to use the appropriate media such as cable television. Some estimates suggest that network television currently experiences a 30 per cent audience loss because of "physical" zapping (viewers leaving the room during commercials), a 13 per cent audience loss from electronic zapping (using a remote control to flick through channels during commercials), and a 4 per cent audience loss as a result of video recorders which have the capacity to stop recording during commercial breaks [10]. This poses serious questions about the cost-benefits of using network television to attract customers.

(4) Greater use of non-media will be required, the most popular type of which is the sponsoring of sports events. Unfortunately we have yet to see major involvement by hospitality corporations in such events, despite their proved success with such giants as Procter and Gamble and Kraft.

(5) Greater emphasis will be required on relationship marketing, i.e. reaching customers on-site through in-house promotions.

(6) As already outlined, greater use will be made of middlemen to distribute the products/services to the customer.

Global Marketing vs. Domestic Marketing The complexion of the entire global marketplace is being changed significantly by the coalition of nations into multinational market groups, e.g. Europe 1992, the Arab Common Market, the Association of South East Asian Nations, the Andrean Common Market, and free trade agreements between the United States and Mexico and Canada. This means that a hospitality corporation operating in multiple countries can no longer pursue, as they tended to pursue in the 1970s and into the 1980s, a domestic market extension philosophy to international marketing. Such an approach ignores the fundamental cultural, social, perceptual and economic differences between countries and, as demonstrated by the experiences of organisations like Holiday Corporation, is not financially feasible in the long run.

To ensure the long-term financial health of the organisation, hospitality corporations will have to adopt a global marketing orientation for their international operations. Contrary to popular belief, this does not mean that firms provide and market a single product with a single marketing strategy which is implemented the world over without modification. Rather, it means that hospitality firms adopt an effective benefit segmentation strategy which is capable of dividing the world into multiple market segments according to benefits sought, regardless of country of origin of customers.

Hospitality firms will no longer be able to devise international marketing strategies using their home culture

26 INTERNATIONAL JOURNAL OF CONTEMPORARY HOSPITALITY MANAGEMENT 3,3

as a frame of reference. Such "imprinting" of a home culture will no longer be acceptable to either the host countries in which the corporation has outlets, or to customers of varied nationalities and beliefs. Therefore multi-cultural marketing is a major issue that needs to be addressed as we move towards the 21st century.

Guerilla and Flanking Marketing vs. Defensive and Offensive Marketing Marketing can be characterised into one of four categories: defensive marketing; offensive marketing; flanking marketing, and guerilla marketing[22]. As the hospitality industry is extremely fragmented in nature, with the five largest hospitality organisations in the world controlling only 1.01 per cent market share, no company is afforded the luxury of adopting a true defensive marketing strategy. Moreover, few hospitality companies possess a large enough market share in any given segment to pursue an offensive marketing strategy which consists of finding a weakness in the leader's strength and attacking at that point on as narrow a front as possible.

As we move towards the 21st century small to medium-sized hospitality firms, which will constitute the majority of provision for many years to come, will have to employ effective flanking and guerilla marketing principles to be successful.

Flanking marketing consists of making a surprise move in an uncontested area of the market. It is important to note that, in flanking marketing, the pursuit is as critical as the attack itself. Guerilla marketing consists of finding a segment of the market small enough to defend, never acting like a leader no matter how successful you may become, and being prepared to bail out at a moment's notice.

Green Marketing vs. Irresponsible Marketing Finally, the 21st century will see an increase in environmental awareness by major hospitality corporations. There is growing evidence to suggest that marketers who fail to change with the times could face an environmental backlash against their brands[23]. Hospitality organisations of the 21st century will have to have credible solid waste minimisation programmes while promoting a competitive product as part of an overall organisational image of environmental responsibility[24].

In developed nations, the premier problems will be waste water and biodegradable packaging. In the USA, for example, the cost of water is estimated to rise faster than the cost of living, and in some areas it is estimated to rise at double the rate of inflation. With scientists claiming that the Greenhouse Effect (a warming of the earth's atmosphere due to a rise in carbon dioxide output) will begin to take its toll around the turn of the century, the water problem will only intensify. This will result in

hospitality firms installing water treatment facilities on site and metering and charging water consumption by individual guest room. Indeed, one fast food corporation in the United States has already begun installing water-recycling equipment in some of its big-city outlets (rather than take its chances with price and supply from local systems).

Biodegradable packaging will not be an option in the 21st century, it will be a necessity. Estimates attribute one-third of all municipal waste to product packaging[25]. In food services, packaging waste is estimated to be nearer to a staggering 70 per cent of all waste[26]. With an increase in biodegradable packaging will come an increase in co-generation — the process of using waste to produce electricity. There will be a time when the majority of large hotels and food service establishments, such as prisons and hospitals, have their own co-generation equipment on site.

Given the current state of global energy research, the 21st century will see hospitality corporations depending far less on traditional fossil fuels (coal, oil and gas), and depending far more on sources like solar energy, biomass (combustible organic waste), ethanol (an alcohol useful as a gasoline additive, distilled from grain or sugar cane), methane gas (which can be tapped from buried waste dumps and oil fields), and geothermal heat (from underground sources).

Summary While no means exhaustive, an attempt has been made here to discuss several strategic trends that are predicted to have a significant impact on the marketing of hospitality products/services as we move into the 21st century.

It is only through the adoption of this kind of general environmental scanning that hospitality operators can prepare themselves for the complex, dynamic and volatile industry conditions which will prevail in the next decade.

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3. Crawford-Welch, S., "International Marketing in the Hospitality Industry", in Teare, R. and Boer, A.(Eds.), Strategic Hospitality Management, Cassell, London, 1990.

MARKETING HOSPITALITY INTO THE 21ST CENTURY 2 7

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18. Haley, R.I., "Benefit Segmentation: A Decision Oriented Research Tool"; Journal of Marketing, Vol. 32, July 1968, pp. 30-5.

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Vermont, 1986. 23. Donohue, C , "Waking-up to the Hot Issue of the 1990s:

Garbage", Adweek's Marketing Week, November 1988, pp. 57-9.

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26. Coppess, M.H., "America's Trash Crisis: And What You Can Do about It", Restaurants USA, August 1989, pp. 16-21.

Simon Crawford-Welch is Assistant Professor of Hospitality Marketing and Research at the University of Nevada, Las Vegas, and is also Director of Marketing and Research for Lexes Enterprises, a company specialising in seeking finance for hospitality projects worldwide.